Pearl Polymers Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT

In the face of an evolving macro-environment, the global economy demonstrated remarkable resilience. Despite challenges such as the Ukraine-Russia conflict, supply chain disruptions, and inflation, the global economy grew by 3.2% in 2023. However, growth is expected to slow in 2024 and 2025 due to high borrowing costs and geopolitical tensions. Companies are increasingly focusing on sustainable practices to reduce their environmental impact and appeal to conscious consumers.

Global companies are focusing their efforts on introducing sustainable practices into their operations which reduces their environmental impact and appeals to a more environmentally conscious customer base.

It is expected that collective policy responses of governments and the resilience of economies worldwide will be instrumental in shaping a sustainable and inclusive growth trajectory in the months ahead.

India remains one of the fastest-growing major economies, with GDP growth projected at 7.6% in FY 2023-24. The countrys digital transformation, accelerated by the pandemic, has made it one of the worlds fastest-growing e-commerce markets. This shift, along with infrastructure improvements, has bolstered Indias global investment appeal. The countrys focus on advancing both physical and digital infrastructure has significantly boosted productivity and sectoral performance. The governments economic strategy revolves around revitalizing growth drivers, rejuvenating the financial sector, and streamlining business operations to encourage economic activity. Infrastructure enhancements are designed to improve connectivity and manufacturing competitiveness, thereby creating a more business-friendly environment and strengthening governance.

The rigid plastic packaging market is expected to grow at a CAGR of 9.36% from 2024 to 2029, driven by demand for sustainable and cost-effective solutions. The Indian kitchen storage market, valued at INR 11.3 billion in 2021, is projected to reach INR 24.1 billion by 2028, fueled by rising incomes, urbanization, and the growth of e-commerce.

Due to their recyclability and reusability, rigid plastic packaging is increasingly replacing traditional packaging materials. The market for rigid plastic packaging is projected to grow at a compound annual growth rate (CAGR) of 9.36% from 2024 to 2029, driven by cost-effective packaging solutions and technological advancements.

Key factors driving the market include the rise in consumer demand for packaged goods—particularly among middle-class consumers and through modern retail formats—and an increasing preference for higher-quality products. Additionally, innovations, a heightened focus on product safety and extended shelf life, the need for sustainable packaging solutions, and advancements in manufacturing technology are significant market drivers.

Consumers are flocking online for almost all their needs - from groceries and essentials to clothing and accessories. Moreover, goods that will come in useful during long periods at home are seeing increased sales. Brands have been compelled to develop an online presence even if they had none before. This has led to a massive spurt in Direct to Consumer (D2C) brands.

The economy is now enabling people to cater to niche segments of consumers economically and there is also a rise in digital entrepreneurs. Brands are also realizing the need to approach consumers directly rather than going to marketplaces to build private labels. Moreover, payment infrastructure and integration with multiple payment options and the demand for niche products has led to the surge in the number of D2C brands.

PearlPET has strategically embraced the e-commerce boom, significantly enhancing its online presence to tap into the growing market of digital shoppers. Recognizing the shift in consumer behavior towards online purchasing, especially for household essentials, PearlPET has optimized its digital platforms to offer a seamless shopping experience. This includes a robust Direct-to-Consumer (D2C) strategy, which allows the brand to engage directly with consumers, understand their needs, and quickly adapt to market demands.

In addition, PearlPET has invested in digital marketing and data analytics to reach and engage its target audience more effectively. The brands focus on e-commerce is not just about expanding sales channels but also about building long-term relationships with customers by offering convenience, personalized experiences,and high-quality, sustainable products. .

RECENT DEVELOPMENT

• Increasing Popularity of E-Commerce Platforms: Technological advancements have significantly influenced both rural and urban areas, leading to a transformative shift in the industry. Enhanced accessibility to e-commerce platforms has made it more convenient for consumers access to a wider range of kitchen storage options according to their preferences.

• Urbanization and Smaller Living Spaces: The trend toward urbanization and the rise of nuclear families are leading to smaller kitchen sizes, fueling the need for space-efficient storage solutions.

• Evolving Market Dynamics: The household plastic products sector is focusing on innovation and adaptability to address changing consumer demands. Companies are adjusting their product portfolios to cater to diverse consumer preferences and stay ahead in the market..

Consumers are seeking kitchenware that is hygienic, safe, and aesthetically pleasing. This demand has intensified competition among local manufacturers to deliver innovative products, leading to a dynamic and evolving market environment. Key drivers of industry growth include a rising population, increased income levels, and shifting lifestyles. The rural sectors demand is bolstered by greater media exposure through the internet and television.

With advancements in technology and increased awareness, the Indian plastic sector is well-positioned for growth, supported by the abundant availability of raw materials. Additionally, heightened per capita spending is transforming rural markets and expanding the middle classs appetite for high-quality products, prompting the adoption of advanced technologies in the industry.

OPPORTUNITIES AND THREATS

The Indian economy is the third largest in the world by nominal GDP and the fourth largest by purchasing power parity. It is a rapidly growing economy with a young and growing population. The economy is driven by services, followed by industry and agriculture.

The following are some of the opportunities for the Indian economy:

Opportunities:

1. Expanding Domestic Market: With Indias population exceeding 1.3 billion and a rising middle class, the Company can capitalize on the growing consumer base for houseware products. This large domestic market offers a substantial pool of potential customers.

2. Youthful Workforce: The young and expanding workforce in India presents an opportunity for the company to leverage a skilled and cost-effective labor force for manufacturing and operational activities.

3. Expanding Market: Indias large and growing middle class offers a significant consumer base for PearlPETs houseware products.

4. Urbanization: The trend towards smaller living spaces increases demand for space-efficient and functional kitchen storage solutions.

5. Sustainability: Increasing consumer preference for sustainable products aligns with PearlPETs focus on using recyclable materials.

6. Retail Boom: The houseware sector in India is witnessing a surge in organized retail and e-commerce to increased retail space allocation and online sales channels, which offer greater visibility and market reach.

7. Technological Advancements: Innovations in product design and manufacturing technologies present opportunities to develop and market cutting-edge houseware products that meet evolving consumer preferences.

The following are some of the threats to the Indian economy:

1. Inflation and Interest Rates: High inflation and rising interest rates may reduce consumer spending and increase operational costs.

2. Regulatory Compliance: Stringent environmental regulations could challenge profitability if not effectively managed.High Unemployment: Persistent high unemployment rates can lead to economic instability, affecting consumer spending and overall market conditions.

3. Infrastructure Bottlenecks: Despite improvements, ongoing infrastructure challenges, such as inadequate logistics and transportation networks, may hinder efficient distribution of products across the country.

4. Fluctuating Demand Patterns: Variability in consumer demand and shifting trends can create market uncertainty, potentially affecting sales and inventory management.

PearlPET, the houseware brand of Pearl Polymers, is leveraging its reputation for quality and innovation to capture growth in the evolving market. With a strong focus on e-commerce, digital transformation, and sustainable product development, PearlPET is well-positioned to meet the demands of a growing and increasingly conscious consumer base. The brands continued investment in technology-driven design and direct consumer engagement ensures it remains a leader in the houseware industry.

Environmental Consciousness

In FY23-24, our products continue to be designed with environmental considerations at the forefront. We utilize fully recyclable materials that are endorsed by leading global certification agencies.

As global awareness of environmental issues grows, there is increasing interest in biodegradable solutions. However, the market faces several challenges in adopting these eco-friendly alternatives. The high investment required for research and development of biodegradable solutions has limited their availability. Additionally, these solutions often come with a higher cost, which both the industry and consumers are currently reluctant to accept. As a result, manufacturers are hesitant to invest in production that may not justify the higher price point.

Stringent Regulations

In FY23-24, stringent regulations on plastic products continue to be a significant consideration, though their impact may be somewhat mitigated. Adhering to these regulations is crucial, as even minor defects can lead to product rejection and negatively affect profitability.

Some industry players resort to unethical practices, selling substandard products that, while visually similar, are harmful to the environment.

Addressing these challenges can be achieved through technological solutions that create a cohesive and integrated system. A comprehensive approach is essential, with automation applied at every stage of the procurement process. Implementing real-time supply chain visibility will enable business leaders to respond more effectively to demand fluctuations.

India remains a complex and challenging market for business operations. It demands a deep understanding of consumer behavior and is characterized by price sensitivity and a lack of organization. Despite these complexities, the potential for growth in the Indian houseware market continues to attract significant interest from major international players.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Employees are the most important asset of any company. They are the ones who make the company run, and they are the ones who contribute to its success. Employees are responsible for providing the products or services that the company offers, and they are also responsible for creating a positive customer experience.

Pearlpet is committed to creating a workplace where employees feel valued and appreciated. We are doing this by:

• Providing competitive salaries, health insurance, paid time off, and retirement savings plans.

