Paramount Cosmetics (India) Ltd Management Discussions

<dhheadMANAGEMENT DISCUSSION & ANALYSIS REPORT</dhhead

Statements in this Report, particularly those which relate to Management Discussion and Analysis, describing the Companys objectives, projections, estimates and expectations may constitute ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied. Some important factors that could influence the Companys operations include the effects of demand & supply conditions affecting the selling prices of our products, raw material availability, and prices, future changes in government policies & regulations, tax laws, economic conditions within the country, and various other factors.

INDUSTRY OUTLOOK

The cosmetics industry shows no signs of stopping: as self-care and wellness shall become more important to consumers worldwide in the years to come. Innovations and technology adoption in the industry have intensified competition among brands. Many multinational brands have entered the Indian market, primarily aided by dedicated support structure and their respective pricing strategies. The Indian cosmetics industry is majorly categorised into skin care, hair care, oral care, fragrances, and colour cosmetics segments. The market will continue to rise strongly due to consumers growing choice of speciality cosmetic products such as organic, herbal, and ayurvedic items. Colour cosmetics, perfumes, specialised skin care, hair care, and makeup cosmetics are the main industries predicted to increase. The market competition for domestic brands is increasing due to a growing number of international companies entering the Indian personal care and cosmetics market.

The market will continue to rise strongly due to consumers growing choice of speciality cosmetic products such as organic, herbal, and ayurvedic items. Colour cosmetics, perfumes, specialised skin care, hair care, and makeup cosmetics are the main industries predicted to increase. The market competition for domestic brands is increasing due to a growing number of international companies entering the Indian personal care and cosmetics market. With increasing awareness of health and environmental sustainability, theres a growing demand for organic and natural color cosmetics. Color Cosmetics refer to makeup products used to enhance or alter the appearance of the face, eyes, lips, and nails. Indian traditional products such as Bindi, Kajal, Sindoor are few of the key products other than foundation, lipstick, eyeshadow, mascara, blush, and nail polish. Consumers seek products formulated with natural ingredients, free from harsh chemicals and additives, driving the market for clean beauty products.

Indian Beauty brands are emerging as innovative players in the color cosmetics market.These smaller, often niche brands prioritize creativity, authenticity, and unique brand stories over mass appeal. With a focus on quality and individuality, Indian brands resonate with consumers seeking alternatives to mainstream beauty offerings.

While the industry outlook seems promising but at the same time it also needs to be evaluated considering in recent years, the world has experienced several social phenomena that directly effects the economy and hence the pricing, margins and supply chain related challenges. Geopolitical tensions, global trade uncertainty, energy prices, currency fluctuations, supply chain disruptions, technology disruptions, global fiscal policies, etc.. Such phenominas have direct impact on all growing economies in terms of higher cost of raw materials, disruption in supplies, consumer demand, etc. According to a news article, Indian Retailers see a weak festive boost; getting 7% sales growth against double-digit expectations, according to a survey by the Retailers Association of India (RAI), Retail sales in October and November 2023 grew only 7% compared to the same period 2022, despite the festive season. Over the past decade, daily needs goods brands have increasingly relied on rural India for sales, where harvest this time and also had a lower base last year. Rural demand, which had been rising at twice the rate of urban areas before the pandemic, declined or grew slower than in cities last year until the December quarter when it was at 5.8%. Against that, urban areas expanded 6.8%, despite favorable conditions in rural India, urban areas outpaced rural areas in terms of retail sales growth during the specified period.

DEVELOPMENTS IN THE COMPANY DURING THE CURRENT YEAR

Paramount Cosmetics (India) Limited has been a trusted name in the Indian traditional cosmetic segment since 1985. It has been grooming India with safe, hygienic, and best-in- quality color cosmetics like Bindis, Kum-Kum, and Kajal under the well-admired and popular brand name “SHILPA”

There is no doubt that 2023-24 was a difficult year with disappointing progress. It was yet another year of challenging macroeconomic environment with inflationary pressure, as well as geopolitical instability impacting people and businesses around. Despite the challenges we came across, we strongly believe our business model is more relevant than ever and we see great opportunities ahead.

FINANCIAL PERFORMANCE

1. Sales and Other Income

Sales of your Company for the year was Rs. 2180.62 lacs as against Rs. 2671.84 lacs in the previous year.

2. Material Cost

The material cost for the year was NIL as against Rs. 580.44 lacs in the previous year.

3. Employment Cost

The expenses of employment costs for the year was Rs. 226.51 lacs as against Rs. 488.46 lacs in the previous year.

