Shlokka Dyes Ltd Management Discussions

ECONOMIC OVERVIEW:

Global Economy

Global growth has continued to hold up better than had been feared, even as the world economy has had to absorb a fresh round of trade policy disruption. Headline inflation across most major economies has moderated towards central bank targets, permitting a gradual easing of policy rates through the course of the year, although the pace of easing has remained cautious. Risks to the outlook nonetheless remain tilted to the downside: elevated trade policy uncertainty and the widening use of tariff and non-tariff measures continue to weigh on global merchandise trade volumes, and geopolitical tensions across West Asia and Eastern Europe have kept freight, insurance and energy costs volatile.

The global dyes and dye intermediates industry continues to expand steadily on the back of structural changes in consumption patterns, rising urbanisation and the increasing participation of women in the workforce. Specialty chemicals account for approximately 20% of the global chemicals industry, which is estimated at US$ 4 trillion. Growth in the dyes segment is being driven by rising demand from the textile industry, the increasing adoption of reactive dyes over other synthetic dyes on account of their superior wash fastness and brightness, and the expansion of the garment manufacturing sector in India and in export markets. The global apparel market is expected to grow at a compound annual rate of around 8% to reach US$ 2.37 trillion by 2030, and global textile and apparel trade is expected to grow at a compound annual rate of 4% to reach US$ 1.2 trillion by 2030.

Indian Economy and Outlook for the Industry

India remains one of the fastest-growing large economies in the world, supported by resilient domestic consumption, moderating inflation and sustained Government capital expenditure on infrastructure. Retail inflation moderated meaningfully during the year, which in turn permitted a calibrated easing of monetary policy, and the rationalisation of the Goods and Services Tax rate structure has further supported consumption demand.

Covering more than 80,000 commercial products, India s chemical industry is highly diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers. India is the 6th largest producer of chemicals in the world and the 3rd largest in Asia, contributing approximately 7% to India s GDP. The Indian chemical industry is currently valued at approximately US$ 220 billion and is expected to reach US$ 300 billion by 2030 and US$ 1 trillion by 2040, and is expected to grow at a compound annual rate of 11% to 12% by 2027, increasing India s share in the global specialty chemicals market from 3% to 4%.

India accounts for 16% to 18% of the world s production of dyestuffs and dye intermediates, and the Indian colourants industry has emerged as a key player with a global market share of approximately 15%. India s exports of dyes and dye intermediates aggregated US$ 1.69 billion between April 2023 and December 2023. The market for Indian textiles and apparel - the principal end-user industry for the Company s products - is projected to grow at a compound annual rate of 10% to reach US$ 350 billion by 2030, and the textiles and apparel industry contributes 2.3% to the country s GDP, 13% to industrial production and 12% to exports.

The key growth drivers for the reactive dyes segment, in which your Company operates, include increasing demand from the textile industry, rising exports of garments and made-ups, the growing adoption of reactive dyes over conventional dyes on account of their superior wash fastness and brightness, the shift towards ecofriendly dyeing processes, and the Government s Production Linked Incentive Scheme for the textile sector. The Department of Chemicals and Petrochemicals also proposes to introduce a Production Linked Incentive scheme in the chemical and petrochemical sector, which is expected to support capacity creation in the industry.

BUSINESS OPERATIONS AND OUR PRODUCTS:

The Company is engaged in the manufacture of Reactive Dyes, a category of Synthetic Organic Dyes extensively utilised in the textile industry, under the trade name Shlokka Dyes . The Company offers a diverse portfolio of dyes including Direct Dyes, Basic Dyes, Vat Dyes, Digital Printing Dyes and Paper Dyes, catering to a wide range of industries such as textiles, leather, paper and paints. The Company s Reactive Dyes are available in primary colours such as black, blue, red, orange and yellow, along with numerous variants of these shades, each identified by an internationally recognised Colour Index Number, and are suitable for a broad spectrum of textile applications including cotton fabrics, garments, dress materials, bed sheets and carpets. The Company is also engaged in the manufacture of dye intermediates, which are manufactured on an order basis.

The Company primarily sells its products on a business-to-business basis to customers in the textile and dyeing industry, through a combination of direct sales to textile processors and dyeing units and sales through dealers and agents, across several States in India and in export markets. During the Financial Year 2025-26 the Company recorded domestic sales of Rs. 6,504.90 Lakhs and export sales of Rs. 1,461.42 Lakhs (FOB value), export sales thus constituting approximately 18% of the sale of products.

