Mcleod Russel India Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT

World tea production during 2025 registered 7266 million kg, compared to 7087 million kg in 2024, a substantial increase of 179 million kg (+3%). China remained the largest producer in 2025 at 3920 million kg (53.95%), followed by India at 1370 million kg (18.85%). The other major producers globallywere Kenya at 550 million kg (7.57%), Sri Lanka at 264 million kg (3.63%), Turkey at 254 million kg (3.50%), Vietn am at 245 million kg (3.37%), Indonesia at 120 million kg (1.65%), Bangladesh at 95 million kg (1.31%), Japan at 68 million kg (0.94%), Argentina at 68 million kg (0.94%) and Uganda at 47 million kg (0.65%). Following the increased production in 2025, world tea exports in 2025 also improved by 5.36% from 1976 million kg in 2024, to 2082 million kg in 2025, an increase of 106 million kg. The largest exporter was Kenya at 652 million kg (31.32%), followed by China at 419 million kg (20.12%), India at 280 million kg (13.45%), Vietnam at 135 million kg (6.48%), Uganda at 42 million kg (2.02%) and Argentina at 62 million kg (2.98%). Total world exports amounted to approximately 28.65% of world production for the year in 2025, i.e. approximately 71.35% of the world production was retained at origin, slightly lower than the 2024 figure at 72.12%. India and China, aside from being the two largest producers, were also the largest consumers of tea in the world, retaining between 80% to 90% of their production for domestic consumption. The other major world producers who also retain the majority of their produce for domestic consumption are Turkey, Bangladesh, Indonesia, Japan and to a lesser extent, Vietnam. The remaining countries, viz. Kenya, Sri Lanka, Argentina, Uganda and the smaller producing countries all export the majority of their production, with minimal or virtually no domestic market to serve as a foil for their exports. In the global export market, Indias two principal competitors are Kenya and Sri Lanka. Kenya, traditionally a producer of CTC black teas, is increasingly expanding its orthodox tea production, thereby strengthening its position in export markets. Sri Lanka, on the other hand, is predominantly an orthodox black tea producer, albeit with a comparatively higher cost base. Although China is one of the worlds largest tea producers, it primarily manufactures green and oolong teas, the majority of which are consumed domestically. Consequently, China is not considered a direct competitor to India in the export marketfor blackteas. (Source offigures: International Tea Committee Bulletin and Tea Board of India.)

World Tea Imports for consumption in 2025 stood at 1977 million kg, an increase of 97 million kgs (+4.91%) compared to the 2024 figure of 1880 million kg. Despite the increase in tea imports for consumption, global tea production grew at a comparatively slower pace. However, the carryover of surplus inventories from the previous year, coupled with the additional production, resulted in a continued global oversupply during 2025. Pakistan continued as the worlds largest importing country at 240 million kg (12.14%) with an increase of 18 million kg (7.50%) from 2024. Continuing at the 3rd position Russian Federation 107 million kg (5.41%) has also decreased by 13 million kg. USA at 112 million kg, a 11 million kg decrease from 2024, UK at 95 million kg again with a 4 million kg decrease from 2024, Egypt at 100 million kg (5.06%), Morocco at 93 million kg (4.70%), Iraq at 99 million kg (5.01%) and Iran at 59 million kg (2.98%). Other large importing countries, albeit with smaller volumes than the aforementioned countries, are Poland, Ghana, Saudi Arabia, Malaysia and Afghanistan. The major producing countries with large imports for consumption in batting order are China, India, Japan, Taiwan and Turkey. (Source offigures: International Tea Committee Bulletin and Tea Board of India)

Global blacktea production in 2025 declined in several producing countries, most notably Kenya (-44.1 million kg) and Turkey (-21.0 million kg). In contrast, production increased in India (+66.4 million kg), Sri Lanka (+3.4 million kg), and Bangladesh (+2.0 million kg). In Indian tea auction centres, prices for CTC decreased by -8.45% and Orthodox increased 3.04% , respectively, in 2025 compared to the previous year. Tea prices in North India decreased by -8.15%, while in South India, they decreased by -1.83% in 2025 compared to 2024. Following the increase in crop production in India, the overall average auction price in India decreased by -5.99% in 2025. Meanwhile, prices at the Colombo auction in Sri Lanka were lower by -5.18% in 2025. At the Mombasa tea auctions in Kenya, African tea prices remained unchanged in 2025 compared to 2024. Smallholders¹ production continues to constitute the majority of tea production in India (57% ) and Kenya (53% ). This sector has witnessed exponential growth in production over the last decade and primarily comprises mediocre-quality teas, particularly in India and, to a fair extent, in Kenya. Both countries predominantly produce CTC Blackteas.

OPPORTUNITIES AND THREATS

The operating environment for the Indian tea industry remained challenging during Season 2025, with the combined impact of adverse climatic conditions, heightened pest pressure and evolving regulatory requirements influencing both production and market dynamics. Erratic rainfall, prolonged dry spells and elevated temperatures during the first half of the season adversely affected crop availability and quality across North Indian tea-growing regions. These weather- related disruptions, compounded by one of the most severe incidences of Helopeltis and Green Fly/Thrips infestation witnessed in recent years, significantly increased crop protection challenges and constrained the production of quality teas.

