Shree Rama Multi-Tech Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Your Directors have pleasure in presenting this Management Discussion and Analysis Report for the year ended on March 31,2024.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

Market Snapshot:

Market Overview:

Packaging in India:

The India Packaging Market size is estimated at USD 84.37 billion in 2024, and is expected to reach USD 142.56 billion by 2029, growing at a CAGR of 11.06% during the forecast period (2024-2029).

• The demand for packaging in India has expanded drastically, spurred by the rapid growth in consumer markets, especially in processed food, personal care, and pharmaceutical end-user industries. Packaging is Indias one of the fastest growing sectors. Over the last few years, the industry has been a key driver of technology and innovation, contributing to various manufacturing sectors, including agriculture and the fast-moving consumer goods (FMCG). The packaging industry is driven by the factors such as rising population, increasing income levels, and changing lifestyles are anticipated to drive consumption across various industries leading to higher demand for packaging product solutions. Moreover, demand from the rural sector for packaged products is fueled by the growing media penetration through the Internet and television. ^•

• The packaging industry in India is diverse and serves a diverse range of products and industries. Companies have established manufacturing facilities in the country and used these domestic facilities as a base to export to other nations due to the governments positive promotion of the Make in India policy. The government has implemented a plan to lower tax rates for new manufacturing businesses to transform India into a global manufacturing hub. In addition, the government intends to further level the playing field in the industry by launching several initiatives to support the growth of packaging and technological advancements, in addition to the need for domestic businesses to compete with multinational corporations.

• The packaging industry is paramount and vital in the international goods trade. Packaging may be classified based on its type of use, which is primary packaging, secondary packaging, tertiary packaging, and ancillary packaging. It is also segregated based on the types of materials used, such as plastic, paper, paperboard, glass, and metals. Packaging is used across different end-user sectors in a wide range of industries, such as food and beverage, healthcare, and cosmetics, among other end-user industries.

‘source; Mordor intelligence

India - Flexible Packaging Market 2024-2028

The India - flexible packaging market size is estimated to grow at a CAGR of 12.69% between 2023 and 2028. The market size is forecast to increase by USD 15.57 billion. The growth of the market depends on several factors, including a shift toward flexible packaging due to high logistics costs in India, the growing retail industry in India, and an increase in demand for digitally printed packaging.

India Flexible Packaging Market Overview

Key India Flexible Packaging Market Driver

The growing retail industry in India is notably driving the market growth. The retail industry in India is one of the fastest-growing in the world. The retail industry is developing in tier-1 and tier-2 cities, in addition to major cities and metros in the country. Factors such as transforming demographic profiles, rising disposable incomes, growing urbanization, and changing consumer tastes and preferences are driving the growth of the organized retail market in India. The primary factor boosting the growth of the market is the shift of consumers, especially millennials, from traditional retail to online channels.

In addition, the fast-moving consumer goods (FMCG) market in India is estimated to grow at a CAGR of more than 18% during the forecast period. Furthermore, the rural FMCG market in the country is also expected to reach USD 220 billion by 2025. Therefore, the growing retail sector in India will increase the demand for flexible packaging, thereby, driving the growth of the India flexible packaging market during the forecast period

Key India Flexible Packaging Market Trends

The increasing use of stand-up pouches is an emerging trend in the market growth. Vendors are coming up with new and innovative packaging solutions to withstand the high competition in the market. Innovative packaging includes stand-up pouches that have gained popularity primarily in the food industry. A stand-up pouch weighs less compared with a glass bottle. The low weight of stand-up pouches enhances the functionality of portability. Additionally, they are also replacing cans to store processed food.

Moreover, the use of stand-up pouches is easier to open than metal food cans. The stand-up pouches have zips that can be closed if the content in them has to be reused. In addition, metal cans cannot be given any differentiating designs to help consumers use unique designs for their products and brands, whereas stand-up pouches can be designed in different shapes and prints with high-quality graphics. Thus, the growing use of stand-up pouches is expected to drive the growth of the India flexible packaging market during the forecast period.

Key India Flexible Packaging Market Challenge

The volatility in raw material prices is a major challenge impeding market growth. The different types of packaging materials used for the packaging of food include plastic, glass, metals, and paper. The instability in the price of raw materials will result in the reduction of profit margins of vendors due to the increasing production cost. Hence, vendors are forced to increase their product prices due to fluctuating raw material prices. The prices of packaging raw materials such as paper and paper products that are used to manufacture corrugated packaging solutions are also expected to fluctuate

Consequently, companies are expected to increase the prices of corrugated packaging materials in response to the increase in raw material prices. In addition, aluminum, a key raw material used in manufacturing food cans, is also exhibiting continuous price fluctuations. Hence, these factors are expected to impede the growth of the market during the forecast period.

The market is expected to be significantly challenged due to fluctuation in raw materials pricing, dynamic changes in regulatory standards, growing environmental concerns, limited effective recycling of mixed plastic waste, ineffective plastic recovery, and a lack of modern and advanced machinery in India for the packaging sector. The volatile trend in crude oil and demand for polymers in competing applications has increased pressure on input costs that fluctuate raw materials prices. Recent disruptions due to Russias invasion of Ukraine caused substantial supply chain difficulties and aggravated the challenges for the packaging sector in India.

Flexible Packaging Market in India Segmentation by End-user, Material, and Product India Flexible Packaging Market End-user Analysis

The market share growth by the food and beverage industry segment will be significant during the forecast period. The consumption of packaged food and beverages in India is growing at an exponential rate. Factors such as the convenience of the available ready-to-eat food are driving the growth of the India - packaged food market

India Flexible Packaging Market Material Analysis

Plastics are more moldable, durable, and cost-efficient than other raw materials used to fabricate flexible packaging solutions. Plastics can be converted into various shapes, sizes, and designs, giving them an edge over other materials. Moreover, lightweight plastic helps in reducing handling and shipping costs. Therefore, manufacturers prefer plastic to other alternatives available to produce packaging solutions. In addition, flexible plastic packaging offers high barrier properties and puncture-resistant characteristics, which make it suitable for consumer and industrial packaging applications. It is used to package nondurable, fast-moving unit loads and flexible intermediate bulk containers in industrial applications. Thus, such factors will boost the growth of the plastic segment of the market during the forecast period.

*Source: technavio

SRMTLS PERFORMANCE AS INDUSTRY:

SRMTL is an ISO 9001:2015, ISO 15378:2017 and DMF-type III certified Company engaged in providing primary packaging solution. We currently manufacture a wide and diverse range of packaging products such as laminated tubes ("Lami Tubes"), tube laminates and flexible laminates. Our products are primarily used for oral care, pharmaceuticals, cosmetics and fast-moving consumer goods (FMCG) sectors. Our products are available in different sizes, diameters and circular shape as per the specifications of our customers.

Your companys major product is laminated tubes and laminates, which is used for packing products in paste or gel form. Production related to Tubes was increased by 8% as compared to last year.

SEGMENT-WISE/ PRODUCT WISE PERFORMANCE:

The Company closed the year at higher level in laminated tubes. This is because of robust orders of Laminates from domestic and export market.

OPPORTUNITIES, THREATS AND RISK PERCEPTION:

Laminated tubes are estimated to clock 10-11% CAGR over fiscals 2022-2027, led by volume growth in personal care categories - pharma, cosmetics and new food segment

The industry is expected to grow faster going ahead driven by rapid growth in consumption of personal care products - pharma, cosmetics and new food segment. Laminated tubes are expected to clock a CAGR of 10-11% over fiscals 2022-2027, driven by increase in volume sales of personal care categories and higher penetration in the India metro and non-metro markets, increase in value addition and design aspects of tubes for attractive marketing, and moderate increase in raw material prices. The change in mix towards high value tube offerings in personal care and beauty category will drive value growth for the industry. Over the next five years, extruded mono-layer and aluminium tubes are also likely to be substituted by laminate tubes, especially in the skin care and pharma/healthcare segments. The key growth trends expected to drive sales and realisations of tube manufacturers are as follows:

• Continued shift to ABL tubes in the pharma segment for OTC ointments/ gels and prescription cream- based skin application medicine

• Growth in end-user segments and rise in share of personal care categories in tubes, driven by sales of lip care, eye care, hand creams, face care and OTC ointments/ gels and prescription cream-based skin application medicine

• Growing concerns over package sustainability and costs are also likely to facilitate substitution of bottles by tubes in personal care products

• Increase in exports potential and consumption in the European, Middle East and Africa markets. Middle east and African markets have low penetration of production facilities which creates potential for exports

• Shift from conventional oral care to beauty and pharmaceutical products, demanding high packaging protection and value addition

• Increase in demand for sophisticated and attractive designs and prints on tubes leading to rise in realisations

Challenges and risks in laminated tubes packaging

• Volatility in raw material prices: Polymer and aluminium foils are the key raw materials. As raw material accounts of 60-65% of the product value, it plays a critical role in determining profitability. Given that polymer is a crude oil-derivate, it is subject to high volatility in prices. With current high

crude prices, going forward crude oil prices will is expected to see downward correction. The risk of loss or decline in realisations from decline in prices is a key monitor able for the company

• Lack of access to advanced technology: Consumer goods companies are on a constant lookout for ways to cater to consumers evolving needs and make use of attractive packaging to sale product in a highly competitive market. They tend to rely on flexible packaging companies to innovate and attract more customers. At times, the flexible packaging industry may find it difficult to keep pace with these fast-changing demands. Furthermore, flexible packaging companies have to make constant technology upgrades from product quality and printing capabilities to meet these demands, which would require huge capital investments.

Due to increasing focus on maximising output and capacity utilisation, there is minimal focus on research and development by small and mid-sized players. Most of the technical components in domestic machinery are imported from Japan, the US and Europe, which leads to a much higher capex to set up a plant.

• Large capital expenditure (capex): The packaging industry requires significant capital to enable investments in plant and machinery, technology and research to enable innovation of new products.

• Acute competition: Competition is considerable for domestic medium and small-scale players in the flexible packaging space. Large and established players enjoy superior positioning owing to innovative products and better service offerings, in terms of design. Rising cost pressures because of several tube manufacturers in the space and standard low-cost offerings will ensure acute competition in the industry. Also, there is competition from unorganised manufacturers owing to the low entry barriers. However, manufacturers can reduce competitive intensity by focusing of research and development of innovative products and introducing better design features.

Furthermore, the ability to provide new products in line with customers changing requirement will provide an edge over competitors. In fact, the industry is undergoing rapid changes, in terms of product innovation and offerings. But this lower lifecycle of product design has further increased competition, and, hence, the need is for constant innovation and improvement of the production facilities to manufacture new structure or laminates effectively. Traditional rigid packaging users are also shifting to flexible packaging mainly because flexible packages are aesthetically attractive, cost- effective and sturdy

• Backward integration by customers: Currently, laminated tubes are primarily directly delivered to end-use customers. But, any backward integration by customers and the development of in-house tube-making facilities will lower realisation for the laminated tube industry

• Increased demand for sustainable packaging: Clients, especially established brands look for sustainable solutions for packaging with minimum impact on environment. Players are innovating to include paper board based tubes, sugar care paper tubes, post-consumer recycled (PCR) tubes made with recycled plastic offering same barrier properties. Separation of laminates for recycling poses challenge and substantial efforts for recycling. Thus demand for sustainable packaging, drives players to constantly innovate and offer better packaging solution to clients without impact the feel, look and protection offered by the tubes. ^•

• Working capital cycle: Poor bargaining power increases their debtor and inventory cycles, which drives up working capital requirements, thus hampering companies credit profile

• Impact on tourism: Travel-tubes sales were impacted on account of slowdown in travel and tourism industry and macro-economic impact from covid pandemic

• Large capital expenditure (capex): The packaging industry requires significant capital to enable investments in plant and machinery, technology and research to enable innovation of new products.

RISK AND CONCERNS:

Challenges and risks in flexible packaging

• High input costs: Raw materials account for 70-80% of the total cost for a packaging player. The ability of players to pass on the rise in input prices is limited as the industry is highly fragmented. At the same time, a decline in input price has to be passed on to the customers. In many cases, raw materials are imported, which exposes packaging players to volatility in exchange rates.

• Large capital expenditure (capex): The packaging industry requires significant capital to enable investments in plant and machinery, technology and research to enable innovation of new products.

• Working capital cycle: Poor bargaining power increases their debtor and inventory cycles, which drives up working capital requirements, thus hampering companies credit profile.

• Environmental issues: As it is widely known and already highlighted in this report, plastic poses environmental concerns. The Indian packaging industry uses more than 50% of the plastic produced in the country. This has resulted in increased legislation and regulations to minimise the environmental impact of packaging materials. Companies, especially in the flexible and rigid plastic space, are being targeted by regulators, as these are seen to have maximum impact on the environment. For example, in February 2011, the Supreme Court of India banned the usage of flexible plastics for tobacco products. Government of India also notified the Plastic Waste Management Amendment Rules, 2021, prohibiting identified single use plastic items by 2022. Thickness of plastic carry bags increased from 50 to 75 microns from 30^th September, 2021 and to 120 microns with effect from the 31^st December, 2022.

• Lack of technology: Due to increasing focus on maximising output and capacity utilisation, there is minimal focus on research and development by small and mid-sized players. Most of the technical components in domestic machinery are imported from Japan, the US and Europe, which leads to a much higher capex to set up a plant.

• Rapid technological changes: Consumer packaged goods (CPG) companies are on a constant lookout for ways to cater to consumers evolving needs. They tend to rely on flexible packaging companies to innovate and attract more customers. At times, the flexible packaging industry may find it difficult to keep pace with these fast-changing demands. Furthermore, flexible packaging companies have to make constant technology upgrades to meet these demands, which would require huge capital investments. ^•

• Regulatory constraints: Due to stringent government regulations, changing consumer preferences, and environmental pressures, manufacturers are steering their strategies toward circularity and leveraged new plastic technologies to develop recyclable and sustainable solutions that include specific properties such as oxygen, moisture, light, puncture, and chemical resistance, and easy-tear propagation. Key focus areas for manufacturers include the development of alternative bioplastics solutions such as polybutylene succinate and biopolyproplyene, along with the price and disposal of bioplastics.

BUSINESS OUTLOOK

Growth drivers in flexible packaging

• Innovation led by high competition and demanding consumers: The industry is increasingly becoming technologically advanced and creating new-age products to cater to different requirements of customers.

These innovated and value-added products help players differentiate themselves amid high competition in the industry. Players are offerings and innovating new designs, sustainable and recyclable packaging solutions to the market as per customer demand driving growth for the industry

• Increase in packaged branded food products: Packaged branded food products have been increasing rapidly, for which flexible packaging is preferred. The ready-to-eat food product industry is expected to witness 20-22% growth going ahead.

• Shift in consumer preferences: Rising consumer demand for lightweight, convenient, durable, tamperproof, and aesthetic packaging has also been a big boost for flexible packaging. Further, improved barrier property parameters and superior functionality give flexible packaging an edge over other packaging materials.

• Increasing use of small packets: With a view to attract smaller consumers, FMCG companies market their products (largely food and personal care) in small packets. As a result, ready-to-eat foods, biscuits, shampoo, and other FMCG categories have witnessed increase in consumption in rural areas and smaller cities, which has further lifted demand for packaging materials.

