Three M Paper Boards Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

The global paper and paperboard industry is undergoing a structural transformation, driven by changing consumption patterns, increasing demand for sustainable packaging, technological advancement and the global transition towards a circular economy. While traditional paper consumption is being moderated by digitalisation in certain segments, the demand for paper and paperboard used in packaging applications continues to remain resilient.

The packaging segment, particularly paperboard and recycled fibre-based products, continues to benefit from the growth of e-commerce, organised retail, food and beverages, pharmaceuticals, consumer goods and other consumption-led industries. At the same time, the industry remains exposed to fluctuations in waste paper and other raw-material prices, energy and fuel costs, freight rates, foreign exchange movements, import competition and changes in selling realisations.

The global operating environment also remains influenced by geopolitical developments, trade restrictions, supply-chain realignments and uneven economic growth across geographies. These factors can create volatility in the availability and landed cost of imported raw materials as well as finished paper and paperboard products.

Global Trends

The global paper industry is increasingly moving towards sustainable, recyclable and resource-efficient products. Governments and businesses across major economies are adopting policies aimed at reducing plastic waste, promoting recycling and encouraging circular-economy practices. These developments are creating opportunities for recycled paper and paperboard products, particularly in packaging applications.

At the same time, the industry continues to face structural challenges. Volatility in recovered paper prices, energy costs, freight rates and currency movements can materially influence production costs and margins. In developed markets, demand for certain printing and writing paper products continues to face pressure from digitalisation, whereas packaging, tissue and hygiene-related applications continue to provide relatively stronger growth opportunities.

The global packaging industry is also witnessing increasing emphasis on recyclability, reduction of plastic content, responsible sourcing and lower environmental impact. This trend is expected to support the long-term demand for recycled fibre-based packaging materials.

Indian Industry Scenario

India remains one of the important growth markets for paper and paperboard, supported by rising consumption, urbanisation, increasing disposable incomes, organised retail, e- commerce, food processing, pharmaceuticals and the continued expansion of consumer- oriented industries.

Within the Indian paper industry, packaging paper and paperboard represent an important growth segment. The increasing requirement for packaged foods, pharmaceuticals, personal care products, consumer goods and e-commerce shipments is creating sustained demand for packaging materials.

The Government of Indias focus on waste management, recycling, resource efficiency, circular economy and reduction in dependence on single-use plastics is also contributing to a favourable long-term environment for recyclable paper-based packaging solutions. Initiatives relating to Extended Producer Responsibility (EPR), plastic-waste management and sustainable packaging are encouraging industries to evaluate alternatives that are recyclable and have lower environmental impact.

The Governments broader emphasis on manufacturing, infrastructure development, logistics, exports, sustainability and the circular economy is expected to support the development of the domestic paper and packaging ecosystem.

However, the Indian paper industry continues to face certain challenges, particularly the availability and cost of quality waste paper, dependence on imported recovered paper, volatility in energy and transportation costs, foreign exchange movements and competition from imported paper and paperboard. The industry therefore remains highly sensitive to cost management, product mix, capacity utilisation and working-capital efficiency.

DUPLEX BOARD INDUSTRY

Duplex Board is an important component of the packaging value chain and is used extensively in the manufacture of cartons and other packaging products for FMCG, food and beverages, pharmaceuticals, cosmetics, consumer durables and other industries.

The Companys focus on recycled fibre-based Duplex Board provides it with an opportunity to participate in the growing demand for sustainable packaging. The increasing preference of brand owners and consumers for recyclable packaging solutions is expected to support the long-term relevance of recycled paperboard.

At the same time, the Duplex Board segment remains competitive and price sensitive. Domestic manufacturers are required to continuously balance product quality, customer specifications, raw-material costs, energy consumption, logistics and selling prices. Import competition and fluctuations in international prices can also influence domestic market realisations.

Accordingly, the Companys strategy remains focused on operational efficiency, quality consistency, product development, customer retention, product mix optimisation and prudent working-capital management.

OUTLOOK

The medium- to long-term outlook for the Indian paper and paperboard industry remains constructive, particularly for packaging and recycled-fibre-based products.

The continued growth of e-commerce, FMCG, food processing, pharmaceuticals, organised retail and consumer products, together with increasing awareness of sustainable packaging, is expected to support demand for paper-based packaging.

The transition towards a circular economy is another important structural opportunity. Recovered paper is an important source of fibre for the recycled paperboard industry, and increasing emphasis on recycling and responsible resource utilisation is expected to strengthen the relevance of recycled paper-based products.

However, the Company remains conscious that the near- to medium-term operating environment may continue to be volatile. Raw-material prices, availability of quality waste paper, energy and fuel costs, freight rates, exchange-rate movements, import competition and selling-price realisations may exert pressure on margins.

The Company intends to address these challenges through the following initiatives:

• Strengthening domestic procurement of waste paper and improving sourcing efficiencies to optimise the raw-material mix and reduce excessive dependence on imports.

• Improving fibre recovery, yield and production efficiencies through process optimisation and technology upgradation.

• Enhancing energy efficiency and exploring suitable alternative and renewable energy solutions to manage the impact of energy-cost volatility.

• Optimising product mix with greater emphasis on value-added and premium grades wherever market conditions permit.

• Strengthening domestic and export markets and broadening the customer base to reduce concentration and improve market reach.

• Improving capacity utilisation and deriving greater operating efficiencies from the Companys manufacturing infrastructure.

• Strengthening working-capital management, particularly inventory, receivables and procurement cycles, in view of the working-capital-intensive nature of the industry.

• Continuing investment in product development and quality improvement to meet evolving customer requirements and international packaging standards.

• Leveraging the Companys recycled-fibre manufacturing capabilities to participate in the growing demand for sustainable and recyclable packaging.

The Company believes that disciplined cost management, operational efficiency, customer focus and a continued emphasis on sustainable recycled paperboard products will be important in navigating the cyclical nature of the industry and creating sustainable long-term value.

GLOBAL PAPER INDUSTRY OVERVIEW

The global pulp and paper industry is a diverse sector serving packaging, printing and writing, tissue and hygiene, specialty paper and other applications. While digitalisation has reduced demand for certain traditional paper products, the packaging segment continues to provide a significant growth opportunity.

The industry is increasingly influenced by three major structural trends:

1. Shift towards sustainable packaging and reduction of plastic usage;

2. Growth of e-commerce and consumption-led packaging requirements; and

3. Transition towards circular-economy and resource-efficient manufacturing.

The use of recovered paper as a source of fibre is particularly relevant to the circular economy. Recycling enables fibre to be reused in multiple applications and reduces dependence on virgin fibre, subject to the availability and quality of recovered paper.

Global manufacturers are therefore increasingly focusing on energy efficiency, renewable energy, water conservation, waste reduction, fibre optimisation and development of recyclable packaging solutions.

The global economic environment, however, remains subject to geopolitical tensions, changing trade policies, supply-chain disruptions, currency movements and fluctuations in commodity and energy prices. These factors can result in significant variations in production costs and international paper and paperboard prices.

For manufacturers such as the Company, the ability to manage raw-material sourcing, energy consumption, manufacturing efficiency, product quality and logistics costs will remain critical to maintaining competitiveness.

E-COMMERCE AND PACKAGING DEMAND

The rapid expansion of e-commerce has structurally increased the requirement for packaging materials. Products purchased through online channels require protective, transport-efficient and increasingly sustainable packaging throughout the distribution chain.

The growth of e-commerce in India and other emerging markets, together with the expansion of organised retail and direct-to-consumer businesses, is expected to support continued demand for paper-based packaging.

At the same time, global e-commerce companies and brand owners are increasingly seeking to reduce unnecessary plastic packaging and improve the recyclability of their packaging materials. This transition creates opportunities for recycled paperboard manufacturers to develop products suited to evolving packaging requirements.

The Companys focus on recycled Duplex Board positions it favourably to participate in this structural shift, particularly as customers increasingly consider sustainability alongside quality, performance and cost.

INDIAN PAPER INDUSTRY OVERVIEW

Indias paper and paperboard industry plays an important role in the countrys manufacturing and consumption ecosystem, supporting packaging, education, printing, hygiene and other applications. The industry uses a combination of recovered paper, wood-based fibre and agricultural residues, with recycled fibre playing an increasingly important role in meeting domestic demand.

The Indian market has significant long-term growth potential on account of a large consumer base, rising urbanisation, increasing consumption, expansion of organised retail, e-commerce, food processing, pharmaceuticals and growing demand for packaged products.

Government policies promoting recycling, sustainable consumption, waste management, circular economy and responsible use of resources are expected to remain important drivers for the industry. The increasing focus on reducing plastic waste and promoting environmentally responsible packaging is also expected to create opportunities for recyclable paper and paperboard products.

Nevertheless, the industry faces challenges relating to raw-material availability, quality and cost of recovered paper, energy prices, logistics, environmental compliance, import competition and periodic overcapacity in certain product segments. The ability of manufacturers to maintain cost competitiveness while meeting increasingly stringent quality and environmental expectations will remain a key differentiator.

COMPANYS STRATEGIC POSITIONING

Against this industry backdrop, the Company believes that its focus on 100% recycled waste paper-based Duplex Board manufacturing provides a relevant and sustainable platform for future growth.

The Companys manufacturing facility at Chiplun, Maharashtra, with an installed capacity of 1,08,000 MT per annum, provides an established platform to serve customers across domestic markets and international destinations.

Going forward, the Company will continue to focus on:

• strengthening its position in recycled Duplex Board;

• improving product quality and consistency;

• increasing capacity utilisation;

• enhancing operational and energy efficiency;

• developing value-added products;

• expanding its domestic and export customer base;

• improving raw-material sourcing and procurement efficiency;

• maintaining disciplined working-capital management; and

• leveraging the growing preference for recyclable and sustainable packaging.

The Company remains cautiously optimistic about the long-term prospects of the paperboard industry. While near-term volatility in raw-material costs, energy prices, freight, exchange rates and market realisations may continue, the underlying structural shift towards recyclable, sustainable and circular packaging solutions provides a favourable long-term opportunity for the Company.

The management will continue to closely monitor industry developments, Government policies, global trade conditions and customer preferences and will take appropriate measures to ensure that the Company remains competitive, financially disciplined and well positioned to capture emerging opportunities in the recycled paperboard market.

COMPANY OVERVIEW

Three M Paper Boards Limited ("the Company") was incorporated in 1989 and has established itself as a manufacturer of recycled paper-based Duplex Boards catering primarily to the packaging industry. The Companys products are used across a wide range of end-user industries, including food and beverages, pharmaceuticals, FMCG, cosmetics, consumer products and other packaging applications.

The Companys manufacturing facility is located at Chiplun, District Ratnagiri, Maharashtra, and is equipped with modern manufacturing infrastructure. The Company had an installed production capacity of 1,08,000 MT per annum as at the close of FY 2025-26.

The Company manufactures Duplex Boards using 100% recycled waste paper, thereby contributing to resource conservation and the circular economy. With growing awareness among consumers, brand owners and regulators regarding sustainable packaging and reduction of plastic usage, the Companys recycled paperboard portfolio provides a platform to participate in the evolving demand for environmentally responsible packaging solutions.

The Company serves both domestic and export markets and continues to focus on product quality, customer service, product development, operational efficiency and optimisation of its product mix. The management remains focused on strengthening the Companys competitive position through prudent capacity utilisation, efficient procurement, cost management and expansion of its customer base.

OPPORTUNITIES

The Company believes that the structural trends in the packaging industry provide several opportunities for sustainable growth:

• Growth in Packaging Consumption: Increasing consumption of packaged food, FMCG products, pharmaceuticals, personal care products and consumer goods is expected to support the demand for paperboard packaging.

• Expansion of E-commerce: The continued growth of e-commerce and organised retail is increasing the requirement for protective and recyclable packaging materials.

• Shift towards Sustainable Packaging: Growing consumer and corporate preference for recyclable and environmentally responsible packaging is creating opportunities for recycled paperboard manufacturers.

• Government Focus on Plastic Waste Reduction: Government policies relating to plastic-waste management, recycling, Extended Producer Responsibility and circular- economy practices are encouraging the development and adoption of sustainable packaging alternatives.

• Growth in Value-added Products: Increasing customer focus on printability, appearance, strength, surface quality and application-specific performance provides opportunities for manufacturers offering differentiated and value-added grades.

• Export Market Potential: Emerging markets in Asia, Africa, the Middle East and other developing regions offer opportunities for Indian paperboard manufacturers, subject to competitive pricing, product quality, freight economics and prevailing trade policies.

• Capacity Utilisation: The Companys installed capacity provides an opportunity to increase production volumes and improve operating leverage as market demand strengthens.

THREATS AND CHALLENGES

The paper and paperboard industry remains exposed to a number of external and structural challenges:

• Raw-Material Price Volatility: Waste paper is a significant input cost, and fluctuations in international prices, availability, quality and freight costs can materially impact manufacturing costs.

