Parag Milk Foods Ltd Management Discussions

Economic Environment

Global Economic Overview

The global economy remained resilient during CY 2025 despite continued uncertainty surrounding trade and policy developments. Global GDP growth remained steady at 3.5%, while global inflation reduced from 5.8% in CY 2024 to 4.1% in CY 2025. Emerging Market and Developing Economies (EMDEs) sustained growth momentum, supported in part by stronger net exports and increased investment activity. At the same time, global trade policies increasingly reflected security and geopolitical considerations rather than efficiency and multilateral cooperation. Having absorbed the impact of higher trade barriers and elevated uncertainty in the previous year, the global economy now faces renewed challenges following the outbreak of conflict in the Middle East. Looking ahead, global economic conditions are expected to remain broadly stable, with growth projected at

3.0% in CY 2026 and 3.4% in CY 2027. However, risks from geopolitical tensions and potential trade disruptions persist. Timely and coordinated policy responses by governments across the world are expected to remain critical to managing evolving macroeconomic challenges in the period ahead. 1

Indian Economic review

The Indian economy demonstrated strong resilience during FY 2026, with real GDP growth accelerating to 7.7% , despite heightened global uncertainty. 2 India retained its position as one of the fastest-growing major economies for the fourth consecutive year. Growth in the Indian economy was primarily driven by robust domestic demand. Private Final Consumption Expenditure (PFCE) remained strong, while investment activity continued to gain traction. Household consumption served as a key anchor of demand, supported by both urban and rural markets. Lower income tax and GST rates further supported consumption, while higher GST collections reflected sustained economic activity. On the supply side, manufacturing activity strengthened and the services sector continued to be a major contributor to overall economic expansion.

The Government of India supported economic expansion through timely policy interventions, including GST rationalisation and regulatory reforms aimed at improving the ease of doing business. In response to global uncertainties, the focus has remained on strengthening domestic growth drivers, enhancing resilience to external shocks and diversifying exports to mitigate external sector risks. On the external financing front, India continued to remain an attractive destination for greenfield FDI projects, supported by strong growth in gross foreign direct investment. During 2025-26, both gross and net FDI inflows recorded an increase over the previous year.

Looking ahead, the Indian economy is expected to maintain its growth momentum, with real GDP growth projected at 6.9 % in 2026-27. This outlook is supported by strong domestic demand, stable inflation and prudent macroeconomic policies. The Union Budget 2026-27 introduced the Kartavyas framework, prioritising accelerated growth through enhanced productivity, improved competitiveness and greater resilience to global volatility. FY 2027 is likely to represent a phase of economic adjustment, with businesses and households adapting to evolving economic conditions, while domestic demand and investment activity continue to strengthen. 3

Industrys Performance

Fast Moving Consumer Goods (FMCG)

Global FMCG Market

The Fast-Moving Consumer Goods (FMCG) sector comprises products that are purchased frequently and form part of consumers daily or weekly requirements, including food, beverages and household essentials. The sector remains one of the most dynamic sectors globally, supported by steady demand for essential goods. The global FMCG market was valued at USD 8,723* billion in 2025. 4 The growth witnessed during the year was primarily driven by accelerating urbanisation and a structural shift in consumer behaviour towards convenience-oriented products. This momentum was further amplified by the rapid expansion of digital retail ecosystems, specifically driven by organised e-commerce platforms and the exponential rise of quick-commerce channels, which have fundamentally redefined product accessibility and delivery timelines for urban consumers. Higher income levels and evolving spending patterns have also encouraged consumers to shift towards branded, premium and value-added offerings, supporting market expansion across categories. The competitive landscape remains diverse, with both global and regional players strengthening their presence. Regional companies continue to gain market share through localised offerings and cost-competitiveness. In the Asia-Pacific region, traditional trade continues to dominate rural markets, accounting for 70% of FMCG sales in rural markets, indicating significant potential for further distribution-led expansion. The global FMCG market is projected to grow at a CAGR of 5.40% between 2025-2034, reaching approximately USD 21.88 trillion by 2034. Future growth is expected to be driven by increasing adoption of sustainable packaging, rising demand for clean-label and personalised products and deeper penetration across emerging markets and e-commerce platforms.

Indian FMCG Market

India remains one of the fastest-growing FMCG markets in the Asia-Pacific region, supported by sustained demand expansion. Growth is driven by rising domestic consumption, supportive government policies, continuous product innovation and expansion of distribution networks.

The sector has also benefited from the growth of organised retail, increasing smartphone penetration, improved logistics and delivery networks and rising disposable incomes. Rapid urbanisation and evolving consumer preferences towards convenience-oriented products continue to support market expansion. The Indian FMCG market remains highly competitive, with multinational and domestic players competing through product innovation, strategic acquisitions and digital transformation initiatives. The sector is characterised by high sales volumes, rapid inventory turnover and a broad portfolio of products catering to everyday consumption needs.

