NOCIL Ltd Management Discussions

Economic Overview

The trajectory of major global economies over the past decade plays a pivotal role in shaping any meaningful discussion or analysis concerning business outlook. It provides essential context for evaluating potential opportunities, identifying emerging threats, understanding associated risks and concerns, and formulating plausible mitigation strategies for the future.

The Global Economy in 2024–25 remained uneven, shaped by persistent inflation in advanced economies, cautious monetary tightening, and geopolitical uncertainties affecting global trade and energy flows. While global GDP growth moderated to approximately 2.9% (IMF), key manufacturing segments relevant to the chemical industry—such as automotive, construction, and consumer goods—saw gradual recovery. The global chemical sector faced margin pressures due to raw material volatility and competitive intensity, particularly from China.

Indias economy remained robust, with GDP growth estimated at around 6.8% in F.Y. 2024–25. Strong domestic demand, public capex, and a stable macroeconomic environment bolstered industrial activity.

Over the past decade (2015–2024), India and China have experienced significant economic growth, outpacing the global average. Indias impressive economic performance over the past decade highlights its emergence as a major global economic player. While China continues to hold a significant share of the global economy, its growth has moderated in recent years. The global economy, meanwhile, has experienced steady but moderate growth, with various challenges influencing future prospects.

The global economy in 2025 is expected to be characterised by moderate growth, persistent inflation, and geopolitical instability. While technological advances and sustainable practices are driving innovation, challenges like debt, inequality, and environmental risks remain significant. The transition to a greener economy, changes in global trade patterns, and the rise of AI and digital finance will continue to shape the economic landscape in the years ahead. While supply chains have largely recovered from pandemic-related disruptions, they remain vulnerable to geopolitical tensions and natural disasters. There are ongoing shifts in global supply chains due to the China+1 strategy, where companies are diversifying manufacturing out of China. Trumps "America First" policy and focus on reducing trade deficits led to tensions in international trade relations. This may create ripples in the form of trade tensions/ tariffs wars, stricter immigration policies and regulatory uncertainties related to data protection and digital trade. While global uncertainties continue, Indias stable macroeconomic outlook and growing role in global supply chains offer a favorable environment for your company.

Industry Structure and Developments Rubber Chemical Industry:

As stated in earlier years, the global rubber chemical industry derives its trend from the global rubber consumption pattern. While global Rubber consumption shows an absolute 20% over the last 10 years, your Company has shown growth of 74%, which is more than 3.7 times the industry growth. The Tire industry is largest consumer of rubber. The global tire market size reached USD 172.98 Bn in 2023. Looking forward, IMARC Group expects the market to reach USD 270.66 Bn by 2033, exhibiting a growth rate (CAGR) of 4.70% during 2025-2033. (Source: Tire Market Size, Share, Growth Forecast Report 2032 (imarcgroup.com)) As a leading player in the Indian rubber chemical industry, your company is well-positioned to capitalise on emerging global opportunities. With expanded capacities coming online at an opportune moment and a clear vision to strengthen its international footprint, the Company stands to benefit significantly from favorable market dynamics. Price erosion has been severe during the year especially from China (direct and through its subsidiary in Thailand) Korea and the European players also adopting a similar strategy to capture the market share.

The India–Korea Comprehensive Economic Partnership Agreement (CEPA), is a bilateral free trade agreement aimed at enhancing trade and investment between India and South Korea. Under the CEPA framework, certain rubber chemicals and related products have experienced tariff reductions, influencing trade dynamics such as increased imports. The increasing imports of one of our antioxidant products from South Korea besides China, Thailand are causing serious injury to the Indian domestic industry, leading to considerations for appropriate trade remedial measures.

Business Outlook: Opportunities & Threats Opportunities:

Despite global headwinds, our strong export base, customer partnerships, and innovation pipeline helped us navigate margin pressures and raw material volatility. Strategic investments in capacity enhancement and process efficiency have further strengthened our ability to respond quickly to market dynamics.

Your Company is recognised not only as a dependable, high-quality supplier but also as a comprehensive provider offering an almost complete range of rubber chemicals. Through our continued efforts to strengthen long-term relationships with domestic tyre manufacturers, we are confident in our ability to increase our wallet share within this segment. India is one of the largest producers and consumers of tyres globally. The steady expansion of the automotive sector, especially two-wheelers and commercial vehicles, boosts demand for rubber chemicals.

