Paos Industries Ltd Management Discussions

1.INDUSTRY OVERVIEW

The soaps and detergents industry forms an important part of the fast-moving consumer goods (FMCG) sector and caters to essential requirements relating to personal hygiene, household cleaning and sanitation. The products manufactured and marketed by the industry have recurring consumption and cater to consumers across different geographical, demographic and income segments.

The industry operates in a competitive environment with the presence of established national and international brands, regional manufacturers and local market participants. Competition exists across various parameters, including product quality, pricing, fragrance, product performance, packaging, brand recognition, distribution reach and customer preferences.

The industry is also influenced by fluctuations in the prices of key raw materials, chemicals, oils, packaging materials, fuel, power, transportation and other inputs. Changes in input costs can have a direct impact on the cost of production and operating margins. Accordingly, efficient procurement, manufacturing processes, inventory management and cost control remain important factors in the operations of companies engaged in this sector.

During the year under review, the Company continued its operations in the soaps and detergents segment and remained focused on its manufacturing and business activities in accordance with prevailing market conditions. While it has been the practice of the Company to regularly share with Members the developments/information on the Company and the Industry Front. However, this section and format is being offered as part of the Annual Report.

2.BUSINESS OVERVIEW

The Company is engaged in the business of manufacturing and dealing in soaps and detergents. During the year under review, the Company continued its business operations in the aforesaid sector.

The Company operates in a competitive and price-sensitive market where product quality, cost efficiency, availability, distribution and customer acceptance are important factors affecting business performance.

The Company continued to focus on its operational activities during the year and dealt with the prevailing challenges relating to input costs, competition and market conditions. The experience of the promoters and management in the soaps and detergents industry continues to provide the Company with relevant knowledge of manufacturing processes, products, market requirements and industry dynamics.

3.OPPORTUNITIES AND STRENGTHS Established Industry Experience

The Company benefits from the extensive experience of its promoters and management in the soaps and detergents business. The promoters have more than six decades of experience in the sector, providing the Company with considerable understanding of manufacturing processes, product requirements, market conditions and customer preferences.

Such industry experience is an important strength in managing the operational and commercial requirements associated with the business.

Essential Nature of Products

Soaps and detergents are essential consumer products with regular and recurring demand. The industry caters to a broad consumer base across different market segments and geographical areas.

The essential nature of the products provides an underlying market for manufacturers operating in the sector, although individual company performance remains dependent upon competition, pricing, product quality, distribution and other market factors.

Product and Market Presence

The Companys presence in the soaps and detergents segment provides it with an established platform for conducting its business activities. The Company deals in products catering to consumer and household requirements and operates in a market characterized by diverse product categories and price points.

Experienced Human Resources

The Company had 240 employees on its rolls during FY 2025-26. The availability of an established workforce supports the Companys manufacturing, operational, administrative and other business functions.

The Company recognizes the importance of its human resources in maintaining operational continuity, product quality and effective execution of its business activities.

4.THREATS AND CHALLENGES

The Company operates in a highly competitive industry. Competition from established national and international brands, regional manufacturers and local players can affect product pricing, market share and operating margins.

Volatility in the prices of raw materials and other inputs remains one of the key challenges for the industry. Any significant increase in the cost of chemicals, oils, packaging materials, fuel, power, transportation and other inputs may increase the Companys cost of production and adversely affect profitability if such increases cannot be adequately absorbed through pricing or efficiency measures.

The Company is also exposed to changes in consumer preferences, competitive pricing, market conditions, regulatory requirements and general economic conditions. Other operational challenges may arise from supply-chain requirements, inventory management, working capital requirements, product quality and maintaining consistent manufacturing standards.

Management continues to monitor these factors as part of its regular business and operational review.

5.RISK AND MANAGEMENT PERCEPTION

The Companys business operations are exposed to various risks and uncertainties that are inherent in the soaps and detergents industry. The principal risks identified by the management include competition risk, raw material price risk, market risk, operational risk, regulatory risk and financial and liquidity-related risks.

Competition Risk

The Company operates in a competitive market with the presence of established brands and manufacturers across various segments and geographical markets. Competition may affect selling prices, margins and the Companys ability to retain or increase its market presence.

Management perception: The Company monitors market conditions, competitive developments, product pricing and customer requirements as part of its regular business operations. The Company remains focused on product quality, operational efficiency and appropriate cost management.

Raw Material Price Risk

The prices of raw materials and other production inputs are subject to fluctuations arising from various market and economic factors. Significant increases in raw material prices can affect the Companys cost structure and profitability.

Management perception: The Company monitors the movement of input prices and procurement requirements and undertakes appropriate measures relating to procurement, inventory and cost management, based on prevailing business conditions.

Market Risk

Changes in consumer preferences, purchasing behaviour, market demand and general economic conditions may affect the demand for the Companys products.

Management perception: The Company monitors market conditions and customer requirements and conducts its business activities in accordance with prevailing market circumstances.

Operational Risk

Operational risks may arise in areas such as manufacturing, procurement, quality control, inventory, logistics, supply chain and other business processes.

