NOCIL Ltd Management Discussions

Economic Overview

Global economic growth in 2025-26 remained resilient but uneven, with U.S showing relative strength while Europe and parts of China continued to face demand-side pressures and structural challenges with the uncertain tariff war levied by U.S across the world. Global GDP growth remains moderate at approximately 2.5% –3%, indicating a stable expansion that is below long-term historical averages, but not indicative of a recession.

Global macroeconomic conditions remained moderate with subdued growth, impacting export demand and pricing environment. Indian economy demonstrated resilience with ~6.5% GDP growth, supporting stable domestic demand. Geopolitical uncertainties and energy price volatility continued to influence input costs and supply chains, particularly for petrochemical-linked products. The recent Geopolitical tensions in Iran have already created supply imbalances along with sudden price increases across all products and sectors. The 2025–26 presented a complex macro-economic landscape, characterised by the Indian Rupee reaching levels near Rs. 95 against the USD. This movement was largely a response to external shocks, including shifts in U.S trade policy and a general risk-off sentiment among Global Investors. Consequently, the Indian equity markets faced a valuation adjustment of approximately 10% during the fiscal year. While Global growth displays a slightly decelerating trend, Indias underlying economic momentum remains a critical buffer against these external volatilities, providing a foundation for the Companys continued operational stability. The Global Chemical sector for the fiscal year 2025-26 is experiencing a structural transition characterised by a slow recovery, continued margin pressure, and significant geographic bifurcation in performance. While the Industry is moving away from the severe downturn of F.Y 2023-24, growth remained modest with a Global expansion of approximately 3.5% during 2025–2026. Key themes include a "China+1" strategy driving opportunities for other regions, increased adoption of AI/automation, and accelerating investment in Sustainability. Over the past decade (2016–2025), India and China have continued to demonstrate strong economic performance, generally outpacing the global average. Indias sustained growth underscores its rising role as a major force in the Global Economy, supported by domestic demand and structural reforms. China, while still accounting for a substantial share of global output, has seen a gradual moderation in growth as its economy matures and rebalances. The Global Economy has maintained a steady but moderate growth trajectory, shaped by ongoing geopolitical tensions, inflationary pressures, and evolving trade dynamics, which continue to influence its future outlook.

Key forces which shaped the Economy during 2025-2026 were characterised by moderate growth, persistent inflation, and geopolitical instability. While technological advances and sustainable practices are currently 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.

Evolving international trade dynamics in 2025–26, driven by a renewed emphasis on U.S. domestic production and trade rebalancing, have led to heightened Global uncertainty and periodic tariff measures. Despite this volatile backdrop, Indias policy continuity and strong economic fundamentals offer a strategic advantage. Our Company remains well-positioned to leverage Indias expanding role in Global manufacturing to drive long-term value and operational resilience.

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 growth of 20% over the last 10 years, your Company has shown growth of 79%, which is more than 3.95 times the Industry growth.

As the primary driver of Global Rubber demand, the Tyre industry continues to demonstrate steady structural growth. Market valuations reached USD 181.1 Billion in 2025, with projections from IMARC Group suggesting a move toward USD 272.6 Billion by 2034. This represents a steady CAGR of 4.33%, underpinned by rising vehicle ownership in emerging economies and the accelerating transition toward specialised tyres for Electric Vehicles (EVs). (Source: Tire Market Size, Share, Growth Forecast Report 2034 (imarcgroup.com))

Considering the above factors, your Company is strategically positioned to leverage emerging Global opportunities in the Rubber Chemicals Industry. The fiscal year was characterised by intensified price erosion, driven primarily by aggressive market-share strategies from Chinese manufacturers and their Southeast Asian subsidiaries, alongside similar tactical shifts from Korean and European peers. Competitive pressures were further exacerbated by the utilisation of Free Trade Agreement (FTA) schemes by exporters in Thailand and Korea. Specifically, certain Rubber Chemicals (RCs) entered the Indian market at zero duty. While these imports ostensibly meet the 35% Value Addition (VA) threshold required for Rules of Origin benefits, the industry has raised concerns regarding the consistency and verification of such claims. Collectively, these pricing dynamics and duty imbalances resulted in a 200-basis-point contraction in the Companys profitability for the year under review.

