Shish Industries Ltd Management Discussions

GLOBAL ECONOMY AT LARGE Disinflation amid Economic Resilience

Economic activity was surprisingly resilient during the global disinflation of 2022 23. Growth in employment and incomes has held steady as favourable demand and supply developments have supported major economies, despite rising central bank interest rates aimed at restoring price stability. As inflation converges toward target levels and central banks pivot toward policy easing, a tightening of fiscal policies aimed at curbing high government debt levels, with higher taxes and lower government spending, is expected to weigh on growth. The pace of expansion is also expected to remain low by historical standards as a result of factors including the long-term consequences of the COVID-19 pandemic, Russia?s invasion of Ukraine, weak growth in productivity, and increasing geoeconomic fragmentation.

In late 2023, headline inflation neared its pre-pandemic level in most economies for the first time since the start of the global inflation surge (Figure 1.1). In the last quarter of 2023, headline inflation for advanced economies was 2.3 percent on a quarter-over-quarter annualized basis, down from a peak of 9.5 percent in the second quarter of 2022. For emerging market and developing economies, inflation was 9.9 percent in the last quarter of 2023, down from a peak of 13.7 percent in the first quarter of 2022, but this average was driven by high inflation in a few countries; for the median emerging market and developing economy, inflation declined to 3.9 percent. This progress notwithstanding, inflation is not yet at target in most economies.

As global inflation descended from its peak, economic activity grew steadily, defying warnings of stagflation and global recession. During 2022 and 2023, global real GDP rose by a cumulative 6.7 percent. That is 0.8 percentage point higher than the forecasts made at the time of the October 2022 World Economic Outlook (WEO) (Figure 1.2). The United States and several large emerging market and middle-income economies displayed the greatest overperformance, with aggregate demand supported by stronger-than-expected private consumption amid still-tight though easing labor markets. Households in advanced economies supported their spending by drawing down accumulated pandemic-era savings. Larger-than-expected government spending further supported the expansion of aggregate demand in most regions. The overall budgetary stance measured by the structural fiscal balance was more expansionary than expected, on average. Among large economies, the additional budgetary support, compared with October 2022 WEO forecasts, was estimated at 2 percent of GDP in the United States and 0.2 percent of GDP in the euro area, whereas in China,1 the fiscal stance was mildly tighter than expected, by 0.7 percent of GDP. The euro area also displayed the smallest upside growth surprise, reflecting weak consumer sentiment and the lingering effects of high energy prices. In parallel, global headline inflation declined broadly in line with expectations, averaging just 0.1 percentage point more than predicted in the October 2022 WEO for 2022 and 2023. However, in lower-income countries, inflation was on average higher than expected, reflecting cases in which pass-through into domestic prices from international food, fuel, and fertilizer costs, as well as from currency depreciation, was greater than expected. Price pressures in some lower-income countries were significant. These factors also caused these economies to grow more slowly than expected, suggesting a negative supply shock. In China, inflation fell unexpectedly, with the decrease reflecting sharply lower domestic food prices and pass-through effects on underlying (core) inflation. The resilience in global economic activity was compatible with falling inflation thanks to a post pandemic expansion on the supply side. A greater-than-expected rise in the labor force amid robust employment growth supported activity and disinflation in advanced economies and several large emerging market and middle-income economies. The labor force expansion reflected, in some economies, increased inflows of migrants, with faster growth in the foreign-born than in the domestic-born labor force since 2021 (Figure 1.3), as well as higher labor force participation rates. Exceptions to this pattern include China, where labor market weakness, in the context of subdued demand, was broad based across sectors, and lower-income countries, where supply-side challenges held job creation back. Greater-than-expected additions to the stock of physical capital, with business investment responding to the strength in product demand, further bolstered the supply side in most regions, with exceptions including the euro area, where interest-rate-sensitive business investment, particularly in manufacturing, was subdued. A resolution of pandemic-era supply-chain problems allowed delivery times to decline and transportation costs to decrease (Figure 1.4).

Growth Forecast for Emerging Market and Developing Economies

In emerging market and developing economies, growth is expected to be stable at 4.2 percent in 2024 and 2025, with a moderation in emerging and developing Asia offset mainly by rising growth for economies in the Middle East and Central Asia and for sub-Saharan Africa. Low-income developing countries are expected to experience gradually increasing growth, from 4.0 percent in 2023 to 4.7 percent in 2024 and 5.2 percent in 2025, as some constraints on near-term growth ease.

Growth in emerging and developing Asia is expected to fall from an estimated 5.6 percent in 2023 to 5.2 percent in 2024 and 4.9 percent in 2025, a slight upward revision compared with the January 2024 WEO Update. Growth in China is projected to slow from 5.2 percent in 2023 to 4.6 percent in 2024 and 4.1 percent in 2025 as the positive effects of one-off factors including the post pandemic boost to consumption and fiscal stimulus ease and weakness in the property sector persists. Growth in India is projected to remain strong at 6.8 percent in 2024 and 6.5 percent in 2025, with the robustness reflecting continuing strength in domestic demand and a rising working-age population.

Growth in emerging and developing Europe is projected at 3.2 percent in 2023 and 3.1 percent in 2024, with an easing to 2.8 percent in 2025, an upward revision of 0.5 percentage point for 2023 and 0.3 percentage point for 2024 and 2025 since January. The moderation reflects a prospective decline of growth in Russia from 3.2 percent in 2024 to 1.8 percent in 2025 as the effects of high investment and robust private consumption, supported by wage growth in a tight labor market, fade. In T?rkiye, growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, with economic activity strengthening in the second half of 2024 as monetary tightening ends and consumption starts to recover.

In Latin America and the Caribbean, growth is projected to decline from an estimated 2.3 percent in 2023 to 2.0 percent in 2024 before rising again to 2.5 percent in 2025, an upward revision of 0.1 percentage point for 2024 since January. In Brazil, growth is expected to moderate to 2.2 percent in 2024 on the back of fiscal consolidation, lagged effects of still-tight monetary policy, and a smaller contribution from agriculture. In Mexico, growth is projected at 2.4 percent in 2024, supported by a fiscal expansion, before declining to 1.4 percent in 2025 as the government is expected to tighten the fiscal stance. The forecast for Mexico is revised downward on account of weaker-than-expected outcomes for end-2023 and early 2024, with a contraction in manufacturing.

Growth in the Middle East and Central Asia is projected to rise from an estimated 2.0 percent in 2023 to 2.8 percent in 2024 and 4.2 percent in 2025, with a downward revision of 0.1 percentage point for 2024 from the January 2024 projections. The revision reflects a downward adjustment in the 2024 growth forecast for Iran driven by lower non-oil activity and oil revenues, as well as for a number of smaller economies.

In sub-Saharan Africa, growth is projected to rise from an estimated 3.4 percent in 2023 to 3.8 percent in 2024 and 4.0 percent in 2025, as the negative effects of earlier weather shocks subside and supply issues gradually improve. The forecast is unchanged for 2024 from the January 2024 WEO Update, as a downward revision to Angola owing to a contraction in the oil sector is broadly offset by an upward revision to Nigeria.

Packaging Market Analysis

The Packaging Market size is estimated at USD 1.14 trillion in 2024, and is expected to reach USD 1.38 trillion by 2029, growing at a CAGR of 3.89% during the forecast period (2024-2029).

- Over the past decade, the global packaging market has grown steadily, driven by substrate preference shifts, new markets, and evolving ownership structures. Flexible packaging, high-barrier films, and stand-up retort pouches are increasingly challenging traditional formats like metal tins and glass jars, especially in the food sector.

- Digital printing in the packaging sector is set for significant growth, propelled by its capacity to deliver high-quality, customizable, and cost-efficient solutions. The incorporation of smart packaging technologies is set to revolutionize the sector.

- RFID tags, QR codes, and sensors bolster traceability, quality control, and consumer interaction. With the evolution of the Internet of Things (IoT), smart packaging solutions are becoming pivotal in the packaging industry.

- Rising retail sales will encourage manufacturers to innovate packaging to attract consumers. Creative and visually appealing packaging designs can help products stand out on store shelves and capture consumer attention, leading to a higher adoption of advanced packaging solutions. According to the United States Census Bureau, retail sales in the United States were USD 7.242 trillion in 2023. When compared to 2019, the sales value was USD 5.396 trillion.

- Conversely, the rise in the use of non-recyclable, nonbiodegradable plastic packaging is leading to a surge in carbon emissions, potentially acting as a growth deterrent. In response, major players such as Amazon, Google, and Tetrapak are pivoting toward achieving net-zero carbon emissions, a move thats set to define their future capital investments.

Paper and Paperboard Packaging Products to Witness the Highest Growth

- Increasing demand for environmentally friendly materials propels the packaging market. Eco-friendly packaging, characterized by recyclability, biodegradability, reusability, and low toxicity, is gaining prominence due to its minimal environmental footprint. Notably, paper-based solutions, including bags, pouches, and cartons, have led to a surge in sustainable packaging adoption.

- The increasing trend of online retail and environmental regulations on non-biodegradable and non-recyclable packaging solutions progressively creates a massive demand for eco-friendly paper packaging solutions.

- Companies increasingly shift towards sustainable packaging to meet consumer demands and regulatory requirements. Consumers perceive paper and paperboard packaging as more environmentally friendly than plastic packaging.

- The food and beverage industrys shift from plastic to paper packaging is driven by increasing environmental concerns and regulatory pressures to reduce plastic waste. Manufacturers are increasingly embracing paper and paperboard packaging solutions. For instance, in May 2024, Mondi introduced TrayWrap, a secondary paper packaging solution designed to supplant the conventional plastic shrink film utilized in bundling food and beverage items.

- According to AFRY and Suzano PaperLine, the global consumption of paper is expected to increase from 415 million metric tons in 2022 to 476 million metric tons in 2032. As online shopping continues to rise, the demand for sustainable and efficient packaging solutions will grow. Paper and paperboard are often preferred for their recyclability and biodegradability.

Asia Pacific Packaging Market to Expand Significantly

- Plastic packaging has observed wide-scale utilization in Asia, with countries like India and China contributing significantly through their food and beverages market. The Chinese packaging sector is heavily influenced by variables such as rising per capita income, changing social atmosphere, and demographics, including ban enforcement on plastics to minimize its plastic footprint. This results in significant impacts on the packaging business.

- Indias packaging industry is experiencing robust growth, expanding at a rate of 22-25% annually, solidifying its position as a key player in the global packaging landscape. As the 5th largest sector in Indias economy, the packaging industry has demonstrated consistent growth in recent years, with significant potential for further expansion, especially in the industry of exports.

- Notably, the costs associated with processing and packaging food in India can be as much as 40% lower than in many European countries. This, coupled with Indias abundant skilled labor force, renders the nation an enticing investment destination for businesses eyeing the packaging sector.

- Japan stands out as a significant consumer of paper-based products across diverse sectors, spanning newspapers, packaging, printing, communication, and even sanitary applications. Notably, driven by a growing consumer consciousness towards sustainable practices, concerns over deforestation, and the availability of raw materials, Japans packaging industry is increasingly pivoting towards paper-based solutions.

- Chinas monthly plastic product output averages 6.59 million metric tons. Notably, December 2023 marked a peak, with production hitting 6.98 million metric tons, as reported by the National Bureau of Statistics of China.

- Higher production volumes ensure a more stable supply of plastic raw materials for packaging manufacturers. This stability can lead to more consistent production schedules, reducing lead times and improving delivery reliability for packaging products.

Packaging Industry Overview

- The global packaging industry appears fragmented due to several vendors. Some leading players in the are Amcor Group GmbH, Berry Global Group, Inc., International Paper Company, Mondi Group, and others. In the global packaging market, key factors include sustainable competitive advantages driven by innovation, market penetration levels, exit barriers, advertising expenditure, competitive strategy, and firm concentration ratios. Players in this market leverage innovation for a competitive edge. The material specifications, especially in plastic packaging, offer ample room for product differentiation.

- June 2024 - Berry Global Group Inc. launched a new offering: a rectangular Domino bottle tailored for the beauty, home, and personal care sectors. This bottle is manufactured from up to 100% post-consumer recycled (PCR) plastic. The 250ml Domino bottle boasts a distinctive 75-millimeter-wide front panel, complemented by customizable side panels.

- June 2024 - Smurfit Kappa, a sustainable packaging solutions provider, has acquired Artemis Ltd, a Bag-in-Box packaging facility in Shumen, Bulgaria. Specializing in food and beverage packaging, Artemis manufactures bags for bag-in-box items and produces films and caps tailored to the wine industry.

- April 2024 - Amcor, a global provider of sustainable packaging solutions, launched a product: a one-liter polyethylene terephthalate (PET) bottle designed specifically for carbonated soft drinks (CSDs). Its manufactured entirely from 100% post-consumer recycled (PCR) materials. By offering this pioneering stock option, Amcor underscores its commitment to sustainability and empowers its customers to align with their eco-conscious goals. Source: https://www.mordorintelligence.com/industry-reports/global-packaging-market

Packaging Market News

- June 2024: Sonoco Products Company announced its agreement to acquire Eviosys, a Europe manufacturer of food cans, ends, and closures, from KPS Capital Partners, LP, at around USD 3.9 billion.

- May 2024: Mondi, a prominent global entity in sustainable packaging and paper, marked a significant milestone in Duino, Italy, by laying the foundation for its EUR 200 million (USD 216.45 million) investment in the mill, which Mondi acquired in January 2023. The facilitys existing paper machine is transforming into a recycled containerboard machine.

- April 2024: The United Kingdom has initiated the Circularity in Primary Pharmaceutical Packaging Accelerator (CiPPPA) to spearhead the development and execution of strategies aimed at enhancing the recycling of medicinal devices and pharmaceutical packaging at their end-use. CiPPPA is a non-profit, collaborative effort that unites stakeholders spanning the pharmaceutical supply chain.

- April 2024: Berry Global Group Inc., a key player in designing, developing, and producing healthcare solutions, increased its production capacity by investing in new assets and manufacturing capabilities. This move is set to amplify production by a significant 30% at three of its European facilities.

Introduction

The Indian plastic industry is one of the leading sectors in the country?s economy. The history of the plastic industry in India dates back to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,000 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90% belong to small and medium enterprises. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floor coverings, medical items, packaging items, plastic films, pipes, raw materials, etc. The country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastic industry from a current level of Rs. 3 lakh crore (US$ 37.8 billion) of economic activity to Rs. 10 lakh crore (US$ 126 billion) in 4-5 years.

Global Plastic Corrugated Packaging Market: Regional analysis

North America accounts for the largest share in the global plastic corrugated packaging market due to the high demand for processed and packaged meal products in the region. Moreover, the surging trend of ready-to-go breakfast along with online food delivery services is likely to propel the growth of the regional market in the forthcoming years.

Asia Pacific is expected to grow significantly with a high CAGR during the forecast period due to the growing disposable income of people in the region. Furthermore, the growing number of the working population in the region will further boost the growth of the regional market.

Indian economic review

Strong economic growth in the first quarter of FY23 helped India overcome the UK to become the fifth-largest economy after it recovered from the COVID-19 pandemic shock. Indias gross domestic product (GDP) at current prices in the second quarter (Q2) of 2023-24 is estimated to be Rs. 71.66 trillion (US$ 861.2 billion), as against Rs. 65.67 trillion (US$ 789.2 billion) in Q2 of 2022-23, showing a growth rate of 9.1%. Strong domestic demand for consumption and investment, along with Government?s continued emphasis on capital expenditure are seen as among the key driver of the GDP in the first half of FY24. In 2023-24 (April-December), India?s service exports stood at US$ 247.92 billion. Furthermore, India?s overall exports (services and merchandise) in 2023-24 (April-December) were estimated at US$ 565.04 billion. Rising employment and substantially increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months.

