Regency Ceramics Ltd Management Discussions

GLOBAL ECONOMIC OVERVIEW

The global economy is currently experiencing a period of modest and uneven growth, with various factors contributing to a slowdown in major economies. In this context, India has emerged as a significant "bright spot," demonstrating strong and resilient economic performance that distinguishes it from its global counterparts.

Global GDP growth is projected to ease from 2.8% in 2024 to around 2.6% in 2025 and 2.5% in 2026. This moderation is largely due to ongoing geopolitical tensions, rising protectionist policies, and policy uncertainty. Many governments are facing increasing fiscal constraints due to high debt levels and rising interest costs, which can limit their ability to stimulate economic growth through public spending.

The United States and China, the worlds two largest economies, are expected to see their growth rates slow. The Eurozone is also projected to experience subdued growth. New trade tariffs, particularly from the US, have led to downward revisions in growth forecasts for many European countries. Indias contribution to global GDP growth is rising. In 2024, it accounted for nearly 17% of global growth, and projections suggest this could rise to almost 20% in the coming years. This makes India a crucial engine for the world economy.

While Indias economic outlook is highly positive, it is not immune to global challenges.

• Trade Headwinds: Indias exports have shown some moderation due to global risks and trade tensions. However, the strong domestic demand has helped to mitigate the impact.

• Global Volatility: Indias financial markets have shown resilience against external shocks, but they can still be affected by global financial volatility and changes in foreign portfolio investment flows

INDIAN ECONOMIC OVERVIEW

The fiscal year 2024-25 was marked by several key achievements and trends:

• Robust GDP Growth: Indias real GDP grew by an estimated 6.5%, a significant achievement given the global slowdown. This growth was particularly strong in the final quarter, reaching 7.4%, which set a positive tone for the upcoming fiscal year.

• Sectors Driving Growth: The service sector remained a major contributor, growing by 7.2% and accounting for over 55% of the countrys Gross Value Added (GVA). Key sub-sectors like financial services, real estate, and public administration were strong performers. The construction sector also registered a notable growth rate of 9.4%, reflecting sustained investment in infrastructure.

• Fiscal Prudence: The government demonstrated fiscal discipline, with the fiscal deficit declining to 4.8% of GDP, a lower figure than previous estimates. This was achieved despite being an election year, and it signals a commitment to a healthier fiscal position.

• Tamed Inflation: While food inflation remained a challenge, overall retail inflation softened to an average of 4.9% for the year, down from 5.4% in the previous fiscal year. This provided the Reserve Bank of India (RBI) with the room to ease its monetary policy.

• Strengthening External Sector: Indias total exports (merchandise and services) reached a new high, with merchandise exports (excluding petroleum) achieving a record figure. The current account deficit (CAD) was contained at a manageable level (around -0.6% of GDP) due to a robust services trade surplus and strong remittance inflows.

• Investment Momentum: Private investment showed "green shoots" and is expected to gain momentum, with Gross Fixed Capital Formation (GFCF) growing by 7.1% for the year. The governments continued push on capital expenditure further supported this trend.

• Financial Health: The banking sectors health improved, with the Gross NonPerforming Assets (GNPA) ratio of Scheduled Commercial Banks (SCBs) dropping to a 12-year low of 2.6%. The capital markets also saw robust activity, with a surge in Initial Public Offerings (IPOs) and a growing number of domestic retail investors.

Economic Projections for the Next Two Years (2025-26 and 2026-27)

The positive momentum from 2024-25 is expected to carry into the next two fiscal years, though with some moderation. Various international and domestic agencies have released their projections, which collectively paint an optimistic picture. The RBI and IMF project Indias GDP to grow at around 6.5% in 2025-26 and 6.4% in 2026-27. This is a stable growth trajectory. The Central Government and private sector will continue to make investments in infrastructure and initiatives like PLI and EODB 2.0 are expected to usher in growth of the economy. The current major challenge of US trade tariffs and volatility of global commodity prices are the major challenges that India will face. The Government has to introduce more aggressive policies to create jobs and promote manufacturing as the best destination for the young to enter the workforce in this sector.

INDUSTRY STRUCTURE AND DEVELOPMENTS

India is one of the fastest-growing ceramic tile marketplaces globally, driven by factors such as the booming real estate sector, government policies supporting housing growth, and rising disposable income leading to a desire for beautification of spaces. Urbanization,

infrastructural development, and consumer preferences for aesthetic and durable flooring solutions has resulted in mushrooming of ceramic tiles manufacturers to cater to this demand. The Indian ceramic tile market is valued at over Rs. 85,000 crores (in 2025) and is projected to grow at a Compound Annual Growth Rate (CAGR) of 6.5% to 9.1% over the next several years. This growth rate is among the highest globally, making India a key hub for the industry. Although domestic consumption is increasing, the reduction in exports has resulted in lower margins, thus affecting profitability. The struggle for market share among the big brands is resulting in severe competitive pressures.

FUTURE OUT LOOK

The low per capita consumption of tiles, rapid urbanization, increasing disposable income of nuclear families, untapped rural market and stable replacement demand shall continue to augur well for the Indian tile industry. Product innovation, increase in demand for larger format tiles, sustainability practices in production, advanced manufacturing methods, AI driven quality control will increase investments by the manufacturers which will increase the burden on their operations.

COMPANY OUTLOOK

Your company is optimistic of its revival and is confident about its prospects in the coming years. The factory at Yanam requires to be refurbished extensively and the company is following up constantly with Ministry of Petroleum & Natural Gas for resuming gas supplies at the same terms and conditions before its closure. The support of the Government of Puducherry in its efforts to revive and create employment in the Yanam region and surrounding areas of Andhra Pradesh is required in earnest and efforts are being made to impress upon the various Government departments to support the revival of the factory at Yanam. 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 hopes to present a vastly improved financial performance in 2025-26.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Your Company believes that human resource is the most important asset of the organization and lays importance on competence and commitment of human capital for its growth.

As the Company is in the process of reviving and strengthening its operations, it has hired a strong senior and middle management team to helm its sales and production capabilities. An enabling environment that fosters continuous learning and innovation remains a key focus area of your company.

BUSINESS REVIEW AND FINANCIAL PERFORMANCE

During the year under review, the Company has earned revenue through sale of goods and have made significant efforts towards reviving and refurbishment of the Plant and is optimistic of commencing the production this year, with support from the Central and State Governments. There are several teething issues that are being resolved in a determined manner.

THREATS, RISKS AND CONCERNS

Alongside the multiple opportunities, the building material sector in India, particularly the ceramic industry and bathware sector, faces a range of challenges as well. These challenges include competition from the unorganized sector, which poses a threat to the organized players. Additionally, the sector faces unstable input costs, which can negatively impact profitability. Furthermore, there are macroeconomic volatilities, including currency fluctuations, that can affect the sector. Also, environmental regulations and changing consumer preferences pose a threat to the sector. With the rising awareness of environmental issues, consumers are displaying an escalating preference for eco-friendly building materials, which could lead to a shift in demand away from traditional materials. Supply chain disruptions, due to global unrest, can also have a negative impact on the sector. To overcome these challenges and remain resilient in the future, the ceramic tiles sector should demonstrate innovation, proactively seek alternative fuel sources, diversify revenue streams. In order to maintain a strong position in the coming years, the industry must also possess flexibility and adaptability to navigate evolving economic circumstances. Likewise, it is crucial for the Company to possess the agility and foresight to effectively address present and future challenges.

OPPORTUNITIES

The coming year presents a plethora of opportunities for the tiles and bathware market which is set to benefit the Company as well as the industry. One potential factor, boosting the prospect, is the reduction of supply chain disruptions, translating into lower freight costs and increased profitability. Moreover, reduced natural gas prices led to lower manufacturing costs, boosting the market competitiveness of products. The reduction of GST for this industry will increase compliance and help ensure that the tiles are used by every section of society.

The Governments focus on infrastructure development through rising capital expenditure will serve as a catalyst for private players to augment their own capital expenditure. Further, rising awareness towards sustainability and sustainable products is set to drive the demand for eco-friendly building materials. This will provide vast opportunities to capitalize on. Additionally, new technologies such as 3D printing may result in the development of new products and more efficient manufacturing methods. Moreover, rapid urbanization in India will continue to uplift demand for residential and commercial constructions, resulting in increased demand for building materials. These variables, if combined with macroeconomic factors, set in motion a huge development potential in Indias building material business in 2025 and beyond.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has a robust and effective internal control mechanism in place, one that is commensurate with the size, nature and complexities of its business. Internal control mechanism, which is benchmarked with evolving best practices at regular intervals, ensures Companys adherences to all applicable regulations in letter and spirit. It also protects Companys various assets from unauthorized use while also ensuring accuracy of financial reporting.

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, there was no significant change in the key ratios, since the Company is still in the process of reviving its operations.