4. Finance Cost

The interest and Finance charges for the years were Rs.173.63 lacs as against Rs.169.79 lacs in the previous year.

5. Depreciation

The depreciation for the year was Rs. 67.21 lacs as against Rs. 80.75 lacs in the previous year.

6. Profit Before Tax

Profit before tax (PBT) stood at Rs. 9.88 lacs as against Rs. 34.65 lacs.

7. Profit/(Loss) After Tax

Profit after tax (PAT) was Rs. 2.14 lacs as against a profit of Rs. 21.17 lacs in the previous year.

OPPORTUNITIES

In todays fast-paced world, the cosmetics industry is constantly evolving to meet the ever- changing demands of consumers. With advancements in technology and a growing focus on sustainability, the future of cosmetics looks promising. The Beauty and Personal Care industry is categorized into five segments - body care, hair care, face care, hand care, and color cosmetics. individuals locally and globally and is allowing the company to sell the products both online and offline. Digital technology is revolutionizing the Indian cosmetics industry, right from production to finally engaging with consumers. E-commerce platforms have become essential for personal care product manufacturers to reach their audience, offering convenience and a wide range of products. Artificial Intelligence (AI) and Augmented Reality (AR) are enhancing the online shopping experience, with personalized product recommendations and virtual try- ons.

The company is thinking of expanding into more products with new innovative ideas relating to Indian traditional Cosmetic products. Brands are recognizing the importance of catering to the unique needs of Consumers from various ethnicities and backgrounds. By offering a wide range of options, brands promote inclusivity, allowing individuals to find products that match their skin tone accurately and feel represented in the beauty industry. The company is also thinking of expanding sales and distribution in a greater number of towns with a plan to onboard other brand items in the coming 3 years which can lead to a good expansion of the company.

THREATS

In the Indian cosmetic industry, several threats pose challenges to companies operating in this sector. Understanding these threats is crucial for strategic planning and risk mitigation. Here are some prominent threats:

1. Regulatory Compliance: Stringent regulations regarding product safety, labeling, and ingredient restrictions can pose challenges for Cosmetic companies.

2. Counterfeit Products: Counterfeit products are replicas of genuine products that are produced to deceive consumers into believing they are purchasing the original brand. Imitation makeup, skincare products, and perfumes that copy well-known cosmetic brands. Counterfeiting not only results in revenue loss but also tarnishes brand integrity and consumer trust. Competitive Landscape: The Indian cosmetic market is highly competitive, with both domestic and international brands vying for market share. Intense competition can lead to pricing pressures, eroding profit margins, and necessitating differentiation strategies to stand out in the crowded marketplace. Economic Volatility: Fluctuations in the Indian economy, including currency devaluation, inflation, and changes in consumer spending patterns, can affect purchasing power and consumer confidence, influencing demand for cosmetics and discretionary spending. Digital Disruption: The rise of e-commerce and digital platforms transforms the retail landscape, altering consumer shopping behaviors and brand-consumer interactions. Cosmetic companies must adapt their marketing and distribution strategies to thrive in the digital age while mitigating risks such as cybersecurity threats and online counterfeit sales.

Addressing these threats requires a proactive approach, including investing in research and development, strengthening regulatory compliance measures, enhancing brand protection efforts, fostering innovation, diversifying supply chains, and engaging with consumers to understand and adapt to evolving preferences and market dynamics. However, these challenges also provide opportunities for manufacturers to innovate, improve operations, and build consumer trust through transparency and quality assurance

OUTLOOK

1. Innovation and Differentiation: Paramount Cosmetics (India) Limited will continue to focus on innovation and differentiation, leveraging consumer insights, market trends, and technology advancements to develop innovative products that meet the evolving needs of Indian consumers.

2. Market Expansion: We aim to further expand our market presence in tier-II_and tier-III cities, capitalize on the growing demand for cosmetics in rural areas, and explore opportunities for further expansion. Digital Marketing: Our digital marketing initiatives will be intensified to enhance brand awareness, engage with consumers on digital platforms, and drive online sales growth through targeted marketing campaigns and influencer partnerships. Sustainability Initiatives: Paramount Cosmetics (India) Limited remains committed to sustainability and will explore initiatives to reduce environmental impact, promote ethical sourcing practices, and contribute to the well-being of society.

EVOLUTION IN THE FMCG INDUSTRY

Adapting to the new era in the fast-moving consumer goods (FMCG) sector, adaptation is not merely a strategy but a survival imperative. Over the years, the FMCG sector has witnessed transformative changes, from traditional brick-and-mortar retail dominance to the rise of e- commerce and direct-to-consumer models. This shift has compelled companies to rethink their approaches to manufacturing, distribution, and customer relationships. Key strategies that enable FMCG firms to thrive amidst rapid change include:

1. Reducing Dependence on Key Product: Diversifying product portfolios to reduce reliance on core offerings and mitigate risks associated with market fluctuations.

2. Launching of another product apart from the key products: Expanding into adjacent or complementary sectors to capitalize on emerging trends and capture new consumer segments.

. Innovative Marketing: Leveraging data-driven insights and digital platforms to create targeted and personalized marketing campaigns that resonate with evolving consumer preferences.

. Rebranding: Refreshing brand identities and packaging designs to align with modern aesthetics and appeal to changing consumer tastes.

. Expansion into Different Markets: Pursuing geographic expansion into new markets to reach out to larger customer base and to tap into growing consumer demand and diversify revenue streams by adding more channel of distribution.

. Adopting Modern Technology: Embracing digitalization, automation, and artificial intelligence to enhance operational efficiency, optimize supply chain management, and improve customer engagement.

In an era where companies are delivering products within few minutes, servicing to retailers has traditionally taken days. However, times are changing, presenting new opportunities for companies in the FMCG industry to adapt and increase sales. As India matures, companies are realizing the competitive advantage of improving service delivery through maintaining market hygiene, controlling stock flows, minimizing dead stock, and incentivizing tech adoption.

The evolving landscape brings both challenges and opportunities. Embracing technology- driven efficiencies and enhancing service standards not only meets current consumer expectations but also positions companies favorably for future growth in the dynamic FMCG sector. Companies who effectively leverage these changes are poised not just to survive but to thrive in tomorrows competitive marketplace."

RISKS AND CONCERNS

The cosmetic industry is a beacon of beauty and self-expression for millions. However, beneath the allure of shimmering eyeshadows and luxurious skincare lies a landscape fraught with risks and concerns that warrant careful consideration. At the forefront of these concerns is consumer safety. Cosmetic products, applied directly to the skin and often ingested through lipsticks and balms, must meet stringent safety standards to prevent adverse reactions such as allergic res health issues. The sensitizers, and potential carcinogens in some formulations underscores the critical need for robust testing and regulation. In conclusion, while the cosmetic industry offers boundless opportunities for creativity and self-expression, its journey is fraught with risks and concerns that demand vigilance, innovation, and a steadfast commitment to safety, ethics, and sustainability. Navigating these challenges responsibly is not just a business imperative but a moral obligation to uphold consumer trust and well-being in the pursuit of beauty.

INTERNAL CONTROL SYSTEMS

Internal control systems form a crucial part of every company to ensure operational efficiency, compliance with regulations, safeguard assets, and maintain accurate financial reporting. The Company has an Internal Audit and control system, manned and managed by qualified and experienced people who continuously assess the effectiveness of internal controls through regular reviews, audits, and evaluations and conduct periodic reviews by management to ensure controls are operating effectively and address any deficiencies promptly. Internal controls should include measures to ensure compliance with regulatory requirements, such as labeling, safety standards, and environmental regulations. Significant audit observations and follow-up actions thereon are reported to the Audit Committee. Audit Committee reviews the adequacy and effectiveness of the Companys internal control and monitors the implementation of audit recommendations including those relating to strengthening of the Companys systems and procedures.

HUMAN RESOURCES

Human Resources play a vital role in the cosmetic industry, contributing significantly to its success and sustainability. Human Resources is indispensable in the cosmetic industry for driving talent management, fostering a culture of innovation, ensuring regulatory compliance, and enhancing overall organizational effectiveness. By investing in their workforce and nurturing a supportive workplace environment, a company can achieve sustainable growth and maintain a competitive edge in the global market. The Human Resources bridges the gap between the management and employees in the Company. Additionally, the fact that the company focuses on the betterment of its employees is commendable. Employee development and well-being contribute not only to individual growth but also to overall company success and morale. With 59 employees as of March 31 2024, its clear that your company is of a moderate size, where each employees contributions can make a significant impact.

CONCLUSION

This fiscal year, was another challenging year for the company. Though during the fiscal year it was an average performance of Paramount Cosmetics (India) Limited, with a forward looking approach and rebuilding on the brand value, keeping the focus on existing products, innovation and sustainability, we are well-positioned to navigate challenges and capitalize on opportunities for sustained growth and value creation in the dynamic Indian traditional cosmetics market.

For and on behalf of the Board of Directors
Paramount Cosmetics (India) Limited
Sd/-	Sd/-
Hiitesh Topiiwaalla	Aarti Topiwaala
Managing Director	Director
DIN: 01603345	DIN: 03487105