Management perception: The Company maintains appropriate operational procedures and controls and periodically reviews its business processes to address operational requirements.

Regulatory Risk

The Companys operations are subject to various applicable statutory and regulatory requirements relating to manufacturing, product quality, packaging and labelling, taxation, environmental matters, labour and other applicable laws.

Management perception: The Company remains committed to compliance with applicable laws and regulations and monitors regulatory requirements relevant to its operations.

Financial and Liquidity Risk

The Companys operations involve requirements relating to working capital, receivables, inventory, trade payables and other financial obligations. Effective management of these areas is important for maintaining adequate liquidity and supporting day- to-day operations.

Management perception: The Company monitors its working capital requirements, receivables, payables and cash flows as part of its regular financial management process.

6.FINANCIAL PERFORMANCE

Review of Financial Performance

During FY 2025-26, the Companys revenue from operations increased to Rs.8,803.89 lakhs from Rs.5,463.65 lakhs in the previous year, representing an increase of approximately 61.13%. Other income increased from Rs.24.50 lakhs to Rs.33.53 lakhs during the year.

The Companys profit before interest, depreciation and tax increased substantially from Rs.182.31 lakhs in FY 2024-25 to Rs.378.65 lakhs in FY 2025-26. This indicates an improvement in the operating result before considering finance costs and depreciation.

After considering deferred tax of Rs.16.98 lakhs, the Company reported a loss after tax of Rs.210.93 lakhs for FY 2025-26, compared with a loss after tax of Rs.77.10 lakhs in FY 2024-25.

The basic earnings per equity share stood at negative Rs.3.46 for FY 2025-26 as compared with negative Rs.1.26 in the previous financial year.

Overall, while the Company recorded a significant increase in revenue and operating performance before interest, depreciation and tax, the increase in finance costs and depreciation resulted in the Company continuing to report a loss after tax during the year under review.

7.INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has appropriate internal control systems and procedures commensurate with the nature and scale of its business operations.

The internal control framework is designed to provide reasonable assurance regarding the authorization and recording of financial and operational transactions, safeguarding of assets, accuracy and reliability of financial information, prevention and detection of errors and appropriate utilization of the Companys resources.

The Companys internal controls are supported by appropriate authorization procedures, segregation of responsibilities, accounting controls, operational checks and periodic reviews.

The adequacy and effectiveness of internal controls are reviewed through the Companys internal audit and statutory audit mechanisms, as applicable. Significant observations, if any, are placed before the Audit Committee and/or the Board of Directors for appropriate consideration and corrective action.

The Company continues to maintain and review its internal control systems in accordance with the requirements of its business operations.

8.HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Human resources constitute an important component of the Companys manufacturing and business operations.

The Company considers employee competence, discipline, productivity, safety and effective deployment of human resources to be important for the smooth functioning of its operations.

During the year under review, the Company maintained cordial relations with its employees. The Company continued to comply with applicable statutory requirements relating to its employees and workforce.

The Company also recognizes the importance of maintaining a suitable working environment and appropriate human resource practices commensurate with the nature of its operations.

9.OPERATIONAL PERFORMANCE

During FY 2025-26, the Company continued its operations in the soaps and detergents business.

The Company recorded revenue from operations of Rs.8,803.89 lakhs, compared with Rs.5,463.65 lakhs in FY 2024-25. The increase in revenue was accompanied by an improvement in profit before interest, depreciation and tax from Rs.182.31 lakhs to Rs.378.65 lakhs.

However, the Companys financial performance continued to be affected by finance costs and depreciation. Interest and bank charges during the year amounted to Rs.269.24 lakhs, while depreciation amounted to Rs.303.58 lakhs.

As a result, the Company reported a loss after tax of Rs.210.93 lakhs during FY 2025-26.

The above financial results reflect the Companys operating performance during the year and should be read together with the audited financial statements and notes forming part of this Annual Report.

10.OUTLOOK

During the year under review, the Company continued its operations in the soaps and detergents business.

The Company operates in a market characterized by regular consumer demand, intense competition and fluctuations in input costs. The Companys performance during the year reflects an increase in operating revenue and an improvement in profit before interest, depreciation and tax, while finance costs and depreciation continued to have a significant impact on the overall financial result.

The management remains focused on the Companys existing business operations and continues to monitor market conditions, operating costs, raw material prices, customer requirements and competitive developments.

The Company will continue to conduct its business in accordance with applicable laws and regulations and the prevailing market and operating environment.

11.CAUTIONARY STATEMENT

Certain statements contained in this Management Discussion and Analysis may constitute statements relating to the Companys business environment, industry conditions, risks and other matters that are subject to various uncertainties.

Actual results and performance may differ from those expressed or implied in such statements due to various factors, including changes in economic conditions, market demand, competition, raw material prices, operating costs, regulatory requirements and other factors beyond the Companys control.

The information contained in this Management Discussion and Analysis should be read in conjunction with the Companys audited financial statements and the related notes thereto forming part of this Annual Report.

The Company does not undertake any obligation to publicly amend, modify or revise any statement on the basis of subsequent developments, information or events, except as may be required under applicable laws and regulations.