The manufacturing unit of the Company is situated at Plot No. C/54, GIDC, Saykha, Saran, Taluka: Vagra, District: Bharuch, Gujarat, on land admeasuring approximately 5,000 square metres together with a factory shed / building of approximately 5,731.81 square metres, with an installed capacity of 9,000 MT per annum. The Company holds certifications under ISO 9001:2015 (Quality Management System), ISO 14001:2015 (Environmental Management System) and ISO 45001:2018 (Occupational Health and Safety Management System).

At present the Company manufactures both dark shade and light shade dyes using a single spray dryer; when shifting from dark-coloured dyes to light-coloured dyes the entire system must be thoroughly washed before production can resume, which results in downtime and limits the full utilisation of the installed capacity. Pursuant to the objects of the Initial Public Offer, the Company is investing in an additional spray dryer together with other necessary vessels specifically for the manufacture of light-shade dyes. Out of the amount of Rs. 613.00 Lakhs earmarked for capital expenditure, Rs. 190.47 Lakhs had been deployed up to March 31, 2026 and the balance of Rs. 422.03 Lakhs is expected to be deployed during the Financial Year 2026-27. On full deployment, the installed capacity of the Company is expected to be augmented by approximately 60% to 70% to 14,859 MTPA.

ACQUISITION OF THE BUSINESS UNDERTAKING OF M/S. EQUINOX IMPEX (SUBSEQUENT EVENT):

Subsequent to the close of the Financial Year, the Company has, by Business Transfer Agreement dated 31st July, 2026, agreed to acquire the entire business undertaking of M/s. Equinox Impex, a sole proprietorship of the Managing Director, on a going-concern slump-sale basis with effect from 1st August, 2026. The aggregate consideration is Rs. 3,67,49,248.90 /- (comprising Rs. 2,23,24,031.81 /- for the business undertaking and Rs. 1,44,25,217.09/- for the EQUINOX trademark). The acquisition will add incremental revenue lines and brand equity to the Company. The Company is in the process of integrating the acquired undertaking and anticipates that the consolidation will help improve capacity utilisation, broaden the export footprint and create crossselling synergies.

SWOT ANALYSIS:

Strengths

- Experienced promoters and management team with over seven years of experience in the dyes and dye intermediates industry.

- A well-established trade name in Shlokka Dyes , with consistent product quality and a growing portfolio of reactive dye variants and allied products.

- Stringent quality compliance across sourcing, processing, manufacturing, packaging and distribution, supported by an in-house laboratory and ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 certifications.

- A well-established sales and distribution network covering textile processors and dyeing units across multiple States in India and export markets.

- Locational advantage - the manufacturing facility is situated in the Saykha industrial belt of Bharuch, Gujarat, in proximity to raw material sources, ports and the principal textile processing clusters.

- A strengthened capital structure following the Initial Public Offer, with the net worth having increased from Rs. 2,724.03 Lakhs to Rs. 8,536.37 Lakhs and the debt-equity ratio having improved from 1.02 to 0.31.

- Cordial relationship between management and labour.

Weaknesses

- The Company s product portfolio is presently concentrated in a limited number of variants, which may limit its ability to address the full range of market demand.

- Dependence on a limited number of customers and suppliers, which may expose the Company to concentration risk. A substantial part of the trade receivables as at March 31, 2026 is due from a related party.

- Concentration of manufacturing operations at a single location and of raw material sourcing and sales in a limited number of States.

- A working capital intensive business, with a substantial portion of funds locked up in inventory and receivables, reflected in the reduction of the trade receivables turnover ratio and the inventory turnover ratio during the year under review.

Opportunities

- Expansion of the existing product portfolio into additional reactive dye variants using the existing manufacturing infrastructure.

- Realisation of operating leverage from the additional capacity being created out of the proceeds of the Initial Public Offer.

- Integration of the acquired business undertaking of M/s. Equinox Impex, which is expected to improve capacity utilisation and broaden the export footprint.

- Growing demand from the textile industry, supported by the Production Linked Incentive scheme and the expansion of garment manufacturing capacities.

- Growing demand for high-performance reactive dyes driven by increasing textile production, rising exports and the shift towards eco-friendly dyeing processes.

- Expansion of the export market, given India s dominant position in the global trade in dyestuffs and dye intermediates.

Threats / Risks / Concerns

- Intense competition from established national and multinational brands as well as regional and unorganised players.

- Volatility in the prices of key raw materials such as Vinyl Sulphone, H-Acid, Sodium Nitrite, Hydrochloric Acid and common salt, which may compress margins.

- Changes in environmental regulations relating to effluent discharge and emission norms requiring continuous compliance investment.

- Interest rate risk on working capital borrowings and exposure to foreign exchange fluctuation on export receivables and imports.

- Economic uncertainty, geopolitical disruption and supply chain dislocation affecting demand and the cost of production.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has in place a proper system of internal control which is commensurate with the size and nature of its business. The Company has an Audit Committee headed by an Independent Director, inter alia, to oversee the Company s reporting process and the disclosure of information. The internal control system is supplemented by documented policies, guidelines and procedures covering procurement, production, quality control, sales and finance, and is subject to review by the Internal Auditors, the Audit Committee and the Board of Directors. The Statutory Auditors, in their report on the internal financial controls over financial reporting, have expressed an unmodified opinion that the Company has, in all material respects, an adequate internal financial controls system over financial reporting and that such controls were operating effectively. Following the observations in relation to the utilisation of the proceeds of the Initial Public Offer, the Board has strengthened the internal financial controls governing the operation of the Company s bank accounts and the on-boarding of vendors, and has instituted the quarterly placement of the Monitoring Agency Report before the Audit Committee and the Board.

FINANCIAL POSITION AND RESULTS OF OPERATIONS:

The Company has, on a standalone basis, recorded a decline in revenue and profitability during the year under review, primarily on account of (i) volatility in raw material and freight costs; (ii) subdued textile-sector demand in export geographies; and (iii) restricted working-capital deployment pending stabilisation of the utilisation of the Initial Public Offer proceeds. Revenue from Operations declined from Rs. 10,342.62 Lakhs to Rs. 8,194.13 Lakhs (a decrease of approximately 20.77%), Profit before Tax declined from Rs. 1,201.27 Lakhs to Rs. 646.06 Lakhs (a decrease of approximately 46.22%) and Profit after Tax declined from Rs. 1,004.20 Lakhs to Rs. 495.96 Lakhs (a decrease of approximately 50.61%). Notwithstanding the above, the Company has strengthened its net worth from Rs. 2,724.03 Lakhs to Rs. 8,536.37 Lakhs on account of the successful Initial Public Offer. The Directors are of the view that the corrective measures set out in this Annexure, including the recent acquisition of the business undertaking of M/s. Equinox Impex, will enable the Company to improve its operating metrics over the coming year.

(Rs. in Lakhs)

PARTICULARS	YEAR ENDED MARCH 31, 2026	YEAR ENDED MARCH 31, 2025
Revenue from Operations	8,194.13	10,342.62
Other Income	95.68	2.84
Total Income	8,289.81	10,345.46
Total Expenses	7,643.75	9,144.19
Profit before Tax	646.06	1,201.27
Tax Expense	150.10	197.07
Profit after Tax	495.96	1,004.20
Earnings Per Share - Basic (Rs.)	2.32	6.67
Earnings Per Share - Diluted (Rs.)	2.76	12.66
Net Worth	8,536.37	2,724.03
Balance Sheet size	13,127.52	9,155.88
Property, Plant and Equipment (net)	1,915.52	2,159.97
Inventories	2,962.69	2,157.34
Trade Receivables	5,407.84	4,537.42

The Balance Sheet size of the Company expanded from Rs. 9,155.88 Lakhs as at March 31, 2025 to Rs. 13,127.52 Lakhs as at March 31, 2026. Shareholders funds increased to Rs. 8,536.37 Lakhs from Rs. 2,724.03 Lakhs, reflecting the infusion of the Initial Public Offer proceeds and the profit for the year. Inventories stood at Rs. 2,962.69 Lakhs and Trade Receivables at Rs. 5,407.84 Lakhs, commensurate with the scale of operations and the extended collection cycle experienced during the year.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS:

The Company considers its employees to be its vital and most valuable asset and understands that people have been the driving force for the growth and expansion of the Company. As on March 31, 2026, there were 24 permanent employees employed by the Company, in addition to casual labour engaged at the manufacturing unit on a need basis. The Company will continue to create opportunities and ensure the recruitment of diverse candidates without compromising on meritocracy. Industrial relations during the year under review remained cordial.

KEY FINANCIAL RATIOS:

The details of significant changes (i.e. a change of 25% or more as compared to the immediately previous financial year) in the key financial ratios, along with detailed explanations therefor, are as under:

SN Ratio	Numerator	Denominator	As at March 31, 2026	As at March 31, 2025	% Change
1 Current Ratio (in times)	Current Assets	Current Liabilities	3.16	1.33	136.45%
2 Debt-Equity Ratio (in times)	Total Debts	Shareholders Equity	0.31	1.02	(69.42)%
3 Debt Service Coverage Ratio (in times)	Earnings available for Debt Service	Debt Service	4.09	6.31	(35.24)%
4 Return on Equity Ratio (in 4 %)	Profit after Tax	Average Shareholders Equity	8.81%	44.77%	(80.33)%
5 Inventory Turnover Ratio (in times)	Total Turnover	Average Inventories	3.20	6.44	(50.27)%
6 Trade Receivables Turnover Ratio (in times)	Total Turnover	Average Account Receivable	1.65	2.80	(41.05)%
7 Trade Payables Turnover Ratio (in times)	Total Purchases	Average Account Payable	3.02	3.68	(17.95)%
Net Capital Turnover Ratio 8 . . (in times)	Total Turnover	Net Working Capital	1.07	5.92	(81.87)%
9 Net Profit Ratio (in %)	Net Profit	Total Turnover	6.05%	9.71%	(37.66)%
10 Return on Capital Employed 10 (in %)	Earnings Before Interest and Taxes	Capital Employed	7.74%	26.70%	(71.00)%
11 Return on Investment (in %)	Net Profit	Total Investment	4.42%	18.20%	(75.70)%

Reasons for variance in the Key Financial Ratios:

1. Current Ratio

The increase in the current ratio is mainly due to a substantial increase in other current assets, particularly advances to suppliers, and higher cash and bank balances on account of unutilised IPO proceeds.

2. Debt-Equity Ratio

The debt-equity ratio decreased significantly mainly due to a substantial increase in shareholders funds pursuant to the IPO proceeds and retained earnings during the year, while overall borrowings remained comparatively stable.

3. Debt Service Coverage Ratio

The variation is mainly due to lower operating profits available for debt servicing and an increase in debt servicing obligations during the year.

4. Return on Equity Ratio

Return on equity decreased mainly due to the substantial increase in average shareholders equity after the IPO, whereas profit after tax decreased during the year.

5. Inventory Turnover Ratio

The reduction indicates a slower velocity of stock movement, caused by a temporary slowdown in market demand and resulting in higher average inventory levels relative to total turnover.

6. Trade Receivables Turnover Ratio

The decrease is mainly attributable to an extended collection cycle due to liquidity constraints prevailing in the market, resulting in a longer realisation period from debtors, coupled with lower revenue from operations during the year.

7. Trade Payables Turnover Ratio

The decrease is mainly due to lower purchases during the year and a relatively longer credit period availed from suppliers owing to slower realisation from debtors and prevailing market conditions.

8. Net Capital Turnover Ratio

The drop is due to a reduction in top-line turnover running parallel to an expanded net working capital base, heavily weighted by increased current assets and liquidity.

9. Net Profit Ratio

The decline is mainly due to a contraction in net profit margins caused by an increase in fixed operational costs and competitive pricing pressures, which outpaced revenue growth during the year.

10. Return on Capital Employed

Return on capital employed decreased mainly due to the substantial increase in capital employed after the IPO proceeds, whereas EBIT declined as compared to the previous year.

11. Return on Investment

Return on investment decreased mainly due to a decline in returns generated from business operations against higher investment / shareholders funds following the IPO during the year, coupled with a decline in net profit as compared to the previous year.

CAUTIONARY STATEMENT:

The content of this Management Discussion and Analysis may contain forward looking statements including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to the Company s future business developments and economic performance. While these forwardlooking statements indicate the Company s assessment and future expectations concerning the development of its business, several risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from these expectations. These factors include, but are not limited to, general market, macroeconomic, governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with the Company, legislative developments and other key factors that could affect the Company s business and financial performance. The Company undertakes no obligation to publicly revise any forwardlooking statements to reflect future or likely events or circumstances.

Date: September 01, 2026
Place: Bharuch
Registered Office:
Plot No. C/54, GIDC, Saykha, Saran,
Bharuch, Vagra, Gujarat, India - 392140

For and on behalf of the Board of Directors
SHLOKKA DYES LIMITED

Sd/-	Sd/-
Vaibhav P. Shah	Shivani S. Rajpurohit
Chairman & Managing Director	Director
(DIN: 06826565)	(DIN: 08820006)