Naperol Investments Ltd Management Discussions

Global Economy

The global economy demonstrated remarkable resilience during the fiscal year, maintaining steady growth despite facing several challenges. Following the supply chain disruptions caused by the Covid-19 pandemic, the world economy faced further obstacles, including the Russian- Ukraine conflict, which triggered a global energy and food crisis. These events, coupled with heightened tensions in the Middle East and the Red Sea crisis impacting maritime trade routes, tested the adaptability of international markets. In response to such global challenges, governments and central banks implemented strategic monetary policies and enhanced international cooperation to stabilise markets and foster economic resilience. This period also witnessed a significant surge in inflation, prompting central banks worldwide to tighten monetary policy in a synchronised manner. Global growth reached its low point in late 2022 at 2.3%, coinciding with a peak in median headline inflation at 9.4%. Projections indicate that growth will stabilise around 3.2% for 2024 and 2025. On the other hand, headline inflation is expected to decline from 2.8% at the end of 2024 to 2.4% by the end of 2025.

The baseline forecast anticipates steady global economic growth of 3.2% for both 2024 and 2025, maintaining the pace seen in 2023. Advanced economies are forecasted to witness a slight acceleration, with growth rising from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. In contrast, emerging market and developing economies are projected to experience a modest slowdown from 4.3% in 2023 to 4.2% in both 2024 and 2025.

However, the outlook for global growth over the next five years is the lowest it has been in decades, projected at 3.1%. Inflation is forecasted to decline steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Advanced economies are expected to achieve their inflation targets sooner than emerging markets and developing economies, while core inflation is expected to decrease at a slower pace overall. Advanced economies are poised for a modest growth uptick, primarily driven by a rebound in the Euro Area following sluggish growth in 2023. Meanwhile, emerging market and developing economies are expected to maintain stable growth throughout 2024 and 2025, albeit with some regional variations.

[Source: Global Economy Remains Resilient Despite Uneven Growth, Challenges Ahead, https://www.imf.org/en/Blogs/ Articles/2024/04/16/global-economy-remains-resilient- despite-uneven-growth-challenges-ahead]

Global Economic Growth Projections (in %)

[Source: Global Economy Remains Resilient Despite Uneven Growth, Challenges Ahead, https://www.imf.org/en/Blogs/ Articles/2024/04/16/global-economy-remains-resilient- despite-uneven-growth-challenges-ahead]

Indian Economy

India has emerged as a bright spot in the global economic scenario, consistently outperforming major economies and demonstrating robust growth. The Country has implemented significant structural reforms, strengthened its macroeconomic fundamentals, and positioned itself as the fastest-growing economy among G20 nations. With a GDP growth rate of 8.2% for FY 2023-24, India solidified its position as one of the fastest-growing economies, marking the third consecutive year of over 7% growth. This growth was driven by factors such as narrowing rural- urban consumption, increased private and public capital expenditure, and sustained profitability in manufacturing and private investment cycles.

Favorable Economic Indicators

The Indian economy stands to benefit from several positive factors, including stable macroeconomic conditions and increased domestic demand. Favorable indicators such as strong balance sheets of banks and corporations, normalised supply chains, increased business confidence, and enhanced Government capital expenditure have all contributed to this growth. The Government has set an ambitious target of Rs. 11.11 Lakh Crore, equivalent to 3.4% of GDP for capital expenditure in the Interim Union Budget for FY 2024-25. This represents an 11.11% increase over the previous years allocation and signals a revival of the capital expenditure cycle, aimed at driving economic growth, job creation, and stimulating private investment. Moreover, these positive factors have instilled optimism in the economy, positioning the nation to achieve significant milestones in the years ahead. A controlled inflation rate of 4.83% recorded in April 2024 created a stable environment for businesses and consumers, encouraging spending and investment.

[Source: Monetary Policy Report April 2024 Reserve Bank of India, https://www.business-standard.com/economy/ news/budget-2024-25]

Outlook

The Indian economy shows increasing optimism, with its recent performance surpassing expectations and paving the way for continued growth. The Country is poised to become the worlds third-largest economy by 2027, bolstered by the IMFs upward revision of Indias GDP growth forecast to 6.8% for FY 2024-25 and a 6.5% growth anticipated for FY 2025-26. This growth stems from a combination of factors, including rising consumer demand, significant Government investment, and a thriving manufacturing sector. In Q3 of FY 2023-24, private consumption also grew by 3.5% year-on-year, while the manufacturing sector expanded by an impressive 11.6% year-on-year. Additionally, international trade agreements, such as the India-UAE Comprehensive Economic Partnership Agreement, are opening new markets and diversifying supply chains. Indias demographic dividend, coupled with increasing technological adoption, is further supporting this economic momentum. As the Country advances, its young workforce and supportive Government policies create a favorable environment for both domestic and foreign investments, positioning India for sustained economic growth in the coming years.

[Source: https://www.drishtiias.com/daily-updates/daily- news-editorials/india-s-economic-growth-outlook]

Company Overview

Naperol Investments Limited (referred to as Naperol Investments, Naperol or the Company), was formerly known as National Peroxide Limited, a public Limited Company established in 1954 and listed on BSE Limited, Mumbai. Following the Composite Scheme of Arrangement, which became effective on September 11,2023, the Company underwent significant changes. The chemical business was transferred and vested in National Peroxide Limited (formerly known as NPL Chemicals Limited), with this transfer being retroactively effective from April 01, 2022. Additionally, the Company acquired the long-term investment through the amalgamation of the erstwhile Naperol Investments Limited. As a result, the principal business activity of the Company has now shifted to investment activities aimed at generating investment income.

Benefits of the Composite Scheme

• Maximises shareholder value by enhancing the worth of each business, attracting investors, and improving access to capital.

• Separates businesses with varying risk and return profiles to offer investors greater flexibility to choose investments aligned with their strategies and risk tolerance.

• Facilitates targeted growth strategies for each business to capitalise on unique opportunities specific to their respective markets.

Investment Market Overview

The investment market in India has been relatively robust, attracting both domestic and foreign investors across various sectors. The Governments push towards infrastructure development, digitalisation, and renewable energy has drawn significant investment. Private equity (PE) and venture capital (VC) investments have been on the rise, particularly in technology, e-commerce, fintech, and healthcare sectors. The IPO market in India is expected to remain strong this year, following a more than 65% increase in listings in 2023. The expected boom comes as companies look to capitalise on the Countrys robust economic growth, young population and the Governments digitisation efforts, with many startups and established companies going public to raise capital.

[Source: https://www.spglobal.com/marketintelligence/ en/news-insights/latest-news-headlines/india-s-ipo- activity-to-stay-strong-in-2024-after-hitting-multiyear- high-80327059]

Indian Equity Market Overview

The Indian equity market has shown strong performance, fueled by strong domestic demand, favorable economic conditions, a stable regulatory environment, and increasing global investor interest. Other factors that have supported this growth include the Governments ongoing reforms and infrastructure development efforts. These developments have contributed to Indias resilient economic expansion. As of March 2024, Indias market capitalisation surged to USD 4.4 trillion, establishing the Country as the fifth largest market globally. Over the past four years, the MSCI India Index has delivered compounded returns of 26%, rebounding significantly from the market lows induced by the pandemic in March 2020. Alongside this growth, the Nifty index has demonstrated solid earnings, compounding of approximately 22% over the same period, albeit starting from a lower base.

[Source: https://www.lionglobalinvestors.com/en/ insights/P0P4-india-market-outlook.html]

Corporate Leasing Market Overview

The corporate leasing market in India has experienced consistent growth, propelled by the expansion of multinational companies, startups, and the IT sector. There is substantial demand for office spaces in major commercial hubs like Mumbai, Bangalore, Delhi-NCR, Hyderabad and Pune. The pandemic has accelerated the adoption of flexible workspaces and co-working spaces, which has also contributed to the corporate leasing markets growth. Additionally, the surge in e-commerce has led to an increased demand for warehousing and logistics spaces, further diversifying the corporate leasing landscape.

Markets

• Economic Policies and Reforms: Government policies, such as the Production Linked Incentive (PLI) scheme and GST reforms, have played a crucial role in attracting investments and improving the ease of doing business.

• Global Economic Conditions: Global economic trends, including inflation rates, interest rate policies of major central banks, and geopolitical stability, can influence investor confidence and capital flows.

• Technological Advancements: Digital transformation across sectors has created new investment opportunities and reshaped office space requirements within the leasing market.

• Regulatory Changes: Updates to SEBI regulations, tax laws, and real estate regulations (like RERA) have implications for investor preferences in equity markets and enhance transparency for leasing markets.

Risks and Mitigation Strategies

The key highlights of the standalone financials are:

(Rs. In lakhs)

(*) includes the gain on transfer on net assets on amalgamation of transferor company of Rs. 37,377.44 Lakhs pursuant to the Composite Scheme of Arrangement.

Key Financial Ratios

As per provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the key financial ratios are given below:

Internal Controls

The Company has developed an internal control system that is tailored to the Companys size, scope, and operational complexities. Internal audits are performed by M/s. PKF Sridhar and Santhanam LLP who thoroughly assess the effectiveness and appropriateness of Companys internal controls, ensuring adherence to operational systems, accounting procedures, and policies. The Companys Audit Committee regularly evaluates reports and findings from internal auditors, as well as the overall internal control framework. Process owners implement corrective actions within their respective domains based on internal audit insights to strengthen these controls. Significant audit observations and resulting corrective measures are presented to the Boards Audit Committee for review.

Human Resources

The Company places its employees at the forefront, valuing them highly and nurturing strong and positive relationships with them. It consistently initiates engagement programs to boost employee well-being and foster a highly motivated workforce. The Company promotes the culture of continuous learning and growth, offering a wide range of training programs to enhance technical skills and leadership capabilities. These initiatives also empower employees to excel in their roles and contribute effectively to our dynamic workplace. Continuous efforts are directed toward improving the work environment and ensuring a harmonious work-life balance. Moreover, the Company believes that nurturing a healthy work-life equilibrium is pivotal to the well-being and overall success of its employees.

Resources and Liquidity

The Company meets its long-term and working capital needs by combining internally generated cash and sourcing credit lines provided by its bankers.

Cautionary Statement

The Management Discussion and Analysis Report acknowledges that certain statements regarding the Companys goals, forecasts, estimates, expectations, or predictions may qualify as forward-looking under relevant securities laws and regulations. Actual outcomes could vary significantly from these statements, whether expressed or implied. Key factors influencing these outcomes include the availability and cost of raw materials, fluctuations in demand and pricing in the Companys main markets, regulatory changes and tax policies, fluctuations in the US Dollar/ Indian Rupee exchange rate, economic developments in India and other countries where the Company operates, as well as other incidental factors impacting its operations.