Primo Chemicals Ltd Management Discussions

Global Economy Indian Economy

In 2024, the global economy faced a "sticky spot"—growth remained resilient despite challenges but hadnt returned to prepandemic levels. The IMF estimates around 3.3% global GDP growth, with advanced economies growing 1.8% and emerging markets and developing economies expanding by 4.3%. The year was marked by complex economic shifts, with subtle recalibrations of global forces rather than dramatic changes. Despite some growth, underlying issues such as geopolitical fragmentation, technological change, and environmental pressures continued to reshape the global economy.

Trade restrictions and tariffs, particularly between the U.S. and China, serve as destabilising forces. These measures diminish crossborder investments and raise supply costs. According to the World Bank, 2024 is expected to be one of the weakest fiveyear periods since the 1960s, and the IMF forecasts that growth could decline to 2.8% in 2025 if no reforms or policy adjustments are made.

Additionally, the highinterestrate environment due to elevated postpandemic inflation has led to tighter credit, higher borrowing costs, and increased debt burdens, especially in lowerincome economies.

Global inflation is expected to decline from 6.8% in 2023 to 5.9% in 2024, then to 4.5% in 2025, but core inflation remains sticky. Central banks stay hawkish with high policy rates as inflation expectations stay above target.

The most defining yet underappreciated 2024 economic trend was the acceleration of geopolitical fragmentation, actively reshaping global trade and investment. New traderestrictive measures surged, especially among advanced economies, far exceeding the 20102019 average.

Looking ahead to 2025, geopolitical fragmentation is likely to stay a key theme. Global growth may decline, and central banks might continue easing policies, but trade tensions and protectionism remain risks. These measures suggest global trade growth will stay below prepandemic levels, requiring vigilance and adaptive strategies in international commerce. (Source: https://www.imf.org/en/Publications/

WEO/Issues/2025/04/22/worldeconomicoutlookapril2025)

Indias economic trajectory in FY202425 highlights a resilient growth story that defies global headwinds. With a GDP growth of 7.4% in Q4 FY202324 and an estimated 6.5% for the full year FY202425, India remains the worlds fastestgrowing major economy, per the NSO. This is driven by structural reforms, manufacturing resurgence and governmentled capital expenditure. Also, private consumption rebounded, particularly in urban sectors, while rural demand showed signs of stabilisation, aided by improved agricultural output and targeted fiscal support.

In FY202425, inflation experienced a notable slowdown. Retail CPI dropped to a fiveyear low of 3.2% in April 2025, and the fullyear headline inflation is projected to average 4.6%. This trend enabled the RBI to cut the repo rate three times from December 2024 to June 2025.

Indias industrial activity, represented by the Index of Industrial Production (IIP), grew by 4%, with manufacturing up 4.1%. PLI schemes in phases two and three boosted private investment in electronics, semiconductors, and green energy.

The formalisation of the economy deepened further, with GST collections averaging ?1.84 Lakh Crore per month in FY2024 25, reflecting buoyant consumption and improved compliance. The gross collection doubled in five years to reach an alltime high of ?22.08 Lakh Crore in the 202425 fiscal year, from ?11.37 Lakh Crore in FY202021. Digital public infrastructure, such as UPI, ONDC, and Aadhaarstackbased governance, continued to lower transaction costs, enhance transparency, and create fertile ground for entrepreneurial growth.

India enters FY202526 on a solid footing, with GDP growth forecasted to remain stable, according to S&P Global Ratings, underpinned by domestic consumption, improving private capital expenditure and favourable monsoon prospects. However, vigilance is warranted in light of potential global commodity volatility, evolving geopolitical dynamics and the need for sustained job creation in the informal sector. Indias economic narrative remains one of cautious optimism, high resilience and transformational potential.

FY202425 marks a pivotal juncture for the Indian chemical industry, a sector undergoing a fascinating metamorphosis. While global headwinds and pricing pressures have presented a nuanced landscape, Indias inherent strengths, robust domestic demand, a strategic "China+1" advantage, and a burgeoning focus on sustainability and innovation are recalibrating its trajectory from a traditional commodity player to a highvalue, globally integrated chemical powerhouse. This year has been characterised by strategic recalibrations, a push for deeper backwards integration and a clear vision towards a greener, more selfreliant future.

The growth of the Indian chemical industry is underpinned by Indias position as the worlds fourth largest and Asias third largest chemical producer.

The growth is also driven by increased demand across end use sectors, including automotive, construction, electronics, FMCG, pharmaceuticals and agriculture. The chemical sector now contributes more than 7% to Indias GDP and accounts for nearly 13% of total merchandise exports.

