Vadivarhe Speciality Chemicals Ltd Management Discussions

Industry Structure and Development

Your Company is engaged in the manufacture and supply of Organic Chemicals, Chemical Intermediates, Active Pharmaceutical Ingredients (APIs), Personal Care Products and Specialty Chemicals. Over the years, the Company has developed significant capabilities in the manufacturing of chemical intermediates and specialty products and has established itself as a reliable supplier to customers across diverse industries.

The chemical and pharmaceutical industries continue to play a significant role in the growth of the Indian manufacturing sector. India is increasingly emerging as a preferred global sourcing and manufacturing destination, supported by its established manufacturing infrastructure, availability of technical expertise, cost competitiveness, improving quality systems and growing emphasis on regulatory compliance.

The specialty chemicals and pharmaceutical intermediate segments are characterised by evolving customer requirements, stringent quality standards, regulatory expectations and continuous technological developments. Customers increasingly seek reliable and long-term supply partners capable of maintaining consistent product quality, ensuring timely deliveries and complying with applicable quality and regulatory requirements.

The Companys products have applications across a wide range of industries, including pharmaceuticals, agrochemicals, personal care and other specialty chemical applications. This diversification provides the Company with opportunities to cater to multiple industry segments and reduce dependence on any single product application or end-use sector.

With its manufacturing experience, technical capabilities and focus on quality, the Company continues to explore opportunities for strengthening its product portfolio, improving operational efficiencies and expanding its presence in existing as well as potential new markets.

Opportunities & Threats

Having been engaged in the chemical & API manufacturing industry for the past 14 years, the Company has developed operational experience and expertise in manufacturing and supplying chemical intermediates and specialty chemical products. The Company continues to focus on leveraging its manufacturing capabilities, technical knowledge, established processes and quality standards to strengthen its competitive position.

The Companys product portfolio caters to diverse industries, including pharmaceuticals, agrochemicals and personal care. The broad range of applications for its products provides opportunities to serve customers operating across different sectors and geographies.

Indias growing position as an alternative and complementary global manufacturing and sourcing destination presents significant opportunities for domestic chemical manufacturers. Global customers are increasingly focusing on supply-chain diversification and are evaluating Indian manufacturers based on factors such as product quality, regulatory and technical documentation, reliability of supply, manufacturing capabilities and long-term business continuity. This trend may create opportunities for the Company to strengthen existing customer relationships and explore new business opportunities in domestic and international markets.

The Company has developed a diversified customer base and continues to serve customers across different markets. Its focus remains on maintaining product quality, consistency, reliability and customer satisfaction while exploring opportunities to expand its market reach and product offerings.

The Company is WHO-GMP certified, which supports its quality-focused manufacturing approach and enhances its ability to cater to customers requiring adherence to established quality and manufacturing standards.

At the same time, the industry is exposed to various risks and challenges. These include fluctuations in raw material prices, volatility in energy and other operating costs, changes in regulatory requirements, increasing competition from domestic and international manufacturers, foreign exchange fluctuations, supply-chain disruptions and changes in customer demand.

Competition from manufacturers in other countries, including China and other emerging manufacturing jurisdictions, may also affect pricing and market dynamics. In addition, increasingly stringent environmental, health, safety and quality requirements may require continuous investments in manufacturing processes, compliance systems and technology.

The Company seeks to address these challenges through prudent operational management, focus on quality and compliance, customer relationship management, optimisation of manufacturing processes, cost-control measures and continuous evaluation of market opportunities. The management remains focused on improving operational efficiency, strengthening the Companys market position and pursuing sustainable growth while maintaining appropriate risk management and governance practices.

Segment/ Product Wise Performance

Your Company is engaged in the manufacturing of Organic Chemicals, Chemical Intermediates, Active Pharmaceutical Ingredients (APIs), Personal Care Products and Specialty Chemicals. Considering the nature of the products, manufacturing processes, customer base and the manner in which the management monitors and evaluates the business operations, the Companys activities are considered to constitute a single operating segment.

The Company continues to focus on strengthening its business operations and improving its financial performance through the development of new products, expansion of its product portfolio, enhancement of manufacturing capabilities and exploration of new business opportunities. Continuous efforts are being made to improve operational efficiencies, optimise production processes, strengthen customer relationships and identify products and markets offering sustainable growth potential.

During the financial year under review, the Company recorded a significant improvement in its revenue from operations. The total revenue from operations for the year ended March 31, 2026 increased to Rs.4,640.62 Lakhs, as compared to Rs.3,817.45 Lakhs during the previous financial year, reflecting a growth of approximately 21.56%.

The increase in revenue reflects the Companys continued efforts towards business development, expansion of its product offerings and strengthening of its presence in the market. The management remains focused on further increasing turnover and improving profitability through the introduction and development of new products, better capacity utilisation, operational efficiencies, cost optimisation and strengthening of its customer and market base.

Going forward, the Company intends to continue its focus on sustainable growth by leveraging its manufacturing experience, technical capabilities and quality-focused approach. The Company will continue to evaluate opportunities for product development and expansion into new and existing markets, while maintaining focus on prudent financial management, operational efficiency and long-term value creation for all stakeholders.

Market and Outlook

Your Company continues to maintain a healthy order book position, reflecting the continued demand for its products and the confidence reposed by its customers in the Companys manufacturing capabilities, product quality and reliability of supply. The flow of orders during the year has been encouraging, and the management remains focused on efficiently executing the existing orders while pursuing new business opportunities across its product segments and markets.

The Company places significant emphasis on Research and Development (R&D) and continuous product innovation as an important driver of its future growth. The Companys R&D programmes are focused on the development of new products, improvement of existing products and processes, and identification of opportunities in high-value and specialty product categories. During the year, the Company successfully developed and added a range of new products to its product portfolio. These products have started contributing to the Companys business and are expected to provide further growth opportunities in the coming years, subject to market conditions and successful commercialisation.

The management believes that continuous product development and diversification of the product portfolio will enable the Company to strengthen its customer base, improve market penetration and reduce dependence on a limited range of products. The contribution from newly developed products, along with the Companys ongoing business development initiatives, is expected to support the Companys efforts towards sustainable growth in revenue and overall business performance.

The Company has continued its focus on improving the product mix, enhancing operational efficiency and maintaining stringent control over costs. Continuous efforts are being made to optimise manufacturing processes, improve productivity, increase capacity utilisation and ensure efficient utilisation of resources. A favourable product mix, coupled with improved operating efficiencies and cost optimisation initiatives, is expected to support the Companys efforts towards improving production levels and operating performance.

Cost management continues to remain an important area of focus for the Company. The management continuously evaluates costs across various levels of operations and undertakes appropriate measures to improve efficiency and optimise the consumption of raw materials, energy and other operational resources. The Company also seeks to improve its margins through a combination of operational efficiencies, better product realisation and, wherever commercially feasible, appropriate revision in product prices.

The Companys production facilities and manufacturing operations are continuously reviewed and realigned in accordance with market requirements and the demand for its products. This enables the Company to respond more effectively to changing customer requirements and optimise the utilisation of its manufacturing infrastructure.

The management remains optimistic about the Companys future prospects and continues to focus on strengthening its order book, expanding its product portfolio, improving operational efficiency and enhancing profitability. Adequate availability of working capital will remain important to support the Companys growth plans, increased production levels and expansion of business operations.

Subject to market conditions, availability of raw materials and working capital, and other unforeseen circumstances, the Company expects to continue its efforts towards improving its turnover, operational performance and overall financial results in the coming years.

Risks and Concerns

The Companys operations are exposed to various business and economic risks, including fluctuations in foreign exchange rates, volatility in raw material prices, changes in market conditions, supply-chain disruptions and other factors that may affect the cost of production and overall profitability.

One of the key risks faced by the Company arises from volatility in the exchange rate of the Indian Rupee against the US Dollar and other foreign currencies. As approximately 20% of the Companys raw material requirements are met through imports, any significant depreciation of the Indian Rupee may result in an increase in the landed cost of imported raw materials and consequently impact the Companys operating margins.

The Company, however, also has export operations, which provide a natural hedge against a portion of its foreign currency exposure. Revenue generated from exports in foreign currencies helps partially offset the impact of adverse exchange rate movements on the cost of imported raw materials. The Company continuously monitors its foreign currency exposure and seeks to manage the associated risks through appropriate operational and commercial measures.

Apart from foreign exchange risk, the Company is also exposed to fluctuations in the prices and availability of key raw materials, energy costs, changes in customer demand and competitive pressures. The chemical industry is inherently subject to changes in global and domestic economic conditions, regulatory developments and supply-chain dynamics, which may have an impact on the Companys business and financial performance.

The management continuously monitors these risks and undertakes appropriate measures to mitigate their potential impact. Such measures include prudent procurement practices, efficient inventory management, diversification of suppliers and customers, improvement in operational efficiency, optimisation of raw material consumption and continuous evaluation of product pricing and product mix.

While the Company cannot eliminate all business risks, it remains focused on strengthening its risk management practices and maintaining adequate operational and financial flexibility to address potential challenges. The management believes that its diversified product portfolio, customer base, export presence and continued focus on operational efficiency will assist the Company in managing these risks and pursuing sustainable growth.

Internal Control Systems and their Adequacy

The Company has established an adequate internal control framework commensurate with the size, scale, nature and complexity of its business operations. The internal control systems are designed to provide reasonable assurance regarding the safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, reliability of financial reporting, compliance with applicable laws and regulations, and orderly and efficient conduct of business operations.

The Company has formulated, documented and implemented policies and procedures relating to Internal Financial Controls (IFC). These controls are designed to ensure the proper authorisation, recording and reporting of transactions, protection of the Companys assets and timely identification and management of operational and financial risks. The internal control framework is reviewed periodically and modified or strengthened, wherever necessary, in line with changes in the business environment, operational requirements and applicable regulatory requirements.

The Internal Audit function of the Company is carried out by an independent firm of Chartered Accountants. The Internal Auditors conduct audits in accordance with an approved internal audit programme covering key operational, financial and compliance areas of the Company. The scope of internal audit is periodically reviewed to ensure that significant business processes, financial controls and areas of potential risk are adequately covered.

The findings and observations arising from the internal audit process are reviewed by the Management, and appropriate corrective and preventive actions are undertaken wherever required. The implementation and effectiveness of such actions are monitored on an ongoing basis.

The Internal Audit function is further supplemented by periodic reviews by the Management and oversight by the Audit Committee of the Board. The Audit Committee periodically reviews the adequacy and effectiveness of the Companys internal control systems, internal audit findings, significant observations and the status of corrective actions taken by the management.

The Board and the Audit Committee are of the view that the Companys existing internal control systems and internal financial controls are adequate and are operating effectively, considering the size, nature and complexity of the Companys business and operations.

Discussion on Financial Performance with respect to operational performance:

During the financial year 2025-26, the Company demonstrated a significant improvement in its operational and financial performance. Revenue from operations increased to Rs.4,578.03 Lakhs during FY 2025-26 from Rs.3,790.53 Lakhs in FY 2024-25. Further, the Companys Total Income, including other income, increased to Rs.4,640.63 Lakhs as compared to Rs.3,817.45 Lakhs in the previous financial year. This reflects improved business activity and an increase in the overall scale of operations during the year.

Despite the increase in revenue, the Company continued to report a loss during the year under review. However, there was a substantial improvement in the financial performance, with the Loss After Tax reducing to Rs.163.77 Lakhs in FY 2025-26, as compared to a loss of Rs.926.53 Lakhs in FY 2024-25, representing a reduction in losses of approximately 82.32%. The basic and diluted loss per equity share also improved significantly to Rs.1.28 per share, as against Rs.7.25 per share in the previous financial year.

The improvement in the Companys financial performance was primarily supported by higher operating revenues, improved operational activity and the continued focus of the management on product development, better product mix, optimisation of manufacturing processes, improved capacity utilisation and stringent cost-control measures. During the year, the Company continued its efforts to optimise the consumption of raw materials, improve product yields and enhance productivity across its manufacturing operations.

The financial statements also reflect a significant change in the cost structure of the Company. During FY 2025-26, the Company did not incur expenditure towards purchase of stock-in-trade, compared to Rs.1,024.37 Lakhs in the previous financial year. At the same time, the cost of materials consumed increased in line with the higher level of manufacturing activity and revenue. Employee benefit expenses reduced to Rs.533.47 Lakhs from Rs.571.84 Lakhs in the previous year, while the Company continued to maintain a focus on controlling its operating and administrative costs.

The Company also witnessed a substantial improvement in its operating cash generation. Net cash generated from operating activities during FY 2025-26 was Rs.636.21 Lakhs, compared with a net cash outflow from operating activities of Rs.715.27 Lakhs during FY 2024-25. The improvement was supported by positive working capital movements, including reductions in inventories and trade receivables during the year.

As at March 31, 2026, inventories stood at Rs.793.93 Lakhs, compared to Rs.971.87 Lakhs in the previous year, while trade receivables stood at Rs.811.24 Lakhs, as against Rs.826.37 Lakhs as at March 31,2025. The reduction in these working capital balances, coupled with improved operating performance, contributed positively to the Companys cash flows during the year.

The Company continued to invest selectively in its manufacturing and operational infrastructure. During FY 2025-26, additions to Property, Plant and Equipment and other capital assets were made to support business operations and future growth requirements. The Company remains focused on improving manufacturing efficiency, product quality and operational capabilities.

Although the Company incurred a loss during FY 2025-26, the significant improvement in revenue, reduction in losses and positive operating cash flows indicate an improvement in the overall operational performance of the Company. The management continues to take steps towards strengthening the business through new product development, technology initiatives, improvement in product mix and optimisation of manufacturing and operating costs.

The Company has also secured sales orders for execution during the first half of FY 2026-27. The management expects that the execution of these orders, subject to timely production, supply and other business and market conditions, will contribute positively to the Companys revenue and operational performance during FY 2026-27.

In addition, the Company is actively working on the development and commercialisation of new products and technologies, with the objective of improving its product portfolio, increasing sales realisation and achieving better operating margins. The management believes that the contribution from these initiatives, together with the execution of the existing and new business opportunities, has the potential to support further improvement in the Companys financial and operational performance.

The Company will continue to focus on increasing capacity utilisation, improving product mix, enhancing operational efficiency, strengthening working capital management, controlling costs and developing higher-value products. While the future performance of the Company will remain subject to market conditions, raw material prices, availability of working capital and other external factors, the management remains focused on pursuing sustainable growth and improving profitability in the coming financial years.

Human Resources

Human Resources continue to be one of the most important and valuable assets of the Company. The Company recognises that its sustained growth, operational efficiency and long-term success are closely linked to the capabilities, commitment and performance of its employees. Accordingly, the Company remains focused on creating a work environment that encourages professional growth, continuous learning, innovation, teamwork and a strong sense of responsibility.

As on March 31, 2026, the Company had 83 permanent employees across its factory and office operations. The Company continues to maintain an appropriate human resource structure to support its manufacturing activities, quality systems, business operations and future growth requirements.

The Company places significant emphasis on employee training and skill development. During the year, the Human Resources, Quality Control and Quality Assurance Departments organised various internal training programmes covering areas such as Current Good Manufacturing Practices (CGMP), safety awareness, quality systems and other operational requirements. Such training programmes are aimed at enhancing employees technical knowledge, strengthening awareness of quality and safety requirements and improving overall operational effectiveness.

In addition to internal training initiatives, employees are encouraged and, wherever considered appropriate, deputed to attend external training programmes, seminars and other knowledge-enhancement programmes. These initiatives enable employees to upgrade their professional and technical skills and remain updated with developments relevant to their respective areas of responsibility.

The Company believes in investing in its people and continuously developing their capabilities. Efforts are made to create a positive and favourable work environment that promotes performance, accountability, customer focus, innovation and continuous improvement. The Company also encourages employees to contribute towards operational excellence and improvement in business processes.

VSCLs human resource strategies are based, inter alia, on the principles of continuous learning, capability development and continuous improvement. The management believes that a motivated, skilled and committed workforce will continue to play an important role in strengthening the Companys operational capabilities, maintaining quality standards and supporting its future growth objectives.

Key Financial Ratios

The following table sets out the key financial ratios of the Company for FY 2025-26 as compared to FY 2024-25, together with the changes and explanations for such variations:

Particulars	31.03.2026	31.03.2025	YoY Improvement / (Reduction)	Explanation for Change
Current Ratio	0.7	0.9	(22.22%) Reduction	The reduction was primarily due to changes in the composition of current assets and current liabilities during the year. The Company continues to focus on improving its working capital position and liquidity management.
Debt-Equity Ratio	7.2	12.99	44.57% Improvement	The ratio improved mainly due to reduction in total debt during the year.
Debt Service Coverage Ratio	-0.01	-0.22	95.45% Improvement	The significant improvement was primarily due to the substantial reduction in losses and finance costs as compared to the previous financial year.
Return on Equity Ratio	-37.10%	-333.75%	88.88% Improvement	The substantial improvement was mainly attributable to the significant reduction in losses during FY 2025-26 as compared to the previous financial year.
Inventory Turnover Ratio	3.39	2.88	17.71% Improvement	The improvement reflects higher operational activity and more efficient utilisation and movement of inventory during the year.
Trade Receivables Turnover Ratio	5.98	5.19	15.22% Improvement	The improvement reflects higher sales and better management of trade receivables and collections during the year.
Trade Payables Turnover Ratio	5.06	5.95	14.96% Reduction	The reduction was mainly attributable to changes in the level and timing of purchases and settlement of trade payables during the year.
Net Capital Turnover Ratio	-6.25	-16.33	61.73% Improvement	The ratio improved due to better utilisation of working capital and improvement in sales performance during the year.
Net Profit Ratio	-3.58%	-24.44%	85.35% Improvement	The significant improvement was due to substantial reduction in operational losses, higher revenue and continued focus on cost management.
Return on Capital Employed	-0.02	-0.39	94.87% Improvement	The improvement was mainly attributable to improvement in EBIT and better overall operational performance during the year.
Return on Investment	-4.22%	-21.68%	80.54% Improvement	The improvement was primarily due to the substantial reduction in net losses as compared to the previous financial year.

Overall, the key financial ratios of the Company reflect a significant improvement in its operational and financial performance during FY 2025-26. The improvement in Inventory Turnover Ratio and Trade Receivables Turnover Ratio indicates better utilisation of inventory and improved management of receivables. The Debt-Equity Ratio improved by 44.57%, while the Debt Service Coverage Ratio showed a significant improvement of 95.45%, primarily due to reduction in losses and finance costs.

The profitability-related ratios also witnessed substantial improvement during the year. The Net Profit Ratio improved by 85.35%, Return on Equity improved by 88.88%, Return on Capital Employed improved by 94.87% and Return on Investment improved by 80.54%, reflecting the significant reduction in the Companys losses and improvement in operational performance.

However, the Current Ratio declined by 22.22% from 0.90 as at March 31,2025 to 0.70 as at March 31, 2026, indicating continued pressure on short-term liquidity and the need for efficient working capital management. The management remains focused on improving liquidity, strengthening working capital, increasing capacity utilisation, optimising costs and improving profitability through a better product mix and development of new products.

Return on Net Worth:

Return on Net Worth is not considered meaningful for the year under review due to the Companys negative net worth arising from accumulated losses.

Return on Capital Employed:

The Return on Capital Employed improved significantly to (0.02) as at March 31, 2026, as compared to (0.39) in the previous financial year, representing an improvement of approximately 94.87%. The improvement was primarily attributable to the significant reduction in losses, improvement in EBIT and better overall operational performance during the year.

Cautionary Statement

Statements made in the Management Discussion and Analysis Report describing the Companys objectives, expectations, estimates, projections, outlook, beliefs, opinions or predictions may constitute “forward-looking statements” within the meaning of applicable laws and regulations.

Such statements are based on the assumptions, expectations and information available to the management at the time of preparation of this Report. Actual results, performance or achievements of the Company may differ materially from those expressed or implied in such forward-looking statements due to various factors, including changes in economic conditions, market conditions, industry developments, government policies and regulations, fluctuations in the prices and availability of raw materials, foreign exchange fluctuations, competition, demand and supply conditions and other factors beyond the Companys control.

The Companys operations and future performance should, therefore, be evaluated in the context of the prevailing economic and business environment and the risks and uncertainties associated with the industry in which the Company operates.

The Company undertakes no obligation to publicly update, revise or modify any forward-looking statements on the basis of subsequent events, developments or new information, except as may be required under applicable law.

For and on behalf of the Board
Vadivarhe Speciality Chemicals Limited
SD/-	SD/-
Sunil Haripant Pophale	Meena Sunil Pophale
Director	Whole-time Director
DIN: 00064412	DIN:00834085
Date: 03.09.2026
Place: Mumbai