Future capital spending of the government in the economy is expected to be supported by factors such as tax buoyancy, the streamlined tax system with low rates, a thorough assessment and rationalisation of the tariff structure, and the digitization of tax filing. In the medium run, increased capital spending on infrastructure and asset-building projects is set to increase growth multipliers. The contact-based services sector has largely demonstrated promise to boost growth by unleashing the pent-up demand. The sectors success is being captured by a number of HFIs (High-Frequency Indicators) that are performing well, indicating the beginnings of a comeback.

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Indias appeal as a destination for investments has grown stronger and more sustainable as a result of the current period of global unpredictability and volatility, and the record amounts of money raised by India-focused funds in 2022 are evidence of investor faith in the "Invest in India" narrative.

India s Packaging Industry Overview

The paper and packaging sector in India is growing rapidly and has significant potential for future expansion. The industry was valued at $50.5 billion in 2019 and is anticipated to reach $204.81 billion by 2025, registering a CAGR of 26.7% from 2020 to 2025. The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, manufacturing industry and healthcare sector. Additionally, numerous government initiatives including Make in India had positive impact on the packaging industry. The paper and packaging industry is currently the fifth largest sector in the Indian economy and has the potential to achieve pricing levels that are about 40% cheaper compared to European regions.

The Indian packaging sector has distinguished itself with its exports of flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery. The packaging segment with the fastest growth include laminates and flexible packaging, particularly PET and weaved sacks.

India uses paper as a major source of packaging. The paper industry accounts for 5% of global production. Demand for paper continues to rise for the packaging of FMCG products and ready-to-eat food. Packaging-grade paper accounts for 55% of the main types of paper produced domestically in the paper and paperboard industry.

Market Trends

- Plastic corrugated packaging market is experiencing the growth due to rising demand for frozen cigarette foods, dry foods.

- Plastics corrugated boxes are majorly used for pharmaceuticals, food & beverages, tobacco, and durable goods.

- Rising demand of e-commerce in recent years has boosted up the market and is expected to contribute in growth for the forecasted period. Door to door delivery concept is playing a key role here.

- After pandemic, no contact delivery has been appreciated by many key players in fast food industry such as Mc Donald?s, KFC and Dominos. This is expected to boost the demand of plastic corrugated packaging.

OPPORTUNITIES

- Price Transmission in Crude Oil Industry to Drive Market Growth - cheap oil promotes production of new plastic products and it is now more cost effective than recycling the plastic

- Demands from various brand owners are now being strongly felt by the packaging industry, as those brands now are in the need of secondary packaging to promote their business more intensely.

- The market is estimated to grow due to the demand from automobile, building & construction, and personal care industries

- Plastics corrugated packaging boxes are now being offered with RFID or radio frequency identification system for tracking the product

- Advancements in food processing and food packaging play a key role in boosting the plastics corrugated packaging market sales in the world

- Increased per capita personal disposable income has given birth to consumer preference on packaged food over other food

- Unlike paper packaging, plastic corrugated packaging has good water resistance and ensures leakage safety

- The demand for plastics corrugated packaging has witnessed consistent growth due to a host of factors including the onset of cutting-edge digital printing technologies and the booming eCommerce industry

- As the eCommerce sector around the world is likely to expand at a steady pace in the upcoming years, the demand for plastics corrugated boxes is expected to remain high

THREATS

- The increasing focus on minimizing the utilization of plastic across the packaging sector is projected to have a negative impact on the global plastics corrugated packaging market.

- The global plastics corrugated packaging market is highly competitive

- Social factors impacting packaging - From food shortages and ethical sourcing to responsible water and land use, consumers want to know more about the products they buy and the brands that produce them

- New rules around the use of plastics and pollution-causing materials, as well as protecting human and planetary health, will greatly affect consumers.

- Extreme weather conditions can readily affect corrugated packaging

SEGMENT WISE OR PRODUCT-WISE PERFORMANCE & DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The company is primarily engaged in the business of Corrugated Plastic Sheets, which constitute a single reportable segment in accordance with Ind AS 108 "Segment Reporting".

FINANCIAL HIGHLIGHTS

Financial Performance On Standalone Basis

During the year under review, the revenue from operation of the Company was stood at INR 8,547.88 Lakhs as against that of INR 7,022.97 Lakhs for previous year. Revenue from operation of the Company was increased by 21.71% over previous year. Profit before Tax for the financial year 2023-24 stood at INR 1,130.77 Lakhs as against that of INR 768.52 Lakhs making the net profit of INR 843.23 Lakhs for the financial year 2023-24 as against the net profit of INR 573.19 Lakhs for the financial year 2022-23. The increase in profit after tax was achieved due to effective purchase policy of the Company and thereby reducing the cost of raw materials. During the year under review, export sales of the Company was increased by 16.66% than that of previous year, due to which the revenue of the Company was increased. On the other side, the Company also performed well in Domestic Market. The domestic sales of the Company were increased by 27.92% than that of previous year.

On Consolidated Basis

The consolidated revenue from operation of the Company for financial year 2023-24 stood at INR 8,574.08 Lakhs as against that of INR 6,853.79 Lakhs for previous year. The consolidated net profit after tax for the financial year 2023-24 was stood at INR 800.47 Lakhs as compared to INR 677.87 Lakhs for the previous financial year 2022-23. The Company has reported growth of 18.09% in consolidated net profit after tax and 25.10% in revenue for the full financial year 2023-24 as compared to the previous financial year 2022-23. The increase in profit after tax was achieved due to effective purchase policy of the Company and thereby reducing the cost of raw materials.

RISK AND CONCERNS

The Company is exposed to various risks and uncertainties which may adversely impact its performance. The Companys future growth prospects and cash flow generation could be materially impacted by any of these risks or opportunities. The major risks as identified by the Company are demand-risks due to any resurgence in the COVID 19 pandemic, currency risk associated with imports, unfair competition, etc.

The Company follows the Enterprise Risk Management (ERM) framework to manage and mitigate such risks which is primarily based on the integrated framework for enterprise risk management and internal controls developed by the Company.

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

Internal Control system and adequacy Internal Control measures and systems are established to ensure the correctness of the transactions and safe guarding of the assets. Thus, internal control is an integral component of risk management. The Internal control checks and internal audit programmes adopted by the Company plays an important role in the risk management feedback loop, in which the information generated in the internal control process is reported back to the Board and Management. The internal control systems are modified continuously to meet the dynamic change. Further the Audit Committee of the Board of Directors reviews the internal audit reports and the adequacy and effectiveness of internal controls.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

The Company believes in establishing and building a strong performance and competency driven culture amongst its employees with greater sense of accountability and responsibility. The Company has taken various steps for strengthening organizational competency through the involvement and development of employees as well as installing effective systems for improving their productivity and accountability at functional levels. The Company acknowledges that its principal asset is its employees. Ongoing in-house and external training is provided to the employees at all levels to update their knowledge and upgrade their skills and abilities. As on March 31, 2024, the Company had total 43 full time employees. The industrial relations have remained harmonious throughout the year.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (STANDALONE BASIS)

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (CONSOLIDATED BASIS)

CAUTIONARY NOTE

Statements in this Report, describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Forward looking statements are based on certain assumptions and expect ations of future events. These statements are subject to certain risks and uncertainties. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results may be different from those expressed or implied since the Companys operations are affected by many external and internal factors, which are beyond the control of the management. Hence the Company assumes no responsib ility in respect of forward-looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.