Technopack Polymers Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS REPORT</dhhead>

Your Director’s have pleasure in presenting the management discussion and analysis report for the year ended on March 31, 2023.

GLOBAL ECONOMIC OVERVIEW

The global economy faced several challenges in CY 2022, starting from the initiation of the Russia-Ukraine war, supply chain disruption, high inflation, and high key policy rates by the central banks. Global inflation remained a matter of concern in most of the economy, which reached a multi-year high of 8.7% in CY 2022. Monetary tightening by the central banks across the world helped bring the trajectory downwards. The unwinding economic events weighed down global economic growth prospects. World economic growth in CY 2022 is estimated to have declined from 6% in CY 2021 to 3.4%, as per IMF.

Europe was significantly impacted by the war, which led to high energy and food prices created by the supply chain disruption. This stretched the purchasing power of the consumers while also impacting the manufacturing sector that led to production cuts. In Q4 CY 2022, the energy crisis improved, supported by high gas inventory levels, favourable weather conditions, and the central bank’s monetary policy tightening, which eased inflation. IMF estimates the Euro area to have grown by 3.5% in CY 2022. The monetary tightening is expected to limit the GDP growth in CY 2023 to 0.8% before increasing to 1.4% in CY 2024.

GDP GROWTH

GLOBAL GROWTH HAS STABILISED, BUT THE IMPROVEMENT IS FRAGILE

Global GDP growth in 2023 is projected to be 2.7%, the lowest annual rate since the global financial crisis, with the exception of the 2020 pandemic period. A modest improvement to 2.9% is foreseen for 2024. Annual OECD GDP growth is projected to be below trend in both 2023 and 2024, although it will gradually pick up through 2024 as inflation moderates and real incomes strengthen.

INFLATION

UNDERLYING INFLATION PRESSURES REMAIN HIGH

Headline inflation has fallen in most economies in recent months due to the downturn in energy prices, even though food and services prices have continued to rise rapidly. Core inflation remains stubbornly high.

INDIAN ECONOMY

The last two years have seen the global economy struggling to deal with overlapping crises, the latest being the liquidity troubles after a series of global bank crises. While the impact appears to have been contained, these uncertainties continue to undermine the confidence among consumers and businesses to spend, therefore impacting economic growth.

GDP REVISIONS POINT TO INDIA’S RESILIENCE IN THE PAST

India recently released GDP estimates for the October-December quarter of FY 2022-23 (Q3) along with revisions of the past three years’ data. GDP data suggests that India emerged stronger from the pandemic than initially assumed, with growth gathering steady momentum since FY 2022-23. GDP growth for FY 2020-21 was revised up by 0.77 percentage points, implying the recession was not as deep as previously thought. For FY 2021-22, meanwhile, growth was revised up from 8.7% to 9.1%, suggesting stronger rebound. This upward revision was primarily because of the stronger-than-anticipated growth in manufacturing and construction.

FUTURE GROWTH WILL BE CONTINGENT ON INVESTMENT

Growth in investments will be critical to meet India’s rising demand and ensure non-inflationary growth in the long run. The inability to build up capacity would mean that India will have to suppress demand, failing which will result in inflation spiraling up. The challenge is several headwinds have kept investors at bay, and may likely continue doing so, at least in the near term.

THE ECONOMIC PROJECTIONS—WHAT LIES AHEAD

We are positive that investments will likely see a turnaround soon. In fact, the next two years will be crucial for investment to gain momentum before the economy takes off on a sustained and rapid growth path. High- frequency data—for example, electricity generation, GST collections (through e-way bills), average fuel consumption per day, sale of two-wheelers and tractors, credit growth across sectors and industry, occupancy rates in hotels, and the purchasing managers’ indices (PMIs)—clearly indicate that growth drivers have maintained a positive momentum despite uncertainties.

As always, our estimates for GDP growth account for uncertainties. We expect the economy to grow 6.0%- 6.5% during FY2022-23 in our baseline estimate followed by growth ranging 6.5%-7.0% the following year. We expect growth to stabilize around 6.5% in the medium term as global economy turns buoyant (figures 5 and 6). Economic activity will likely pick up rapidly later this year, contingent on the revival of the global economy and improving economic fundamentals. However, if downside risks weigh on the economic fundamentals and outlook (listed in the assumptions below), we may see a substantial economic slowdown.

INDUSTRY OVERVIEW

The global plastic caps and closures market grew from $47.63 billion in 2022 to $55.68 billion in 2023 at a compound annual growth rate (CAGR) of 16.9%. The Russia-Ukraine war disrupted the chances of global economic recovery from the COVID-19 pandemic, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, causing inflation across goods and services and affecting many markets across the globe. The plastic caps and closures market is expected to grow to $93.56 billion in 2027 at a CAGR of 13.9%.

An increase in demand for bottled water from consumers across the globe is driving the plastic caps and closures market. The bottled water is sealed with plastic caps and closures to prevent spillage, facilitate easy transportation and extend shelf life. The demand for bottled water is increasing due to the rise in awareness of water contamination and safety concerns. For instance, as per the Bottled water statistics, in 2020 the volume of bottled water climbed by 4.2%, compared to 3.7% in 2019. This is expected to continue in the forecast period thus driving the demand for plastic caps and the closures market.

GLOBAL PLASTIC CAPS AND CLOSURE MARKET SIZE, 2023-2028 (IN BILLION US$)

The demand of plastic caps and closures is currently exhibiting strong growth. Plastic caps and closures offer significant advantages over caps and closures made up of other materials such as metal, rubber, etc. Plastic is more economical, versatile, durable, light and resistant to corrosion. Moreover, driven by its lighter weight, it results into a lower transportation cost. PET, PP, HDPE, LDPE, etc. are some of the primary raw materials used in making plastics caps and closures. Beverages currently represent the biggest end use sector for plastic caps and closures. We expect the global beverages market to grow at a CAGR of 3% over the next five years creating a positive impact on the demand of caps and closures. The popularity of plastic in beverage caps and closures has been increasing driven by its cost-effectiveness, durability, customizability and chemical stability. Apart from alcoholic and non-alcoholic beverages, the demand of plastic caps and closures is also increasing in numerous other end use industries such as chemicals, food, pharmaceuticals, cosmetics, etc.

BREAKUP BY PRODUCT TYPE:

GLOBAL PLASTIC CAPS AND CLOSURE MARKET SHARE, BY PRODUCT TYPE (IN %)

BREAKUP BY REGION:

GLOBAL PLASTIC CAPS AND CLOSURE MARKET SHARE, BY REGION (IN MILLION US$)

Key players operating in the plastics caps and closures market are focusing on developing and launching innovative products to meet the sustainability targets set by governing bodies across the globe. For instance, in September 2020, Borealis and MENSHEN, the leading players in plastic closures and packaging solutions have partnered on a series of ten package closures based on Borcycle, a progressive recycling technology that turns polyolefin-based waste streams into value-adding adaptable products. Borcycle is developed to make a variety of recycled polyolefins (RPO)-based compounds that are excellent for use in complex rigid packaging applications.

OPPORTUNITIES & THREATS

Opportunities

1. Automation

Automation is the major trend that will dominate the Indian plastic cap industry during the forecast period due to an increase in demand. It provides methods to boost the efficiency of the molding process to gain more advantages.

2. Innovative closure design enhances brand image

Innovative closure design will enhance the brand image of a company in future markets to grab the attention of more customers. As a result, manufacturers have to focus more on complex structures and colors that may become an emerging trend.

2. High adoption of lightweight caps

Lightweight plastic caps will become a major trend in future markets because they provide ways to reduce production costs and enable manufacturers to attain sustainability. Many companies invest money in designing and producing stylish and lightweight caps for various products.

4. Digitization

The rapid development of digitization today opens up new prospects in the manufacturing process. Advancements in information technologies will lead to greater integration of process flow and may increase transparency in the production process.

5. IOT

IoT (Internet of Things) may become a new trend in the plastic cap industry because it will help make an informed decision. Furthermore, it will help achieve efficiency and automate operations to a large extent.

6. Recycling may become a new trend

Consumers make their best decisions by considering their personal carbon footprint and recycling products may become a new trend in future markets. Recycling products can protect the environment from potential threats.

THREATS

1. Strict regulations by the Indian government on plastic products

The Indian government has imposed strict rules and regulations regarding the use of plastic products. It emphasizes reducing the applications of plastic items in various industries that may hamper growth rate.

2. Recycling programs are not effective

While recycling offers the best solutions for plastic caps, the program is not being launched effectively. Many manufacturers face difficulties in implementing a recycling program due to the lack of knowledge and other factors.

3. High costs of raw materials

The costs of raw materials are increasing over recent years and plastic cap industries have to spend more on them.

4. Implementing new technologies is becoming difficult

Plastic cap manufacturers have to embrace the latest technologies such as 3D printing, artificial intelligence, and IoT in the designing process. However, they are not easy and need proper guidance from technical experts.

5. Lack of skilled workforce

A skilled workforce is necessary for plastic cap production and many companies face a shortage of experienced employees. This will result in low productivity which can affect the growth rate significantly.

6. Awareness about eco-friendly products may force industries to invest additional money

The awareness about eco-friendly plastic products is increasing in recent years which may impact the growth. Also, plastic cap manufacturers have to implement innovative ideas to design products with unique designs.

7. High competition may impact the growth

Nowadays, many start-ups are entering the plastic cap industry which can increase the competition in the market which will affect the growth rates.

SEGMENT-WISE PERFORMANCE

The Company’s main business activity is manufacturing of CCM Caps & Closures and Pet Preforms.

OUTLOOK

The Company continues to explore the possibilities of expansion and will make the necessary investments when attractive opportunities arise.

RISK & CONCERNS

The Company has in place a mechanism to identify, assess, monitor and mitigate various risks to key business objectives. Key business risks and mitigation strategy are highlighted below.

Business Risk

To mitigate the risk of high dependence on any one business for revenues, the Company has adopted a strategy of launching new products/services, globalizing its operations and diversifying into different business segments. The strategy has yielded good results and the Company therefore has a diversified stream of revenues. To address the risk of dependence on a few large clients, the Company has also actively sought to diversify its client base.

Legal & Statutory Risk

The Company has no material litigation in relation to contractual obligations pending against it in any court in India or abroad. The Company Secretary, compliance and legal functions advise the Company on issues relating to compliance with law and to pre-empt violations of the same. The Company Secretary submits a quarterly report to the Board on the Company’s initiatives to comply with the laws of various jurisdictions. The Company also seeks independent legal advice wherever necessary.

Human Resource Attrition Risk

Technopack Polymers Limited (Formerly Known as Technopack Polymers Private Limited) key assets are its employees. In a highly competitive market, it is a challenge to address the attrition. Technopack Polymers Limited (Formerly Known as Technopack Polymers Private Limited) continues to accord top priority to manage employee attrition by talent retention efforts and offering a competitive salary and growth path for talented individuals.

Macroeconomic Risks

Company’s business may be affected by changes in Government policy, taxation, intensifying competition and uncertainty around economic developments in Indian and overseas market in which the Company operates.

Mitigation Strategy

The Company has well defined conservative internal norms for its Business. The Company ensures a favourable debt/equity ratio, moderate liquidity, strong clientele with timely payment track record, appropriate due diligence before bidding and focus on expanding presence in newer markets to minimize the impact in adverse conditions. The Company has geographically and operationally diversified into multiple countries and business segments thereby reducing its dependency on one country or market.

Operational Risks

The Company’s operations and financial condition could be adversely affected if it is unable to successfully implement its growth strategies. Competition from others, or changes in the products or processes of the Company’s customers, should reduce market prices and demanding for the Company’s products, thereby reducing its cash flow and profitability. Product liabilities claims may adversely affect the Company’s operations and finance.

Mitigation Strategy

The Company does strict monitoring of prices and adopts appropriate strategies to tackle such adverse situations. The Company also adopts technological innovations to bring about operational efficiency in continuous basis to remain competitive.

Others

The Company is exposed to risks & fluctuations of foreign exchange rates, raw-material prices and overseas investments exposures.

AUDIT AND INTERNAL CONTROL SYSTEM

One of the key requirements of the Companies Act, 2013 is that companies should have adequate Internal Financial Controls (IFC) and that such controls should operate effectively. Internal Financial Controls means the policies and procedures adopted by the Company for ensuring orderly and efficient conduct of its business, including adherence to Company’s policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial information. Your Company’s process of assessment ensures that not only does adequate controls exist, but it can also be evidenced by unambiguous documentation. The process involves scoping and planning to identify and map significant accounts and processes based on materiality. Thereafter, risk is identified and their associated controls are mapped, else remediation is implemented. These controls are tested to assess operating effectiveness. The auditor performs independent testing of controls. The Auditors’ Report is required to comment on whether the Company has adequate IFC system in place and such controls are operating effectively. Your Company’s Internal Control System is robust and well established. It includes documented rules and guidelines for conducting business. The environment and controls are periodically monitored through procedures/ processes set by the management, covering critical and important areas. These controls are periodically reviewed and updated to reflect the changes in the business and environment.

RAW MATERIAL PRICES

The prices of basic major raw materials used in our manufacturing process viz. stainless steel scrap /flats of various grades doesn’t affect much, as we are working in open market scenario.

FINANCIAL PERFORMANCE

During the year under review, the Company has generated total revenue of Rs  1,17,143.08/- (in Thousand) (Previous Year Rs  1,00,287.35/- (in Thousand)). The net profit before exceptional items and taxes is Rs  32,324.13/- (in Thousand) (Previous Year Rs  29,775.88/- (in Thousand)). The net profit after taxes resulted into the profit for the year at Rs  23,698.89/- (in Thousand) (Previous Year Rs  21083.57 /- (in Thousand)).

MATERIAL DEVELOPMENTS IN HR / INDUSTRIAL RELATION / NUMBER OF PERSON EMPLOYED

Our Company believes that the human capital is key to bring in progress. The Company believes in maintaining cordial relation with its employees, which is one of the key pillars of the Companys business. The Companys HR policies and practices are built on core values of Integrity, Passion, Speed, and Commitment. The Companys focus is on recruitment of good talent and retention of the talent pool. The Company is hopeful and confident of achieving the same to be able to deliver results and value for our shareholders. As on 31^st March, 2023, the total employees on the Companys rolls stood at 12 and on contract basis 9.

ACCOUNTING POLICIES

The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year. The financial statements have been prepared under the historical cost convention on an accrual basis. The management accepts responsibility for the integrity and objectivity of the financial statements, as well as for the various estimates and judgment used therein.

DISCLOSURE OF ACCOUNTING TREATMENT IN PREPARATION OF FINANCIAL STATEMENT

The Company has followed all relevant Accounting Standards laid down by the Institute of Chartered Accountants of India (ICAI) while preparing Financial Statements.

DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS

The Company has identified the following ratios as key financial ratios:

Sr. No. Particulars	2022-23	2021-22	Changes	Reason
1. Return on Capital Employed	19.40	56.90	37.50	(In %) Capital Employed in the CY has increased drastically due to Share Issue through IPO, leading to showing unfavourable variance, even though EBIT has increased in CY.

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF

Sr. Particulars No.	2022-23	2021-22	Changes	Reason
1. Return on Net Worth	5.40	21.08	16.70	Increase in total equity by fund raised via IPO (net off) proceeds

CAUTIONERY STATEMENT

Statements in this report on Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations or predictions may be “forward-looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied.