Mehul Colours Ltd Management Discussions

ECONOMIC OVERVIEW

Global Economy

During the financial year 2025-26, the global economy demonstrated moderate resilience despite persistent geopolitical tensions, trade-policy uncertainty, energy-price volatility and uneven growth across major markets. While inflation moderated across several advanced economies compared with the elevated levels of earlier years, monetary policy remained relatively cautious, resulting in a mixed global growth environment. According to the International Monetary Fund, global growth is projected in the range of approximately 3.0% to 3.3% for the calendar year 2026, supported by gradual stabilisation of inflation, improving supply-chain conditions and technology-led investment, even as geopolitical conflicts, evolving global tariff structures and energy-market fluctuations continue to influence business sentiment and investment decisions.

The chemicals, petrochemicals and polymer industries experienced relatively improved supply conditions compared with previous years; however, fluctuations in crude oil prices and feedstock costs continued to affect operating margins across the value chain. As a manufacturer whose raw-material basket is linked to petrochemical and pigment feedstocks, the Company remained watchful of these input-cost cycles and their bearing on margins during the year.

India continued to be one of the fastest-growing major economies in the world during FY 2025-26, supported by strong domestic demand, robust government capital expenditure, expanding manufacturing activity and sustained consumption. Various multilateral institutions projected Indias growth broadly in the range of 6.3% to 6.8%, reinforcing its position among the fastest-growing large economies globally. Government initiatives such as Make in India, the Production-Linked Incentive (PLI) schemes, the National Logistics Policy, PM Gati Shakti and continued infrastructure investment contributed meaningfully to strengthening the domestic manufacturing ecosystem and industrial competitiveness.

At the same time, the industry continued to face challenges from crude-oil price fluctuations, volatility in polymer-resin and pigment costs, foreign-exchange movements and an increasing regulatory focus on plastic-waste management, recycling and sustainability. This growing emphasis on the circular economy has accelerated industry efforts towards recyclable materials, recycled-polymer applications and environmentally responsible manufacturing. Overall, this domestic backdrop remains broadly supportive for the Company, with sustained consumption and infrastructure-linked demand underpinning off-take, even as imported feedstock costs and rupee volatility remain pass-through risks that the Company continues to manage.

The Company is engaged in the manufacture and sale of masterbatches, additives and compounds, which form a critical segment of the plastics value chain. Masterbatches are concentrated mixtures of pigments, additives, fillers and carrier resins that are incorporated into polymer matrices during processing to impart specific properties such as coloration, ultraviolet resistance, flame retardancy, antistatic behaviour, processing enhancement and other performance attributes.

The global and Indian masterbatch industry continues to evolve from a commodity-driven market towards a technology-oriented and application-focused industry. Increasing demand for customised solutions, product differentiation, sustainability and regulatory compliance has accelerated the adoption of specialty and high-performance masterbatches across multiple end-user industries. Demand is closely linked to the growth of downstream plastics-processing industries, with packaging accounting for the largest share of consumption, followed by automotive, agriculture, consumer durables, infrastructure, healthcare, electrical and electronics, and textiles.

In India, the masterbatch industry has witnessed consistent growth driven by rising polymer consumption, increasing urbanisation, expanding manufacturing activity and strong demand from the packaging and consumer sectors. The industry comprises both organised and unorganised participants; while commodity-grade products face intense price competition, the market is increasingly shifting towards value-added and specialised applications where technical expertise, product innovation, quality consistency and customer support drive competitive differentiation. Growing demand for high-performance polymers, specialty compounds, renewable-energy applications, healthcare products and sustainable packaging solutions is expected to create new growth avenues for the industry over the medium to long term.

The outlook for the masterbatch, additives and compounds industry remains constructive, supported by favourable macro-economic conditions, expanding industrial activity, increasing polymer consumption and growing demand for specialised applications across end-user industries. Indias position as one of the fastest-growing major economies, together with government initiatives aimed at strengthening domestic manufacturing, is expected to provide sustained growth opportunities for the plastics and polymer-processing sectors. The Company remains focused on strengthening its product portfolio, deepening customer relationships, improving operational efficiency and developing innovative, value-added solutions that address evolving market requirements.

• Rising domestic polymer consumption and packaging, automotive, agriculture and infrastructure demand supporting off-take of colour and additive masterbatches.
• Structural shift of the market towards value-added, specialty and compliance-driven masterbatches, where technical capability and quality consistency command better realisation.

• Growing recycled-content and sustainability mandates creating a value-added niche for food-contact-compliant and functional masterbatch grades.
• The China Plus One diversification trend and Make-in-India / PLI-driven capex cycle directing new manufacturing capacity and customer relationships towards India.
• Enhanced access to growth capital and visibility following the listing of the Companys equity shares on the SME Platform of BSE Limited during the year, supporting future expansion.

• Elevated and volatile petrochemical- and pigment-linked feedstock costs, which remain exposed to crude-oil price cycles and geopolitical shocks.
• Intense competition from both organised and unorganised players, resulting in pricing pressure and margin challenges, particularly in commodity product segments.
• Tightening environmental regulations relating to plastics usage, waste management and recycling, which may necessitate additional investment and operational adjustments.
• Currency-market volatility affecting the cost of imported raw materials and export competitiveness, and broader geopolitical and trade-policy disruptions affecting demand.

