Pyramid Technoplast Ltd Management Discussions

Economic overview Global economy

In CY 2023, the global economy demonstrated remarkable resilience while navigating various macroeconomic hurdles. Despite facing headwinds, such as persistent geopolitical turmoil disrupting global supply chains and trade dynamics, fluctuating commodity prices and elevated inflationary pressures across both advanced and emerging markets, the global economy achieved a growth rate of 3.3%.

However, on the bright side, with central banks in major economies implementing calibrated interest rate hikes, inflation declined more rapidly than initially anticipated from its CY 2022 peak. This fostered gradual economic expansion and bolstered employment opportunities across the United States, Europe and other emerging markets. Several emerging markets such as India, Vietnam and Mexico demonstrated robust growth trajectories, along with increasing capital inflows from foreign institutional investors. While the US economy surpassed its pre-pandemic growth, few low-income and frontier economies reclaimed their market position.

Outlook

As central banks ease monetary policies and inflation reaches its target levels, the GDP rate is expected to sustain its growth at 3.2% in CY 2024 and CY 2025. Looking forward, there is a cautious optimism despite geopolitical struggles in Europe and West Asia. Notwithstanding the gloomy predictions, the world economy is expected to gradually improve and stabilise. Effective governmental collaborations and the resilience exhibited by economies globally are expected to determine the trajectory of sustainable and equitable growth in the years to come.

Indian economy³

India maintained its momentum as one of the fastest growing economies in FY 2024. While the global economy grappled with macroeconomic challenges, the Indian economy achieved 8.2% real GDP growth. The Reserve Bank of India (RBI)s conservative monetary policies, growing domestic demand and a strong macroeconomic framework, cumulatively contributed to Indias robust growth. Furthermore, headline consumer price index (CPI) inflation, stabilised at 5.1% on a year-over-year (YoY) basis in February 2024.

In March 2024, merchandise exports experienced a seasonal upsurge, coinciding with industrial productions peak. The manufacturing sector, with robust capabilities, emerged as a key driver of industrial growth, registering a steady 11.6% increase throughout FY 2024.

Declining inflation rates coupled with surging credit demand is cultivating an atmosphere of economic optimism. Furthermore, robust supply chains and increased government expenditure have cushioned the country from significant economic disruptions. The Governments proactive stance to implement favourable fiscal policies have spurred growth across various sectors.

Outlook

Strong fundamentals, including political stability, increased government emphasis on public capital expenditure, steady increase in private capital expenditure and rising credit demand are expected to support the optimistic outlook for the Indian economy. Additionally, robust banking and financial services industry is anticipated to become the key driver for the countrys positive growth trajectory.

India aspires to become a viable alternative to China. The country has quickly established itself as a preferred hub for manufacturing, meeting the growing demand for produced goods worldwide. Looking forward, a large domestic market and growing export potential are expected to facilitate Indias aim to outpace other economies and become the worlds third-largest economy by 2027

Industry overview Industrial packaging industry

The Indian industrial packaging industry has undergone significant transformation in recent years, with the blow moulded products market playing a pivotal role in shaping the future of packaging solutions. As of 2024, this segment has been a key contributor to the industrys growth, driven by the increasing demand from various sectors such as chemicals, pharmaceuticals, food and beverages and agrochemicals. It is expected that the Indian packaging market will reach USD 204.81 billion by 2025.⁵

Proper packaging is crucial to prevent leaks, spills of chemicals and prevent any accidents. The Indian chemical market is expected to expand at a rate of 9.3% until 2025, with specialty chemicals poised to grow with more than 12% compound annual growth rate (CAGR).⁶ With the growth of the chemical market, it is expected to bolster the sales of the industrial packaging industry in the upcoming years.

The adoption of blow molded products is primarily attributed to their myriad of benefits over traditional packaging solutions. These cost-effective products possess enhanced durability, lightweight characteristics and provide flexibility in design.