Quick commerce platforms are increasingly reshaping distribution dynamics, particularly in urban markets. In addition, the application of artificial intelligence across the FMCG value chain is enhancing product development, pricing strategies and customer engagement.

The Indian FMCG market is expected to maintain strong growth momentum, supported by favourable macroeconomic conditions, easing inflation and sustained recovery in rural demand. The market is projected to reach USD 1,150.21 billion by 2034. 5

Indian Dairy Industry

The dairy market encompasses the comprehensive ecosystem of production, processing, distribution, and consumption of milk and milk-based products. Globally, India maintains its clear leadership as the worlds largest milk producer, accounting for nearly one-fourth of global output. Beyond its food security role, the dairy sector serves as a vital anchor for the rural economy, contributing approximately 5% to the national GDP and directly sustaining the livelihoods of over 8 crore farmers. The sector reaches more than 8 crore rural households, predominantly consisting of small and marginal landholders, with women playing a structurally critical role in production and collection networks to drive socio-economically inclusive growth. 6 The Indian dairy market remains moderately fragmented, with the top five players accounting for nearly 35% of organised sector revenue. Consumer preferences are evolving, particularly in urban areas, where protein-rich products are increasingly associated with health and wellness. This is driving demand for premium offerings such as Greek yoghurt, fortified milk and high-protein cheese. The industry outlook remains positive, supported by rising health awareness, increasing incomes and changing consumption patterns. Demand for premium and value-added dairy products is expected to remain strong, especially among urban consumers. At the same time, dairy alternatives are emerging as a fast-growing segment. Increasing awareness of plant-based products, health and environmental concerns and a rising incidence of lactose intolerance are supporting this growth. The Indian dairy market, traditionally characterised by an unorganised and cooperative-led structure, is gradually transitioning towards a more competitive, branded and technology-enabled ecosystem. The organised dairy segment is expected to witness revenue growth, supported by sustained demand, higher volumes and staggered price increases. Rising consumer awareness of product quality is also driving a shift from unbranded to branded dairy products, thereby supporting the growth of organised players.

Growth Drivers

- P opulation growth and rising income

A growing and increasingly urbanised population, coupled with higher disposable incomes, is driving demand for milk and dairy-based nutrition. This is supporting per capita consumption and sustained volume growth across the dairy sector

- Expansion of value-added and premium dairy products

C onsumer preference are shifting towards cheese, paneer, flavoured and fortified milk, probiotic yoghurt and premium ghee. These categories offer higher margins and faster growth than liquid milk, supporting profitability and product innovation.

- G rowth of organised players

The expansion of cooperatives and private dairy companies is strengthening milk procurement, enhancing processing capacity and improving distribution networks. This is increasing the share of milk in formal channels, improving quality standards and enabling scale efficiencies.

- D igitalisation and technology-enabled farming

The adoption of digital solutions milk collection, including systems such as the National Dairy Development Boards Automatic Milk Collection System, is improving operational transparency, efficiency and farmer engagement. This is encouraging higher milk supply and participation in organised networks.

- E-c ommerce and modern retail penetration

The increasing reach of e-commerce and modern retail is enabling dairy companies to access urban and semi-urban markets better, enhancing product availability and visibility.

- G overnment support

G overnment schemes, subsidies and policy measures focused on strengthening cold-chain infrastructure, improving cattle productivity and enhancing farmer incomes are reducing sectoral risks and encouraging investment in the organised dairy industry.

Government Initiatives

- R ashtriya Gokul Mission (RGM)

The Rashtriya Gokul Mission, implemented since December 2014, focuses on the conservation and development of indigenous bovine breeds, genetic improvement and enhancement of milk productivity.

- Liv estock Health and Disease Control Programme (LHDCP)

The Livestock Health and

Disease Control Programme aims to improve livestock health through disease prevention, control and management.

- N ational Programme for Dairy Development

The National Programme for Dairy Development seeks to improve farmers access to organised markets by strengthening dairy processing facilities, marketing infrastructure and producer-owned institutions.

- A nimal Husbandry Infrastructure Development Fund (AHIDF)

The Animal Husbandry Infrastructure

Development Fund has a revised outlay of H29,110.25 crore up to FY 2026, this supports investment in dairy processing, value addition infrastructure, animal feed, breed improvement, veterinary vaccines and waste management. It aims to increase processing capacity, improve producer realisation and ensure the availability of quality dairy products.