Domestic tea prices remained firm during the early part of the season, supported by lower crop availability and healthy demand for quality teas. As production improved in the latter part of the year and market supplies normalised, price levels moderated. Despite this correction, demand for well-made quality teas continued to remain resilient, reinforcing the importance of quality differentiation in an increasingly competitive marketplace.

The Company continues to benefit from its long-standing reputation for producing teas that consistently meet stringent food safety, traceability and sustainability standards. As international buyers increasingly prioritise compliance with evolving Maximum Residue Limits (MRLs), responsible agricultural practices and certified supply chains, Company is well positioned to strengthen its relationships with existing customers while expanding opportunities in premium export markets. The continued emphasis on food safety by domestic regulators and increasing consumer awareness are expected to further support the demand for compliant teas.

The growing preference for Orthodox teas presents encouraging opportunities. The Company remains focused on improving manufacturing efficiencies, modernising processing infrastructure and enhancing product quality to strengthen realisations across both domestic and international markets. Continued investment in technology, process optimisation and quality improvement initiatives will remain integral to sustaining competitiveness.

Climate change continues to represent the most significant long-term challenge facing the tea industry. Increasingly unpredictable weather patterns, characterised by irregular rainfall, extended periods of drought and extreme climatic events, have made crop planning and quality management considerably more complex. These conditions have also contributed to an increased incidence of pests and diseases, necessitating greater vigilance and more intensive field management practices throughout the production season.

The progressive tightening of pesticide residue regulations across key export markets, particularlythe European Union, together with the withdrawal of several effective crop protection molecules, continues to reduce the range of available pest management solutions. While these developments support safer and more sustainable agricultural practices, they have increased production risk and operational complexity, particularly during years of severe pest infestation. The Company continues to strengthen its Integrated Pest Management (IPM) programme through enhanced field surveillance, biological and cultural control measures, judicious use of approved crop protection products and continuous training of field personnel to minimise crop losses while ensuring compliance with applicable domestic and international standards.

Rising costs of labour, agricultural inputs, energy and logistics continue to exert pressure on operating margins across the industry. The Company remains focused on improving productivity through continuous process improvements, prudent cost management, selective mechanisation and ongoing investment in manufacturing infrastructure to enhance efficiency and strengthen its competitive position.

SEGMENTWISE OR PRODUCTWISE PERFORMANCE

The Company is primarily engaged in the business of cultivation, manufacture and sale of tea and is managed as a single unit organisation. Accordingly, the Company is a single business segment company.

RISKS AND CONCERNS

The Companys operations are exposed to a range of operational, financial and regulatory risks inherent in the plantation business. As tea is an agricultural commodity with a long production cycle, the ability to respond rapidly to unforeseen events is limited. Accordingly, the Company continues to place significant emphasis on proactive risk identification, robust internal controls and sustainable operating practices.

Employee welfare and labour availability remain important areas of focus for the plantation industry. The Companys operations are highly labour intensive and are subject to extensive statutory welfare obligations under various Central and State legislations. The Company continues to invest in employee housing, healthcare, education, sanitation and community development programmes while working closely with employees and other stakeholders to maintain industrial harmony and operational continuity.

The Government of Assam has undertaken several initiatives to ease the financial burden on tea estates arising from the obligations of the Plantation Labour Act. These measures include the establishment of Tea Garden Model Schools, the provincialisation of Tea Garden Schools, the construction of Mahaprabhu Jagannath Community Hall-cum-Skill Centres within tea estates, and the provision of essential drugs and medicines free of cost. In addition, flagship rural development programmes of the Government of India, such as the Jal Jeevan Mission and the Pradhan Mantri Awas Yojana (PMAY), are being implemented across tea estates through the State Government, further strengthening social infrastructure and improving the welfare oftea garden communities.

Maintaining compliance with evolving domestic and international food safety and sustainability requirements remains a critical business priority. The Company has established comprehensive quality assurance systems covering traceability, factory controls, residue monitoring and process standardisation. All manufacturing facilities continue to operate under internationally recognised food safety systems, including ISO 22000 and HACCP, while sustainability certifications such as Rainforest Alliance and Trustea reinforce the Companys commitment to responsible production practices.

The Company is exposed to financial risks arising from fluctuations in foreign exchange rates, interest rates and working capital requirements. These risks are managed through established treasury policies, regular monitoring of market exposures and prudent financial management practices. Internal financial controls and periodic reviews by the Board and its Committees ensure that material risks are identified and addressed in a timely manner.

The plantation business also requires continuous capital investment in factory modernisation, replanting, irrigation, mechanisation and infrastructure to sustain productivity and quality standards. The Company continues to prioritise investments that improve operational efficiency, optimise resource utilisation and strengthen long-term competitiveness.

