Regency Ceramics Ltd Management Discussions

Dr. G. N. Naidu, Founder and Chairman of our Company passed away on 29th April 2026. A man of extraordinary vision, commitment and integrity - he was a leading light of the ceramic tile industry. I am sure all members will join me in mourning his passing away. His legacy will forever be remembered and cherished.

GLOBAL ECONOMY

Global growth is projected to be 3.0 percent in 2026 and 3.4 percent in 2027, down from the average of 3.5 percent observed in 2024-25 and broadly unchanged on a cumulative basis compared with the forecasts in the April 2026 World Economic Outlook (WEO). The modest slowdown reflects the effects of the war in the Middle East being partly offset by accelerated demand-driven momentum in the global technology cycle thanks to advances in artificial intelligence (AI) and its adoption. The impact varies widely based on countries exposure to war and position in the technology value chain. Energy exporters outside the conflict zone benefit from favorable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers. In contrast, activity weakens for energy importers with limited participation in the technology value chain, a group that includes many low-income countries. Global headline inflation is expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026 before declining to 3.9 percent in 2027. Slightly revised upward from April, these projections indicate that the disinflation trend in place since the beginning of 2024 has stalled.

On the back of these developments, global growth in the first quarter of 2026 turned out to be stronger than expected, slowing from 3.8 percent in the fourth quarter of 2025 to 3.0 percent on a quarter-over-quarter annualized basis, instead of the 2.7 percent forecast in the April 2026 WEO. Part of this can be explained by the steady increase in the share of renewable energy in global energy production and the fact that many economies are less energy intensive than they were even just a few years ago, making them more resilient than expected to higher energy prices. Fiscal support and robust domestic demand in some countries are a contributing factor as well.

INDIAN ECONOMY

India is one of the fastest growing economies of the world and is poised to continue on this path. With aspirations to achieve high middle-income status by 2047—the centenary of its independence--the country is building on strong foundations of economic growth and social progress. India has achieved remarkable development over the past two decades. Since 2000, the economy has nearly quadrupled in real terms, and per capita income has almost tripled. This growth trajectory has been accompanied by a substantial reduction in extreme poverty (from 16.2 percent in 2011-12 to 2.3 percent in 2022-23) and a significant expansion in infrastructure and access to basic services.

Despite these achievements, critical development challenges persist. These include high levels of informality in the labor market, low female labor force participation, unequal access to quality health and education services, regional disparities in development outcomes, and increasing vulnerability to climate change and natural disasters. Addressing these complex challenges will be essential as India looks ahead to its centenary milestones.

To achieve its vision of becoming a high-income economy by 2047, India will need to sustain an average annual growth rate of 7.8 percent over the next two decades. This will require bold and sustained reforms to increase both public and private investment (increasing the real investment rate from around 33.5 percent of GDP to 40 percent by 2035), create conducive conditions for the generation of more and better jobs—particularly for women through laborintensive sectors—and drive productivity. Simultaneously, the country must deepen structural reforms to strengthen infrastructure, improve health and learning outcomes, boost manufacturing and digital innovation, while continuing to safeguard macroeconomic stability.

All of these economic indicators augur well for Indian infrastructure - especially the construction sector. The 6 major cities of India are growing tremendously, but the real story is the burgeoning middle class in about 100 Tier 2 cities of India. There is exponential growth in housing, manufacturing, offices, retail, health and hospitality sectors. It is expected that the momentum will result in a hockey stick growth chart for these cities.

Driven by near double-digit growth in manufacturing and services sectors, the economy grew a robust 7.8% year-on-year in the April-June 2026 quarter, despite the headwinds caused by the West Asia conflict, high energy prices and supply disruptions. This is well above the Reserve Bank of India forecast of 7%. The manufacturing sector grew by 9.2% in April-June, up from 8.3% in the same quarter last year, while the services sector expanded 10%, higher than 8% a year ago, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI), Government of India.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Indian ceramic tile industry has confirmed its position as a global player in the sector and as the worlds second largest manufacturer, consumer and exporter behind China. This is despite the downturn recorded in 2024, when national production fell by 2% to 2.4 billion sqm and domestic consumption declined by 4.7% to 1.62 billion sqm. In the same year, total exports dropped to 525 million sqm (-11% compared with 2023), accounting for 22% of Indias total tile production and 19.6% of total global exports. Export revenues fell to around €2 billion, with an average price remaining stable at €3.8/sqm.