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. The signing of trade agreements by India with various countries particularly EU, augurs well for your Company to expand its global trade footprint. Further the rubber chemical companies entering a high-growth phase driven by landmark trade deals and a pivot toward sustainable "Green Chemistry." Indian Tire and Automotive sectors showed steady growth, supported by a robust domestic demand, both from OEMs and the replacement market supported by a good tailwind from GST 2.0. roll-out. Your Company is recognised not only as a dependable, high-quality supplier but also as a comprehensive technical solution provider in the rubber applications offering an almost complete range of rubber chemicals to its customers. It may also be noted that your Company is the only Rubber Chemicals (R.C) player in the world to offer complete range of R.C products. Through our continued R&D efforts to strengthen long-term relationships with key customers, we are confident that in the times to come, our mission to launch new products both R.C. and products in other applications of the customers will enable your Company not only to get acceptance from its customers but also grow significantly in the coming years. The steady expansion of the auto sectors boost demand for Rubber Chemicals.

Amidst rising concerns over supply chain dependency on China, many global manufacturers are seeking reliable alternate supply source by entering into long-term strategic relationships. Your Company has been one of such sources which many Global customers have recognised and have entered into medium-term arrangements. The transition to E.V brings demand for high performance and specialised rubber chemicals; 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. 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, more particularly as Indian market has surpassed the U.S market becoming the 2nd largest next to China. 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 dependent Asian manufacturers (who depend on China for intermediates) often operate at costs coupled with benefits from economies of scale and the Chinese government promoted incentives, leading to significant pricing pressures across the globe and reduced margins for other players. This has led to exit and downsizing of many Western Players over the last 1 - 2 decades. 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.

The recent Gulf War crisis, which has disrupted production at critical energy-generating facilities may lead to shortage of energy items like LNG etc. This may result in fluctuation in the prices of its downstream raw materials, which can pose a risk to cost management and profitability in the short to medium term. At times, this can lead to temporary disruption in the supply chain which may lead to 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 disruption 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 can be affected by any changes in the geopolitical conditions as seen over the last few years. 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 option contracts. Sentiment-driven currency changes can also impact domestic prices and profitability. Currently the crude prices are at a relatively high level. The continued high crude prices can influence a high-cost input price regime and if not adequately matched by RC selling prices may impact on the profitability of the business.

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) 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 Rs. 83.81 Crores as compared to Rs. 119.11 Crores in 2024-25. Further, the Company made significant efforts in reducing working capital due to tight management of the same which gave sufficient cash from the same to finance some portion of its capital expenditure.

Pursuant to the SEBI (Listing Obligations and Disclosure Requirements), (Amendment), Regulations, 2018, the key financial ratios viz., Debtors turnover, Inventory Turnover, 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 and current ratio 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:

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

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

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

Periodical 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.

Review 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 (H.R)

At NOCIL our people remain the cornerstone of our sustained growth and competitive advantage. We are committed to building a high-performance, inclusive, and future-ready organisation where talent thrives, innovation flourishes, and every employee contributes meaningfully to our purpose of innovating chemistry and driving progress. Our H.R. philosophy is anchored in attracting, developing, and retaining exceptional talent while fostering a culture where our core values of Agility; Intrapreneurship, Respect and Resilience (A.I.R.R) are consistently lived and experienced. At your company, employees with their expertise and commitment drive innovation, deliver strategic milestones and fuel organisational success. During the year, your Company focused on implementing key people initiatives to enable collective performance and to support individual development, while focusing on strengthening capabilities for the future. A key business imperative was facilitating Leadership reflection across levels rooted in our Leadership Competency Framework with a clear intent to articulate a common leadership language and leadership impact. As a part of the Digitalisation journey, your Company continued its efforts in leveraging the recently launched Human Resource Management system to strengthen employee experience and enable data-based decision making. Your Company continued its efforts towards attracting right talent especially for business expansion plans by offering an opportunity to build a rewarding career with an industry leader that combines a strong legacy with forward-looking ambition. Your Company also stepped up its efforts in designing and delivering a wide range of learning and development programmes, including technical, Health, Safety & Environment (HSE), and functional capability training, aligned with ISO standards. 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. At NOCIL, employees experience meaningful work, professional growth, a culture of respect and inclusion, and the opportunity to make a tangible impact on customers, communities, and the broader industry.

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 development in India and other Countries where the Company operates, among other incidental factors.