About the Company

Parag Milk Foods Limited, established in 1992, is the largest private dairy FMCG Company with a pan India presence. The Companys manufacturing facilities with in-house technology which are strategically located at Manchar and Thorandale in Maharashtra and Palamaner in Andhra Pradesh. The Company sells 100% cows milk products that are healthy and nutritious. Integrated business model and strong R&D capabilities have helped the Company establish a strong position product development. The Companys dairy farm, Bhagyalaxmi, houses more than 5,000 cows, with an automated milking process. The Company offers traditional products like Ghee, Dahi, Paneer, Liquid Milk, etc. under brand Gowardhan, and products like Cheese, UHT Milk, Buttermilk, Lassi, Flavoured Milk Shakes, etc. under the brand name Go. Pride of Cows, the flagship brand of the Company based on proposition of Farm to Home - single origin concept targeting customers seeking premium quality dairy products. The Company is also present in Whey Protein based sports nutrition under the brand Avvatar - Indias 1 st 100% vegetarian whey protein. The Companys goal is to become the global nutrition provider and become the largest dairy FMCG Company that emphasizes health and nutrition to consumers through quality and innovation

INR 3,818 CR

Revenue in FY 2026

11 %

Value Growth in FY 2026

5 %

Volume Growth in FY 2026

Gowardhan

The brand offers a comprehensive portfolio of daily dairy products, including ghee, milk, paneer, curd, butter, dairy whitener, ready-to-eat sweets and gulab jamun mix. It has established strong resonance across both urban and rural households. To enhance accessibility and drive household penetration, the Company introduced Gowardhan Ghee in a 20 ml sachet priced at H20. This initiative is aimed at encouraging product trials among value-conscious consumers while expanding reach across diverse consumer segments. Ghee remained a clear outlier, supported by strong volume growth.

Go

Go remains a flagship brand in the Companys portfolio, with a strong presence in the cheese segment and a product offering aligned with evolving modern consumption needs. The brand has also broadened its portfolio through UHT-based beverages and value-added dairy products, including masala Chaas, flavoured milk and fruit yoghurt. Its offerings further comprise flavoured cheese wedges, cheese spread in a tube, cheese slices, cheese angles, flavoured yogurt and Go Slim Milk.

Pride of Cows

Pride of Cows operates as a premium, farm-to-home, single-origin brand with a premium and niche lifestyle positioning. Its dairy farms are equipped with international technology for feeding, milking and processing and follow international dairy practices. The brands product range comprises ghee, paneer, low-fat high-protein paneer, curd, Greek yoghurt, whole milk, low-fat milk and whole milk powder.

Avvatar

Avvatar, Indias first 100% vegetarian whey protein brand, has gained increasing consumer acceptance through continuous product innovation and is emerging as a strong domestic alternative to international players. Its portfolio includes Performance Whey, developed for everyday whey nutrition, and Protein Wafer Bar, intended for on-the-go fitness enthusiasts. Creatine further expands the portfolio and reinforces the brands focus on science-backed, performance-driven nutrition. Additionally, Avvatar also offers products such as Isopure Blend, Fuel Whey and Performance Whey.

Operational Performance in FY 2026

The overall performance in FY 2026 was influenced by a combination of external and internal factors. During the year, the Company navigated changes arising from the implementation of changes in the GST framework and industry-wide inflation in milk procurement prices. However, the Company undertook proactive measures, including product mix optimisation and measured calibrations, to mitigate the impact of changes in the GST framework, which affected pricing dynamics and demand across select categories. In addition, to address industry-wide inflation in milk procurement costs, which exerted pressure on gross margins, particularly in commoditised segments, Parag Milk Foods implemented cost control measures, operational efficiencies and maintained a continued focus on value-added products. Despite industry-wide challenges, the Company delivered a strong and stable operational and financial performance in FY 2026, driven by a clear strategic focus, robust brand equity, and disciplined execution. Demand for its trusted, high-quality dairy and nutrition products remained highly resilient, supported by a differentiated product portfolio and an expansive pan-India presence. The Companys core categories including ghee, cheese, and paneer served as stellar growth drivers, recording an impressive 12% volume growth and accounting for approximately 60% of total revenue. This momentum translated into an 11% increase in overall revenue and a remarkable 19% surge in consolidated PAT, achieved by optimising the product mix and expanding gross margins even in a hyper-inflationary commodity cycle. By successfully mitigating cost pressures through calibrated pricing and targeted promotions, the Company not only sustained its growth trajectory but also proactively aligned its portfolio with conscious consumer trends. Backed by a strengthened presence across modern trade, quick commerce, and digital platforms, alongside deep consumer engagement, the Company is perfectly positioned for long-term, sustainable market leadership.

Product performance in FY 2026

Core Categories

The core portfolio, comprising ghee, cheese and paneer, continued to contribute a significant share of the overall product mix. These categories benefited from strong brand recall, wide distribution reach and steady demand across urban and semi urban markets. Margin resilience in core products, supported by judicious pricing actions and cost optimisation initiatives, helped partially offset the impact of raw milk price volatility during the year. The Core categories now contributes to 60% of the overall revenue with robust double digit volume growth.