The tea industry continues to be subject to taxation by both the Central and State Governments. While the incidence of direct taxation has reduced over the years, certain Central and State levies continue to impose additional cost pressures and affect the competitiveness of the sector. In recognition of these challenges, the Government of Assam has introduced a series of policy interventions aimed at supporting the long-term sustainability ofthe industry. These measures include the suspension of the Assam Green Leaf Cess for the two-year period from January 2025 to December 2026, exemption from Agricultural Income Tax for the corresponding period, provision of interest subvention on term and working capital loans, and a production incentive of Rs. 10 per kilogram of orthodox tea to partially offset the higher cost of manufacturing this export-oriented category. Collectively, these initiatives are expected to provide meaningful financial relief to tea producers while reinforcing the viability and competitiveness of the Assam tea sector.

The Company remains committed to strengthening its enterprise risk management framework through continuous monitoring of strategic, operational, financial and compliance risks. Supported by sound corporate governance, established internal control systems and a culture of continuous improvement, the Company believes it is well positioned to manage uncertainties while pursuing sustainable growth.

OUTLOOK

The increased emphasis on compliance with permissible Maximum Residue Levels (MRLs) by the Food Safety and Standards Authority of India, together with greater awareness among producers, has continued to improve the overall quality profile of teas entering the auction system. The Tea Boards measures to strengthen quality standards, including the continuation of the 100% Dust auction policy and tighter monitoring of market compliance, are expected to further discourage the flow of sub-standard teas into organised auctions. In addition, increased pest attacks, accelerated by rising temperatures and erratic monsoon distributions, severely compromise tea bush physiology and destabilise predictable cropping patterns.

Following the recovery in North Indian crop levels, auction offerings have improved compared to the previous season. However, demand for premium and export-quality teas continues to remain resilient. Traditional export destinations in the Middle East, CIS region and other international markets are expected to continue sourcing Indian teas, although trade flows may witness temporary disruptions owing to elevated freight costs and geopolitical developments.

The global tea industry continues to operate in an environment of heightened geopolitical uncertainty. The ongoing conflict in the Middle East and disruptions to shipping through the Strait of Hormuz have increased crude oil prices, marine insurance premiums and container freight costs, resulting in longer transit times and higher logistics expenses for exporters. These developments are expected to exert pressure on export competitiveness and working capital requirements across the tea supply chain.

Going forward, volatility in energy prices, shipping costs and currency movements is likely to remain a key challenge for the global tea trade. In this environment, producers focusing on consistent quality, sustainable manufacturing practices and strict field compliance are expected to be better positioned to secure remunerative price realisation and maintain market competitiveness. The Company will focus on quality enhancement, residue compliance and operational efficiency to maximise value realisation in both domestic and export markets.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has in place adequate systems of internal control commensurate with its size and the nature of its operations which have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies. Independent firms of Chartered Accountants conduct the internal audit at all Tea Estates and at the Head Office on a regular basis.

The Company has an Audit Committee, the details of which have been provided in the Corporate Governance Report. The Audit Committee reviews Audit Reports submitted by the internal auditors. Suggestions for improvement are considered and the Audit Committee follows up the implementation of corrective actions. The Committee also meets the Companys statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems in the Company and keeps the Board of Directors informed of its major observations from time to time.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The details of Financial Performance and Operational Performance have been provided in the Report ofthe Directors.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR IN KEY FINANCIAL RATIOS) ALONG WITH DETAILED EXPLANATIONS :-

Financial Ratios

Ratios	2025-26	2024-25	Change (%)	Reason
Debtors Turnover	31.36	28.50	-	Not Applicable
Inventory Turnover	31.94	17.23	85.41	Due to decrease in realisation and volume.
Interest Coverage Ratio	0	0	-	Since Profit before interest and tax is negative, this ratio cannot be calculated.
Current Ratio	0.18	0.06	197.93	Due to restructuring of Companys borrowings.
Debt Equity Ratio	(10.29)	(35.62)	-71.11	Due to restructuring of Companys borrowings and consequent provisions against ICDs.
Operating Margin (%)	(6.00)	0.86	-797.67	Due to reduction in sale price and increase in cost.
Net Profit Margin (%)	122.90	-19.17	-741.16	Due to restructuring of Companys borrowings and consequent provisions against ICDs.
Return on Net Worth (%)	0	0		For the year 2025-26 the ratio "Return on Net Worth" cant be calculated because the denominator "Net Worth" is negative as it includes Equity share capital, Security premium, retained earnings and general reserve.

HUMAN RESOURCES

The tea industry is highly labour intensive. The Company employs around 49,610 personnel, of whom 43,292 are permanent and 6,318 temporary at its Tea Estates and other establishments in India with about 55% being women. Employee relations remained satisfactory during the period under review. The Company places on record its appreciation for the wholehearted support and dedication of its employees at all levels in maintaining smooth production and manufacture of tea across all its Tea Estates during the year.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis relating to future projections, estimates, expectations and outlook are forward-looking and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied by such statements. The Company does not undertake any obligation to update or revise such forward-looking statements. Information relating to market and industry data has been obtained from various sources and its accuracy and completeness cannot be assured.

	For and on behalf of the Board of Directors
	Aditya Khaitan	Pradip Bhar
Place: Kolkata	Chairman & Managing Director	Whole-time Director & Chief Financial officer
Date: 14th August, 2026	DIN:00023788	DIN:01039198