The Company operates in one reportable segment, namely Colour and Additive masterbatches and accordingly separate segment-wise disclosure under Accounting Standard 17 is not applicable. Within this segment, the Company manufactures in colour masterbatches, additive masterbatches and allied compounds.

During the year under review, the Company recorded revenue from operations of 3,040.32 lakhs, as compared with 2,282.20 lakhs in the previous financial year, registering a growth of about 33.22%. Total income for the year stood at 3,181.16 lakhs (previous year 2,371.29 lakhs). The Company earned a profit before tax of 703.48 lakhs (previous year 740.37 lakhs) and a net profit after tax of 522.29 lakhs, as against 550.30 lakhs in the previous financial year.

While revenue grew strongly during the year, profit margins moderated compared with the previous year. This was primarily on account of the impact of input-cost movements in petrochemical- and pigment-linked feedstocks. The EBITDA margin stood at 19.81% (previous year 30.17%) and the net-profit margin at 17.18% (previous year 24.11%). Basic and diluted earnings per share (face value 10 each) were 5.49, as against 7.30 in the previous year, the latter also reflecting the increase in the weighted-average number of shares consequent to the initial public offer during the year.

During the year, the Company completed its Initial Public Offer and its equity shares were listed on the SME Platform of BSE Limited, raising fresh capital which strengthened the net-worth and liquidity position of the Company. The net worth of the Company increased to 4,126.79 lakhs as on 31st March, 2026 (previous year 1,706.06 lakhs).

In accordance with the requirements of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in the key financial ratios, along with explanations, are given below:

• Inventory Turnover, Trade Payables Turnover and Debt Service Coverage Ratio improved on account of higher business volumes and increased cost of goods sold / purchases during the year relative to the average balances.
• Current Ratio improved significantly, primarily on account of the increase in current assets (including cash and bank balances) following the receipt of IPO proceeds during the year.
• Return on Equity / Net Worth, Return on Capital Employed and Net Profit Ratio declined primarily due to the substantial increase in net worth / capital employed consequent to the fresh capital raised through the IPO, together with the moderation in profit margins during the year.
• Debt-Equity Ratio is reported for the current year as the Company availed borrowings during the year; the ratio nevertheless remains conservative at 0.05 times.

The Return on Net Worth for FY 2025-26 stood at 12.66%, as compared with 32.26% in the previous year, the reduction being primarily attributable to the increase in net worth following the initial public offer and the moderation in profitability during the year.

Risk management is an integral part of the Companys operational strategy. The Companys approach includes an ongoing review of business risks, the implementation of mitigating controls and a structured reporting mechanism, periodically reviewed by the Board. Apart from the typical risks associated with business operations, manufacturing and commercial activities, the key risks and areas of concern identified by the Company are outlined below:

• Raw-material and price risk: volatility in crude-oil prices, polymer-resin costs and pigment/additive prices may impact profitability. The Company mitigates this through prudent procurement, inventory planning and vendor diversification.
• Demand and competition risk: demand may be affected by economic slowdowns in user industries, and competition from organised and unorganised players may pressure margins. The Company responds through cost efficiency, consistent quality, customer service and product innovation.
• Foreign-exchange risk: fluctuations in exchange rates affect the cost of imported raw materials and export realisations; the Company monitors currency movements and manages exposure prudently.
• Credit risk: extended credit terms to customers may result in payment delays or defaults; the Company mitigates this through regular monitoring of receivables, proactive follow-ups and timely collection measures.
• Regulatory and compliance risk: changes in statutes and tightening environmental and product-compliance regulations may affect operations; the Company conducts regular compliance reviews. Consequent to the listing of its equity shares, the Company has also strengthened its governance and compliance framework under the applicable SEBI Regulations.

The Company has established a system of internal controls commensurate with the size, scale and nature of its operations. These controls are designed to safeguard the Companys assets, prevent and detect frauds and errors, ensure that transactions are properly authorised, recorded and reported, and ensure the accuracy and completeness of the accounting records and the timely preparation of reliable financial disclosures. Well-defined policies and procedures are implemented across the Company to maintain operational integrity.

The Company has appointed M/s. N A Jain & Associates, Practising Chartered Accountants, as the Internal Auditors of the Company. Regular internal audits are carried out and the internal audit reports, together with areas requiring attention, are reviewed by the Audit Committee and the Board, and appropriate corrective actions are taken. The internal control framework is periodically reviewed to ensure its continued effectiveness.

The Company recognises its employees as the cornerstone of its success and continues to foster a workplace culture that prioritises employee well-being, professional growth and a positive, inclusive work environment. Career-development opportunities, skill-development programmes and training initiatives are extended across levels and functions to enhance expertise and capability. The Company maintained harmonious industrial relations at all its locations throughout the year. As on 31st March, 2026, the total number of employees on the rolls of the Company was 34 (excluding Managing Director and Whole-time Director).

Statements in this Management Discussion and Analysis Report describing the Companys objectives, estimates, expectations or projections may constitute "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied in these statements. Important factors that could make a difference to the Companys operations include economic conditions affecting demand and supply, price conditions in the domestic and international markets in which the Company operates, changes in government regulations, tax laws and other statutes, geopolitical developments and other incidental factors. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events.