Tanfac Industries Ltd Management Discussions

Global economic overview

The global economy expanded at a moderate pace during the period corresponding to FY26.

The International Monetary Fund estimated global growth at about 3.2% for 2025, with advanced economies growing by about 1.6% and emerging market and developing economies by about 4.2%. Growth in the United States moderated to about 2.0%, the euro area grew by a little over 1%, and China expanded by about 4.8%, supported by domestic consumption and the front-loading of trade ahead of tariff changes. Global headline inflation continued to ease from the highs of earlier years, which allowed several central banks to begin lowering policy rates, although inflation remained above target in a number of economies.

Two features of the external environment mattered for a chemicals manufacturer such as the Company. First, trade policy and tariffs remained a source of uncertainty through the year, which weighed on investment and world trade volumes. Second, commodity prices, including the sulphur and fluorspar that are inputs to the Companys production, moved with global demand and supply, and energy prices rose towards the end of the period as geopolitical tension increased. The International Monetary Fund viewed risks to the outlook as tilted to the downside, citing trade fragmentation, geopolitical tension and the possibility of renewed financial-market volatility.

Source: International Monetary Fund, World Economic Outlook, October 2025 and January 2026 Update.

Indian economic overview

India remained the fastest-growing large economy during FY26. The Reserve Bank of India estimated real gross domestic product growth for FY2025- 26 at about 74%, supported by strong investment, resilient private consumption and continued government capital expenditure, and helped by a good monsoon and reforms to the goods and services tax. Retail inflation eased to among its lowest levels in the current series, and the Reserve Bank of India reduced the policy repo rate by about 125 basis points over the course of the year as price pressures moderated. The current account deficit remained narrow.

Towards the end of the financial year, a conflict in West Asia lifted crude-oil prices and put pressure on the rupee, and the central bank shifted part of its focus towards managing currency and liquidity. For the Company, the domestic picture is supportive. Growth in manufacturing, a policy emphasis on domestic production through production-linked incentives, the build-out of solar-cell manufacturing, and the diversification of global supply chains towards India all support demand for the fluorine products the Company makes and is developing.

At the same time, higher crude-oil prices and a weaker rupee raise the cost of certain inputs, while a weaker rupee supports the competitiveness of the Companys planned exports.

Source: Reserve Bank of India monetary policy statements, FY2025-26; Government of India, Press Information Bureau.

The global and Indian chemical industry

Chemicals are an input to almost every manufactured product, and the industrys fortunes track industrial activity and consumer demand. Within chemicals, fluorine chemistry occupies a specialised position. Fluorine imparts stability, reactivity and performance characteristics that are difficult to achieve by other means, which is why fluorinated products appear in refrigerants, pharmaceuticals, agrochemicals, electronics, batteries, solar cells and high-performance polymers.

Indias speciality-chemicals sector has grown faster than the broader chemical industry, helped by cost- competitive manufacturing, a skilled workforce and the search by global buyers for supply outside a single country. Fluorochemicals sit within this trend as a higher-value segment, and domestic capacity in several fluorine products remains limited, which leaves room for import substitution. The Companys strategy of building value-added grades from captive hydrofluoric acid is aligned with these developments, and its single integrated site allows it to serve several end-markets from one hydrofluoric acid stream.

The fluorochemicals market

The global fluorochemicals market is estimated at about USD 36 billion in CY25 and is projected to reach about USD 46.6 billion by CY30, a compound annual growth rate of about 5.3%.

Indias fluorochemicals market is smaller but growing more quickly, estimated at about USD 1.9 billion in FY26 and projected to reach about USD 2.8 billion by FY31, a compound annual growth rate of about 8.1%. Indias faster growth reflects rising domestic demand, the shift of speciality-chemical manufacturing towards India, and the substitution of imports with domestic production.

Flurochemicals Market

Within the Indian fluorochemicals market, demand is spread across fluorocarbon refrigerant gases, inorganic fluorides, speciality fluorine intermediates and fluoropolymers, and end-use is led by heating, ventilation, air conditioning and refrigeration, followed by chemical processing, pharmaceuticals and agrochemicals, and electronics, electric vehicles and energy. This breadth of demand is relevant to the Company, whose products serve several of these segments. It also means that the Companys prospects are not tied to any single end-market.

The hydrofluoric acid market

Hydrofluoric acid is the starting point for most fluorine chemistry, and it is the molecule at the centre of the Companys operations. Global demand for anhydrous hydrofluoric acid is estimated at about 2.0 million metric tonnes in CY25, projected to reach about 2.6 million metric tonnes by CY30, a compound annual growth rate of about 5.3%. In India, demand is estimated at about 110 kilotonnes in FY26 and projected to reach about 175 kilotonnes by FY31, a compound annual growth rate of about 9.7%, faster than the global market. Because hydrofluoric acid is the input to every value-added product the Company makes, this growth underpins demand both for the acid itself and for the grades produced from it.

Solar-grade diluted hydrofluoric acid

Solar-grade diluted hydrofluoric acid is a high-purity grade used to etch and clean silicon wafers in the manufacture of photovoltaic solar cells. Demand is linked to the build-out of solar-cell and module manufacturing, which in India is supported by national programmes for domestic content and by the substitution of a grade that was previously imported. The Indian solar-grade DHF market is estimated at about 19.2 kilotonnes in FY26 and projected to reach about 80 kilotonnes by FY31, a compound annual growth rate of about 33.0%, among the fastest-growing segments the Company serves. The global market is estimated at about 150 kilotonnes in CY25, projected to reach about 300 kilotonnes by CY30, a compound annual growth rate of about 15.0%. The Company is the first and only producer of this grade in India, which positions it to capture a share of this growth.

Refrigerant gas and HFC-32

HFC-32, also known as R-32, is a single-component refrigerant used mainly in residential air conditioners and light commercial cooling, and it is among the lower global-warming-potential refrigerants in wide use. The Indian HFC-32 market is estimated at about 22 kilotonnes in FY25 and projected to reach about 44 kilotonnes by FY30, a compound annual growth rate of about 15.0%. The global market is estimated at about 380 kilotonnes in CY25, projected to reach about 485 kilotonnes by CY30, a compound annual growth rate of about 5.0%, with about 72% of demand by volume in Asia. In India, residential split air conditioners account for the majority of demand, followed by light commercial heating, ventilation and air conditioning and the cold chain. Demand is supported by rising air-conditioning penetration, which remains low by international comparison, and by the global phase-down of higher global-warming- potential refrigerants under the Kigali Amendment.

Company overview

The Company is a fluorochemicals manufacturer operating a single integrated complex at Cuddalore, Tamil Nadu, with a total installed capacity of about 1,35,000 TPA across sulphuric acid, hydrofluoric acid, speciality fluorides and solar-grade DHF. It produces hydrofluoric acid in-house from fluorspar and captive sulphuric acid, and converts it into anhydrous and diluted grades, solar-grade DHF and speciality inorganic fluorides, with refrigerant gas under Implementation. Domestic sales accounted for about 95% of revenue, with exports of about 5%, a mix that is expected to shift towards exports as refrigerant-gas volumes begin.

The Companys scale has grown substantially over the past five years, with revenue rising from about CI4,789.55 lakhs in FY21 to Rs.71,107.40 lakhs in FY26. This growth has come from a disciplined widening of the product range within fluorine chemistry, supported by the operational and technical strengths added since Anupam Rasayan India Limited became a co-promoter alongside TIDCO in 2022. FY26 marked a shift from expanding the core hydrofluoric acid capacity towards building value- added products on top of it.

Financial performance for FY26

Revenue from operations rose 27.7% to Rs.71,107.40 lakhs, from Rs.55,698.07. lakhs in FY25, the highest in the Companys history, supported by higher volumes and the ramp-up of solar-grade DHF.

Gross profit was C26,634.11lakhs, a gross margin of 37.46%, against Rs.25,175.65 lakhs and 45.20% in FY25. Operating EBITDA was C11,206.40lakhs, an EBITDA margin of 15.76%, against C12,886.40lakhs and 23.14% in FY25. Profit after tax was Rs.7,014.29 lakhs, a margin of 9.86%, against Rs.8,814.71 lakhs and 15.83% in FY25. Earnings per share were Rs.35.16, against Rs.44.18 in FY25.

Margins. Margins moderated compared to FY25, when the Company earned an EBITDA margin of 23.14% particularly in the third quarter performance, benefited from higher realizations arising from a temporary demand-supply gap. During FY 26, Margins was impacted by an increase in raw material costs.

Costs. The cost of materials consumed rose with higher volumes and higher sulphur prices, and was the main driver of the change in gross margin. Power and fuel costs reflected higher production, moderated by captive power and waste-heat recovery. Employee costs and other expenses rose in line with the growth of the business and the commissioning of new capacity. Depreciation rose to Rs.1,747.06 lakhs, from Rs.1046.27 lakhs in FY25, and finance costs to Rs.429.81 lakhs, from Rs.259.76 lakhs, as the new assets were capitalised and the associated borrowing was drawn.

Profit and tax. Profit before tax was Rs.9,263.82 lakhs, against C11,876.07 lakhs in FY25, and after the tax charge, profit after tax was Rs.7,014.29 lakhs. The decline in profit reflects the margin normalisation and the higher depreciation and finance costs described above, set against a higher revenue base. A large part of the Companys solar-grade DHF is sold under contracts at fixed margins, which lends stability to that revenue, and management expects margins to recover as new capacity is utilised and the mix shifts towards value-added grades.

Other income and taxation. Other income, which includes returns on the Companys cash and investments, is excluded from the operating EBITDA figure discussed above so that operating performance can be read on a like-for-like basis. The tax charge for the year reflects the applicable corporate tax rate, and the prior-year figures for these items are set out in the audited financial statements.

Four-year financial summary

Particulars	FY23	FY24	FY25	FY26
Revenue from operations	37,494.81	37,814.50	55,698.07	71,107.40
Gross profit	14,819.93	15,733.39	25,175.65	26,634.11
Operating EBITDA	7,475.77	7,071.50	12,886.40	11,206.40
Profit before tax	7,546.24	7,005.98	11,876.07	9,263.82
Profit after tax	5,612.97	5,248.03	8,814.71	7,014.29
Earnings per share (C)*	28,14	26.30	44.18	35.16

* For comparability, the EPS figures for previous years have been restated to reflect the subdivision of equity shares undertaken during the year.

Over the four years shown, revenue from operations has nearly doubled, from Rs.37,494.81 lakhs in FY23 to Rs.71/l07.40 lakhs in FY26, with the sharpest increases in FY25 and FY26 as new capacity was commissioned. Gross profit has risen over the same period, although the gross margin has moved with sulphur costs and product mix, reaching a high in FY25 supported by exceptional realisations in the third quarter arising from a temporary demand-supply gap before normalising in FY26. Operating EBITdA and profit after tax rose to a peak in FY25 and moderated in FY26 as the Company absorbed higher input costs and the depreciation of new assets. Earnings per share have followed profit, on an unchanged share count.

Key financial ratios

Return on equity was 20.48% and return on capital employed was 20.19% in FY26, as reported by the Company. The gross margin was 37.46%, the operating EBITDA margin 15.76% and the profit- after-tax margin 9.86%. The working-capital cycle improved by eight days to 91 days, reflecting tighter management of inventory and receivables. Net debt was C4,661.33 lakhs at 31 March 2026. The Company became net debt-free after the reporting period, following a Rs.25,000 lakhs Qualified Institutional Placement completed in the first quarter of FY27

The table below sets out the key financial ratios in the format used in the Companys previous annual report. FY25 figures are as reported in that report.

Ratio	FY26	FY25
Current ratio	1.77	2.29
Debt-equity ratio	0.25	0.13
Debt service coverage ratio	31.17	53.26
Return on equity ratio	0.20	0.33
Inventory turnover ratio	4.86	4.10
Trade receivables turnover ratio	6.78	6.95
Trade payables turnover ratio	15.55	9.02
Net capital turnover ratio	6.31	4.01
Net profit ratio	0.10	0.16
Return on capital employed	0.20	0.34
Return on investment	0.12	0.06

Balance-sheet review

The Companys balance sheet grew during the year as it invested in new capacity. Total assets increased to Rs.52,773.57 lakhs at 31 March 2026, from Rs.42,641.14 lakhs a year earlier. Shareholders funds rose to Rs.37,316.57 lakhs, from Rs.31,197.41 lakhs, retained through the profit for the year. Property, plant and equipment and capital work-in-progress increased as the hydrofluoric acid, solar-grade DHF and refrigerant-gas projects progressed.

On the liabilities side, borrowings rose to fund the capital programme, with current borrowings of Rs.9,281.49 lakhs at the year-end, against Rs.4,142.63 lakhs a year earlier, and no non-current borrowings. Trade payables were Rs.2,511.66 lakhs. On the assets side, inventories were Rs.9,284.22 lakhs and trade receivables about Rs.11046.4405 lakhs, reflecting the larger scale of operations, while cash and cash equivalents were Rs.2,107.39 lakhs and current investments Rs.1,699.11 lakhs. Net debt was C4,661.33 lakhs at the year-end. As noted, the Company became net debt-free after the reporting period, following the Rs.25,000 lakhs Qualified Institutional Placement completed in the first quarter of FY27, which also lifted shareholders funds.

Cash-flow review

Net cash generated from operating activities was Rs.4,340.08 lakhs in FY26, up from Rs.3,284.18 lakhs in FY25. Operating profit before working-capital changes was Rs.11,724.43 lakhs, and after an increase in working capital and taxes paid of Rs.2,100 lakhs, cash generated from operations was Rs.4,340.08 Lakhs. Net cash used in investing activities rose sharply to Rs.9,055.79 lakhs, from Rs.4,169.28 lakhs in FY25, reflecting the step-up in capital expenditure on the solar-grade DHF and refrigerant-gas projects.

Net cash from financing activities was Rs.3,811.30 lakhs, as the Company drew borrowing to part-fund the capital programme. Cash and cash equivalents ended the year at Rs.2,107.39 lakhs, against C3,011.80 lakhs a year earlier.

The pattern of the cash flows reflects the nature of the year. The Company generated operating cash flow of Rs.4,340.08 lakhs and deployed it, together with borrowing, into building capacity. The strengthening of the balance sheet after the year-end places the Company in a position to complete the current programme from a stronger base.

Dividend and shareholder returns

The Company has a record of regular dividends. For FY26, the Board has recommended a final dividend of C4.50 per equity share of face value C5, subject to the approval of shareholders. The Company earned a return on equity of 20.48% and a return on capital employed of 20.19% in the year. The Board balances the return of capital to shareholders with the reinvestment required to fund the Companys growth programme.

Operational review

Sulphuric acid operated at 101% utilisation and hydrofluoric acid at 95% during the year, and the Company recorded its highest-ever production.

Both phases of the 20,000 TPA solar-grade DHF facility were commissioned, in June and October 2025, and sales of this grade were ramped up for solar-cell customers. Speciality fluorides operated at 41% utilisation, which leaves room to grow volumes from installed capacity. The refrigerant-gas plant progressed through the year, and commissioning targeted by end of Q3 fY27.

Raw-material availability was managed through a diversified set of suppliers, with fluorspar sourced from South Africa, Thailand, Vietnam & Kenya etc. and sulphur sourced domestically, while captive sulphuric acid and captive power supported reliable and competitively costed production. The Company continued to serve customers across solar, steel, pharmaceuticals, agrochemicals and speciality chemicals, and its order book in solar- grade DHF and refrigerant gas provides visibility over a large part of future volumes.

Opportunities

•Growth in solar-grade DHF, supported by the build-out of solar manufacturing in India and by contracted orders of about Rs.1,06,800 lakhs till FY29.

•Entry into refrigerant gas with contracted volumes and a large addressable market, both domestic and export, and revenue potential of Rs.90,000 lakhs to Rs.1,00,000 lakhs at full utilisation.

•A pipeline of value-added products in speciality fluorides, hydrofluoroolefins, fluoropolymers and electronic-grade chemicals, developed from captive hydrofluoric acid.

•Import substitution and the diversification of global supply chains towards India, which support demand for domestically produced fluorine products.

Threats and risks

Raw-material prices. The prices of sulphur and fluorspar affect the cost of production, as the year demonstrated. The Company mitigates this through captive sulphuric acid, supplier diversification and, in several products, formula•based pricing that passes movements through to customers over a defined cycle.

Project execution. The Company is executing a large capital programme, and delays or cost overruns would affect returns. The Company mitigates this through phased execution, established technology partners and experienced project management.

Customer and product concentration. A part of future revenue is linked to specific contracts and products. Long-term agreements provide visibility, and a widening product range reduces this exposure over time.

Regulatory and environmental. The handling of hazardous chemicals is subject to strict regulation. The Company operates within recognised safety and environmental standards, supported by dedicated infrastructure and an emergency•response team.

Currency and trade. A growing share of revenue is expected from exports as refrigerant gas comes on stream, which introduces exposure to currency movements and trade conditions. A weaker rupee supports export competitiveness, while it raises the cost of certain imported inputs.

Risk-management approach

The Companys approach to risk begins with the safe handling of hazardous chemistry, which is treated as a condition of operation. Beyond process safety, the Board and management give particular attention to raw-material prices, project execution and regulatory compliance. The Company uses captive production, supplier diversification, formula-based pricing and long-term contracts to reduce the effect of its most material risks, and it reviews these risks periodically as the business grows and enters new products.

Internal control systems and their adequacy

The Company maintains an internal control framework designed to safeguard assets, ensure the reliability of financial reporting and support compliance with applicable laws. Internal audit reviews the adequacy and effectiveness of controls, and its findings are considered by the Audit Committee, which monitors the implementation of any recommendations. The Board is of the view that the internal financial controls are adequate for the size and nature of the Companys operations.

Human resources

The Company employs around 700 people at Cuddalore, supported by an R&D team of more than ten professionals including three doctorate holders. Given the nature of the materials handled, training and safety are central to how the site is run. After the reporting period, the Company strengthened its senior management with the appointment of a President, Technical and Operations, who brings over three decades of experience in project execution and operations. Relations with employees remained cordial through the year.

Outlook

The Company enters FY27 with new capacity, a substantial contracted order book and a strengthened balance sheet. Revenue growth is expected to accelerate following the commissioning and progressive ramp-up of the refrigerant-gas facility, while the operating EBITDA margin is expected to improve as the plant achieves higher utilisation. At full capacity, the refrigerant-gas business is expected to offer annual revenue potential of approximately Rs.90,000 lakhs to Rs.1,00,000 lakhs.

The Companys key priorities are to commission and ramp up the refrigerant-gas facility on schedule, advance its research and development pipeline, and maintain the high standards of safety and quality required for its products. These targets and expectations reflect the Companys current assessment and are subject to the cautionary statement set out below.

Cautionary statement

Statements in this Management Discussion and Analysis that describe the Companys objectives, projections, estimates and expectations may be forward-looking 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 include economic conditions, changes in raw-material prices and availability, demand and pricing in the Companys markets, regulatory developments, project-execution timelines and other incidental factors. The Company undertakes no obligation to publicly revise any forward-looking statement to reflect future events or circumstances.