Organic Coatings Ltd Management Discussions

Financial year 2025-26 was a mixed year for the Company and for the printing ink industry more broadly. Escalation of the conflict in the Middle East towards the close of the fiscal year placed considerable strain on freight, energy and input costs across the sector. Raw material prices and availability - particularly for pigments, resins and solvents, a large share of which are derived from crude-oil feedstocks - fluctuated sharply from late February 2026 onward, sharpening price-based competition industry-wide as manufacturers sought to defend market share.

Against this backdrop, the Indian economy is estimated to have grown by around 8% during the year, aided by a favourable base, though the recovery was uneven across end-user sectors. The domestic printing ink industry continues to bifurcate along two distinct trajectories: a structurally declining publication and newsprint segment, and a packaging segment that continues to grow on the back of rising branded and packaged consumption, e-commerce penetration and organised retail. Larger multinational players in the space have responded by weighting their portfolios toward flexible packaging inks, lamination adhesives and specialty/digital inks, and by accelerating low-VOC, toluene-free and waterbased product lines to meet tightening customer and regulatory expectations on safety and sustainability. The Company views this shift - away from commodity publication inks and toward higher-margin packaging and specialty products - as the defining structural trend it must align to over the medium term.

Newspaper and magazine circulation continues to decline, with advertising spend increasingly diverted from print to digital and social channels. This structural trend is expected to result in a sustained decline in global consumption of publication inks, and the Company does not expect this segment to be a source of future growth.

The corresponding opportunity lies in packaging. Rising demand for branded, packaged and export-oriented consumer goods is driving sustained volume growth in flexible packaging, labels and specialty coatings - a segment less exposed to digital substitution and generally carrying better realisations. The Companys strategy is to rebalance its product mix progressively toward packaging inks, varnishes and higher-margin specialty coatings, reducing dependence on the structurally shrinking publication segment.

Key threats to the industry include continued volatility in crude-oil-linked raw material prices, input availability disruptions arising from geopolitical developments, and intensifying price-based competition as players compete for a smaller pool of publication-segment volumes while chasing the same packaging growth opportunity. Tightening environmental and safety regulation on solvent-borne and VOC-emitting formulations is both a threat to legacy product lines and an opportunity for manufacturers, including the Company, that invest early in compliant, low-VOC and water-based alternatives.

The Companys operations are confined to a single reportable segment - printing inks, varnishes and allied auxiliaries - manufactured at its Vadodara facility. Within this single segment, the Company tracks performance across its publication and packaging/specialty product lines internally to guide the mix-shift described above, though it does not currently report multiple segments for the purpose of segment disclosure.

With a new technical and marketing team now in place, the Company expects to progressively improve the efficiency and effectiveness of operations at the Vadodara plant and to target renewed sales growth, anchored in a price/mix-led approach rather than a pursuit of volume alone. The near-term priority is to widen the higher-margin packaging and specialty share of the portfolio while maintaining tight control over cost and working capital.

Risk and Concerns- Raw material volatility: Pigments, resins and solvents are substantially linked to crude-oil prices; sustained volatility can compress margins faster than pricing can be passed through to customers.-

Geopolitical exposure: Developments in the Middle East, China and Iran may materially affect raw material sourcing, freight costs and export markets.- Structural decline in publication inks:

Continued erosion of print media reduces the addressable base for legacy product lines.-

Competitive intensity: Both domestic and multinational players are competing aggressively for the same packaging-segment growth, exerting pressure on realisations.- Talent and execution risk: The ink manufacturing industry faces an industry-wide shortage of skilled technical and commercial talent, which can constrain the pace of the Companys mix-shift and operational improvement plans.-

Regulatory and compliance risk: Tightening environmental, safety and VOC-related norms may require continued investment in reformulation and compliance.

Annexure I To Directors Report

Internal Control systems and their AdequacyThe Companys internal control systems, including those relating to financial reporting, are designed to safeguard assets against loss from unauthorised use or disposition, and to ensure that transactions are authorised, recorded and reported correctly, and that operations are conducted in an efficient and cost-effective manner.

The Company has appointed an independent firm of Chartered Accountants to carry out the internal audit function; their findings are placed before, and discussed with, the Audit Committee on a regular basis. The Company continues to seek external guidance for the ongoing strengthening of its control environment.

Revenue from operations declined marginally by 2.99% to 2,809.33 Lacs, against a backdrop of raw material volatility and heightened price competition described above. A decline in job work volumes during the year also weighed materially on revenue and profitability; this was offset by an increase in the Companys own-account sales.

Material consumption as a percentage of revenue improved to 76.71% from 80.06% in the previous year, a function of the Companys continuing cost and mix discipline. Employee benefits expense rose to 6.27% of revenue from 4.46% reflecting investment in the new technical and marketing team referred to under Outlook above.

Finance cost reduced to 71.31 Lacs from 115.56 Lacs in the previous year, aided by continued deleveraging. Depreciation increased marginally to 90.90 Lacs from 86.25 Lacs. PBDIT losses widened, decreasing by 1,843.90% to 163.66 Lacs from 8.42 Lacs in the previous year, in line with the revenue decline and cost pressures described above; total comprehensive loss for the year increased by a more moderate 51.70% to 326.94 Lacs from 215.51 Lacs, reflecting items below the PBDIT line.

Globalisation continues to raise the strategic relevance of the Human Resource function, and the industry as a whole faces a shortage of talented and committed people. The Company continues to invest within its means, appropriate to the nature of its operations and requirements, in building its team - including the new technical and marketing personnel referred to above. The Company had 67 permanent employees as on 31st March 2026. The Management places on record its appreciation for the valuable support of all present and past employees during a difficult economic period, and looks forward to their continued support in the year ahead.

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may constitute forward-looking statements within the meaning of applicable securities laws and regulations. Words such as plans, expects, anticipates, believes, intends, estimates and other similar expressions are intended to identify such forward-looking statements. These statements are based on certain assumptions and expectations of future events, and actual results, performance or achievements could differ materially from those expressed or implied in such statements. Important factors that could influence the Companys operations include raw material availability and price movements, changes in government regulations, tax regimes, economic conditions, and other incidental factors, both in India and in the markets in which the Company operates.