TPL Plastech Ltd Management Discussions.

* OVERVIEW OF ECONOMY

> Global Economy

As per the International Monetary Fund (IMF- World Economic Report, April 2021), after an estimated contraction of 3.3% in 2020, the global economy is projected to recover strongly. It is estimated to grow at 6% in 2021 and moderate to 4.4% in 2022. These projections are surrounded by a high degree of uncertainty, with probable upside and downside risks. The deviations in the pace of recovery both within and across countries and the possibility for persistent economic damage due to the crisis are some of the daunting challenges to the outlook. The race between vaccines and the virus will be a major driver, wherein improvement with vaccinations will elevate the forecast. In contrast, new virus variants that elude the vaccines would lead to a downgrade.

Among advanced economies, the United States is expected to surpass its pre-COVID GDP level this year. In contrast, many others in the Group will return to their pre-COVID levels only in 2022. Similarly, among emerging market and developing economies, China had already returned to pre-COVID GDP in 2020, whereas many others are not expected to do so until well into 2023.

> Indian Economy

As per IMF, India is seen as the worst-hit economy in the emerging markets and is estimated to have contracted by 8% in 2020. However, even as inflation concerns loom large and the jury still to be out on the impact of the second wave of infection, India is expected to emerge as one of the fastest-growing economies in Asia only after China in 2021. This could be due to base effects; it is likely to return to pre-covid growth rates by the end of the year. As per IMF, the Indian economy is estimated to grow by 12.5% in 2021 and by 6.5% in 2022.

As per Oxford Economics, Indias less stringent approach towards mobility restrictions targeted lockdown approach, and resilient business and consumer behaviour are expected to diminish the economic impact of the second wave. However, Indias intensifying health burden, uncertain vaccination rate, and lack of effective strategy from the Government to contain the pandemic have posed serious concerns. Moreover, renewed restrictions in certain states to curb the second wave have left millions jobless. Indias unemployment rate surged to a near one-year high of 14.73% as of May 2020, as per the Centre for Monitoring Indian Economy (CMIE), revealing the impact of the economic slowdown that is underway. Some economists have emphasized concerns that a sluggish vaccine rollout may make a bigger dent in the economy.

* FUTURE OUTLOOK, OPPORTUNITIES AND THREATS

> Plastic Industry

The global plastic industry was estimated at US$ 579.7 billion in 2020 and is forecasted to expand at a CAGR of 3.4% between 2021 and 2028. The growth will majorly be driven by the development of the manufacturing sector and rising plastic consumption in the automobile, construction, and electrical & electronic industries.

The growing construction industry in emerging markets, such as China, India, Brazil, and Mexico, has been monumental in driving the demand for plastics. The industrys growth in these domestic construction markets can be attributed to the growing population and the rapid urbanization and industrialization. This has compelled the federal governments to increase their construction spending to meet the rising infrastructure needs and eased FDI norms to increase foreign investments.

Due to the imposition of lockdowns to control the spread of the COVID-19 pandemic, the slowdown in manufacturing activities has negatively impacted the demand for plastic in various end-use industries, such as packaging, automotive, utility, and consumer goods. However, at the same time, the rising cases are also having a positive impact on the demand for plastics that are used in the manufacture of medical devices, such as gloves, ventilators, testing equipment, surgical trays, syringes, and medical bags.

The plastic market was dominated by the Asia Pacific Region and accounted for over 44.0% of the global revenue in 2020. Lately, India and China have experienced a spike in automobile production due to technology transfer to the sector from western markets. Moreover, to improve fuel efficiency and subsequently reduce carbon emissions, several regulations have been introduced to decrease the gross vehicle weight wherein metals, like aluminium and steel, will be substituted with plastic to manufacture automotive components.

During FY2021, India exported plastics worth US$ 9.85 million as against US$ 10 million during the same period last year, reporting a negative growth of 1.40%. India is well-positioned as an important plastic manufacturing marketplace for companies relying on global value chains. Since the covid-19 pandemic first came into light in November 2019, many international investors, majorly from Japan, the U.S. 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. Moreover, the Government has emphasized the need for domestic manufacturing and has opened up new opportunities with its several policy announcements during the lockdown and unlock phases. Furthermore, to enhance the ease of doing business, India has undertaken several business-friendly reforms in recent years.

> Packaging Industry

The global packaging industry was estimated at US$ 926.43 billion in 2019 and is forecasted to grow at a CAGR of 7.50% and reach US$ 1,652.28 billion by 2027. While the expansion of the industry is being driven by factors like increasing demand for FMCG and pharmaceutical packaging and growing e-commerce sales, the non-availability of raw materials is impeding the market growth.

The Indian packaging market is forecasted to grow at a CAGR of 26.70% between 2021 and 2026. This is also one of the fastest- growing industries in the country, wherein more than 49% of the paper manufactured in India is used for packaging purposes, as per CARE Ratings. Moreover, the rising middle class, changing lifestyles, and growing income levels, combined with the growing e-commerce sector, has expanded the market. The packaging consumption in India has surged by 200% in the past decade, increasing from 4.3 kg per person per annum to 8.6 kg.

Rigid Packaging

The global rigid packaging industry is expected to grow at a CAGR of 3.3% between 2020 and 2027 and surpass US$ 843.03 billion by the end of 2027 in terms of revenue. The Asia Pacific region dominated the global rigid packaging market in 2019. It accounted for 38.8% share of global revenue, followed by Europe and North America, respectively.

The rigid packaging market is expected to be driven by increasing demand for industrial bulk packaging across several industries and the emerging use of drums, pails, and kegs in bulk packaging. Furthermore, the increasing popularity of intermediate bulk containers (IBCs) due to their ease of handling and transportation has been boosting market growth.

> Chemical Industry

The chemical industry is one of the fastest-growing sectors globally and was estimated at US $ 4350 billion in 2019. Indias chemical industry ranked 6th largest in the world and 4th largest in Asia and was estimated at US $ 100 billion in 2019. The market size of the Chemicals & Petrochemicals sector in India is around US $ 178 billion and is expected to grow to US $ 300 billion by 2025. Alkali Chemicals accounts for approximately 70% of the total production of Major Chemicals, while specialty chemicals constitute 18% of natural chemicals and petrochemicals market in India. India ranks ninth in exports and sixth in imports of global chemicals and chemical products (excluding pharmaceuticals).

Indias growing per capita consumption coupled with the rising demand for agriculture-related chemicals presents enormous scope for the sectors growth. The Government of India identifies the chemical industry as a key growth driver and has been extending policy support and numerous incentives to boost sectoral growth. Additionally, foreign investors have been eager to invest in the Indian chemical industry to diversify their supply chains and sourcing countries.

The COVID-19 pandemic has hurt the Indian chemical industry to disrupt supply chains and demand for chemicals. On the other hand, in the pre-COVID era, the industry has been a slow-mover compared to other companies in terms of digitalisation. However, with COVID-19 reinforcing the need for operating plant control systems remotely, several chemical companies are now looking for newer ways to drive efficiency with greater adoption of artificial intelligence.

* REVIEW OF OPERATIONS

During the financial year under review i.e fiscal 21 (Standalone), your Company achieved net revenue from operations of Rs. 1,671 million, a de-growth of 20.0% 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. 201 million as against Rs. 239 million in the previous year. The Company has earned a net profit after tax of Rs. 81 million.

* CAPITAL EXPENDITURE

During fiscal 21, the Company incurred capital expenditure of Rs. 38 million towards automation & debottlenecking at existing plants.

* KEY RISKS

> Raw material availability

We have not 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 OVERVIEW

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.