Technological advancements have been at the forefront of driving the expansion of the blow molded products market. With increasing awareness about sustainability, the market has initiated development of eco-friendly blow molded products that utilises recyclable materials to minimise environmental footprint. This paradigm shift towards sustainable solutions not only adheres to the global environmental standards but also caters to the growing consumer demand for green packaging.

The Governments aim to strengthen the manufacturing sector have further fuelled the growth of the blow molded products market. Programs such as Make in India have encouraged domestic production, attracting investments and fostering innovation in the packaging industry. As industries increasingly recognise the benefits of blow molded products, this market segment is expected to play a crucial role in the evolution of the industrial packaging industry in India.

Indias Intermediate Bulk Container market (IBC)

The demand for IBC in India is anticipated to grow significantly in the coming years, driven by rapid industrialisation and the rising demand for efficient packaging solution for transport and storage of bulk liquids and solids. The market value of IBCs in India is projected to soar, with an approximate CAGR of 8.3% between 2023 and 2034.⁷ This growth reflects the increasing demand for efficient and safe packaging solutions, especially by the expanding chemical and petrochemical industries. The Indian petrochemical and chemical industry is expected to grow from USD 215 billion in 2023 to USD 300 billion by 2025.

The demand for IBCs in India is further being propelled by the countrys specialty chemical market. Specialty chemicals, including agrochemicals and food additives, are experiencing high demand due to their critical applications in agriculture and food processing. It is expected that specialty chemical market will significantly contribute to the increased adoption of IBCs in the country. The demand is further driven by the increasing need for safe and reliable packaging solutions for hazardous and non- hazardous and chemicals alike and the large volume capacity and reusability of IBCs by the food industry.

End-use industries such as pharmaceuticals, food and beverages and industrial chemicals are major contributors to surging sales of IBCs in India. With the expansion of these industries, especially the increased production and export activities in the industrial chemicals sector, the Indian IBC market is poised for sustained growth, fortifying its position in the countrys industrial packaging landscape.

Indias polymer drums market

The demand for high-density polyethylene in India is witnessing a steady growth. With the ban of single use of plastics in India, the growth of some polyethylene grades including HDPE has significantly risen. Consequently, polymer drums particularly made from high-density polyethylene (HDPE) is experiencing robust growth in India. HDPE is a preferred material for manufacturing polymer drums owing to its high strength-to- density ratio, chemical resistance and durability. Furthermore, its extensive use in packaging solutions for chemicals, agrochemicals, pharmaceuticals and food and beverages industries, is contributing to the growth of the market.

The increasing demand for fertilisers and pesticides in the agrochemical industry is increasing the demand for reliable packaging solutions such as polymer drums. Additionally, with the increase in exports, the Indian agriculture sector requires packaging solutions that can ensure that goods reach international markets in optimal condition. This is significantly influencing the polymer drums market.

Furthermore, the food and beverage industry present significant opportunities for the polymer drums market, particularly in the segment of food-grade polymer drums. Manufacturers are exploring safe and hygienic food packaging solutions, focusing on producing drums that meet stringent food safety regulations.

The polymer drums market is also observing a paradigm shift towards sustainability and eco-friendly packaging solutions. This has significantly increased the demand for HDPE polymer drums as they are recyclable and reusable, adheres to global environmental standards and efficiently meets the consumer demand for green packaging. With industries seeking alternatives to mitigate carbon footprint and promote environmental stewardship, the market is poised for growth in the forthcoming years.

Indias mild steel drums market

Owing to low cost, ease of handling, safety and security while shipping, the demand of MS drums has significantly increased in the recent years. MS drums have emerged as a preferred choice by end-use industries for the safe transportation and storage of chemicals, agrochemicals and other industrial products. Indias MS drums market is expected to reach a valuation of US $468.7 million by 2033, fuelled by the expanding chemical, pharmaceutical and agrochemical sectors and the increasing import and export activities across India.¹¹ MS drums offer superior strength, corrosion resistance and durability, making them an ideal choice for these applications. Additionally, the growing emphasis on environmental sustainability and the need for reusable packaging solutions are driving the demand for MS drums.

Furthermore, MS drums versatility makes them suitable for various end-use industries. With the increasing consumption of packaging materials by food and beverages, lubricants and paints and coatings sectors, MS drums are expected to witness a surge in sales in the upcoming years. Indias exports of MS drums have steadily increased due to heightened demand from international markets. The countrys cost-effective manufacturing capabilities and adherence to global quality standards have positioned it as the preferred supplier of MS drums worldwide. Domestically, the rising consumption of packaged goods and the expansion of the manufacturing sector are expected to surge the demand for MS drums.

Opportunities

Growing demand for industrial packaging

Sectors such as chemicals, pharmaceuticals and agrochemicals are driving the demand of industrial packaging solutions. It provides lucrative opportunities for companies to bolster their operations and surge their sales. Aligning with current market trends, polymer- based molded products including Intermediate Bulk Containers (IBCs) and polymer drums are increasingly required by the end-use industries.

Growth of food grade polymer drums

The rising urbanisation along with the growing population has positively influenced the food industry in India. The food and beverage industry is rapidly adopting polymer drums for storage and transportation. The increasing emphasis on food safety and hygiene, coupled with the need for efficient and sustainable packaging solutions, presents significant opportunities for companies. Domestic players can expand their manufacturing capabilities to cater to the growing demand from food processing units and packaging companies.

Export Opportunities

The increasing export activities in the Indian agriculture sector and other industries provides a lucrative opportunity for industries. India requires robust and reliable packaging solutions to ensure goods reach international markets in optimal condition.

Expansion in specialty chemicals market

The expanding specialty chemicals market in India is driving the need for high-quality, durable packaging solutions. Companies should capitalise on the opportunity and cater to the specific needs of this market, facilitating the development of a diversified customer base and increase in revenues.

Sustainability and eco-friendly packaging

With a growing emphasis on sustainability, there is a rising demand for eco-friendly and recyclable packaging solutions. It is imperative for the companies to focus on producing recyclable polymer drums and IBCs to attract environmentally conscious customers and comply with stringent environmental regulations.

Challenges

Volatility in Raw Material Prices

The prices of raw materials, particularly polymers derived from crude oil, are subject to significant fluctuations. This volatility hinders operational efficiency and affect pricing.

Regulatory Compliance

It is essential to adhere to stringent regulatory standards for packaging, especially in the pharmaceutical and chemical sectors. Companies should invest in quality control and comply to the laid-down measures; any failure to do so will result in penalties and loss of business.

Intense Competition

The industrial packaging market is highly competitive, with numerous players vying for market share. It is essential for companies to consistently innovate and improve product offerings to stay ahead of the competition. This also requires significant investment in research and development and proper maintenance of high-quality standards.

Company overview

Pyramid Technoplast Limited is an industrial packaging company that specialises in the manufacture and supply of polymer-based molded products. Primarily serving the chemical, agrochemical, specialty chemical and pharmaceutical industries, the Companys diversified product portfolio includes polymer drums, Intermediate Bulk Containers (IBC) and Mild Steel (MS) Drums. These products are essential for the packaging and transportation of various industrial products. The Company has established a strong presence in the Indian market. With seven of its manufacturing units with capacities of 23,514 MTPA for Polymer Drums, 420,000 Units of IBC and 10,800 MTPA for MS Drums, the Company has secured a competitive edge over its peers.

With a steadfast commitment to quality and customer satisfaction and focus on sustainable practices and innovation, Pyramid Technoplast is poised for sustained growth in the forthcoming years. The Company aims to leverage its strong manufacturing capabilities, extensive product portfolio, strategic location of its manufacturing units and adherence to stringent quality standards, to ensure that the Company remains a key player in the packaging industry, catering to the dynamic needs.

7 Manufacturing units

Business portfolio Intermediate Bulk Containers

IBCs are essential for the safe and efficient storage and transportation of bulk liquids and semi-solids. The Company is a prominent manufacture of IBC containers, holding approximately 40% of the IBC market share in India.

Pyramid Technoplasts IBCs find their use in various industries, including chemicals, pharmaceuticals and specialty chemicals. The Company operates advanced manufacturing facilities, including Unit 7, which has been recently expanded to enhance production capacity.

In FY 2024, the IBC segment demonstrated robust growth, contributing significantly to the Companys overall revenue. In FY 2024, the segment accounted for 33.23 % of the total revenue, with sales reaching H 176.91 crores. The Company reported a 2722% YoY growth in IBC volumes, driven by healthy demand from the chemical and pharmaceutical sectors.

Plastic barrels

The Companys product portfolio comprises a wide range of plastic barrels, including polymer drums. These drums, primarily used in agrochemical, specialty chemical and food processing industries, are essential for packaging and transporting various industrial products. The Company has a substantial production capacity for plastic barrels, with operations spread across multiple manufacturing units. With the segment forming a valuable portion of the product portfolio, the Company offers durable and reliable packaging solutions to its consumers.

In FY 2024, the plastic barrels segment continued to be a major revenue contributor for the Company. The Company aims to enhance production efficiency and improve capacity utilisation to bolster the segments performance. Despite fluctuations in raw material prices, the plastic barrels segment maintained a stable contribution to the Companys overall financial performance.

Mild steel drums

MS drums are essential for packaging and transporting various industrial chemicals and products. The Company produces strong and durable MS drum that make them suitable for hazardous and non-hazardous materials. The Company has significantly expanded its MS drums production capacity by leveraging automation and by incorporating advanced manufacturing techniques. The Companys MS drum segment caters to specific market needs and has recorded a notable growth in FY 2024. The segments contribution increased from 4726 MTPA in FY 2023 to 5332 MTPA in FY 2024. This exhibited the contribution of the mild steel drums by 8.78% to the Companys overall revenue in the reported year.

Leveraging automation, the Company has expanded its production capacity from 30,000 to 50,000 units per month. Furthermore, the Company aims to increase this capacity to 90,000 units per month at Unit 6. With our comprehensive range of products, including MS Drums, Polymer Drums, and Intermediate Bulk Containers (IBCs), we fully meet the industrial packaging needs of our customers.

Division	Contribution in revenue (%)
	FY 2023-24	FY 2022-23
Polymer Drums	4764%	51.68%
IBC Containers	33.23%	31.94%
MS Drum	8.78%	8.83%
Others	10.35%	755%

Outlook

Looking forward, the Company is optimistic about the future of the High-density polyethylene (HDPE) market in India. Pyramid envisions sustaining its growth trajectory, followed by increasing its revenue two-fold within the next four to five years. The Companys focus on expanding and catering to a diversified customer base not only enhances operational efficiency but also aligns with the growth objectives.

SWOT analysis

Strengths

* Diversified product portfolio including Polymer Drums, Intermediate Bulk Containers (IBCs), and MS Drums, catering to various industries such as chemicals, agrochemicals and pharmaceuticals, among others

* Leading market position with ~40% market share in the IBC segment in India

* Strategically located manufacturing facilities across key regions

* Effective management of assets to generate profits, as evidenced the company has fixed asset turnover of over 5x

* Fostering strong customer relationships with long-standing clients

Weaknesses

* The Company imports 90% of polymers, highlighting increased dependence on imported raw materials

* Vulnerable to volatility in raw material prices, especially polymers

Opportunities

* Increasing demand for IBCs driven by growth in chemical exports from India

* Potential for backward integration to improve margins

* Diversifying product portfolio by introducing new product variants such as plastic pallet IBCs

* Optimising timely delivery and cost- effectiveness by building manufacturing units near major industrial hubs

Threats

* Competition from organised and unorganised players

* Sluggish chemical industry impacting the Companys profitability

* Fluctuations in foreign exchange rates affecting imported raw material costs and operational expenses

Business performance Operational highlights

In FY 2024, Pyramid Technoplast has made significant strides in expanding its operational capabilities and diversifying its product portfolio. For instance, the Company successfully commissioned Line 1 of the IBC plant at Unit 7 Line 1, with a capacity of 120,000 units per year, began its operations in September 2023 and is currently operating at 50% capacity utilisation. This expansion aligns with the Companys strategy to expand its footprint in the industrial packaging sector, especially with the production of Intermediate Bulk Containers (IBCs), polymer drums and mild steel drums.

The Company has increased the production capacity of metal drums from 30,000 to 50,000 units through automation at Unit 6. Looking forward, it is expected to further expand its capacity to 90,000 units by incorporating more advanced machinery and automation in the existing unit. Looking forward, it is expected to further expand its capacity to 90,000 units by incorporating more advanced machinery and automation in the existing unit.

The Company has initiated several strategic projects, integrating Units 7 and the previously proposed Unit 8, facilitating the expansion of both IBC and Polymer Drum production. Additionally, the Company is implementing a currently outsourced pallet project to optimize operations and reduce costs. These initiatives underscore the Companys commitment to innovation, customer- centric operations, and sustainable growth within the industrial packaging industry.

Financial performance Financial results

(Rs in Crores)

Particulars	FY 2023-24	FY 2022-23
Revenue from operations	532.42	480.03
Other income	4.73	2.00
Total income	53716	482.03
EBITDA	48.79	51.83
Profit before tax	40.10	42.81
Profit after tax	29.34	31.76
Cash flow from operations	-3.81	38.95

Revenue from operations

The Companys revenues from operations stood at H 532.42 Crore in FY 2023-24. The Company has delivered industry-leading growth. Revenue from operations increased by 10.92% as compared to H 480.0 Crore in FY 2022-23. The Companys focus on key strategic initiatives enabled it to gain market share and drive revenue growth.

Other income

Other Income increased to H 4.73 Crore in FY 2023-24. The increase was mainly attributable to Increase in Exchange Difference and Other Non Operating Income earned during the year.

EBITDA

The Company registered an EBITDA of H 49 Crore. The Slight decrease in EBITDA margins was mainly on account of fluctuation in raw material prices which has affected our EBITDA margins.

Profit before tax

Profit before tax decreased to H 40.10 Crore in FY 2023-24 compared to H 42.81 Crore last year. the decrease in Profit before tax was mainly on account of fluctuation in raw material prices.

Profit after tax

Profit after tax decreased by 7.62% to H 29.34 Crore in FY 2023-24.

Key financial ratios

Particulars	FY 2023-24	FY 2022-23
EBITDA(%)	9.08%	10.74%
Debt-equity ratio	0.09x	0.51x
Return on equity (%)	13.21%	29.61%
Return on capital employed (%)	13.09%	21.37%
Book value per share (H)	H 60.40	H 34.28
Earnings per share (H)	H 8.49	H 10.24
Interest service coverage ratio	18.15x	11.57x
Current ratio	2.59x	1.61x
Net profit margin (%)	5.51%	6.6%