Indian production is expected to grow at an average annual rate of 3.7% between 2025 and 2029, reaching 2.9 billion sqm by the end of the five-year period - around 500 million sqm more than in 2024. Growth in domestic consumption is expected to be even stronger (+6.3% CAGR over 2025-2029), with volumes reaching 2.2 billion sqm in 2029, or 580 million sqm more than in 2024.

But the industry has undoubtedly been the hardest hit by the conflict that broke out in the Middle East on 28 February. The blockade of the Strait of Hormuz disrupted not only Indian exports to the Middle East but also the propane and LNG supplies from the Persian Gulf on which the Morbi district was almost entirely dependent. This forced almost the entire cluster to halt production for over a month and a half between March and April. Out of nearly 800 active plants, more than 500 shut down their kilns.

Six months on, the acute phase of the crisis has passed. The Morbi cluster will feel the effects and could call into question some of the foundations of the Morbi districts growth, accelerating potential structural changes to its industrial model. What is certain is that the projected 15% drop in production and sales this year will wipe out the Indian ceramic industrys 2025 recovery following a difficult 2024.

To make up for the loss of competitiveness and move away from the commodity model, a growing number of Morbi-based manufacturers are placing greater emphasis on design and quality and shifting towards higher value-added products, large formats and premium surfaces. As a result, the crisis may have accelerated a transition that was already underway, but which had previously been confined to larger, structured groups with a recognised position in international markets.

INDIAN EXPORTS

The United Arab Emirates was the leading export market, where sales of Indian tiles rose by 20%. Russia followed with the United States rounding up the Top 3 export markets for India.

The next four major destination markets for Indian tiles are all located in the Middle East: Iraq, Israel, Kuwait and Oman. Exports of between 10 and 12 million sqm were also recorded in Thailand, Senegal, the United Kingdom and Poland.

COMPANY OUTLOOK

Your company is on its revival journey and is confident about its prospects in the coming years. Currently, all manufacturing is being undertaken at the leased facility at Vemavaram.

The factory at Yanam is still inoperative even though extensive refurbishment was undertaken for one production line and all miscellaneous fixed assets. The Government of Puducherry is in the process of announcing a new industrial policy and hopefully the policy will encourage industrialtion of Puducherry and importance will be given to reopen closed factories to create immediate employment and economic revival in Yanam, Karaikal and Mahe. The company is also making all efforts with Ministry of Petroleum & Natural Gas for resuming gas supplies at the same terms and conditions before the plant closure.

The positive feedback about the products and increasing distribution infrastructure will be further strengthened in the current financial year. The brand "REGENCY" still represents Quality and Service - and the customers of your company are welcoming the return of Regency to the market. The Company has generated revenues of Rs.3826.78 lakhs in this financial year. The capacity utilization has been less than 50% and hence the company has reported losses in the P&L account. The first quarter of the current financial year has been even more encouraging with revenues of Rs 1832.59 crores - almost 50% of last year revenues.

HUMAN RESOURCES AND PEOPLE PRACTICES

At Regency Ceramics, we believe our people are our most valuable asset and the key drivers of our sustainable growth and competitive advantage. During the year under review, the Company continued to focus on building an effective & efficient organization.

1. Talent Acquisition and New hire onboarding -

The Company further streamlined its recruitment & onboarding process during the year. Formal employee referral program is in place and employee referrals continue to be the primary recruitment source. Other sources include educational institutions, recruitment consultants and through professional network. Formal induction and onboarding programs are in place to ensure seamless integration and early engagement.