• Import Dependence: Dependence on imported recovered paper for certain grades and qualities exposes the Company to international market conditions, foreign exchange movements and changes in global supply chains.

• Energy and Fuel Costs: Paper manufacturing is energy intensive. Volatility in coal, power, fuel and other energy costs can adversely affect production costs and operating margins.

• Import Competition: The domestic market is exposed to competition from imported paperboard, particularly when international prices, freight rates or currency movements make imports commercially attractive.

• Competitive Market Environment: The Company operates in a competitive industry with established organised manufacturers as well as regional and unorganised players. Pricing pressure may arise during periods of excess supply or weak demand.

• Foreign Exchange Risk: Changes in foreign exchange rates may impact the landed cost of imported raw materials and the realisation from export sales.

• Regulatory and Environmental Requirements: Increasing environmental standards and regulatory requirements require continuous investment in processes, technology, waste management and compliance systems.

• Economic and Geopolitical Uncertainty: Global trade disruptions, geopolitical tensions, changes in tariffs and trade policies and fluctuations in freight costs may impact the availability and cost of raw materials and international market opportunities.

SEGMENT-WISE / PRODUCT-WISE PERFORMANCE

The Company is primarily engaged in the manufacture and sale of Duplex Boards and accordingly operates predominantly within a single business segment.

During FY 2025-26, the Company continued to focus on strengthening its presence in both domestic and export markets. Domestic sales constituted approximately 80% of the Companys sales, supported by demand from packaging, FMCG and other consumer- oriented industries. Export sales accounted for approximately 20% of sales, providing the Company with geographical diversification and access to selected international markets.

During the year, the Company continued to focus on improving its product mix, including higher grammage and value-added grades, wherever commercially viable, with a view to improving realisations and strengthening customer relationships.

The Companys product portfolio includes various grades of Duplex Boards, including Royal Grey Back, Prima Grey Back and Royal White Back, enabling it to cater to diverse customer requirements.

The management remains focused on improving capacity utilisation, enhancing product quality and consistency, increasing manufacturing efficiency and developing products aligned with evolving packaging requirements.

RISKS AND CONCERNS

The Companys operations are exposed to various business, operational, financial and market risks. The principal risks and the broad mitigation measures are outlined below:

1. Raw-Material Risk

Waste paper constitutes a major component of the Companys raw-material consumption. Any significant increase in waste paper prices, shortage of suitable grades, deterioration in quality or disruption in supply may adversely affect margins.

Mitigation: The Company continuously evaluates domestic and international sourcing opportunities, monitors global waste-paper markets and seeks to optimise the raw-material mix, procurement timing and inventory levels.

2. Energy Cost Risk

Manufacturing operations are energy intensive and are exposed to fluctuations in the cost of coal, electricity, fuel and other energy inputs.

Mitigation: The Company continues to focus on energy conservation, process optimisation, reduction in specific energy consumption and evaluation of appropriate alternative energy and fuel solutions.

3. Market and Pricing Risk

The paperboard industry is competitive and selling realisations can be affected by changes in demand-supply conditions, imports, competitor pricing and movements in international paperboard prices.

Mitigation: The Company seeks to maintain a diversified customer base, improve product quality, optimise product mix and develop value-added products to reduce excessive dependence on commodity-oriented grades.

4. Foreign Exchange Risk

Import of waste paper and other inputs as well as export sales expose the Company to foreign exchange fluctuations.

Mitigation: The Company monitors its foreign currency exposures and adopts appropriate risk-management measures in accordance with its internal policies and prevailing market conditions.

5. Regulatory and Environmental Risk

The paper industry is subject to environmental, waste-management, pollution-control and other regulatory requirements. Changes in environmental standards may require additional investments and process modifications.

Mitigation: The Company maintains appropriate compliance systems and continues to focus on environmentally responsible manufacturing practices and efficient utilisation of resources.

6. Working Capital and Liquidity Risk

The paperboard industry requires significant working capital towards raw materials, inventories, receivables and operating expenses. Any increase in the operating cycle may affect liquidity.

Mitigation: The Company monitors receivables, inventory levels, procurement cycles and banking facilities on a continuous basis and seeks to maintain adequate liquidity and disciplined working-capital management.

7. Geopolitical and Supply-Chain Risk

International geopolitical developments, trade restrictions, shipping disruptions and changes in global supply chains may affect raw-material availability, freight costs and export opportunities.