• Growth in organised retail: India is emerging as the most favoured destination in the world for organised retail. Also, e-commerce has been expanding rapidly, leading to a revolution in the retail industry. Retailers are now leveraging digital retail channels, thereby enabling wider reach to customers with less amount of money spent on real estate. Therefore, organised retail and boom in e- commerce offer huge potential for growth of retailing in India, which, in turn, is pushing growth of the flexible packaging sector. ^•

• Sustainability: Shifting demographics and consumer preferences are driving the demand for more sustainable solutions in flexible packaging. Huge sustainable benefits are responsible for shifting demand from rigid to flexible packaging. Focus is also on more cost-effective and technologically feasible recyclable packaging solutions.

source: CRISIL

INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY

The Company has adequate and effective internal controls to provide reasonable assurance on achievement of its operational, compliance and reporting objectives. The Company has deployed controls through its policies and procedures. These policies and procedures are periodically revised to ensure that they remain updated to changes in the environment. There is a well laid out process for making amendments to processes in the Company and implications of changes are well thought through and all stakeholders are consulted so that implementation is smooth.

Internal Audit as part of their audits, review the key processes from an adequacy of controls point of view. Suggestions to further strengthen the processes or to make them more effective are shared with the process owners and changes are made suitably.

The Company believes in conducting business in a fair, ethical and compliant manner. In this regard, periodic meetings to make the employees aware of the code of conduct are held. The Company has designed its software tool which helps track key compliances as close as possible to the actual due date. Any deviations are highlighted for prompt corrective action. Functional heads take responsibility for putting in preventive steps. The internal financial control system is also included in the board report.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

Your Companys total revenue from operations during the year under review was Rs.177.70 Crore as compared to Rs.196.26 Crore of previous year which shows a marginal decrease over the previous year figure. The other income was Rs.1.40 Crore during the year under review. The EBIDTA of the Company during the year was Rs.16.54 Crore. The profit for the Financial Year 2023-24 was Rs.9.96 Crore as compared to profit of Rs.5.04 Crore of the previous year 2022-23.

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

The Company attaches importance to the dignity of employee irrespective of position and highly values the cultural diversities of employees. As on March 31, 2024, the total number of permanent employees on the roll of the company is 343. The company is committed to nurturing, enhancing and retaining its top talent through superior learning and organizational development. This is a part of our Corporate HR function and is a critical pillar to support the organizations growth and its sustainability in the long run.

DETAILS OF SIGNIFICANT CHANGES (i.e. CHANGE OF 25% OR MORE AS COMPARED TO FY- 2022-23) IN KEY FINANCIAL RATIOS

Sr. No.		Year
		2023-24	2022-23
1	Debtors Turnover	4.42 times	5.94 times
2	Inventory Turnover	5.52 times	5.77 times
3	Interest Coverage Ratio*	13.13 times	5.94 times
4	Current Ratio	2.89	2.38
5	Debt Equity Ratio	0.12	2.77
6	Operating Profit Margin (%) A	6.09%	4.38%
7	Net Profit Margin (%) A	5.63%	2.59%
8	Return on Net Worth $	9.70%	16.96%

* increase in Interest Coverage Ratio due to increase in Profit and Lower Interest cost as compared to previous year.

A Operating profit ratio and Net profit ratio have been increased as profit increased in current financial year due to price of raw material has reduced.

$ Net Profit has increased, Net Worth has increased, But, Return on Net Worth ratio has been Reduced due to increase in Equity Share capital on account of Right issue of Equity Shares in current financial year as compared to previous year.

Cautionary Statement:

Estimates and expectations stated in this Management Discussion and Analysis may be "forward-looking statement" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to your Companys operations include economic conditions affecting demand / supply and price conditions in the domestic and international markets, changes in the Government regulations, tax laws, other statutes and other incidental factors.

*Source: CRISIL Industry Report

	For, Shree Rama Multi-Tech Limited
Place: Moti-Bhoyan	Mittal K. Patel
Date: May 18, 2024	Chairman
	(DIN:03619139)