Sarla Performance Fibers Ltd Management Discussions

Industry Insight

Global Economy: The Year Under Review

The global economy in FY 2025-26 navigated a challenging landscape shaped by escalating trade protectionism, geopolitical realignments, and divergent regional growth trajectories. The United States introduced sweeping tariff measures from early 2025, pushing average effective tariff rates to their highest level since the 1930s and triggering significant supply chain recalibrations worldwide. Despite this turbulence, the global economy demonstrated resilience, supported by front-loading of trade activity, a surge in AI-related investment, and broadly accommodative financial conditions, with the IMF projecting global growth at approximately 3.3% for the year.

Inflationary pressures moderated through much of FY 2025-26, enabling monetary easing in several advanced economies. Crude oil prices softened to an average of around USD 69 per barrel, a welcome development for energy-intensive manufacturers globally. Concurrently, US-China tensions accelerated supply chain diversification toward South and Southeast Asia, opening meaningful export opportunities for emerging economies across multiple sectors.

The final weeks of the fiscal year, however, delivered a sharp reversal. The escalation of the US-Israel-Iran conflict from late February 2026 sent Brent crude surging toward USD 120 per barrel, directly unwinding the oil price tailwind that manufacturers had enjoyed through the year. Disruptions to the Strait of Hormuz curtailed energy and LNG shipments, drove maritime insurance premiums sharply higher, and triggered secondary shocks across commodity markets. The inflationary re-emergence has broadly paused the monetary easing cycle, while the WTO has warned of further drag on global merchandise trade growth in 2026. While the medium-term opportunity from supply chain diversification remains intact for emerging economies, elevated energy import costs and renewed inflationary pressure present near-term headwinds that temper the optimism built through the earlier part of the year.

Near-term Outlook

Looking ahead, global growth is expected to moderate to approximately 3.3% in 2026 as the front-loading effect unwinds and traded goods demand softens. Emerging market economies are projected to remain the more dynamic contributors to global output, sustained by domestic consumption and ongoing structural reforms. Key risks include a re-escalation of trade tensions, geopolitical conflicts affecting commodity supply chains, and financial market volatility. The trajectory of energy prices, stability of global demand, and the pace of tariff normalisation will be the most consequential external variables in the period ahead.

SARLA PERFORMANCE FIBERS LIMITED
Economic Group	2025	2026	2027
Global Economy	3.4%	3.1%	3.2%
Advanced Economies	1.9%	1.8%	1.7%
Emerging Market & Developing Economies	4.4%	3.9%	4.2%

Source: IMF World Economic Outlook, April 2026

Indian Economy Overview

Indias economy delivered an exceptional performance in FY 2025-26, cementing its position as the fastest- growing major economy globally. Real GDP expanded by 7.8% in the first quarter, accelerated to 8.4% in the second, the strongest quarterly performance in six quarters, before moderating to 7.8% in the third quarter, reflecting broad-based and sustained growth across industrial and services sectors. The governments Revised Estimates placed full-year GDP growth at 7.6%. The year was characterised by

what the RBI Governor described as a rare goldilocks moment, high economic growth alongside historically low inflation, creating an exceptionally favourable backdrop for investment and consumption. Private consumption was supported by income tax relief in the Union Budget, GST rate rationalisation in September 2025, an above-normal monsoon, and sustained real income gains from declining inflation.

Inflation moderated sharply through the year, with the Consumer Price Index averaging approximately 2.6% for FY 2025-26, well within the RBIs target band and driven largely by a correction in food prices and

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the pass-through effects of GST rationalisation. The RBI responded with a cumulative 100 basis points reduction in the policy repo rate between April and December 2025, bringing it to 5.25%, while also reducing the Cash Reserve Ratio to support liquidity. Indias external sector remained resilient, with the current account deficit narrowing significantly, services exports sustaining double-digit growth, and gross FDI inflows rising approximately 19% year-on-year in the first half, reinforcing international confidence in Indias economic fundamentals.

Outlook

Indias economic outlook for FY 2026-27 remains cautiously optimistic, with the RBI projecting GDP growth of approximately 6.6% and several institutions forecasting a range of 6.5% to 7.0%, a moderation from the 7.6% recorded in FY 2025-26. This step-down in growth expectations reflects a confluence of external headwinds that were largely absent in the prior year. The sharp surge in crude oil prices toward USD 120 per barrel in the closing weeks of FY 2025-26, disruptions to key shipping routes, and the consequent rise in maritime freight and insurance costs have begun

to exert upward pressure on Indias import bill and inflation trajectory, developments that may constrain the RBIs room for further monetary easing. Elevated US tariffs, volatile commodity prices, and global trade uncertainty add further complexity, weighing on export competitiveness and business sentiment. Domestically, while consumption is expected to remain the primary growth driver, supported by the lagged effects of monetary easing, continued government capital expenditure, and strengthening rural demand, these tailwinds are unlikely to fully offset the drag from a more challenging global environment. While Indias medium-term structural growth story remains intact, navigating the external environment in FY 2026- 27 will require careful management of energy costs, currency pressures, and evolving trade dynamics.

Global Textile Market

The global textile market continued its growth trajectory in FY 2025-26, valued at approximately USD 760 billion and projected to reach USD 974 billion by 2030 at a CAGR of around 5.1%. Growth was supported by rising demand for man-made and technical fibres, expanding e-commerce channels, and increasing preference for performance textiles across apparel and industrial segments. Asia Pacific retained its dominance, accounting for over 53% of global market share, underpinned by its large-scale manufacturing base, cost competitiveness, and strong domestic consumption.

The year was, however, defined by an unprecedented confluence of trade policy and geopolitical disruptions The US Liberation Day tariff announcement of Apri 2, 2025 imposed sweeping reciprocal tariffs or virtually all trading partners, with China bearing rates as high as 145% and Vietnam facing 46%, sendinc immediate shockwaves through global textile supply chains and forcing brands to urgently reconside sourcing strategies built over decades. As the scale of disruption became apparent, a process of gradua tariff rationalisation followed. A US-China truce in May 2025 rolled back reciprocal tariffs from 145% to

30%, and the US subsequently concluded bilateral framework agreements with twelve trading partners including the EU, Japan, South Korea, Vietnam, and the UK through the course of the year. The US-China reduced tariff arrangement was further extended through November 2026, providing greater medium- term visibility. Notwithstanding this rationalisation, elevated duties and residual policy uncertainty continued to weigh on global sourcing confidence, accelerating structural shifts already underway toward supply chain resilience, ESG compliance, and traceability. Political instability in Bangladesh added a further dimension of uncertainty, reinforcing the case for broader geographic diversification of vendor bases. Compounding these challenges, the ongoing Middle East conflict intensified disruptions to key maritime shipping routes through the closing months of the fiscal year, pushing up freight and insurance costs and, alongside the sharp surge in crude oil prices, introducing a significant additional layer of complexity to global supply chain planning as the year drew to a close.

Outlook

The outlook for the global textile market in FY 2026-27 is cautiously constructive, shaped by the developments and structural shifts of FY 2025-26. The partial tariff rationalisation achieved through bilateral framework agreements, provides a degree of stability that was largely absent through the prior year. However, the durability of these arrangements remains contingent on ongoing negotiations, and any reversal would quickly reignite sourcing uncertainty across global supply chains. The China Plus One strategy, which gained significant momentum through FY 2025-26, is expected to deepen further as sourcing diversification has now become a structural imperative rather than a tactical response for most global brands. Countries that demonstrated manufacturing scale, compliance capability, and supply chain transparency through the disruptions of FY 2025-26 are best placed to consolidate their share of global sourcing in the year ahead. On the demand side, retail sentiment is expected to improve gradually as inflation moderates and consumer spending stabilises, supporting a recovery in order flows across apparel and home textiles. Demand for man-made fibres, technical textiles, and sustainable fabrics is projected to grow at a healthy pace, driven by lifestyle shifts, tightening regulatory standards, and continued fibre technology innovation. The persistence of Middle East tensions and elevated crude oil prices remain the most significant near-term risks, with freight cost volatility and input cost pressures capable of constraining the margin recovery that manufacturers across the value chain are counting on in FY 2026-27.

The Indian Textile and Apparel Industry

The Indian textile and apparel industry sustained strong momentum in FY 2025-26, maintaining its position as a mainstay of the domestic economy. The sector contributes approximately 2% to Indias GDP, around 11% to manufacturing GVA, and holds a 4.6% share of global textile and apparel trade. It remains one of Indias largest employment generators, engaging over 45 million people directly and producing approximately 22,000 million pieces of garments annually. The domestic market was valued at approximately USD 225 billion in FY 2025-26, growing at a brisk 10-12% annually and expected to reach USD 350 billion by 2030.

On the export front, the sector navigated a particularly complex year shaped by the evolving US tariff environment. India initially appeared well-positioned following the Liberation Day announcement, with its 27% reciprocal tariff comparing favourably against Vietnams 46% and Chinas rates well above 100%, prompting early enquiry flows from global buyers seeking to diversify sourcing. However, this advantage proved short-lived. By August 2025, the US layered an additional 25% penalty tariff on India over its continued purchase of Russian oil, taking total duties to 50% and erasing any competitive edge India had briefly held, with Indian textile products becoming materially more expensive in the US market than comparable goods from Bangladesh and Vietnam. Despite this reversal, the sector responded with commendable agility through active market diversification. While overall textile and apparel exports dipped marginally by 0.26% year- on-year during April-December 2025, the headline number belies an encouraging story beneath. Cumulative textile and apparel exports for the nine- month period reached USD 26.53 billion, compared to USD 26.60 billion in the same period of the previous year. Textile exports declined 2.19%, even as apparel exports rose 2.36%, reflecting continued pressure on the textile segment despite steady growth in apparel. A key highlight of the period has been significant market diversification, with Indias textile sector recording export growth across 118 countries, with strong expansion in the UAE (9.5%), Egypt (29.1%), Japan (14.6%), Poland (19.3%), and Nigeria (20.5%), along with steady growth in key European markets such as Spain, France, Italy, the Netherlands, and Germany. Ready-made garment exports for the nine-month period April-December 2025 rose 2.4% to USD 12 billion, notwithstanding a 3% decline in US-bound shipments to USD 3.6 billion due to tariff pressures. These trends collectively reflect the widening footprint of Indias exports and the deliberate pivot away from US dependency, even as global headwinds persist.

Policy Measures and Global Trade Dynamics

FY 2025-26 was an active year on the policy front. The Union Budget 2025-26 raised the Ministry of Textiles allocation by 19% to Rs. 5,272 crore, with the PLI Scheme for textiles receiving Rs. 1,148 crore and the Amended Technology Upgradation Fund Scheme allocated Rs. 635 crore to support machinery modernisation. The year also marked a landmark in trade diplomacy. The India-UK Free Trade Agreement, signed on July 24, 2025, grants duty-free access to 99% of Indias textile exports to the UK, eliminating the 10-12% tariff gap that had constrained Indian competitiveness, with long-term potential to add up to USD 5 billion in additional export value. The conclusion of the India-EU Free Trade Agreement marked an even more transformative milestone, opening preferential access to one of the worlds largest textile and apparel markets. The PM MITRA scheme continues to progress, with seven mega integrated textile parks planned to attract large-scale investment and build world- class manufacturing infrastructure. Additionally, the government launched the Rs. 305 crore Tex-RAMPS scheme in November 2025 to strengthen research, innovation, and data systems across the sector.

Outlook

The outlook for Indias textile and apparel sector in FY 2026-27 remains broadly optimistic, though tempered by the near-term headwinds that emerged at the close of the fiscal year. Domestic consumption is expected to remain a strong growth driver, supported by rising incomes, urban expansion, and the rapid penetration of organised retail and e-commerce. Export growth is anticipated to pick up meaningful pace, aided by the successful conclusion of the India-UK and India- EU Free Trade Agreements, which open preferential access to two of the worlds most significant textile and apparel markets and materially strengthen Indias competitive positioning. The recently finalised interim India-US trade framework, which has brought tariffs down to 18%, further reduces a key overhang on the sector. Sectors such as MMF textiles, technical textiles, and sustainable apparel present particularly strong medium-term growth opportunities. Companies investing in capacity expansion, technology upgradation, ESG compliance, and product innovation, while actively managing input cost volatility and logistical disruptions, will be well-placed to capture a disproportionate share of the growth that lies ahead.

Global Yarn, Fiber, and Thread Market

The global yarn, fiber, and thread market maintained its growth momentum in FY 2025-26, valued at approximately USD 122 billion in 2025 and projected to reach USD 160 billion by 2030 at a CAGR of 5.4%. Growth continued to be underpinned by rising urbanisation, increasing demand for man-made and blended fibres, greater penetration of organised

retail, and strong momentum from technical and performance textile applications. Synthetic fibres dominated the market with over 53% share, driven by polyesters cost-competitiveness, versatility, and growing recyclability credentials. Asia Pacific remained the epicentre of global yarn production, accounting for nearly 65% of the market, with India emerging as a significant growth engine, with industry projections suggesting India could account for some of the largest absolute market gains through 2030 among all geographies. However, the market was not without headwinds. Volatility in crude oil and petrochemical prices added uncertainty to synthetic yarn input costs through much of the year, before being sharply compounded in the closing weeks by the surge in Brent crude toward USD 120 per barrel, which directly pressured feedstock costs for synthetic fibre manufacturers. Disruptions to shipping routes through the Strait of Hormuz further elevated freight costs and complicated supply chain logistics. The elevated US tariff environment created additional disruptions in trade flows that affected export- oriented yarn manufacturers, while political instability in Bangladesh impacted demand patterns and order flows. Despite these challenges, the structural drivers of market growth, including population expansion, rising incomes, demand for performance wear, and digital retail, remained firmly intact and are expected to sustain the industrys upward trajectory over the medium term.

Indian Yarn Market

Indias yarn industry maintained a broadly stable performance in FY 2025-26, with overall yarn production sustaining healthy levels across both cotton and man-made segments. Cotton yarn remained the dominant output category, though domestic cotton prices continuing to trade at a modest premium to international levels, alongside subdued Chinese import demand, tempered export competitiveness in certain key markets. Domestic demand served as a meaningful offset, supported by the sustained shift in global garment sourcing toward India, driven by the US effort to reduce reliance on Chinese manufacturing and continued disruptions in Bangladesh, which kept domestic mills well-utilised. The man-made yarn segment, particularly polyester and viscose yarns, saw improving demand conditions through much of the year, aided by the relative cost competitiveness of synthetic fibres as crude oil averaged around USD 69 per barrel, with the governments Quality Control Order on synthetic yarn imports continuing to protect the domestic market from low-quality foreign competition. Apparel yarn exports to non-traditional markets, including Japan, the Middle East, and European countries, recorded encouraging growth through much of the year, reflecting the broadening of

ANNUAI REPORT 2025-26

i ew Statutory Reports Financial Statements

Indias export footprint, though rising freight costs and trade flow disruptions in the closing weeks introduced uncertainty into Gulf-region exports specifically. Indias spinning infrastructure, with over 1,900 mills and widespread adoption of compact spinning, autoconer, and electronic yarn-clearing technologies, continued to support consistent quality output and product diversification. Reduced borrowing costs following the RBIs 100 basis point rate cut cycle through the year provided financial relief to capital-intensive spinning units, improving operational margins and supporting investment in technology upgradation. The sharp rise in crude oil prices toward the end of the fiscal year introduced renewed cost pressure on synthetic yarn manufacturers and added freight and logistics complexity to export operations, partially tempering the momentum built over the course of the year.

Man Made Fiber (MMF) Overview and Outlook

The global man-made fiber industry continued its robust expansion in FY 2025-26, reinforcing MMFs central role in the future of textiles. The global MMF market, valued at approximately USD 175 billion in 2024, is projected to grow to USD 258 billion by 2028 at a CAGR of 7.9%, underpinned by the material advantages of synthetic and cellulosic fibres across performance, cost, and versatility dimensions. Polyester remained the undisputed dominant fibre, accounting for the majority of global synthetic fibre production and underpinning demand across apparel, home textiles, automotive, and industrial applications.

The global polyester fibre market was valued at approximately USD 130 billion in 2024 and is expected to reach USD 207 billion by 2034 at a CAGR of 4.5%.

Nylon and acrylic fibres also saw steady demand across performance and industrial applications, while cellulosic fibres, particularly viscose and lyocell, gained traction as brands responded to growing consumer and regulatory demand for more sustainable fibre choices. The year saw meaningful advances in recycled fibre technologies, with recycled polyester adoption accelerating as global brands set increasingly ambitious sustainability targets.

The integration of bio-based and circular economy principles into MMF production is reshaping long- term investment decisions across the fibre and yarn manufacturing sector, and is expected to become a defining competitive differentiator in the years ahead. However, the sharp rise in crude oil prices in the closing weeks of the fiscal year introduced a significant headwind for synthetic fibre feedstock costs globally.

India Man Made Fiber Industry

Indias man-made fiber sector maintained its position in FY 2025-26, consolidating its standing as the worlds second-largest producer of both cellulosic and synthetic fibres. Polyester continued to dominate domestic MMF production at approximately 77.5% of

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output, with viscose contributing around 16.5%. The MMF industry accounts for approximately 16% of Indias total textile exports. During April-December 2025, man-made yarn and fabrics recorded a modest cumulative growth of 0.41%, with momentum picking up in December 2025, which posted a stronger 3.99% expansion, reflecting the gradual recovery of the segment against a backdrop of subdued global demand and competitive pressures, reflecting steady demand from key international markets even amid the tariff-disrupted global trade environment. The governments Quality Control Order on synthetic yarn imports, introduced in October 2023, continued to yield meaningful results, protecting domestic manufacturers from low-quality imports and encouraging higher domestic consumption of Indian-produced MMF yarn. Indias per capita MMF consumption, while still significantly below global averages, is on a rising trajectory, supported by income growth, urbanisation, and the cultural shift toward man-made fibre-based apparel and home textiles. Sustainability remained a key industry focus, with increasing adoption of recycled polyester across production lines and growing alignment with global ESG standards. The successful conclusion of the India-EU Free Trade Agreement during the year opens preferential access to one of the worlds most significant premium textile markets, creating a meaningful opportunity for Indian MMF exporters to deepen their presence in Europe and capture a larger share of the demand for sustainable and performance fibres. The closing weeks of the fiscal year, however, brought renewed feedstock cost pressure and added freight complexity through disruptions to key shipping routes, directly impacting polyester and other synthetic fibre producers. With the PLI Scheme channelling investment into MMF fabrics and technical textiles, and the PM MITRA parks providing world-class manufacturing infrastructure, Indias MMF sector is well-positioned to scale its global footprint and strengthen its role across both domestic and international textile supply chains, provided it navigates the near-term energy and logistics headwinds effectively.

Government Initiatives

The Indian government sustained its multi-pronged support for the textile industry in FY 2025-26, advancing a comprehensive policy agenda spanning manufacturing incentives, infrastructure development, trade facilitation, skilling, and sustainability.

Budget Allocation and Key Schemes

The Union Budget for FY 2025-26 allocated Rs. 5,272 crore to the textile sector, a 19% increase over the previous years Rs. 4,417 crore, reflecting the governments sustained commitment to strengthening the sectors global competitiveness.

Production-Linked Incentive (PLI) Scheme

The PLI Scheme for Textiles, with an approved outlay of Rs. 10,683 crore, continues to promote MMF Apparel, MMF Fabrics, and Technical Textile production through FY 2029-30. A total of 74 applications have been selected, with proposed investments of Rs. 28,711 crore, projected turnover of Rs. 2,16,760 crore, and employment generation of over 2.59 lakh. For FY 2025-26, Rs. 1,148 crore has been allocated to the scheme.

Rebate of State and Central Taxes and Levies (RoSCTL)

The RoSCTL Scheme for apparel and made-ups exports has been extended until September 30, 2026, without changes to existing guidelines. Alongside, the RoDTEP Scheme has been continued through September 2026 for textile products outside the RoSCTL ambit, ensuring comprehensive export support across the value chain.

PM MITRA Parks Scheme

Significant progress was recorded across all seven PM MITRA Parks in FY 2025-26. Infrastructure works worth Rs. 2,590.99 crore have been initiated, investment MoUs of over Rs. 27,434 crore signed, and environment clearances secured for all parks. The Prime Minister laid the foundation stone of the Dhar, Madhya Pradesh park in September 2025, marking a key milestone in the schemes execution.

National Technical Textiles Mission (NTTM) and Tex- RAMPS

The NTTM, with an outlay of Rs. 1,480 crore, has been extended through March 2026, supporting 168 R&D projects across speciality fibres and applications. Complementing this, the government launched the Rs. 305 crore Tex-RAMPS scheme in November 2025 to strengthen research, innovation, and data systems across the sector.

Skilling, Cotton, and Technology Upgradation

The SAMARTH skilling scheme has trained 5.41 lakh persons to date, with 88% women beneficiaries targeting an additional 2 lakh in FY 2025-26. A five- year Cotton Mission with Rs. 600 crore has been launched to improve productivity, particularly foi extra-long staple varieties. The ATUFS has beer allocated Rs. 635 crore for machinery modernisation To promote technical textiles, customs duty on rapie and air jet looms has been reduced to nil from 7.5%.

Trade Agreements and Export Promotion

FY 2025-26 was a landmark year for trade diplomacy The India-UK Free Trade Agreement, signed in July 2025, grants duty-free access to 99% of Indias textile exports to the UK, with potential to add up to USD 5 billion in export value. The conclusion of the India-EL Free Trade Agreement opens preferential access tc one of the worlds largest textile markets, significantly strengthening Indias competitive positioning. The government also approved the Export Promotion Mission for FY 2025-26 to FY 2030-31, supported by the Credit Guarantee Scheme for Exporters to enhance MSME access to collateral-free credit.

Industry Growth Roadmap

These initiatives collectively advance the governments ambitious targets of USD 250 billion in textile production and USD 100 billion in exports by 2030 underpinned by continued investment in infrastructure technology, trade access, and sustainability.

Strategic Pillars and Business Growth Framework

State-of-the-Art Manufacturing Units Enabling Scalable and Sustainable Growth:

Sarlas state-of-the-art manufacturing facilities in Silvassa, Vapi, and Dadra are built on a foundation ol over three decades of industry expertise. The company produces a comprehensive range of synthetic yarns including polyester and nylon textured yarns, twistec yarns, dyed yarns, covered yarns, high-tenacity yarns barre-free nylon yarns, and application-specific sewing threads. Sarla holds a distinctive position as Indias sole manufacturer of Nylon 66 and the only producer of pure nylon in the country.

COMFILO, Indias first barre-free nylon yarn launched in FY25 to eliminate fabric bareness and improve dye consistency in circular knitting, has continued to gain market traction during the year. Underpinning the companys competitive position are its efficien operations, strong customer loyalty, and end-to-end nylon manufacturing capabilities, with a particula expertise in fulfilling custom orders across a wide range of volumes. Building on this momentum, the company introduced a cooling yarn this year featuring advanced moisture-management technology, while

also advancing development of a nylon-based yarn engineered to deliver spandex-like stretch without the use of spandex, an innovation that holds the potential to redefine standards in circular knitting and meaningfully contribute to sustainability goals.

During the year, Sarla invested INR 4.8 crore in plant and machinery additions and modernization, supplementing INR 125 crore invested over the preceding six years. Moreover, we have earmarked approximately INR 20 crore towards modernization, automation, and selective capacity expansion, reaffirming our commitment to keeping innovation at the heart of everything we do. The rollout of SAP has optimized operations by providing actionable insights through an intuitive interface. Granular machine-level data on breakdowns, spare parts, and replacements enables sharper profitability assessments, resulting in reduced yarn breakage, higher machine speeds, better product quality, improved productivity, and greater machine uptime. Sarlas expansion is guided by strong order visibility, ensuring operational efficiency and sustainable long-term growth.

Shift Toward Premium and Specialty Products for Higher Value Creation:

Sarlas journey began as a producer of commodity yarns for the apparel sector. The company has since undergone a deliberate strategic shift toward high- tenacity nylon and polyester yarns, as well as specialty yarns serving sectors such as sportswear, military applications, and industrial sewing threads. Today, value-added products constitute approximately 50% of the total product portfolio, reflecting Sarlas responsiveness to evolving market demands.

Building on its product innovation roadmap, the company launched high-tenacity nylon (6 and 6.6) flat and twisted yarns in FY24, followed by the introduction of COMFILO in FY25, a significant milestone that addressed prevalent fabric defects and delivered a flawless finish across athleisure, sportswear, fashion (Taffeta), and circular knitting applications. As these initiatives mature into FY26, they are increasingly contributing to Sarlas strategic shift toward high- margin offerings, with the full-scale benefits of this product portfolio on track for realization by FY27.