2. Employee Engagement & HR Policies -

We continue to focus on employee retention and our key talent retention rate has been very high. Strong employee bonding, empathy and ethical people & business considerations continue to be the cornerstone of our organizational values. HR policies have been further streamlined during the year, including introduction of a revised Leave Policy, Trainee Review Process etc.

3. Goal Setting, Performance Management and Recognition -

Job descriptions for each role have been designed in order to define roles & responsibilities. A formal goal setting process was rolled out during the year, focusing on the top 5 goals / Key Results Areas of each role & function. A formal Annual Performance Appraisal & Counselling (PAC) process was introduced during the year, with focus on performance Scorecard and subsequently an annual salary increase model was implemented across the company, effective 1st April 2026. We will further strengthen this process during the upcoming years.

4. Industrial Relations & Welfare -

During the year under review, the industrial relations remained cordial and harmonious across our plant and offices of the Company. The Company maintains a constructive relationship with its workmen / contractors and works collaboratively towards achieving high productivity and a safe working environment. As a welfare measure, canteen facilities are provided at our factory for all employees at subsidized & reasonable costs. Accommodation is also provided free of cost to specific employees including all workmen/ contractors in the factory premises. Moreover, during the year under review, steps have been taken to improve the housing & hygiene in these quarters. Renovation and necessary civil work is currently in progress.

5. Compliance and Safety -

Focus on Compliance & Safety was our high priority during the year and several steps have been initiated to further strengthen these processes. HR compliance pertaining to coverage of Provident fund, ESI & other applicable statutory norms has been prioritized. A formal Safety Committee is in place at the factory, which reviews & acts on appropriate safety requirements. No major safety incident has been reported during the year.

BUSINESS REVIEW AND FINANCIAL PERFORMANCE

During the year under review, the Company has earned revenue through sale of goods manufactured at its leased facility. The company is also building relationships with third parties to manufacture products like wall tiles, parking tiles, etc that is not part of its manufacturing portfolio. Efforts towards reviving operations at its Yanam Plant is being taken up in earnest and the Company needs the support from Central and State Governments as well as from banking. There are several teething issues that are being resolved in a determined manner.

OPPORTUNITIES

The coming year presents tremendous opportunities for the Company to expand its product portfolio to Parking tiles, Cool Roof tiles and other high value products. The significant challenges being faced by the Morbi cluster has allowed the manufacturing companies in the South to compete with the unorganized sector at Morbi. I wish that the Government of India concedes to the long pending demand of the industry to reduce GST for vitrified and ceramic tiles, as that will spur the per capita consumption - which is very low among almost all countries of Asia and Europe.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company is implementing a robust and effective internal control mechanism to ensure adequacy commensurate with the size, nature and complexities of its business.

The internal audit is entrusted to an independent Chartered Accountants firm, M/s. Brahmayya and Co, Chartered Accountants. The Audit Committee periodically reviews the efficacy of control mechanism, offering improvement suggestions, as and when required. Internal control on financial reporting is attested by the Companys statutory auditors.

DETAILS OF SIGNIFICANT CHANGES IN KEY RATIOS

During the period under review, the Company has made good progress in its financial performance. The Company is undertaking a review of all legacy issues to present a fair view to its shareholders.

DISCLOSURE OF ACCOUNTING TREATMENT:

There are no changes in accounting treatments for the financial year ended March 31, 2026. The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS), the provisions of the Companies Act, 2013 (to the extent notified) and guidelines issued by the SEBI.

CAUTIONARY STATEMENT:

This Management Discussion and Analysis Report contains certain forward-looking statements relating to the Companys business outlook, opportunities, threats, forecasts, and expectations. These statements are based on current assumptions and expectations of future events and are subject to various risks and uncertainties. Actual results may differ materially from those expressed or implied in such statements. Factors that may affect the Companys performance include changes in economic conditions, demand and supply dynamics, product pricing, government policies, regulatory requirements, taxation laws, and other external factors beyond the Companys control.