Amid rising concerns over supply chain dependency on China, many global manufacturers are seeking alternate supplies. Indian companies, with proven capabilities, are well-placed to emerge as reliable partners. The transition to EVs brings demand for high-performance and specialised rubber chemicals (e.g., for heat resistance, durability). This presents a space for innovation and premium product offerings. As global and domestic regulations push for environmentally friendly products, Indian companies that invest in sustainable and green chemistry stand to gain early-mover advantages.

On the international front, your Companys proactive engagement with customers to secure volumes, combined with signs of recovery in global markets, serves as a strong indicator of a positive outlook. Its long-standing associations with most international tyre majors have earned it a preferred-supplier status, extending to their Indian operations as well. With the growing presence of these global players in the Indian market, your company is well-positioned to leverage its domestic advantage and gain significant traction as a key supplier to their local manufacturing units. Competitive pricing, quality manufacturing, and expanding production capacities create strong export potential, particularly to emerging markets in Asia, Africa, and Latin America.

Advancements in rubber compounding and production technologies are unlocking new opportunities for improved product performance. With ESG compliance, green chemistry, and digitisation emerging as strategic imperatives, we have accelerated efforts across sustainability, product stewardship, and operational excellence. Our long-term vision remains focused on delivering value-added, differentiated solutions aligned with both regulatory expectations and customer needs. The growing global demand for eco-friendly and sustainable solutions further opens avenues for innovation and market expansion. Your Companys strong R&D capabilities and commitment to sustainability are recognised by leading tyre manufacturers as critical strengths. Additionally, the continuous growth of the tyre industry in key markets—along with the accelerating shift towards electric vehicles—is expected to drive robust demand for high-quality rubber chemicals.

Threats:

As discussed earlier, China accounts for approximately 80% of global rubber chemical production while consuming only about 40%, thereby generating a significant exportable surplus. In light of continued sanctions imposed by the United States, India emerges as a lucrative alternative market, making it increasingly vulnerable to aggressive dumping practices by Chinese exporters.

A significant portion of raw materials, such as aniline and other petrochemical derivatives, is imported, making companies vulnerable to global price volatility, currency fluctuations, and supply chain disruptions.

Chinese and other Asian manufacturers often operate at lower costs and benefit from economies of scale, leading to pricing pressures and reduced margins for Indian exporters. Chinese competitors have historically resorted to dumping their products, including penultimate intermediates, in the Indian market at significantly low prices. The possibility of such competitors continuing with irrational pricing strategies cannot be ruled out, which may exert downward pressure on our margins and affect the overall pricing environment in the domestic market.

Fluctuation in the prices of raw materials, such as petrochemicals pose a risk to cost management and profitability, trade disruptions and Volatility in Automotive and Tyre Industries which can adversely affect supply chains and market access, posing a threat to business continuity.

Risks & Concerns:

The rubber chemical industry heavily depends on crude oil derivatives and other imported feedstocks. Fluctuations in global crude prices or supply disruptions can significantly impact production costs and margins. Geopolitical tensions more particularly the recent conflict between India and its neighboring country can create temporary disruptions to the business. Any delay in recovery in the market conditions can delay your Companys target to achieve a wider market share. Also, though your Company is de-risking its supply chain, any disruptions in the supply chain from China can affect the prices of its raw materials very significantly. Chemical Industry is intricately woven to each other and any imbalance in demand-supply for a group of chemicals can threaten the manufacturing activities of several industries. The Rupee, though expected to be range-bound in the coming year, can be affected by any changes in the geopolitical conditions. The Company largely continued to mitigate the risk of this volatility through a judicious mix of natural hedge and other tools in the form of forward/ option contracts. Sentiment-driven currency changes can also impact domestic prices and profitability. Currently the crude prices are at the lower end. Any increase in the crude oil prices can influence our raw material prices and if not matched with proportionate increase in the selling prices can impact operational performance on a short-term basis.

Operating & Financial Performance for the Year

The Financial Statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the ‘Act)

[Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

During the year CRISIL & CARE have reaffirmed ratings as CRISIL AA & CARE AA respectively (Double A) (Stable) for long term Bank Facilities (Fund Based facilities) and CRISIL A1+ & CARE A1+ respectively (A One plus) rating for short term Non-Fund Based Bank facilities. Summary of the financial performance of the Company is presented below:

(Rs. In Crores)

During the year under review, the Company achieved a profit before tax of 119.11 Crores as compared to 177.14 Crores in 2023-24. Pursuant to the SEBI (Listing Obligations and Disclosure Requirements), (Amendment), Regulations, 2018, the key financial ratios viz., Debtors turnover, Inventory Turnover, Current Ratio, and Debt Equity and Interest Coverage ratios do not exceed the threshold of 25% or more as compared to the immediately preceding financial year. However, Operating Profit Margin (%), Net profit (%) Return on Net Worth exceeded the threshold limits due to the reasons stated above.

Internal control systems

The Company has established sound internal control systems and procedures that encompass all key financial and operational functions. These controls are designed to provide reasonable assurance to the management on multiple fronts, including adherence to accounting standards through the maintenance of accurate financial records, operational efficiency and cost-effectiveness, safeguarding of assets against potential losses, and ensuring the reliability of both financial and operational information. The system also supports compliance with applicable statutory enactments, rules, and regulations. Some of the noteworthy features of the internal control systems and procedures are as follows:

Appr opriate delegation of authority limits with responsibility for incurring capital and revenue expenditures.

Appr oval and monitoring of annual revenue budget for all operating and service functions.

Pr ocedure for approval of capital budget proposals and monitoring the expenditure on such acquisitions.

P eriodical review of operational efficiency, monitoring of variations between Actuals and the targets with corrective thereto and formulating and reviewing the annual and long-term business strategies.

A comprehensive code of conduct for ensuring the integrity of financial reporting, ethical conduct, regulatory compliances, and conflict of interest, if any.

Re view of the operations and financial plans in key business areas through monthly management meetings.

Appointment of Internal Auditors to conduct periodical internal audits on operations, systems, internal control on financial reporting etc. and issue reports to the management and the Audit Committee of the Board, regarding the adequacy and compliance with the internal controls and the efficiency and effectiveness of operations.

An ERP system (SAP) connecting Plant, Regional Sales Offices and Head Office enables the management to evaluate and take decisions based on real time information systems.

The Audit Committee of the Board of Directors regularly reviews the findings of Internal Auditors, the adequacy of internal and financial controls, and the Companys compliance with applicable accounting standards. The Committee also recommends to the Board the approval of the Companys quarterly and annual financial results, as well as the appointment or reappointment of Statutory Auditors. In addition, the Audit Committee closely monitors related party transactions undertaken by the Company on a quarterly basis to ensure transparency and compliance. Further, the Secretarial Auditors periodically review the Companys compliance status using their own systems and checklists. This review covers compliance with the provisions of the Companies Act, 2013, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, and other applicable SEBI regulations relevant to the Company.

Human Resources

Employees are indeed a companys most important asset. Their expertise and commitment are what drives innovation, deliver products and services, and create value and impact. At your Company, employees play an integral role in driving strategic deliverables and fueling organisational success. During the year, your Company focused on implementing key people initiatives to strengthen individual and team performance and to build capabilities for future readiness. A key business imperative was bringing the organisational ecosystem together to co-create our Vision, Values and Leadership Competencies which create a foundation for culture and strategic direction. By putting this into action, we strive to be a Global leader and the Best Choice for our

Customers, Employees and Stakeholders, while continuing to uphold the highest standards of Social Responsibility.

Our values of Agility, Intrapreneurship, Respect and

Resilience (AIRR) bring our vision to life. As a part of the digitalisation journey, your Company launched its New Human Resource Management system to strengthen talent management capabilities and automate core people process. During the year, your Company continued its efforts towards attracting right talent especially for business expansion plans, employee engagement and retention. The Company also stepped up its efforts in designing and delivering a wide range of learning and development programs, including technical, Health, Safety

& Environment (HSE), and leadership training, aligned with ISO standards. Your Company also launched Eklavya, an e-learning initiative to facilitate self-paced byte sized learning under the categories of Managing Self, Managing Others and Managing Business. In addition, the early talent programmes were redesigned to focus on building from within and preparing the next generation talent. Your Company has remained fully compliant with all applicable regulations, including those related to factory operations, labour, and other statutory requirements. Throughout the year, the Company has also maintained cordial and constructive industrial relations with the recognised labour union, fostering a stable and cooperative work environment.

Cautionary statement

Certain statements in the Management Discussion & Analysis section describing the Companys objectives, projections, estimates, expectations, or predictions may be considered ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed or implied in these statements. Key factors that could influence the Companys operations include the availability and cost of raw materials, cyclical demand and pricing trends in key markets, foreign exchange rate fluctuations, changes in governmental regulations and tax policies, as well as economic developments in India and other countries where the Company operates, among other incidental factors.