Sarla continues to scale up its Nylon 6 and Nylon 66 capacities in response to sustained and rising demand, with innovations such as COMFILO, launched in FY25 to address prevalent fabric defects and deliver a flawless finish across athleisure, sportswear, fashion (Taffeta), and circular knitting applications, further strengthening the product proposition in this segment. Nylon yarn, which contributed 49% of sales volume in FY26, has been on a strong growth trajectory and is projected to reach approximately 60% of sales volume in the coming years. Backed by a deep market credibility

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and a differentiated product portfolio, the company is progressing toward swift capacity utilization, translating into higher sales volumes, improved price realizations, and better margins. In parallel, Sarla remains committed to future-focused research around biodegradable and recycled polymers, including agriculture waste-based alternatives, reinforcing its long-term strategy to reduce fossil fuel dependency and advance environmental sustainability.

Tapping into Indias Growing Consumer Market:

The Indian market is experiencing a meaningful transformation, driven by evolving consumer preferences toward premium products and lifestyle upgrades. This shift continues to present a significant opportunity for Sarla, with domestic revenue accounting for 39% of total sales in FY26. Looking ahead, this figure is projected to grow to 55-60% over the next few years, underscoring the substantial headroom for expansion within India.

Indias youthful demographic profile, with a median age of approximately 28, presents considerable economic potential. Rising demand for premium clothing, athleisure wear, and frequent wardrobe refreshes is creating strong and sustained tailwinds. As a leading manufacturer of elastic, socks, and sewing threads, particularly for the innerwear segment, Sarla is well- placed to capitalize on these trends by channeling its value-added yarns toward the domestic market.

To accelerate this strategy, Sarla plans to expand its domestic salesforce in the coming years, aiming to target of capturing a 10% share of the overall Indian market, with a projected 4-5% improvement in operating margins driven by increased domestic contribution.

Broadening Applications Across Diverse and High- Potential Industries:

Synthetic fibers such as nylon and polyester are increasingly preferred over natural alternatives owing to their superior strength, durability, consistency, and versatility. Their functional properties, including enhanced stretch, moisture management, and color retention, make them suitable for a wide array of industries including sportswear, medical textiles, automotive, and home furnishings.

Sarlas product applications span multiple sectors:

- Polyester textured yarns serve furniture upholstery, automotive upholstery, and narrow fabrics and tapes.

- Textured sewing threads are used in apparel, swimwear, lingerie, fleece goods, towels, washcloths, tablecloths, placemats, sheets, and pillowcases.

- Nylon yarns are preferred in babywear for their moisture-wicking properties and structural durability.

- High-tenacity polyester yarns are used in airbags, seatbelts, and footwear due to their exceptional tensile strength. Polyester stretch yarns find wide application in socks and sportswear.

- Covered yarns play a critical role in advanced mattress manufacturing, enhancing both comfort and durability.

- Barre-free nylon yarns improve the quality of athleisure, sportswear, fashion (Taffeta), and circular knitting textiles.

Sarla is also making inroads into the fast-growing medical textile segment, developing products for implants, catheters, and orthopedic applications. While Indias per capita synthetic fiber consumption remains below the global average, increasing consumer awareness, rising disposable incomes, and evolving lifestyles are expected to drive demand, particularly for nylon products. Sarlas proactive domestic marketing efforts are already yielding positive traction and setting the groundwork for deeper market penetration.

Resilient Global Presence and Export Growth:

Notwithstanding a challenging global environment marked by escalating trade tensions and tariff uncertainties, particularly in the Indo-US trade corridor, currency volatility, irregular demand cycles across key export markets, and ongoing supply chain realignments, Sarla has maintained a robust international footprint. While headwinds in the US market exerted pressure on export flows, Sarlas geographically diversified presence enabled the company to offset this impact, with other key markets stepping in to provide the necessary support. This resilience is reflected in export revenues growing to 60.5% of total sales in FY26, up from 55.7% in FY25, underscoring the strength of Sarlas multi-market strategy. The company continues to serve as a trusted supply chain partner for several leading global brands, serviced both directly and through intermediaries.

The company actively pursues new international markets, supported by its well-established reputation for product quality, reliability, and competitive value. With a presence across 62 countries and a client base of over 350 customers, Sarla benefits from a well-diversified revenue stream that minimizes dependence on any single geography. Participation in global trade exhibitions and industry events continues to strengthen Sarlas international brand visibility and facilitates the showcasing of its latest product innovations. Nylon 66, which is exclusively earmarked for export, reinforces Sarlas premium positioning in

global markets and contributes to superior revenue realization.

Deep-Rooted Customer Partnerships Driving Long- Term Loyalty:

At the heart of Sarlas business model lies a philosophy of cultivating enduring client relationships rather than pursuing transactional engagements. By embedding itself into customers supply chains and actively supporting their growth objectives, Sarla has built an exceptionally loyal customer base. The company retains 100% of its clientele, with 90% of customers placing repeat orders, a testament to the trust and reliability it has established over time.

The companys guiding principle, Once a Sarla customer, always a Sarla customer, encapsulates the depth of these partnerships. Sarlas technologically sophisticated products integrate seamlessly into customer operations, supported by a proactive and technically driven marketing approach. Rather than competing on price alone, Sarla focuses on demonstrating product value and maintains continuous dialogue around product performance and collaborative business growth. This customer-first approach firmly establishes Sarla as a dependable and strategic partner in its clients success.

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Prudent Financial Management Enabling Scalable and Sustainable Growth:

In the capital-intensive textile sector, Sarla has distinguished itself through disciplined financial stewardship. The company maintains a net cash surplus position, while keeping a conservative debt- equity ratio of 0.38x. Its measured approach to capital expenditure has strengthened the balance sheet while simultaneously enabling incremental capacity expansion.

Sarla has strategically deployed a mix of debt and equity to fund growth initiatives, ensuring liquidity is preserved and resources are optimally utilized. Sound working capital management further reinforces financial resilience. These disciplined financial practices underpin Sarlas identity as an Untextile company, one that prioritizes long-term value creation, operational stability, and scalable, sustainable growth.

Internal Control Systems and their Adequacy:

The Company has in place an adequate system of internal controls, commensurate with the size, scale and complexity of its operations. These controls are designed to provide reasonable assurance regarding the recording and provision of reliable financial and operational information, compliance with applicable statutes, laws and regulations, safeguarding of assets from unauthorised use, execution of transactions with proper authorisation, and adherence to corporate policies.

The Companys internal control framework is supported by a well-defined organisational structure, documented policies, standard operating procedures and an appropriate delegation of authority. The implementation of SAP across operations has further strengthened the control environment by enabling system-driven checks, real-time monitoring of transactions and enhanced data integrity across procurement, production, inventory and financial reporting processes.

The Internal Auditor of the Company conducts audits across functions and locations in accordance with an annual internal audit plan approved by the Audit Committee. The Internal Auditor monitors and evaluates the efficacy and adequacy of internal control systems, accounting procedures and policies, and submits quarterly reports to the Audit Committee of the Board. Significant audit observations, together with corrective and preventive actions, are reviewed by the Audit Committee, and follow-up actions are tracked to closure.

During the year under review, no material weakness in the design or operation of the internal financial controls was observed. Based on the review by the management, the Internal Auditor and the Statutory Auditors, the Board is of the opinion that the Companys internal financial controls were adequate and operated effectively during FY 2025-26.

Human Resources / Industrial Relations

The Company considers its human capital to be its most valuable asset and a key driver of its sustained growth and operational excellence. In the labour- intensive textile industry, where skilled craftsmanship and process efficiency are critical, the Companys workforce - comprising a blend of management professionals, permanent employees and contract workers - remains central to its success.

The Companys human resource philosophy focuses on attracting, developing and retaining talent. Employees are provided ongoing training and skill development opportunities to keep pace with evolving technologies and industry trends, fostering a culture of continuous improvement across all areas of production. The long average tenure of employees of 15+ years reflects the strong culture of trust, stability and commitment within the organisation, while the senior management team brings an average experience of over 20+ years.

During the year, the Company has not granted any options under the Sarla Performance Fibers Limited Employee Stock Option Plan (ESOP) Scheme 2025, instituted to reward and retain eligible employees of the Company and its subsidiaries.

The Company is committed to maintaining a safe, inclusive and harassment-free workplace and has in place a policy on prevention, prohibition and redressal of sexual harassment in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, along with a duly constituted Internal Complaints Committee. No complaints were received during the year.

Industrial relations remained cordial and harmonious at all plants and offices of the Company throughout the year, and no man-days were lost on account of any industrial unrest. As on March 31, 2026, the Company had 432 permanent employees on its rolls, and a total workforce of over 1500+ including contract labour.