TPL Plastech Ltd Management Discussions.

* OVERVIEW OF ECONOMY

> Global Economy

According to the International Monetary Fund (IMF), global Gross Domestic Product (GDP) registered 2.9% growth in calendar year (CY) 2019, significantly lower than 3.6% in CY 2018 and one of the lowest since the global financial crisis in 2009 (Source: IMF - World Economic Outlook Update, January 2020). Trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity-especially manufacturing and trade-in the second half of 2019. Intensifying social unrest in several countries posed new challenges, as did weather- related disasters-from hurricanes in the Caribbean, to drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa.

With the outbreak of coronavirus in the beginning of CY 2020, a global pandemic, IMF in its report (World Economic Outlook, April 2020), projected the global economy to contract by 3.0% in CY 2020. In its latest update (June 2020), IMF further revised its forecast downwards and estimates the global economy to contract by 4.9% as the COVID-19 pandemic has had a more negative impact on activities in the first half of 2020 than anticipated. Advanced economies are projected to contract by 8.0% while that of emerging market and developing economies by 2.5%.

The COVID-19 pandemic is inflicting high and rising human costs worldwide. Protecting lives and allowing health care systems to cope have required isolation, lockdowns, and widespread closures to slow the spread of the virus. The crisis has severely impacted economic activity and as such central banks across the world have provided large fiscal stimulus packages to avert sharp decline in economic growth.

> Indian Economy

The Indian economy is estimated to have grown by 4.9% in CY 2019 against 6.1% in CY2018. Stress in the non-banking financial sector and decline in credit growth severely impacted domestic demand leading to overall slowdown in economic activity. The government announced several measures such as lowering of corporate tax rate, focus on manufacturing, support for affordable housing and provided fiscal and monetary push to arrest the slowdown and revive demand and boost growth.

Following covid-19 outbreak, IMF projected the Indian economy to contract by 4.5% in CY 2020, owing to extended period of lockdown which has severely impacted trade and manufacturing activity. A necessitated stringent lockdown resulted in an even larger disruption to economic activity. Mass unemployment in the lower income segment, staff downsizing across sectors, restriction on free movement of goods and people, and disrupted supply chains nearly wiped out the demand for non-essential goods and services. More than two-thirds of governments across the world have scaled up their fiscal support since April 2020 to mitigate the economic fallout from the pandemic and the stringent lockdowns. India has unveiled liquidity support (4.5% of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector. This included direct cash transfer benefits Indian farmer families, free food and gas distribution, six-month moratoriums on loans through banks, and extended payment due dates.

* FUTURE OUTLOOK, OPPORTUNITIES AND THREATS

> Plastic Industry

The global plastic market size is estimated to be valued at US dollar (USD) 579.7 billion in 2020 and is projected to grow at a compounded annual growth rate (CAGR) of 3.2% from 2020 to 2027. Indias plastics industry is one of the largest in the world with an estimated market size of USD 25 billion and comprises of more than 30,000 plastic processing companies, 8590% of which are small and medium-sized enterprises. It employs about 4 million people and has over 2,000 export houses.

Indias share in the USD 1 trillion global plastic exports market is about 1%, while China has a market share of 10%. Indias plastic exports declined by 9% to USD 10 billion in fiscal 2020 as compared to USD 11.0 billion in the previous year. Since covid-19 pandemic first came into light in November 2019, many global investors majorly from Japan, US and Europe have announced their exit from China and are looking favourably towards India as their sourcing hub, amidst rising hesitation in doing business with China. This has opened up huge growth possibilities in the near future for Indian plastic manufacturers.

In addition, per capita consumption of plastics in India is low at 9.7 kg as compared to world average of 27 kg, 45 kg in China and 32 kg in Brazil. Low private consumption, growth of end-user industries, substitution of traditional materials such as glass, metal etc. and low penetration levels especially in agriculture compared to global averages provides huge potential for plastic manufacturers.

The Indian plastic industry has evolved over the years and stood out in terms of capacity, infrastructure and skilled work force and is supported by a large number of polymer producers, mould manufacturers and plastic processing machinery. In order to capitalise on this and take advantage of the opportunity available, Indian government is weighing all possible options to attract foreign investments into the country. To increase domestic production, the government of India is planning to invest around Rs.4,000 million to setup 18 plastic parks. The government has already approved setting up of 6 plastic parks in different parts of the country of which 1 is already functional. In addition 4 new parks have also been given inprinciple approval.

> Packaging Industry

The global packaging market is projected to grow to USD 1012.6 billion by 2021.It was estimated to be valued at USD 909.2 billion in 2019. With increased use of healthcare products worldwide amidst this pandemic, the demand for packaging is set to increase.

The Indian packaging industry is estimated to be valued at USD 72.6 billion in fiscal 2020. It is the fastest growing sector and is currently the fifth largest in India. The market size of the countrys packaging industry is expected to reach USD 204.81 billion by 2025, registering a CAGR of 26.7% during the period of 2020-2025.

Rising population, increasing income levels, changing lifestyles, and increased media penetration through the internet and television are some of the factors facilitating growth. Furthermore, rise of the Indian middle class, rapid expansion of organized retail, growth of exports, and Indias rising e-commerce sector is further facilitating growth. In addition, huge investments in the food processing, personal care, and pharmaceuticals end-user industries are also creating scope for expansion of the packaging market. According to the Indian Institute of Packaging, the packaging consumption in India has increased by 200% in the past decade, rising from 4.3 kg per person per annum to 8.6 kg per person per annum.

Rigid Packaging

The Global rigid plastic packaging market was valued at USD 248.4 billion in 2019 and is expected to grow to USD 372.42 billion by 2027, growing at a CAGR of 5.6%.

Demand for rigid plastic packaging is closely linked to the trend in GDP and the level of industrial activity. As such slowdown in economic activity related to COVID-19 has led to reduction in packaging demand. However, this is expected to be offset by several segments such as packaging for the food and pharmaceutical industries which continue to see robust demand. In addition, industrial customers stockpiling purchases of intermediate bulk containers and drums, may also causes a temporary spike in demand.

> Chemical Industry

With an estimated size of USD 178 billion, Indian chemical and petrochemical industry is the 3rd largest in Asia and the 6th largest in the world. It contributes 3.4% to the global chemical industry, 1.34% to Indias Gross value added and employs more than 2 million people. The industry is vastly diversified and provides building blocks to over 80,000 registered products which can be categorized as Bulk chemicals, Specialty chemicals, Agrochemicals, Petrochemicals, Polymers and Fertilizers.

The Indian chemicals industry is projected to reach USD 304 billion by 2025. Demand of chemical products is expected to grow at approximately 9% p.a. over the next 5 years. India is a strong global dye supplier, accounting for approximately 16% of the world production of dyestuff and dye intermediates. India ranks 14th in export and 8th in import of chemicals (excluding Pharmaceuticals products) globally. Export of chemicals contributes 12.5% to the countrys total export, which helps increase the trade surplus of the country.

Important economic sectors like agriculture, infrastructure, textile, consumer and others gets impacted from the petrochemical industry as it is a very vital component of the value chain. Although covid-19 has impacted the demand-supply ecosystem, it has also opened excellent opportunity for the Indian speciality chemical industry to assert its dominance at the global level. This is driven by various factors such as growing domestic demand and low crude prices. However, the key growth accelerator would be our readiness in responding to the strong demand from key global markets who wants to de-risk their supply chain by diversifying their base beyond China.

> Infrastructure - Pipes Segment

The industry is dominated by PVC (polyvinyl chloride) pipes for agriculture and plumbing and CPVC (chlorinated polyvinyl chlorine) pipes for plumbing, followed by high-density polyethylene (HDPE) pipes for micro irrigation and industrial purposes. The global PVC market was valued at USD 60.8 billion in 2019 and is projected to reach USD 80.8 billion by 2027, growing at a CAGR of 3.6% from 2020 to 2027. HDPE pipes market globally was valued at USD 11.2 billion in 2019 and is projected to grow at a CAGR of 3.7% to reach USD 14 billion by the end of 2024.

Plastic pipes are rapidly replacing the conventional GI (galvanised iron)/DI (ductile iron) pipes in many applications primarily due to their long-life, low-cost and faster installation properties. Within plastic pipes, HDPE pipes are gaining more popularity due to its durability and remarkable corrosion resistance. Non corrosive nature of HDPE pipes makes them appropriate for numerous applications including flood irrigation, drip irrigation, portable water supply & distribution, sewage & industrial effluent disposal, air-conditioning & refrigeration ducting, electrical installations, and drainage pipes. Owing to the increasing application in various end use industries, rapid urbanization, growth in sewage disposal infrastructure etc., the market for HDPE pipe is expected to witness substantial growth.

Additionally, the Indian pipe sector is structurally set to benefit from the governments rising thrust on irrigation programs and housing & infra expenditure through various schemes like Swachh Bharat Mission, Sanitation and affordable houses to all, Smart City Mission, Nal Se Jal- the last mile connectivity for drinking water etc. Real Estate Regulation Act has created a major transformation and strengthened the real estate sector in the country. Although Q4 of fiscal 2020 was not good for pipe industry as state governments were not being able to provide funds for the project under implementation due to covid- 19 situation, demand is expected to pick up over the medium to long term.

* REVIEW OF OPERATIONS

During the financial year under review i.e. fiscal 2020 (Standalone), your Company achieved net revenue from operations of Rs.2,093 million, a de-growth of 4.4% on a yearly basis. This fall in revenues was primarily on account of lockdown due to covid- 19.

The Company registered an operating profit of Rs.239 million as against Rs.254 million in the previous year. The Company has earned a net profit after tax of Rs.106 million in fiscal 2020.

* CAPITAL EXPENDITURE

During fiscal 2020, the Company incurred capital expenditure of Rs.29 million towards automation & debottlenecking at existing plants as may be require.

* KEY RISK

> Raw material availability

We have not recently experienced any significant difficulty in obtaining our principal raw materials. The principal raw material for all our business segments is PE granules which are derivative products of oil and natural gas. We import majority of our raw materials from nearby countries and balance are purchased from local manufacturers. We satisfy most of our needs through purchases on the open market or under short-term and long-term supply agreements. The world order for recycling plastics is rearranging and we anticipate more demand will be needed to be met by virgin polyethylene. Countries such as China, India, Vietnam, Indonesia, the United States and Europe recycled investments have increased and it will likely result in an overall no demand change in the longer term.

> Commodity price risk

The Company is exposed to fluctuations in polymer prices which are determined by the supply and demand in the Indian and international markets. Since polymers are crude derivatives, the prices also tend to follow crude prices which are volatile and this volatility has an effect on Companys income and net profit.

* HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Learning is part of the Company culture. Each employee, at all levels, is conscious of the need to upgrade continuously her/ his knowledge and skills. The willingness to learn is therefore a non-negotiable condition to be employed by the Company. The objective is to retain and motivate employees by offering attractive but realistic career moves allowing them to develop their skills over a long-term period within the framework of economic reality and a changing environment.

Industrial relations are a clear responsibility of local management and will be handled at the appropriate level: first at site level (factories, warehouse) subsequently at regional or national level, according to local law and practices.

* INTERNAL CONTROLS AND THEIR ADEQUACY

The company has internal control systems commensurate with the size and nature of the business and has experienced personnel positioned adequately in the organization to ensure internal control processes and compliances.

Internal control is an important component of the companys operations and addresses all those operating methods and procedures whose objective it is to ensure:

- the reliability and integrity of the companys financial and management information,

- effective and profitable operations that are in line with the companys strategy,

- that the companys assets are protected,

- that applicable legislation, guidelines, regulations, agreements and the companys own governance and operating guidelines are complied with.

Internal Auditors comprising of professional firms of Chartered Accountants have been entrusted the job to conduct regular internal audit at all units/location and report to the management the observation, if any. The Audit findings are reported on quarterly basis to the Audit Committee of the Board headed by a Non-executive Independent Director.

CAUTIONARY STATEMENTS

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectation may be "forward-looking" within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied.