Vidhi Specialty Food Ingredients Ltd Management Discussions

This discussion provides an assessment by Management of the current financial position, results of operations for the financial year ended March 31, 2026, market scenario, industry position, global and Indian economy and its impact of the Company. Information presented in this discussion supplements the financial statement, schedules and exhibits for the financial year ended March 31,2026.

Global Economy overview:

The global economy remained resilient during FY 2025-26 despite elevated geopolitical tensions, trade policy uncertainties and persistent supply chain realignments. According to the World Banks Global Economic Prospects Report and IMFs World Economic Outlook, global growth is expected to remain moderate, supported by easing inflation, improving financial conditions and continued investments in technology and artificial intelligence. However, higher trade barriers, regional conflicts and fiscal pressures across several economies continue to pose downside risks to growth. Global growth is projected to remain in the range of 2.6% - 3.3% during 2026, reflecting a stable but slower expansion compared to historical averages. Advanced economies continue to experience relatively subdued growth, while emerging markets remain key contributors to global economic activity. The United States has demonstrated resilience in consumption and employment, although trade related uncertainties and tariff measures continue to influence investment decisions. Europe is witnessing gradual recovery supported by easing inflation and monetary policy adjustments, whereas Asian economies continue to drive global growth through strong domestic demand, manufacturing activity and technology investments. Inflationary pressures have moderated across major economies compared to the post-pandemic period, enabling central banks in several regions to adopt a more accommodative policy stance. Nevertheless, volatility in energy markets, geopolitical developments and disruptions in global trade routes continue to influence commodity prices and business sentiment worldwide

Outlook

The global outlook has abruptly darkened following the outbreak of war in the Middle East on February 28, 2026. The closure of the Strait of Hormuz and serious damage to critical production facilities in a region central to global hydrocarbon supply could cause an energy crisis on an unprecedented scale. The duration and scale of the conflict and the time it will take for energy production and transit to normalize after the end of hostilities will determine the ultimate size of the shock to the global economy. The reference forecast (of World Economic Outlook of IMF), assuming a short-lived conflict, projects global growth of 3.1 percent for this year, a downward revision of 0.2 percentage point from our January projections, while headline inflation is expected to rise from 4.1 percent in 2025 to 4.4 percent in 2026. However, more attacks on critical energy facilities and the prospect of a longer shutdown of the Strait of Hormuz are raising the spectra of a more significant and persistent conflagration for the global economy. Under an adverse scenario, broadly anchored to market conditions prevailing toward the end of March, global output would be expected to decline to 2.5 percent, with inflation rising to 5.4 percent. Under severe scenario —assuming dislocations in energy markets that extend to next year, together with a deanchoring of inflation expectations and a tightening of financial conditions, the global economy would come close to experiencing a recession, with growth around 2 percent this year and next and global headline inflation near 6 percent. Clearly, the downside risks are tremendous.

Indian Economy and Outlook:

According to the IMFs April 2026 World Economic Outlook, India has slipped to the 6th largest economy in the world with a nominal GDP of approximately $4.15 trillion. India dropped below Japan and the UK due to significant rupee depreciation (about 11%) against the dollar and a one-time statistical revision. Despite this, India remains the fastest-growing major economy. The IMF has raised its GDP growth forecast for India to 6.5% for the 2026-27 financial year (FY27), positioning it as one of the fastest-growing major economies, supported by robust domestic demand, sustained government capital expenditure, improving manufacturing activity and strong services sector performance. The countrys macroeconomic fundamentals remained resilient, aided by healthy GST collections, infrastructure investments, digital transformation initiatives and a stable financial system. Indias growth trajectory continues to be supported by increasing urbanization, rising disposable incomes, expanding manufacturing

capabilities and favorable demographic trends. Government initiatives such as Make in India, Production Linked Incentive (PLI) schemes, logistics infrastructure development and focus on ease of doing business are expected to strengthen the countrys position as a preferred global manufacturing destination as per the Press Information Bureau, the real annual GDP growth for FY 2025-26 is 7.6%, higher than the 7.1% recorded in FY 2024-25, while nominal GDP, measured at current prices, is projected to grow by 8.6% during FY 2025-26. Within this, the manufacturing sector has recorded double-digit growth in both FY 2023-24 and FY 2025-26, emerging as a key contributor to the economys resilient performance. The secondary and tertiary sectors have strengthened overall economic performance, recording growth rates exceeding 9.0% in FY 2025-26. Looking ahead, the Indian economy is expected to maintain healthy growth momentum, supported by private consumption, infrastructure spending and increasing investments in manufacturing and technology. While external risks arising from geopolitical tensions (particularly in West Asia) affecting commodity / oil prices volatility and global trade uncertainties remains, Indias domestic demand-driven growth model provides a strong foundation for long-term economic expansion.

Industry Structure & Development:

Food colours are standard in our everyday lives, and they may even be found in meals and drinks we wouldnt anticipate. Food colours are added to food or drink to modify the hue to make it more palatable. Natural food colours, synthetic food colours, are two broad categories of food colours. Food colours are employed in commercial food manufacturing and home cooking to persuade consumers to buy a product based on its visual appeal. It improves the products taste, texture, and appearance while preserving its flavor and freshness. Any dye, pigment, or chemical that gives Colour when added to food and drink is a food coloring or colour additive. They are available in liquids, powders, gels, and pastes. Food coloring is used in both commercial and household food manufacturing. Food colorants are also utilized in cosmetics, medicines, home craft projects, and medical gadgets.

Color is an important factor increasing consumers acceptability to food products. This is due to consumers always links food color with other qualities such as ripeness, freshness, and food safety. Food colours are ingredients that are added to food or beverage to enhance its appearance. When colours are added to food products imparts very bright and tempting effect which influences the consumer to buy a product through visual perception. Colour is a key component to enhance the ultimate appetizing value and consumer acceptance towards foods and beverages. The food color market is segmented into type, application and region.

A) Type - Food color market is categorized into natural color and artificial color.

B) Application -Beverages, Dairy & Frozen Desserts, Bakery & confectionary, Meat products, Processed food &Vegetables, Oils & fats, sweets and snacks, cosmetic, Pharma product, etc.

C) Region wise - Food color market analyzed across North America (U.S., Canada and Mexico), Europe (Germany, France, UK, Italy, Spain and rest of Europe), Asia-Pacific (China, Japan, Australia, India and rest of Asia-Pacific), Latin America (Brazil, Argentina, Colombia and rest of Latin America), Middle East (Saudi Arabia, Egypt, Nigeria and rest of Middle East) and Africa (South Africa, Nigeria, and rest of Africa).

Every year incremental demand of ~Rs. 1,500 to Rs, 1,700 crores is expected to generate globally for Food color. According to Future Market Insights, the global food color market is projected to be valued at USD 4.83 billion in 2025, with a forecasted rise to USD 8.46 billion by 2035, at a CAGR of 6.3%.

Market Analysis

The global natural food colors market size was valued at USD 2.54 billion in 2025 and is projected to grow from USD 2.72 billion in 2026 to USD 4.75 billion by 2034, exhibiting a CAGR of 7.20% during the forecast period.

The natural food colors market is expanding steadily due to growing consumer preference for clean-label ingredients, plant-derived additives, and minimally processed food products. Food manufacturers are increasingly replacing synthetic dyes with natural pigments extracted from fruits, vegetables, algae, flowers, and spices. The demand for beta carotene, anthocyanin, chlorophyll, spirulina extract, turmeric extract, and lycopene has increased across bakery, confectionery, dairy, beverages, and processed food sectors. natural food colors market Analysis indicates that regulatory support for safer ingredients and rising awareness regarding artificial additive side effects

are influencing purchasing decisions globally. Natural Food Colors Industry Report findings show strong adoption across premium packaged food brands, functional nutrition categories, and organic food manufacturing operations.

The USA natural food colors market holds approximately 29% market share due to high consumption of organic beverages, naturally flavored snacks, and clean-label confectionery products. More than 72% of American consumers actively check ingredient labels before purchasing processed foods, increasing demand for naturally sourced food pigments. The United States food processing industry continues integrating carotenoid-based and fruit-derived colors in ready-to-drink beverages, dairy desserts, bakery fillings, and plant-based protein products. natural food colors market Research Report data shows strong utilization of turmeric extract, beetroot red, and spirulina blue among beverage manufacturers. Expanding vegan product launches and growing investments in healthy packaged foods continue strengthening the USA natural food colors market Outlook.

Opportunities and Threats:

The Company has a well set up infrastructure in respect to manufacturing capacities, human resources, technical expertise, etc. which are a key factor for future growth of its business. The Company can bank on its in-house R&D for development of new products, quality improvements and cost reductions. Another important aspect which helps the Company in having its diverse portfolio of products is the fact that, the manufacturing capacities are fungible. The dedicated teams for Quality Management and Quality Assurance, helps in maintaining the standards required for various products. The entire project or process is designed to ensure delivery of Best Quality Products. Companys products are having various quality certificates. Further, expansion plans and backward integration will enable the Company to cash on the various opportunities available to the Company.

Opportunities:

1. High Barriers to Entry & Regulatory Advantage

The food colours segment is highly regulated and technically demanding, resulting in strong entry barriers. Vidhi, being one of the few companies with robust technical expertise and necessary quality approvals, stands to benefit from this oligopolistic structure.

2. Booming Demand for Natural & Clean-Label Colors: Driven by tighter global regulations and consumer health awareness, the natural food color segment (e.g., anthocyanins, carotenoids, and spirulina extracts) is experiencing rapid growth, expanding at over 9% annually.

3. Biotech & Microbial Fermentation Innovations: Biotechnology advancements—such as yeast and microbial fermentation to produce stable pigments (e.g., plant-based blues, reds, and astaxanthin)—are providing consistent, eco-friendly color solutions that bypass land-use and agricultural issues.

4. "China+1" Sourcing Realignment: Global FMCG brands continue to diversify their specialty chemical supply chains away from sole reliance on China due to environmental crackdowns and trade tariffs. Indian and ASEAN food color producers are positioned to capture this diverted market share

5. Formulation Innovations in Hard-to-Stable Applications: Technical breakthroughs in heat-stable, pH- resistant natural colors present high-margin opportunities for R&D-driven companies targeting beverages, plant-based meats, and confectionery.

6. Diversification into High-Growth Markets: Exporting manufacturers are pivoting away from heavily tariffed Western trade lanes (like the U.S.) to expand into ASEAN, Africa, non-EU European markets, and CPTPP nations.

Threats:

1. Middle East Energy & Raw Material Volatility: Conflicts involving Iran and disruptions in the Strait of Hormuz have triggered sharp cost increases for petrochemical precursors (such as benzene, toluene, and ethylene derivatives). This directly inflates the production costs of synthetic dyes.

2. Severe Maritime Shipping & Logistics Bottlenecks: Container rerouting around the Cape of Good Hope, combined with elevated war-risk insurance premiums, has pushed up freight expenses while extending export lead times to Europe and North America by weeks.

3. Heightened Regulatory Bans on Artificial Dyes: Regulatory bodies in North America and Europe are intensifying restrictions on synthetic colors (such as Red 3, Titanium Dioxide, and certain azo dyes) due to health concerns, creating immediate risk for legacy synthetic dye portfolios.

4. Escalating Trade Protectionism & Tariffs: Retaliatory and aggressive import tariffs (such as U.S. duties reaching up to 25%-50% on selected chemical/food-ingredient originations) significantly reduce the price competitiveness of export-reliant manufacturers.

Risk Concerns:

A. Operational & Supply Chain Risks

• Longer Working Capital Cycles: Delayed maritime transit times trap finished goods in transit longer, forcing manufacturers to increase short-term debt and working capital borrowings.

• Input Shortages & Production Lags: Energy-driven shortages of key solvents, intermediate chemicals, and specialty packaging components (like aluminum drums) threaten to cause unplanned factory downtime.

B. Financial Risks

• Margin Compression: B2B ingredient suppliers are experiencing a squeeze on operating margins as rising raw material and energy prices outpace their ability to pass costs on to major multinational F&B clients.

• Shift in Solvency Ratios: Higher working capital needs are putting short-term pressure on current ratios and raising debt-to-equity metrics for mid-sized manufacturers.

C. Commercial & Compliance Risks

• Re-formulation Strain: Food and beverage producers unable to secure stable, natural color inputs face reformulating deadlines or potential market access limits in strict regulatory regions (e.g., EU, UK).

Net sales by Geography

Discussion on financial performance with respect to operational performance:

i. Financial Performance:

During the year under review, your Company has achieved Revenue from operations of Rs. 38,002.62 lakhs. The comparative figures are tabulated below. The Company has achieved net profit after tax of Rs. 4915.25 lakhs for the financial year 2025-26. EBITDA stood at Rs. 7,983.40 lakhs for the financial year 2025-26. An operational EBITDA has reduction to 13.90 % for financial year ended March 31,2026 as compared to increase of 19.94% for the financial year ended March 31,2025.

Finance Cost has increased to Rs. 476.53 lakhs for the financial year 2025-26 compared to Rs. 247.96 lakhs for the previous year due to higher interest cost. Depreciation and Amortization stood at Rs. 908.99 lakhs for the financial year 2025-26 compared to Rs. 744.85 lakhs for the previous year.

ii. Operational Performance:

Overall, the macro-economic situation is still challenging and policy measures taken by the Government are yet to impact the business in a big way. However, Company posted excellent growth in top as well as bottom line on the back of planned austerity measures and optimum resource management.

The Companys performance with regard to the revenue from export manufacturing sales remains almost at similar level in the financial year 2025-26 at 77% of total revenue from operation compared to 79% in previous year. Domestic trading sales increased in the FY 2025-2026 to 14% as compared to 13 % in FY 2024-25.

The Companys main focus is on manufacturing activities and trading is not the focus area of business. In reporting period, Companys manufacturing sales remained almost same as compared to last year. By a combination of a better product mix helped by specialty products and continual improvement in the efficiency of operations at both the locations, the Company has tried keeping its operating margins healthy for all the four quarters and has achieved reasonable EBITDA level.

Environmental & Hazardous Safety and Quality Assurance:

Vidhi commits itself to ethical and sustainable operation and development in all business activities Sustainability enhances innovative ways to do business. This is a necessary prerequisite for value creation. Sustainability at the Company is an integral part of the way we work and this helps the Company to position itself in the sustainable market, build a competitive advantage through differentiation, support profitable growth, create added value for stakeholders, build brand image and reputation and anticipate and mitigate risk.

Our ability to treat customers, employees, neighbors and environment in a responsible way is not only ethically correct but also strengthens our partnership with those stakeholders upon whom our success as a Company ultimately depends. The Company takes initiatives to reduce environment, health and safety risks in the production, storage, distribution, use of products and disposal of waste. These include ancient use of energy and resources and continuous improvement of our processes to minimize the impact of our activities on the environment.

As your Company deals with chemicals and is in the business of manufacturing food colours and trading in specialty chemicals, it has to make sure that the highest degree of safety measures is maintained in order to avoid

any risk at the workplace. Your Company is committed to maintain its operations and workplace free from incidents and significant risk to the health and safety of its stakeholders through improved their work skills, strong channels of communication, safety awareness, and sound training practices.

The Companys certified manufacturing activities complies with ISO 9001:2015, ISO 22000:2005 and HACCP which reflects the Companys continued commitment towards Quality, Environment, Occupational Health and safety approaches.

Internal Control Systems and its Adequacy:

The Company has a system of internal controls to ensure that all its assets are properly safeguarded and not exposed to risks arising out of unauthorized use or disposal. The Internal Control system is supplemented by programs of internal audit to ensure that the assets are properly accounted for and the business operations are conducted in adherence to the laid down policies and procedures. The internal control system also focuses on processes to ensure integrity of the Companys financial accounting and reporting processes and compliance with the Companys legal obligations. The Company has a well-defined risk management programme for identifying and mitigating risks across all the functions which are reviewed by the Audit Committee and Board of Directors of the Company periodically.

The Company has a Risk Management Committee of the Board of Directors which meets regularly to review inter alia risk management policies, adequacies of internal controls, the financial information and other issues related to the Companys operations. The Internal Auditors along with finance team plans the audit schedule for the year in consultation with CFO and the Audit Committee. The Audit Committee of the Board approves the internal audit plan at the start of every financial year to ensure the coverage of most of the functions with a view to minimize associated risks. Independent external teams have been engaged as the Internal Auditors to perform the internal audit function, assess the internal controls and statutory compliances in various areas and also provide suggestions for improvement. The Audit Committee regularly reviews the major findings of the internal audits with respect to different locations and functions to help take effective steps in ensuring compliance.

Human Resources:

Performance measurement is a fundamental principle of the management. The measurement of performance is important because it identifies performance gaps between current and desired performance and provides indication of progress towards closing the gaps. The Company believes that human resources are a critical factor for its growth. The Company invests in its employees for the growth of their skills and talents so as to meet the growth aspirations of the business. The emphasis is on grooming in-house talent enabling them to take on larger responsibilities. The senior management team spends considerable time in reviewing the existing talent base and processes used for honing the skills of the members in the talent pool and assessing their preparedness for taking on new assignments.

Compensation and benefits packages have always been pivotal to retaining and motivating employees. To remain competitive in compensation and rewards offered, continual efforts were made to make compensation and benefits flexible and market-linked.

The relations with the employees and workers remained cordial and harmonious throughout the year. The Company had total work force of 126 as on March 31,2026.

Details of significant changes in key financial ratios (i.e. change of 25% or more as compared to the immediately previous financial year):

Reason for change of 25% or more in key financial ratios as compared to the immediately previous financial year:

Interest Coverage Ratio (%): Interest Coverage Ratio decreased to 16.75% as against 28.27% in Previous year it is due to increase in the Interest cost.

Cautionary Statement

Certain statements under ‘Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Although the expectations are based on reasonable assumptions, the actual results could materially differ from those expressed or implied, since the Companys operations are influenced by many external and internal factors beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent developments, information or events.