Mitigation: The Company continues to diversify sourcing and customer markets and closely monitors international market developments to respond appropriately to changes in the operating environment.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has established an internal control framework commensurate with the size, scale and nature of its operations. The internal control system is designed to safeguard the Companys assets, ensure proper authorisation and recording of transactions, promote operational efficiency, support reliable financial reporting and facilitate compliance with applicable laws and regulations.

The Company has implemented appropriate controls over key areas including procurement, inventory, production, sales, receivables, payments, banking transactions, statutory compliances and financial reporting.

Internal audit and review mechanisms are undertaken periodically, and significant observations are placed before the appropriate management and Board-level committees for review and necessary corrective action.

The Company continues to strengthen its ERP-based systems and processes with a focus on improving data integrity, transaction-level controls, inventory accounting, management reporting and reconciliation processes.

The management believes that the Companys internal control systems are adequate and commensurate with its present requirements. The effectiveness of these controls is reviewed periodically and strengthened wherever considered necessary.

FINANCIAL PERFORMANCE VIS-A-VIS OPERATIONAL PERFORMANCE

During FY 2025-26, the Company recorded revenue of Rs.29,718.61 lakhs, as compared with Rs.26,553.41 lakhs in FY 2024-25, representing an increase of approximately 11.92%.

The improvement in revenue was supported by higher business volumes and continued demand from the Companys domestic and export markets.

However, the operating environment during the year remained challenging due to fluctuations in raw-material prices, energy and logistics costs and competitive pressures in the paperboard market. Consequently, the improvement in revenue did not translate proportionately into operating margins.

The Company continued to focus on improving its product mix, manufacturing efficiency, capacity utilisation and cost management to partially mitigate these pressures. Management remains focused on improving operational efficiencies and strengthening margins through better procurement, productivity improvement, product mix optimisation and disciplined cost management.

The Companys financial performance should therefore be viewed in the context of the cyclical and cost-sensitive nature of the paperboard industry, where changes in raw-material and energy prices can have a significant impact on profitability even when sales volumes remain healthy.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Human resources continue to be an important component of the Companys ability to achieve operational excellence and sustainable growth. The Company recognises that skilled and experienced employees are essential for maintaining product quality, operational efficiency, safety standards and customer service.

The Company continues to focus on:

• employee training and skill development;

• technical and operational capability enhancement;

• workplace safety and employee well-being;

• strengthening managerial and supervisory capabilities;

• improving productivity and operational discipline; and

• fostering a culture of accountability, teamwork and continuous improvement.

Industrial relations remained cordial and stable during FY 2025-26. The Company continues to maintain constructive engagement with employees and seeks to provide a safe, professional and conducive working environment.

As on 31 March 2026, the Company had 197 employees on its rolls.

The Company believes that continued investment in people, training and organisational capabilities will remain important as it expands its manufacturing capacity, strengthens its systems and pursues opportunities in domestic and international markets.

MANAGEMENTS PERSPECTIVE

The management remains cautiously optimistic about the long-term prospects of the Company and the recycled paperboard industry. While the near-term business environment may continue to be influenced by raw-material and energy-price volatility, import competition, global economic conditions and geopolitical developments, the structural growth drivers for sustainable packaging remain intact.

The Companys strategy will therefore remain focused on sustainable growth rather than volume alone, with emphasis on product quality, customer relationships, capacity utilisation, cost efficiency, working-capital discipline, product diversification and prudent financial management.

The Company believes that its established manufacturing base, recycled-fibre product portfolio, experienced management, domestic and export customer base and installed capacity provide a sound platform to participate in the long-term growth of the sustainable packaging industry.

The management will continue to closely monitor market conditions and Government policies and will take appropriate measures to manage risks, strengthen competitiveness and create sustainable value for all stakeholders.

Key Financial Ratios

Particulars	FY 2025-26	FY 2024-25
Debtors Turnover	3.21%	4.70%
Inventory Turnover	75.78	73.81
Interest Coverage Ratio	1.98	1.86
Current Ratio	1.21	1.31
Debt Equity Ratio	0.19	0.23
Operating Profit Margin (%)	4.39%	3.83%
Net Profit Margin (%)	2.41%	3.76%
Return on Net Worth (%)	6.46%	12.14%

Cautionary Statement

Statements in this Management Discussion and Analysis Report describing the Companys 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. Important factors that could make a difference include raw material availability and prices, economic developments, changes in government policies and regulations, tax laws, and other incidental factors.