FY202425 marked a strategic shift from commodityled growth to valueadded, nichefocused expansion. Speciality chemicals, which now account for nearly 47% of Indias chemical output, continued their strong growth trajectory, driven by increasing applications in personal care, electronics, water treatment and agrochemicals.

Policy interventions in FY202425 were pivotal in reinforcing sectoral growth. The Union Budget 2025 allocated ?20,000 Crore for an Innovation Fund aimed at promoting green chemistry, advanced intermediates, and R&D infrastructure. Simplification of customs duties on raw materials, along with fasttracked clearances under the Ease of Doing Business framework, provided further tailwinds. In addition, the announcement of ?87 billion in upcoming petrochemical investments, mostly in western India, sets the stage for India to become a regional hub for base chemicals and polymers.

Despite robust fundamentals, the sector faced some headwinds. Global oversupply, particularly from the Middle East and China, placed downward pressure on the prices of commoditised chemicals. Domestic producers also faced challenges from input cost inflation, energy volatility and logistics bottlenecks. However, the industry showcased resilience by investing in cost optimisation, sustainabilityled processes and digital transformation. As a result, while EBITDA margins moderated to ~13% from pandemicera highs of ~17%, overall investor confidence remained intact with the sector delivering a 1012% Total Shareholder Return (TSR) over the past five years.

Looking ahead, the outlook remains optimistic. Indias chemical demand is projected to triple by 2040, driven by strong momentum in speciality chemicals, green solvents and performance materials. Sustainability is poised to become a defining pillar, with an increasing number of companies adopting circular practices, electrified processes and transparent emissions reporting. As the world reconfigures its chemical supply chains, India stands at the cusp of a transformation from being a volume player to becoming a valuedriven global chemical powerhouse.

The global Caustic Soda market is poised for substantial growth, with its valuation projected to increase from USD 45.74 billion in 2024 to an estimated USD 74.01 billion by 2034. This growth translates to a Compound Annual Growth Rate (CAGR) of 4.93% over the forecast period of 2025 to 2034.

This upward trend is primarily driven by the rising demand for Caustic Soda across various industries. Key applications fuelling this growth include its extensive use in aluminium production, water treatment processes and the broader chemical manufacturing sector.

The Indian chloralkali market in 2025 is expected to experience continued growth, driven by increasing demand from various industries, including pulp & paper, textiles, aluminum, chemicals, and water treatment, as well as the expanding construction sector and government initiatives supporting industrial expansion. Caustic Soda, also known as Sodium Hydroxide, is a crucial raw material used in various manufacturing processes. However, companies will need to navigate challenges related to energy costs, raw material availability, and environmental regulations to ensure sustainable growth.

The Indian Caustic Soda market reached a size of 2.7 million tons in 2024 and is projected to expand to 4.0 million tons by 2033, registering a Compound Annual Growth Rate (CAGR) of 4.32%, according to data from the IMARC Group. This growth trajectory reflects the increasing importance of Caustic Soda across a broad spectrum of industrial applications.

One of the key drivers of market growth is the expanding pulp and paper industry, which depends heavily on Caustic Soda for bleaching and delignification processes. Similarly, the textile sector utilises Caustic Soda in crucial stages, such as mercerisation, which enhances fabric properties, including dye absorption and tensile strength. The aluminium industry another major consumer, as Caustic Soda is used in the extraction of alumina from bauxite ore a process essential to aluminium production.

Additionally, the growth of the chemical industry contributes significantly to the demand for Caustic Soda, as it serves as both a reactant and a pH stabiliser in numerous chemical reactions. Furthermore, the construction industrys ongoing expansion indirectly boosts demand, as Caustic Soda is used in the production of construction materials such as PVC and epoxy resins besides the pharmaceutical sector further enhances the markets potential by utilising Caustic Soda in the synthesis of Active Pharmaceutical Ingredients (APIs) and various drug formulations.

Strong Demand: The market is fueled by rising demand for chlorine and caustic soda from diverse industries viz. expansion of aluminium industry, especially for EVs, renewables and infrastructure, and upgradation of textile processing units and rising demand for ecofriendly cleaning agents.

Construction Boom: Increased infrastructure projects and construction activities are boosting the demand for PVC, a key product derived from chlorine in the chloralkali process.

Urbanisation and Industrialisation: Increased urbanisation and industrialisation are leading to greater demand for various chloralkali products, including those used in water treatment and other industrial applications.

Water Treatment Demand: The growing water treatment industry, especially for wastewater and drinking water, is increasing the demand for sodium hypochlorite, a product of chloralkali process.

Emerging hydrogen and green energy sectors: Potential application in electrochemical and sustainable hydrogen production processes.

Government Support: Favourable government initiatives, incentives and policies promoting industrial growth and energy efficiency, import substitution policies are expected to positively impact the domestic capacity expansion and the chloralkali market.

Technological Advancements: The Technological

upgrades by Innovation in membrane cell technology in chloralkali plants offer improved efficiency, lower costs and reduced environmental footprint.

Primo Chemicals is one of the prominent Indian manufacturers of essential industrial chemicals. Since beginning commercial production in January 1984, they have become a leading producer of Caustic Soda, with a daily capacity of approximately 500 tonnes. Caustic Soda is a crucial chemical used in industries such as paper, soap and aluminium production.

Beyond Caustic Soda, Primo Chemicals offers a diverse range of products, including Hydrochloric Acid, Liquid Chlorine, Hydrogen Gas, Aluminium Chloride, Stable Bleaching Powder and Caustic Soda Flakes. This broad portfolio serves various sectors, including water treatment, textiles and aquaculture. The Company is working on its plans to further expand its product offerings by incorporating additional inorganic chemicals into its mix.

Committed to sustainability, Primo Chemicals employs ecofriendly and costeffective technologies. Their dedication to safety and a highly skilled workforce makes them a dependable supplier for businesses in need of highquality industrial chemicals.

The Company achieved commendable performance during the year, with significant acceleration observed in the last quarter, primarily driven by increased production and improved sales realisation of Caustic Soda Lye and Flakes. However, the overall growth could have been further enhanced but for the subdued operations of the Stable Bleaching Powder and Aluminium Chloride plants, which ran at lower capacities due to weak market demand.

The Directors are of the opinion that the results would have been even more encouraging if not for certain operational and costrelated challenges. These included a marginal rise in raw material prices, higher power consumption per ton of Caustic Soda Lye, increased cost of electricity supplied by the Punjab

State Power Corporation Limited, and suboptimal power generation from the Companys 35 MW Captive Power Plant due to operational issues.

Despite these hurdles, Capacity Utilisation improved to 84%, with Caustic Soda Lye (CSL) production reaching 1,38,068 MT during the year under review—an increase over the 1,18,899 MT produced in the previous year at 77% utilisation. Additionally, the combined average sales realisation (net of GST) increased from C33,959 per ECU in the Financial Year ended 31^st March, 2024 to C38,423 per ECU for the Financial Year ended 31^st March, 2025.

During the financial year ended 31^st March 2025, the Company delivered a notable performance, with Net Sales Turnover increasing by 34.44% to C533.58 Crores, compared to C396.87 Crores in the previous year. This strong topline growth reflects improved market demand and strategic execution across key business segments.

Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) stood at C89.23 Crores, registering an impressive 238.76% growth over C26.34 Crores in the preceding financial year—underscoring enhanced operational efficiency and cost optimization efforts.

The Company achieved a turnaround in profitability, recording a Net Profit Before Tax of C15.12 Crores, a significant improvement from the Net Loss Before Tax of C31.43 Crores in the previous year.

Primo Chemicals maintains strong internal control systems, perfectly sized for its operations and continuously strengthened by independent internal audits. Audit findings undergo rigorous review by both management and the Board of Directors Audit Committee. Additionally, statutory auditors independently verify the adequacy and effectiveness of these controls. This thorough, multilayered approach guarantees that internal controls meet the highest industry standards, significantly enhancing

the Companys ability to manage risks, safeguard assets and uphold the integrity of its financial reporting.

The Companys human capital remains the cornerstone of its success and a key differentiator in a competitive landscape. In the past year, its Human Resources initiatives have focused on cultivating a highperformance culture, attracting top talent, and fostering continuous learning and development. The Company has invested significantly in upskilling its workforce to meet evolving industry demands and technological advancements, ensuring its employees possess the expertise necessary for future growth.

Employee engagement and wellbeing have been paramount, with programs designed to enhance workplace satisfaction, promote diversity and inclusion and maintain a safe and supportive environment. This strategic approach to human resources not only strengthens the Companys operational capabilities but also empowers its dedicated team to drive innovation, uphold its commitment to quality and contribute directly to the Companys sustainable growth and longterm objectives. As of 31^st March, 2025, Primo Chemicals Limited employed over 350 permanent staff members, in addition to more than 350 temporary personnel — all of whom are integral to the organisations achievements and operational success.