Risk management

Key Risk	Impact on Organisation	Mitigations
Market competition	The Company operates in a competitive sector where increased competition from both domestic and international manufacturers can result in price conflicts, reduced margins and loss of market share.	The company has a diversified range of products that meet the complete industrial packaging needs of its clients. It maintains strong customer relationships, optimises operational efficiencies to reduce costs, maintains utmost quality, and offers products at competitive pricing with peers.
Raw material price volatility	The Company relies on polymer-based materials for manufacturing. Fluctuations in the prices of these raw materials could impact the Companys profit margins if it is unable to sell at the required price.	Company has a policy to procure raw material on monthly price contract basis and same being passed to the customer. It maintains strong and enduring relationships with both domestic and international distributors and vendors. To mitigate supply chain risks, the Company sources certain components from multiple vendors rather than relying on single suppliers. The short time frame between raw material procurement and the production of finished products minimises the risk of significant price fluctuations in both raw materials and the final product.
Regulatory changes	With the increasing environmental awareness, changes in environmental regulations to accommodate the new policies is extremely likely. This could impose stricter controls on the manufacturing processes or the materials used, potentially increasing operational costs or limiting product lines.	The Companys manufacturing units are ISO 9001:2015/ ISO 14001:2015/ISO 45001:2018 certified for quality, environment, health and safety management systems for the manufacture of Polymer Drums, carboys, jerry cans, IBC & MS Drums and accessories connected thereto. Further, its MS Drums meet quality standards as per IS 1783:2014 (Part 1 and 2) laid down by Bureau of Indian Standards. Its products can be cleaned, reused, and recycled, contributing to waste reduction and sustainable packaging practices & adhere to all regulatory requirements & ready to adopt new technology.
Operational risks	The Companys manufacturing facilities are concentrated in specific geographic locations. Any localised disruptions such as natural disasters, political unrest or labour strikes could significantly impact the Companys production capabilities.	The Company is expanding its manufacturing facilities beyond Gujarat. Additionally, the Company is committed to maintaining a disciplined and constructive control environment through comprehensive training, standards, and procedures, ensuring all employees are aware of their roles and responsibilities. The board of directors plays a critical role in overseeing how management monitors adherence to risk management policies and procedures, and regularly reviews the adequacy of the risk management framework in relation to the Companys risks.
Quality control failures	It is imperative for the Company to meet the quality standards. Any failure to do so can lead to product recalls or returns, damaging the Companys reputation and leading to financial losses.	As a quality-centric company, it is committed to ensuring that every product meets the highest standards. This is through meticulous monitoring by a team of expert, focused procurement of high- quality raw materials, and rigorous metallurgical testing before approving production. The commitment to quality is further reinforced by regular inspections and a comprehensive range of inhouse testings, including drop, hydraulic, leakage, melt flow index, rolling, stake load, UV stabilizer, color uniformity, light, printing adhesive, and weight uniformity tests. At the same time undertake regular 3rd party testings from approved agencies like Indian Institute of Packaging (IIP) & TUV. By implementing these quality control measures, the Company ensure that our products are defect-free and uphold our reputation, minimizing the risk of recalls or returns.
Supply chain disruptions	Any disruptions in the supply chain for raw materials can delay production and delivery, potentially leading to customer dissatisfaction and financial penalties.	The Company maintains a network of reliable suppliers and diversify its sources to minimize the impact of any single disruption. By engaging in short-term supply agreements and fostering strong relationships with both domestic and international vendors, the organisation enhance its ability to adapt to changes and mitigate risks. To further support delivery capabilities, the Company operates a fleet of 68 trucks, enabling it to efficiently distribute products to our customers and minimise delays. These measures helps tomaintain high customer satisfaction.

Human resources

Pyramid Technoplast Limited recognises the importance of its workforce in driving continued success and innovation and thereby, has taken effective initiatives to foster a vibrant, diverse and engaging workforce. The Company has implemented fair and ethical business practices to foster an environment of trust and integrity. The Company consistently invests in nurturing its human resources and prioritises the development of an organisational culture that promotes continuous improvement. The organisation values and leverages the diverse skills of its workers to develop products that continuously exceeds expectations of the consumers.

The organisation focuses on its employees needs, providing special amenities to propel both career and personal growth. In the reported year, the Company had offered training programmes in areas such as fire safety, training to use first aid kits during emergency. Along with this, awareness were spread regarding health and safety, PPE awareness and awareness training for prevention of corruption and information security breaches were also undertaken by the Company to not only enhance the skill of its workforce, but to also create a safe working environment. The organisation supports its employees overall well-being, instils confidence and belonging and supports a good work-life balance. As of 31^st March 2024, the Company has a competent talent pool, comprising more than 600 employees spread across its production facilities and offices.

Internal control systems and their adequacy

The Company has a strong internal audit system in place, which is regularly monitored and updated to safeguard assets, comply with regulations and promptly address any issues. The audit committee diligently reviews internal audit reports, takes corrective action as required and maintains open communication with both statutory and internal auditors to ensure the effectiveness of internal control systems. This robust internal audit framework ensures that the Company operates with integrity, transparency and accountability while mitigating risks and safeguarding the interests of stakeholders.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward- looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments.