TPI India Ltd Management Discussions

Annexure-II

In 2023, the global economy experienced a growth rate of 3.4%, a significant slowdown from the sharp 6.2% rebound seen in the previous year following the COVID-19 pandemic. This growth, though modest, aligned with the pre-pandemic average, despite the challenges posed by the Russia-Ukraine conflict and aggressive interest rate hikes by central banks worldwide.

Regional Economic Trends

Europe and the United States faced a recessionary atmosphere, marked by subdued consumer demand and rising commodity prices. The fragility of the US financial system was highlighted by a banking crisis, which sent ripples across global markets, raising concerns about potential broader economic repercussions.

India, on the other hand, grappled with significant headwinds due to the Russia-Ukraine conflict, elevated crude oil prices, supply chain disruptions, and tightening financial conditions. Nevertheless, government investments in capital expenditures helped offset a slowdown in private consumption, enabling India to surpass the UK as the worlds fifth-largest economy.

Global Trade Dynamics

Global trade saw substantial shifts in 2023 as countries increasingly leaned towards regional trade agreements and supply chain diversification in response to geopolitical tensions and the lingering effects of the pandemic. The rise of protectionist policies, especially between major economies like the US and China, altered global trade flows, impacting emerging markets and smaller economies. These changes reflect a broader trend towards deglobalization, where countries prioritize economic self-sufficiency and resilience over global integration.

Technological Advancements and the Digital Economy

The digital economy continued its rapid expansion in 2023, driven by advancements in technology such as artificial intelligence (AI), blockchain, and the growing adoption of digital currencies. These developments have transformed industries, from finance to manufacturing, while also posing new challenges for regulation and cybersecurity. However, the global push towards digitalization has been uneven, with advanced economies leading the way, while many developing countries lag behind due to infrastructure and accessibility issues. This digital divide has significant implications for global inequality and economic growth.

Environmental Concerns and the Green Energy Transition

Environmental sustainability emerged as a major influence on the global economy in 2023. Significant investments were made in renewable energy sources as countries worked towards meeting their climate goals. However, the transition to a green economy has been met with challenges, including energy supply shortages in regions heavily reliant on fossil fuels. The shift towards renewable energy also created new economic opportunities, particularly in sectors like electric vehicles, sustainable agriculture, and green finance. Nevertheless, the global energy transition is a complex and uneven process, with varying progress across different regions.

Demographic Changes and Their Economic Impact

Demographic shifts are reshaping the global economic landscape. Many advanced economies are grappling with aging populations, leading to increased pressure on public finances, healthcare systems, and social security. In contrast, parts of Africa and Asia are experiencing rapid population growth, which presents challenges related to education, employment, and infrastructure development. These demographic changes have significant implications for global labor markets, economic growth, and the future of work.

Global Inflation and Monetary Policy

Global inflation is projected to decrease from 6.8% in 2023 to 5.8% in 2024, with a further decline to 4.4% in 2025. Advanced economies are likely to see inflation fall more rapidly, from 4.6% in 2023 to 2.6% in 2024. In contrast, inflation in emerging markets and developing economies is expected to decrease only slightly, from 8.4% in 2023 to 8.1% in 2024. This declining inflation has led to a sudden shift in the anticipated monetary policies of global central banks, with major institutions expected to implement rate cuts sooner and more quickly. However, the global economic environment remains highly uncertain, with inflationary pressures potentially resurfacing due to supply chain disruptions or geopolitical tensions.

Fluctuating Crude Oil Prices

Crude oil prices fluctuated throughout 2023, averaging $83 per barrel, down from $100 per barrel in 2022. While OPEC+ reduced production in November 2023, increased output from Iran and the US largely offset these cuts. Chinas ongoing economic slowdown and gradual transition to alternative energy sources are expected to keep crude oil prices between

$75 and $81 per barrel in 2024. This reflects a broader trend towards the diversification of energy sources and a gradual decline in global reliance on fossil fuels.

Rising Global Debt Levels

Global debt levels reached unprecedented heights in 2023, as governments and corporations continued to borrow heavily in response to the economic fallout from the pandemic and the need for stimulus measures. High debt levels are raising concerns about potential defaults and financial instability, particularly in emerging markets that are more vulnerable to external shocks. The rising debt burden also limits the ability of countries to respond to future economic crises, posing long- term risks to global economic stability.

Role of International Institutions

In 2023, international institutions like the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) played a critical role in addressing global economic challenges. These institutions provided financial assistance, policy advice, and facilitated trade negotiations. However, they also faced criticism for being slow to adapt to the changing global landscape and for not adequately addressing the needs of developing countries. The ongoing debate over the reform of these institutions reflects the growing calls for a more inclusive and equitable global economic order.

The global economy in 2023 was shaped by a complex interplay of factors, including geopolitical tensions, technological advancements, demographic shifts, and environmental concerns. While growth has moderated, the global economic landscape is evolving rapidly, with new challenges and opportunities emerging. The responses of governments, central banks, and international institutions will be crucial in navigating these changes and ensuring a stable and sustainable global economic future

Indian Economic Condition:

Indias economy demonstrated resilience in FY 2023-24, achieving a growth rate of around 6.5% to 7%. This strong performance was underpinned by robust domestic demand and significant progress in the manufacturing and services sectors. The governments focus on infrastructure development, along with increased foreign direct investment (FDI), played a crucial role in sustaining this growth momentum.

Inflation, which stood at 5.4% in FY 2023-24, is projected to ease to 4.5% in FY 2024-25. To steer inflation towards the targeted 4%, the Reserve Bank of India maintained the repo rate at 6.5% across six consecutive meetings in FY 2023-24. This approach reflects a delicate balance between controlling inflation and supporting economic growth.

The governments capital expenditure for FY 2023-24 was set at 3% of GDP, amounting to 10 lakh crore. This investment highlighted the governments commitment to driving long-term economic growth through infrastructure projects and other key initiatives. Looking forward, the government has announced an even more ambitious capital expenditure plan of 11.11 lakh crore for FY 2024-25, representing 3.4% of GDP. This increase underscores a continued focus on sectors such as infrastructure, technology, and renewable energy, which are critical for sustaining growth in the coming years.

Indias economic structure, with its reliance on domestic consumption rather than international trade flows, provided a buffer against global economic volatility in FY 2023-24. The countrys current account remained stable, and foreign exchange reserves were more than adequate, ensuring economic stability. Additionally, the geopolitical landscape favored India as a potential global supply chain hub, with initiatives like the Production Linked Incentive (PLI) scheme further enhancing its manufacturing capabilities.

Digitization reforms and the creation of financial platforms were significant achievements in FY 2023-24, promoting financial inclusion across the country. As India continues to embrace the digital economy, sectors such as fintech, e-commerce, and digital payments are expected to drive growth in FY 2024-25 and beyond.

A diverse economy, supportive government policies, and ongoing reforms contributed to Indias attractiveness as an investment destination in FY 2023-24. Increased urbanization, higher disposable incomes, and a stable government further supported this positive outlook. Looking ahead to FY 2024-25, initiatives like Skill India and the National Education Policy (NEP) are expected to upskill the workforce, creating a more dynamic and competitive labor market.

While the outlook for FY 2024-25 is optimistic, potential challenges such as global economic uncertainties and climate change risks remain. The governments continued focus on sustainable development and innovation will be essential in addressing these challenges and ensuring that India meets its growth targets while achieving inclusive and equitable progress.

Financial Performance:

Your company achieved a 12% revenue growth compared to the previous year, reaching a turnover of 23.68 crores. However, due to underutilization of capacity, the company has not yet turned profitable this year.

Despite this, we have consistently added new customers and strengthened our market share, which has driven the sales growth mentioned above. Looking ahead, our focus on stringent cost control measures, enhancing our product mix, and reducing process wastage will be key to achieving healthy margins in the coming quarters.

The packaging industry continues to experience growth, fueled by factors such as population increase, GDP growth, higher consumption levels, and expansion in the e-commerce and export sectors. Your company is well-positioned to capitalize on these opportunities, with a strong emphasis on sustainable packaging solutions and a diversified product portfolio. Our technological advancements, extensive geographical reach, and strong governance practices provide a solid foundation for sustained future growth.

Strength and Opportunity:

The macroeconomic conditions in India are expected to continue improving, supported by the stability of the current government. In light of this, your company is considering optimizing its unutilized capacity, which, combined with an improving market scenario, is expected to translate into strong growth prospects in the coming years.

Your company is recognized as a leader and pioneer in the FIBC (Flexible Intermediate Bulk Container) segment, and the management is confident in its ability to leverage existing relationships with leading customers while also entering new customer segments. This strategy is expected to sustain high growth rates in the future. Additionally, the growing anti-China sentiment in the western world presents a significant opportunity to capitalize on this trend and expand market share in export markets. Significant efforts are being made to tap new clients globally, which represents a market with tremendous potential for growth.

India has maintained its position as one of the fastest-growing economies in the world over the past few years, leading to increased consumption of packaging products. Given the environmental impact of packaging materials and the ongoing plastic waste crisis, consumers worldwide are demanding eco-friendly and recyclable packaging solutions. Manufacturers are now focused on innovating and producing more sustainable packaging products. Companies capable of meeting this demand will be well-positioned to succeed in this evolving market.

Threat and Weakness:

Globally, the prices for key raw materials in the paper and plastics industries remain highly volatile. Fluctuations in the costs of essential chemicals, polymers, and pulp, along with rising shipping and transport charges, pose significant challenges. Although the company is working to mitigate these impacts through productivity improvements and by passing some costs on to customers, there remains a risk of lag in cost passthrough that could adversely affect profit margins.

In addition, the sustainability concerns associated with the plastic and paper industries are increasingly under scrutiny. As regulatory pressures and consumer demand for eco-friendly solutions intensify, the company faces the challenge of balancing environmental responsibility with cost management. The need to invest in sustainable practices, such as reducing plastic waste, enhancing recycling processes, and adopting eco-friendly materials, may involve significant costs and operational adjustments. Failure to address these sustainability issues could impact the companys reputation and market position.

Another risk involves the growth of the underlying end-user industries. Recent quarterly results from major domestic brand owners indicate that the expected volume growth in India has not materialized. Despite having a strong position in the domestic market, the current growth rate of 3-5% falls short of the pre-COVID levels of 8-12%. A return to these higher growth rates would be beneficial for your company, and we remain hopeful that volume growth will recover to support future profitability.

Internal Control System:

The company maintains a robust internal control system that is regularly evaluated, tested, and updated by both Management and Internal Auditors. This systematic approach ensures that controls are effective and aligned with best practices. Internal Audit reports are reviewed quarterly by the Top Management and the Audit Committee, ensuring that any issues are promptly addressed and that the internal control framework remains strong and responsive to evolving risks

Material Development in Human / Industrial Relation:

TPI views Human Resources as a critical asset essential to the companys growth. The company is committed to people development, focusing on enhancing skill sets and motivating the workforce to contribute effectively toward organizational goals. To achieve this, TPI prioritizes comprehensive training programs designed to empower employees and foster continuous professional development.

A transparent and active communication framework is in place to facil?tate teamwork and promote a culture of trust and confidence within the organization. This open dialogue supports collaborative efforts and ensures that all team members are aligned with the companys objectives.

As of March 31, 2024, TPI employs a dedicated team of 150 individuals, reflecting the companys commitment to building a strong and capable workforce.

Risk and Concern:

Risk management is integral to our business operations, and the management team is proactive in addressing and mitigating potential risks. Given the nature of our industry, the company is exposed to various risks, including economic, political, legal, environmental, operational, and currency fluctuations, among others.

To address these challenges, your company has implemented a comprehensive risk management framework that operates at multiple levels across the enterprise. This framework is supported by a robust organizational structure designed to manage and report on risks effectively.

Future Outlook:

Given the positive trends in the packaging industry and the strategic initiatives undertaken by the company, the directors confidence in the companys future performance is well-placed. However, it is important to recognize that market conditions can fluctuate, and the company must remain agile, continuously adapting and innovating to sustain its competitive advantage.

With its strong market position, commitment to sustainability, expanded production capacity, strategic acquisitions, technological advancements, and efficient cost management, the company is well-positioned for continued success and sustained growth.

As we look ahead, we are filled with enthusiasm and optimism for TPIs future. Our unwavering dedication to quality, innovation, and customer satisfaction has established us as a preferred market leader. Moving forward, we will build on this solid foundation to maintain our leadership position and consistently deliver exceptional products and services.

At TPI, the future outlook is both bright and promising. With a clear vision, a focused strategy, and a dedicated team, we are well-prepared to navigate potential challenges and seize emerging opportunities.