The Indian chemical industry is undergoing a structural transformation, offering several tailwinds for Primo Chemicals Limited. With increasing global demand for costeffective chemical manufacturing, India is emerging as a key player in the global supply chain. The "China Plus One" strategy adopted by many global companies is driving greater sourcing from Indian producers, especially in the commodity and intermediate chemical segments. This shift presents Primo with the opportunity to expand its exports and enhance capacity utilisation in core products, such as Caustic Soda and chlorine derivatives.

Domestically, the rising consumption of chemicals like Caustic and Chlorine across industries such as aluminium, pulp & paper, textiles, pharmaceuticals, construction & infrastructure and water treatment is fuelling consistent demand for Caustic Soda and its downstream derivatives. As a leading regional producer, Primo is well positioned, particularly in Northern India where it enjoys a logistical and market advantage. Furthermore, the

growing focus on water treatment, hygiene and industrial cleaning especially postCOVID has expanded the scope for products like Stable Bleaching Powder, which the Company has recently added to its product mix.

Another notable industry trend is the growing emphasis on selfreliance in pharmaceuticals and speciality chemicals. The Indian governments Production Linked Incentive (PLI) schemes and policy incentives for domestic chemical manufacturing are aligned with Primos backwards integration plans.

Despite the growth prospects, the Indian chemical industry faces several structural and cyclical risks that could impact Primo Chemicals. One of the key concerns is the volatility in raw material prices, especially industrial salt and imported chemicals. Given that India still relies on imports for several inputs, any geopolitical disruption, currency fluctuation, or trade policy shift can lead to supply bottlenecks and cost inflation, directly affecting Primos margins and pricing power.

Another industrywide threat is the growing regulatory and environmental compliance burden. The chemical sector, particularly companies handling hazardous substances such as chlorine and Caustic Soda, faces stringent scrutiny from pollution control boards and regulatory authorities. Any noncompliance, accidental discharge, or safety lapse can result in severe penalties, plant shutdowns, or longterm reputational damage. This is particularly critical for companies like Primo that are expanding their capacities and handling a larger volume of hazardous chemicals.

Competition is intensifying as larger and more integrated chemical companies—both domestic and multinational— continue to invest in scale, automation, and R&D to enhance cost efficiency and drive product innovation. Smaller or regionally focused players may struggle to match this pace, risking margin compression or market share erosion. For Primo, competing on both price and product quality while maintaining cost discipline will be essential, especially in a market where larger peers are aggressively expanding.

Additionally, the sectors cyclical nature makes it vulnerable to demand slowdowns in key user industries. For instance, any prolonged downturn in textiles, paper, or aluminium could significantly impact Caustic Soda offtake. Moreover, overcapacity in the domestic market, a concern periodically seen in commodity chemicals, could lead to price wars and

underutilisation of new production facilities. These cyclical risks, combined with rising energy costs and capital intensity, demand careful capacity planning and demand forecasting.

Risks are potential threats or adverse events that can lead to damage, loss, or other negative consequences for a business. Effective risk management is crucial, involving the identification, assessment and prioritisation of these risks, followed by the deployment of resources to mitigate, monitor and control their impact.

Primo Chemicals has established a Risk Assessment and Minimisation System to address these challenges. The Company also has a robust mechanism in place to keep the Board informed about its risk assessment and minimisation procedures. Periodic reviews are conducted to ensure risks are continuously identified and controlled within a clearly defined framework.

As part of its comprehensive risk management system, Primo Chemicals employs proactive strategies to manage potential

Place: Chandigarh Date:14^th August, 2025

risks effectively and foster sustainable growth. These strategies include optimising power usage, enhancing safety measures, exploring alternative sourcing options and improving overall operational efficiencies.

The statements in this Management Discussion and Analysis Report regarding the Companys future objectives, projections, estimates, expectations, or predictions may be considered forwardlooking under applicable laws and regulations. These statements rely on certain assumptions and expectations about future events. However, actual results could differ significantly from those expressed or implied in these statements. The Companys operations may be influenced by various factors, including economic conditions that affect global and domestic demand, fluctuations in the prices of finished goods, the availability and cost of power and raw materials, regulatory changes, tax policies, economic developments in India, and other factors such as legal disputes and industrial relations. The Company is not obligated to publicly update or revise these forwardlooking statements based on subsequent developments, information, or events.

For and on behalf of the Board Sd/

Chairman DIN:00169921