INR 2283 CR

Revenue in FY 2026

16 %

Y-o-Y Growth

8 %

Volume Growth

New Age Business

The Company introduced a range of new-age products aligned with shifting consumer behavior and dynamic market dynamics, thereby strengthening its presence in high-growth segments. Pride of Cows and Avvatar Sports Nutrition represent the New Age business stream of the Company as a strategic pivot towards premium, consumer-centric brands. These ventures are built on strong differentiators, including single-origin purity for Pride of Cows and performance-focused nutrition for Avvatar.. The New Age products continued to gain traction, particularly among younger consumers, and are expected to remain key growth drivers over the medium term. Further to this, initiatives were undertaken to expand the reach of Pride of Cows into additional metro markets, including Chandigarh, along with increased penetration through quick commerce across multiple cities. Moreover, the New Age business has emerged as a strong growth engine, and its contribution to the overall business has increased to a meaningful double digit level during the reporting year.

INR 366 CR

Revenue in FY 2026

91 %

Y-o-Y Growth

Liquid Milk

During the reporting year, milk volumes remained stable, profitability was impacted by inflationary pressures in procurement prices for raw milk during the year. The Company continued to focus on operational efficiencies, supply chain optimisation and calibrated pricing actions to manage margin pressures in this category. Additionally, the Company has premiumized the category through its direct-to-consumer, farm-to-table brand, Pride of Cows, which offers premium single-source cow milk to consumers across major metros.

INR 358 CR

Revenue in FY 2026

4 %

Y-o-Y Growth

Milk Procurement

5 Lacs+

Farmers

2,400+

Village Level Collection points (VLC)

2

State-of-the-art Farms

7

Integrated Processing Plants

300+

Bulk Milk Coolers & Milk Chillers

Ingredients Business

The ingredients portfolio serves diverse applications, including pharmaceutical formulations, bakery, confectionery, infant nutrition, protein-enriched products and dairy-based desserts. This segment benefits from long term customer relationships, strong technical capabilities and rising demand for functional and protein based ingredients. During FY26, the ingredients business remained a strategically important vertical, providing diversification and stable revenue streams while leveraging the Companys dairy processing expertise.

Others business

INR 366 CR

Revenue in FY 2026

Annual Revenue mix over the past 5 years

Rev. Composition in %	FY22	FY23	FY24	FY25	FY26
Core Categories	57%	58%	55%	57%	60%
New Age Business	3%	4%	5%	6%	10%
Liquid Milk	10%	10%	9%	10%	9%
Ingredient Business	23%	23%	23%	17%	13%
Others	7%	6%	8%	10%	8%
Total	2072	2893	3139	3432	3818

Driving Growth Through Innovation

Our new product development initiatives are aimed at expanding category presence, improving premiumization, and addressing unmet consumer needs. Through continuous innovation, we seek to unlock new growth avenues while reinforcing our competitive position.

Subsidiary Performance in FY 2026

Bhagyalaxmi Dairy Farm

Bhagyalaxmi Dairy Farm is among Indias advanced dairy farms, spread across over 500 acre and equipped with modern international technology. Its premium product portfolio, catering to SEC A+ consumers, includes whole milk, fat-free milk, ghee, paneer, Whole milk powder (WMP), Greek Yoghurt and curd and marketed under the brand Pride of Cows. The farm has pioneered the farm-to-home single-origin milk concept, contributing to its strong growth trajectory. The Bhagyalaxmi Bioscience division continues to focus on sustainability and innovation by utilising cow dung to produce organic fertilisers, soil enhancers and eco-friendly agricultural solutions. These initiatives contribute to a more sustainable value chain and promote environmentally responsible practices.

Bhagyalaxmi Dairy Farm was structured around three RRR principles - Reduce, Recycle, Reuse

Financial Highlights

Financial Overview (Consolidated )

( Rs. in Crore)

Particulars	FY 2026	FY 2025
Revenue from Operation	3,818	3,432
EBITDA	310	293
Profit before tax	152	133
PAT bei	141	119
Net Worth	1,259	1,023
Net profit margin (%)	3.7%	3.5%

Key Financial Ratios (Standalone)

Sr. no Ratio		As of 31 st March 2026	As of 31 st March 2025	Change	Explanation for the change in the ratio by more than 25% as compared to the previous year
1 Current Ratio (times)	Current Assets/Current Liabilities	1.88	2.07	(9%)	N/A
2 Debt-Equity Ratio (times)	Total Borrowings/Shareholders equity*	0.43	0.57	(24%)	N/A
3 Debt Service Coverage Ratio	Earnings available for debt service/ Debt service	0.71	0.68	4%	N/A
4 Return on Equity Ratio (%)	Net Profits after taxes/ Average shareholders equity	12.95	12.58	3%	N/A
5 Inventory turnover ratio (times)	Revenue from operations/ Average inventory	4.38	5.80	(25%)	Inventory Turnover Ratio has declined due to increase in inventory and cost of material consumed
6 Trade receivables turnover ratio (times)	Net revenue from operations/ Average trade receivables	15.59	13.90	12%	N/A
7 Trade payables turnover ratio (times)	Net purchases/ Average trade payables	12.82	11.44	12%	N/A
8 Net capital turnover ratio (times)	Revenue from operations/ Working capital	5.82	4.74	23%	N/A
9 Net profit ratio (%)	Net profit/ Revenue from operations	4.03	3.67	10%	N/A
10 Return on capital employed (%)	EBIT/ Capital employed**	12.61	13.49	(7%)	N/A
11 Return on investment (%)	EBIT/ Average total assets	11.50	11.91	3	N/A

Note: The above reporting has been prepared by the Company as per internal metrics. The numbers may differ from the financials reported under accounting standards.

In FY 2026, order to further strengthen its financial position, during FY26 the Board of Directors approved the issuance of convertible warrants on a preferential basis, subject to shareholder approvals. On April 3, 2025, the Board approved the issuance of 90,00,000 convertible warrants, each convertible into one fully paid up equity share of face value H10, at an issue price of H179.10 per warrant, aggregating to a total potential fund raise of approximately Rs 161 crore. An amount equal to 25% of the warrant issue price was received upfront, in line with SEBI regulations. The remaining Rs 120.89 crore (the 75% balance of the total Rs 161.19 crore fundraise) is currently outstanding and payable by the allottees upon exercising their conversion rights into equity shares. Under SEBI regulations, allottees have up to 18 months from the allotment date (May 2025) to pay this balance and execute the conversion. The same will be converted in November 2026.

Promoter & Promoter Group Public Shares held by Employee Trust

*as a % assuming full conversion of share warrants

The warrants were preferentially allotted to a combination of promoters, non promoter investors and senior management, including the Chairman, Managing Director, certain promoter entities, marquee external investors such as Mr. Utpal Sheth and a key senior executive, reflecting continued stakeholder confidence in the Companys long term strategy.

The stated objects of the warrant issue included:

During FY26, the Company successfully completed the conversion of all outstanding Foreign Currency Convertible Bonds (FCCBs) held by the International Finance Corporation (IFC) into equity shares, thereby eliminating FCCB related debt from its balance sheet. On September 29, 2025, the Finance Committee of the Board approved the allotment of 57,33,713 fully paid up equity shares of face value H10 each to IFC, pursuant to the exercise of conversion rights for 10,680 FCCBs, at a conversion price of H135 per equity share. The newly issued shares rank pari passu with the existing equity shares of the Company in all respects, including dividend entitlement.

Consequent to this conversion:

The Companys paid up equity share capital increased from H119.38 crore (11.94 crore shares) to H125.11 crore (12.51 crore shares).

The outstanding FCCB liability was reduced to NIL, fully removing this instrument from the Companys balance sheet.

This conversion significantly strengthened the Companys capital structure, reduced leverage and eliminated potential redemption obligations associated with FCCBs

Manufacturing

Encompassing three major manufacturing units and multiple third-party plants, the Companys integrated production model has driven its transformation into a global nutrition provider. By scaling automation and supply chain collaboration, these facilities maximise cost leadership, quality excellence, and operational efficiency.

Manchar Facility

The Manchar facility produces cheese, milk, curd, yoghurt, paneer, ghee, lactose and whey proteins and SMP. The Companys state-of-the-art production ecosystem is anchored by strategically located facilities that ensure high-quality processing, specialised product capabilities, and extensive regional reach.

Palamaner Facility

The Palamaner facility in Chittoor specializes in UHT milk, tetra pack, ghee, milk protein, Whole Milk Powder (WMP),jon processing of fat and Skim Milk Powder (SMP) and bottled beverages. The facility also houses a specialized powder plant producing nutritional powders for pharmaceutical and multinational clients.

Thorandale Facility

The recently acquired Thorandale facility focuses on RTE sweets ++ NPDs, houses cold storage and IQF frozen cheese operations. As part of the Companys broader brownfield expansion initiatives during FY 2026, automated manufacturing lines for both cheese and chikki were successfully installed at Thorandale, including a fully automated chikki production line commissioned during the year. These infrastructure enhancements were further supported by the addition of processed cheese lines at the Manchar facility to scale overall production capabilities.

