Voith Paper Fabrics India Ltd Management Discussions

INDUSTRY STRUCTURE & DEVELOPMENTS

Indias real GDP is estimated to have grown by about 7.4% in FY 2025-26, while the manufacturing sector and industrial production continued to witness stable growth. The Index of Industrial Production (IIP) recorded a growth of 7.8% in December 2025, supported by surge in Manufacturing (8.1%), mining (6.8%) and electricity (6.3%) remained positive during the year. These indicators reflect continued momentum in industrial production and overall economic activity in the country.

India ranks 3rd globally in terms of paper & paperboard production volume, accounting for approximately 6% of the worlds total paper output. It is one of the fastest growing markets globally for paper and paperboard, expanding at an average rate of 3-4% per year driven by rising demand from packaging, FMCG, e-commerce, and education sectors. Although per capita paper consumption in India remains lower than global averages and rising imports threaten competitiveness, the industry offers long-term growth potential supported by favorable demographics.

The Indian paper industry is primarily dominated by packaging paper and paperboard segments, followed by printing and writing paper. The specialty paper segment is also emerging as one of the fastest-growing categories owing to increasing industrial and specialized applications.

Government support through infrastructure upgrades, environmental clearances, and ease of doing business has improved industry attractiveness. Regulatory moves such as plastic bans have created strong demand for paper-based alternatives.

The growing shift towards sustainable and eco-friendly packaging solutions, coupled with heightened awareness regarding reduction in plastic usage and regulatory restrictions on single-use plastics, has further accelerated demand for paper-based alternatives.

The Paper Machine Clothing (PMC) forms an integral part of the paper manufacturing process. PMC products such as forming fabrics, press fabrics and dryer fabrics play a critical role in improving machine efficiency, paper quality, productivity and energy optimization. Increasing focus by paper mills on operational efficiency, reduction in downtime and enhancement of machine speeds continue to drive demand for technologically advanced PMC solutions.

OUR STRENGTHS

The Company continues to strengthen its positions as a full-line supplier of paper machine clothing (PMC), catering to diverse requirements of the paper industry. The Company possesses deep knowledge and experience in manufacturing a wide range of industrial fabrics. Our Consistent performance and commitment to quality have helped us build long-term trust and credibility in the industry. Further the continuous efforts of our employees enables the Company in offering tailored solutions; reliable delivery schedules, and prompt after sales support, fostering long term relationships.

The Companys focus on sustainable paper making is a key strength, as it aligns with the evolving priorities of the paper industry and the increasing demand for environmentally responsible manufacturing solutions. By supporting customers through resource-efficient and performance-driven PMC products, the Company helps improve energy efficiency, reduce water consumption and minimize waste, thereby enabling more sustainable operations which helps in enhancing the Companys relevance in a changing market. Backed by the technological expertise, strong research and development capabilities and support of the Voith Group, the Company is well positioned to cater to the evolving and specific requirements of its customers.

OUR WEAKNESSES

The Company is subject to certain inherent limitations, including a significant dependence on key raw materials such as synthetic yarn & fibers, the price of which are often volatile. The high cost associated with technological upgradation, advanced machinery and innovation initiatives may impact operating costs and capital expenditure requirements.

The outlook for Indias paper industry continues to be influenced by global economic uncertainties and evolving trade policies. Given that the Companys products are of limited use and are primarily supplied to paper mills, its long-term growth prospects are closely linked to the performance of the pulp and paper sector. Additionally, the industry is capital-intensive, with substantial requirements for energy and raw materials, and remains subject to regulatory and policy constraints imposed by the government. These factors may have an adverse impact on the Companys growth trajectory.

THE OPPORTUNITIES

The paper industry in India is entering a phase of meaningful growth, supported by evolving consumption patterns and structural shifts in end-use sectors. Rising demand for paper-based products especially in packaging and specialized applications continues to create new avenues for expansion. At the same time, increasing awareness around sustainability is encouraging the adoption of environmentally responsible products, positioning the industry to benefit from both regulatory support and changing customer preferences.

One of the key growth drivers is the rapid expansion of e-commerce and fast-moving consumer goods (FMCG), which is significantly boosting demand for packaging materials such as corrugated boxes, cartons, and paper-based bags. This trend is further reinforced by a gradual transition away from plastic packaging toward more sustainable alternatives. Companies that strengthen their packaging capabilities and align with eco-friendly solutions are likely to capture a larger share of this growing market.

In addition, demand for specialty papers including decorative, security, and filter papers is witnessing steady growth, supported by increasing applications across industries. This segment offers attractive opportunities for value creation through product innovation, quality enhancement, and targeted market development. Alongside this, the shift toward sustainable and recyclable paper products is gaining momentum, with increasing preference for biodegradable and recycled materials like agri-residues.

Beyond industrial applications, the industry is witnessing a resurgence in the writing and printing segment. Rising literacy levels continue to support demand for printing and writing paper, notebooks and other educational paper products. Household demand is boosting due to a heightened awareness about hygiene which has increased the consumption of tissues, napkins, etc. This educational push, combined with higher print circulation in various regions, ensures that the traditional paper segment remains a vital pillar of the industrys growth.

THE THREATS

Companys revenue and profit margins remain sensitive to changes in paper prices, which are often dragged down by cheaper imports and intense market competition. The Company remains exposed to risks arising from geopolitical tensions like the Middle East War, volatility in raw material and energy prices, foreign exchange fluctuations and disruptions in global supply chains. Further, increasing imports and competitive pricing pressures from international players may impact the domestic market environment and industry margins. Additionally, the ongoing shift toward digital platforms presents a long-term threat to demand in the newsprint and paper segments, making it harder to maintain steady growth and pricing power in the years ahead.

SEGMENT WISE REPORTING

As per Ind AS 108, the operating segment of the Company is identified to be as manufacturing and selling of paper machine clothing, as the Chief Operating Decision Maker (CODM) reviews business performance at an overall Company level as one segment. Hence, there is no separate reportable segment.

During the year, the Company witnessed stable demand across its product categories with all major product lines registering consistent growth, supported by improving conditions in the paper and packaging industry, and continued customer engagement.

OUTLOOK

The Indian paper industry is poised for sustained growth, supported by structural demand drivers and evolving consumption patterns. The rapid expansion of e-commerce and organized retail continues to drive strong demand for containerboard, cartonboard, and other packaging grades. Additionally, rising literacy rates and increased spending on education are supporting demand for writing and printing paper, while growing consumption of hygiene products is further contributing to overall industry growth.

Sustainability remains a key focus area, with the industry witnessing a significant shift towards recycled and eco-friendly paper products. Increased investments in recycling infrastructure and circular economy practices are expected to enhance resource efficiency and reduce environmental impact. Government initiatives aimed at promoting waste paper recycling are also likely to provide further impetus to the sector.

Indias relatively low per capita paper consumption compared to global averages presents a substantial opportunity for long-term expansion. This gap indicates strong underlying growth potential as economic development and consumption levels continue to rise.

Technological advancements in paper manufacturing, including improved recycling processes, development of barrier coatings, and adoption of lightweight materials, are expected to enhance product quality and broaden application areas, thereby strengthening industry competitiveness.

However, the industry continues to face certain challenges, like competition from imports, volatility in raw material prices due to Geopolitical uncertainties, including ongoing conflicts in the Middle East region, and the need for capacity modernisation and efficiency improvements. Addressing these factors will be critical for sustaining growth momentum.

Overall, the industry outlook remains positive, underpinned by favourable demand dynamics, policy support, and technological progress, while requiring careful navigation of cost and competitive pressures.

RISKS & CONCERNS

Uncertainty and risk are embedded in the nature of any business. The Indian paper industry struggles with fluctuations in raw material costs, rising imports, technological obsolescence, supply chain issues, and stringent environmental norms.

The Companys Management Team periodically analyzes the potential risks to the Company and the ways to mitigate or minimize the same.

INTERNAL CONTROL SYSTEMS & ADEQUACY

The Company has adequate internal control systems commensurate with the nature and size of its operations. All operating parameters are monitored and controlled periodically. The Audit Committee of its Board of Directors, majorly comprising of Independent Directors, also reviews the systems at regular intervals. Moreover, the Company has appointed M/s Lodha & Co. LLP, Chartered Accountants, as its Internal Auditors and they periodically test the efficacy of the internal control systems.

Also, the Statutory Auditors, M/s Price Waterhouse Chartered Accountants LLP, have evaluated and given their opinion on the Internal Financial Control, as per the provisions of the Companies Act, 2013.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Throughout the year under review, the Company has achieved consistent growth in sales and profitability, driven by heightened operational efficiencies. This success was brought about through better utilization of available resources and proper execution of business strategies. The Company continued the implementation of Operational Excellence (OPEX) Programme which also contributes to the bottom line.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT

The Company recognizes its human capital as a core competitive advantage and the primary engine of our growth. We have strategically fostered a high-performance culture that combines the fresh perspectives of our younger talent with the deep industry expertise of our senior mentors. This multi-generational synergy has created a versatile workforce equipped to identify and capture emerging market opportunities.

Our commitment to a stable and productive work environment is reflected in our industrial relations, which continue to remain healthy and collaborative. By prioritizing open dialogue and mutual respect, we have ensured a harmonious workplace that supports long-term organizational stability and operational continuity.

There were 136 permanent employees on the rolls of the Company as on 31st March, 2026.

SIGNIFICANT CHANGES (25% OR MORE) IN KEY FINANCIAL RATIOS AND CHANGE IN RETURN ON NET WORTH

In all specified key financial ratios, the change over previous year is less than 25% and not significant.

Further, as compared to previous years Return on Net Worth of 10.37%, this years Return on Net Worth is 9.78%, representing a decrease of 5.67% in Return on Net Worth. This is primarily due to increase in absolute value of net-worth for the year under review.

CERTIFICATIONS

The Company is conscious of protecting the environment and has initiated various eco-friendly practices including rainwater-harvesting system and installation of solar photovoltaic power plant. It is our continuous effort to keep the premises and surroundings clean and green. The Company is continuing with the ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 certifications by TUV having validity until 2027.

CAUTIONARY STATEMENT

Statements in the foregoing paragraphs of this report describing the current industry structure, outlook, opportunities etc. reflect the estimation and opinion of the Company. The same are based on certain assumptions and expectations of future events. The actual results may substantially diverge from the same as they depend upon the global political, economic and social situation. Further, change in Government regulations, environmental laws, tax structure, cyclical demand, demand & supply conditions, cost of raw materials & their availability and other related factors such as litigation, Industrial relations and other unforeseen events can also have a bearing on the above statements. The Company assumes no responsibility in respect of forward looking statement made herein which may undergo changes in future on the basis of subsequent developments, information or events.