• Offering opportunities to learn new skills and advance careers through training programs and tuition reimbursement.

• Allowing employees to have a flexible schedule and to take time off when they need it.

• Creating a respectful and supportive workplace where employees feel comfortable and valued.

• Recognizing employees contributions through awards, public recognition, and thank-you notes.

• Engaging employees in the companys mission and values by providing opportunities for employees to share their ideas and to be involved in decision-making.

• Empowering employees to make decisions and to take ownership of their work by giving them the freedom and resources to do their jobs effectively.

We believe that by doing these things, we can create a workplace where employees feel valued and appreciated, which can lead to increased productivity, innovation, and customer satisfaction.

We are committed to continuing to evaluate our practices and to make changes as needed to ensure that we are creating a workplace where all employees feel valued and respected.

As on 31^st March, 2024, there were 64 employees including the Executive Directors recorded on roll of the Company.

OPERATIONS AND FINANCIAL REVIEW

The operations and financial review is covered in the Boards Report and is to be read as a part of this report itself.

KEY FINANCIAL RATIOS

Ratios	FY 2023-24	FY 2022-23	% of Variance	Reason
Current Ratio	7.28	6.70	8.66%	-
Debt-Equity Ratio	0.00	0.01	-100.00%	A
Debt Service Coverage Ratio	2.09	-30.96	-106.75%	B
Return on Equity (ROE)	1.71%	-19.43%	-108.79%	B
Inventory Turnover Ratio	5.18	5.08	1.97%	-
Trade Receivable Turnover Ratio	8.63	8.00	7.88%	-
Trade Payable Turnover Ratio	2.48	2.65	-6.42%	-
Net Capital Turnover Ratio	4.40	2.07	112.56%	C
Net Profit Ratio	3.99%	-47.73%	-109.36%	B
Return on Capital Employed	0.95%	-20.20%	-104.72%	B

Note: Explanations given where the change in the ratio is more than 25% as compared to the preceding year

A. Due to repayment of debt

B. Due to increase in earnings during the year

C. Due to better management of working capital for business SEGMENT-WISE PERFORMANCE

During the Year under review, your Company was operating only in one segment.

RISK MANAGEMENT

The Company is also exposed to several potential risks both from internal and external sources. By addressing the risk in its nascent stages allows for long-term corporate success. Risks such as industry segment risks,

technological changes, political risks, product distribution and supply can be anticipated and curbed.

Your Company believes that the products should not be hazardous to the environment. Our products are made of virgin plastics which are universally approved by USFDA, EU Directive 2002/72/ EC, BIS IS: 12252 -1987 and other regulating bodies for Food, Beverage and Water storage.

Some of the features that give an advantage to the Company over other local players in the market which may help the Company in increasing the revenue are:-

• Non-toxic, Food-grade and Re-usable.

• Unbreakable, Strong and Light-weight.

• Manufacturing process integrates the finest quality certified raw materials, with state-of-the-art equipment and stringent quality control procedures, at every station on the line.

• PearlPET products & raw material do not use Bisphenol A (BPA) or other harmful plasticizers/chemicals.

• All of our products have good barrier properties that protect and preserve the food content.

• Good strength, premium quality, Air tight.

• 100% recyclable and environment friendly.

DISCLOSURE OF ACCOUNTING TREATMENT

The financial statements have been prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 as amended by the companies (Indian Accounting Standards) (Amendment) Rules,2016 and notified under Section 133 of the Companies Act, 2013 ("the Act") and other relevant provisions of the Act and other accounting principles generally accepted in India.

BUSINESS OUTLOOK

The Consumer Products market is expected to grow by 15% to 20% in the medium term in a normal business environment with potentially higher growth rates in the near term. Verified Market Research points out that the non-biodegradable properties of plastic products have been reported to have a serious impact on the environment, which has slowed growth. Fluctuating raw material prices are also hindering growth. However, the plastics commodity market is expected to rise from $468.3 billion in 2020 to $596.1 billion by 2025 at a CAGR of 6.0% as plastics continue replace metals in the marketplace.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS

Pearlpet has in place an adequate system of internal control procedures for business processes, operations, financial reporting, fraud control and compliance with applicable laws and regulations, among others. They commensurate with the size of the company and the nature of the business and is in line with requirements of the regulations.

During the year under review, no material weakness in the policy or procedures was observed. Your Company has put in place an independent internal audit system conducted by a professional to ensure adequacy of internal financial control system, adherence to Company policies and compliance.