Quality Management

Quality management and food safety continue to be among the most critical operational priorities for the Company. Detailed HACCP (Hazard Analysis and Critical Control Point) studies have been undertaken across manufacturing processes to identify critical risk areas and establish appropriate control mechanisms. The Companys quality framework is built around ORP (Operational Prerequisite Program), PRP (Prerequisite Program) and critical control point systems. Regular training programmes are conducted for employees on GMP (Good Manufacturing Practices) and hygiene requirements, including the use of caps, masks, shoe covers and handwashing protocols. The Company also maintains a dedicated food safety team that functions separately from the quality team. While the quality team focuses on microbial quality parameters, product specifications and testing standards, the food safety team is responsible for monitoring contamination risks, ensuring adherence to SOPs, addressing customer complaints and mitigating operational risks. Food safety teams conduct regular rounds across plant locations and organise daily training sessions for workers to support compliance with hygiene and food safety requirements.

Distribution

The distribution network of the Company remains a key driver of its market reach and growth. The Company has established a strong pan-India presence through an integrated network spanning general trade, modern retail and e-commerce and quick commerce channels, ensuring wide product availability and accessibility. The extensive network enables efficient servicing of diverse markets and supports the Companys presence in select international geographies through timely product availability and enhanced customer reach. In FY 2026, the Company continued to place strong strategic emphasis on strengthening and future proofing its distribution architecture to support scale, cost efficiency and faster market reach across core and emerging categories. Moreover, Milk is the primary raw material, sourced from farmers through collection centres. It is then processed at the Companys manufacturing facilities. Finished goods move from the plants to a nation-wide network.

Distribution infrastructure

4.6 Lakh

Retail touchpoints

4500

Distributors

500

Super stockists

29

Depots

Key initiatives undertaken in FY 2026

Deepening retail penetration and market expansion

The Company focused on expanding its retail footprint, particularly in high growth semi urban and rural markets, to improve accessibility of its core dairy and value added product portfolio. This was supported by calibrated onboarding of distributors and sub distributors to enhance servicing reach and reduce last mile gaps across priority territories.

Strengthening distributor and super stockist ecosystem

P arag Milk Foods undertook initiatives to improve distributor productivity and engagement through better territory rationalisation, improved service norms and streamlining of order to delivery cycles. The Company also enhanced its super stockist network to support faster replenishment, lower transit time and improved working capital efficiency across regions.

Optimisation of depot and logistics infrastructure

D uring the year, the Company continued to optimise its depot network and logistics flows to improve supply chain efficiency. Initiatives focused on balancing proximity to demand centres, improving inventory turns and reducing secondary freight costs, thereby enabling quicker product availability and improved service levels.

Leveraging technology led distribution capabilities

D igital tools and analytics were increasingly leveraged to strengthen demand forecasting, distributor ordering visibility and route planning. These initiatives supported improved inventory planning, reduced stock outs and enhanced execution discipline across channels.

Scaling modern trade and e commerce channels

FY 2026 saw continued focus scaling presence across modern retail and e commerce platforms, supported by dedicated channel specific distribution models. This helped improve brand visibility, widen consumer reach in urban markets and cater to evolving buying preferences through omnichannel availability.

Enhancing cold chain and quality assurance mechanisms

G iven the nature of the dairy portfolio, specific emphasis was placed on strengthening cold chain capabilities across transportation and warehousing points. This ensured product freshness, quality consistency and compliance with food safety standards across the distribution network.

Brand Building

Brand building initiative remained an important driver of the Companys brand recognition and market positioning in a competitive environment. The initiatives were aimed at creating stronger and more meaningful connections with consumers. Key branding initiatives undertaken during the reporting year included Impact Marketing, Influencer Campaign, E-Commerce Festive Banners, Chef Influencer Program, Offline Activities, Gym & Store Branding and partnerships with leading domestic airlines. The Company also strengthened its presence across modern trade, quick commerce and digital platforms, while deepening consumer engagement through on-ground activations and partnerships. In addition, Avvatar accelerated its market salience and modern nutrition positioning by onboarding a prominent public celebrity and entering into strategic web series partnerships.

Human Resource (HR)

FY 2025-26 represented an important milestone in the Companys HR transformation journey under the HR Parivartan initiative, aimed at building a more agile, digitally enabled and process-oriented people ecosystem. During the year, HR policies, SOPs and workforce practices were refined in line with evolving business requirements, supported by the digitisation of onboarding and performance management processes. The Company also reinforced employee well-being, workplace safety and governance standards across operations, while sustaining a zero Lost Time Injury (LTI) record. The Company conducted POSH (Prevention of Sexual Harassment) Awareness Training across its corporate office to strengthen awareness and promote a safe, respectful and inclusive working environment. In parallel, continued focus was placed on strengthening leadership development, expanding learning capabilities and advancing towards workplace excellence certifications. In addition, Darwin HRIS supports the Company in maintaining a fair, data-driven and efficient hiring process, enabling it to attract the best talent across various domains.

Talent Acquisition and Workforce Development

To enhance hiring credibility and role fitment, the Company strengthened its talent acquisition framework by integrating Mercer Mettl psychometric assessments and Spring Verify background checks. Furthermore, to elevate frontline sales capabilities, five core competencies were embedded into the recruitment and evaluation process: business delivery orientation, financial acumen, ownership mindset, distributor management, and stakeholder management.

Internal Career Mobility and Succession Planning

The Companys structured performance reviews and KRA-linked evaluations continue to drive internal career progression and leadership identification. To secure business continuity, critical positions across sales, licensing, taxation, health and safety, and plant operations have been integrated into a comprehensive succession planning framework. This pipeline was further strengthened during the year through senior leadership assessments conducted in collaboration with Mercer Mettl, HRNC, and AssessHub to accelerate capability development plans.

Learning and Development

Refresher programmes, financial acumen workshops and video-based micro-learning capsules were conducted during the year, along with in-house capability-building initiatives on tools such as Excel and Power BI. The Company also plans to introduce AI-focused learning modules and a Learning Management System (LMS) platform in FY 2026-27. Employees across plant operations continued to undergo regular training on health and safety, hygiene standards, ISO compliance, product handling and operational quality practices.

Diversity, Equity and Inclusion (DEI)

The Company continued to promote equal opportunity and inclusive workplace practices across functions. Women employees formed part of the workforce,, including contract labour, with continued focus on improving gender representation over time. Efforts during the year also included remuneration parity, equal growth opportunities and strengthened leadership diversity, with women leading several key departments within the organisation.

Performance Management and Employee Recognition

During the year, the Company introduced the Rise Run Rule initiative to reward exceptional innovation, execution excellence, and leadership capabilities across functions. High performers were celebrated through incentive-led rewards, international recognition opportunities, and a new corporate Hall of Fame. Supported by monthly recognition programs, leadership interactions, and internal communication platforms, these initiatives significantly enhanced employee engagement and fostered a culture of appreciation across all locations.

Employee Health and Safety

The Company continued to place strong emphasis on employee safety, health and workplace well-being across its plants, farms and office locations during the reporting year. Workplace safety is managed through an Occupational Health and Safety Assessment Series (OHSAS)-aligned framework, supported by regular safety audits, hygiene inspections, fire drills, PPE monitoring and structured safety awareness programmes. Work-related hazards are assessed through Hazard Identification and Risk Assessment (HIRA) processes, periodic inspections and customer-led audits. These mechanisms support continuous monitoring and enable timely corrective actions across operations. Plant activities are guided by structured health and safety calendars that cover routine inspections, monitoring processes and compliance reviews. Minor observations relating to PPE usage, safety equipment and contractor compliance are proactively identified and addressed by local health and safety teams.

The Company also continued to focus on employee capability building through structured training and awareness programmes. Employees receive training on HACCP, TPM, workplace safety practices and hygiene standards, along with access to periodic health checkups and wellness sessions conducted by medical and well-being experts. During the reporting year, multiple capability development and training programmes were implemented across facilities. Dedicated safety teams conduct training programmes covering fire safety, electrical hazards, chemical handling, work-at-height safety and operational risk management. Separate training sessions were conducted by quality teams on food safety systems, HSE standards, critical control points, ORP and PRP protocols. In addition, HR-led learning initiatives are undertaken to enhance employee productivity and strengthen digital capabilities. Through these structured systems, training programmes and ongoing interventions, the organisation continued to reinforce a proactive safety culture across all locations and successfully maintained a zero Lost Time Injury (LTI) record during the year.

Environmental Sustainability

As an Indian dairy FMCG company, the Companys operations have a close connection with agricultural landscapes, farming communities and the broader health of ecosystems. This relationship underpins its approach to environmental sustainability, with emphasis on responsible sourcing, efficient resource utilisation and environmentally conscious business practices. Sustainability remains integrated into business and operational activities, supported by focused initiatives to reduce the environmental footprint and strengthen long-term environmental stewardship.

Circular economy principles and responsible waste management form an important part of the Companys environmental strategy. Structured initiatives based on Reduce, Reuse and Recycle support operational sustainability and efficient waste management. Continuous process optimisation is also supporting the Companys objective of reducing the overall waste generation by 2027, thereby decoupling business growth from its environmental footprint. Water recovered through treatment processes is utilised for gardening, while approximately 55% of the water consumed across operations is currently reused within manufacturing processes. Manufacturing operations are supported by advanced technologies and measures aimed at improving water efficiency and overall resource utilisation. The Company remains focused on reducing water intensity in milk processing and has set a target to lower water consumption per litre of milk by 10% by 2027. It has also invested in rainwater harvesting infrastructure and undertaken measures such as converting dairy waste into organic manure.

During the reporting year, the Company progressed its transition towards a lower-carbon energy mix by increasing renewable energy adoption and improving operational efficiency across its value chain. Through strategic infrastructure investments and a key partnership with Tata Power, the Company established 8.5 MW of solar capacity, enabling solar energy to account for more than 50% of its total electricity consumption. Continuous emission monitoring systems have also been implemented across plant locations to monitor boiler stack emissions, including sulphur oxides (SOx), nitrogen oxides (NOx) and particulate matter (PM). Further strengthening its emission control measures, Electrostatic Precipitator (ESP) systems were installed in boilers during FY 2025-26. These systems support the capture and reduction of fine particulate matter generated during boiler operations, thereby improving the management of stack emissions.

Company Outlook

Looking ahead, the Company will continue to build on its existing momentum by expanding its consumer portfolio, enhancing brand relevance and pursuing consistent and profitable growth. This will be supported by disciplined execution, with a continued focus on ensuring that growth remains sustainable and underpinned by stronger fundamentals. Parag Milk Foods is also strengthening its manufacturing capabilities ahead of future requirements and refining its route-to-market strategy. Innovation and brand building will remain important areas of focus in the coming years. Guided by a clear roadmap, the Company remains determined to strengthen its presence across its operating categories and creating sustainable, long-term value for all stakeholders.

Risk Management

Risk Management Framework

The Companys risk management framework is overseen by the Board, which is responsible for approving risk policies and supervising the design, implementation and monitoring of risk management systems.

The Risk Management Committee supports the Board by reviewing risks arising from business operations and overseeing the effectiveness of the risk management framework.

The framework covers a broad spectrum of risks, including strategic, reputation, finance, fraud, governance and compliance, information security and enterprise-wide operations.

Risk Management

Raw material price risk - Price volatility in raw materials, especially milk, may impact costs and margins.

Mitigation: Long-term supply contracts, supplier diversification, market tracking and strategic sourcing.

Quality and safety risk - Non-compliance with safety protocols can damage brand credibility.

Mitigation: Employee training, regular audits, incident reporting systems and continuous improvement of safety practices.

Redundancy risk - Evolving consumer needs require constant innovation. Mitigation: Market research, trend analysis, R&D investments and agile product development.

Economic risk - Macroeconomic factors like inflation, currency fluctuations and political changes can affect operations. Mitigation: Economic monitoring, agile strategy adjustments and a diversified contract manufacturing model that ensures demand stability.

Occupational health and safety risk:

Employees face risks from machinery or unsafe conditions.

Mitigation: Strong safety protocols, SOPs, regular reviews, emergency training and equipment maintenance.

Compliance, regulatory and reputation risk: Legal/regulatory non-compliance can erode brand value.

Mitigation: Continuous legal monitoring, risk assessments, compliance.

Competition risk: High industry competition poses growth challenges. Mitigation: Competitive pricing, strong market responsiveness and a differentiated value proposition. Contract risk: Failure to meet client expectations can result in penalties and reputational loss.

Mitigation: Robust quality checks, proactive communication, strong project execution and periodic audits.

Sustainability risk: Growing investor focus on ESG could affect market perception.

Mitigation: ESG integrated into strategy, continuous improvement, with disclosures via BRSR and ESG sections of the Integrated Annual Report.

People risk: Talent acquisition and retention are critical for sustained growth. Mitigation: Targeted recruitment, training, career growth opportunities and an employee-friendly culture.

Internal Control Systems and Their Adequacy

The Company has robust internal control systems to ensure operational effectiveness, reliable financial reporting, asset safeguarding, fraud prevention and compliance with laws and regulations. These controls are tailored to the Companys size, operations and complexity. We have laid down adequate procedures and policies to guide the operations of our business. Unit and functional heads are responsible for adhering to the Companys policies and procedures. These controls are periodically tested by the Management, Statutory Auditors and Internal Auditors. M/s. Deloitte Touche Tohmatsu India LLP conducts an independent internal audit, providing assurance and identifying opportunities for business improvements. This audit aims to evaluate and enhance the effectiveness of processes, controls and governance. It helps us to accomplish our objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of processes, controls and governance. The Audit Committee and Risk Management

Committee review internal controls and risk management frameworks based on quarterly reports from Internal Auditors. They recommend upgrades and corrections to the internal control systems, with the Board receiving quarterly reports for review. The Company maintains a well-designed code of conduct, reviewed regularly. Prompt actions are taken in case of violations to ensure employee well-being and adherence to ethical standards. The internal audit function operates with a risk-based annual audit plan approved by the Audit Committee. This plan uses a 10-factor risk approach to focus audits on key risk areas. Regular assessments are conducted to evaluate the effectiveness of Internal Financial Controls systems and ensure strong governance and risk management processes. Overall, these practices help ensure that the Companys operations are efficient, compliant and resilient against risks.

Cautionary statement

Statements in the Integrated Annual Report describing the Companys objective, expectations or forecasts may be forward-looking within the meaning of applicable laws and regulations. These statements are based on current projections about operations, industry conditions, financial condition and liquidity. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ.