Regency Ceramics Ltd Management Discussions

Even as Indias outlook remains bright, global economic prospects for 2023-24 have been weighed down by the combination of a unique set of challenges expected to impart a few downside risks. Multi-decadal high inflation numbers have compelled central banks across the globe to tighten financial conditions. The impact of monetary tightening is beginning to show in slowing economic activity, especially in Advanced Economies. Besides this, adverse spillovers from the prolonged strains in supply chains and heightened uncertainty due to geopolitical conflict have further deteriorated the global outlook. Hence, global growth is forecasted to slow from 3.2 % in 2022 to 2.7% in 2023 as per IMFs World Economic Outlook, October 2022. A slower growth in economic output coupled with increased uncertainty will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organization, from 3.5% in 2022 to 1% in 2023.

INDIAN ECONOMIC OVERVIEW

In 2020-21, India witnessed multiple intense cascading risk scenarios and a major contraction, mainly driven by the Covid-19 pandemic. Overcoming these overwhelming challenges, the economy experienced a strong recovery in 2021-22, supported by accommodating monetary and fiscal policies and widespread vaccine coverage. The resilience continued despite challenges that included disruptions in supply chains, global monetary policy tightening, and inflationary pressures, as the economy made steady progress and registered a recovery in 2022-23. Driven by robust domestic demand, significant infrastructure investments, and strong private consumption, Indias real GDP grew by 7.2% in 2022-23, as the country sailed through the global turmoil relatively unscathed. Going forward, the economy is expected to grow by 6.50%, signalling a continued upward trajectory for Indias economy in 2023- 24, despite past challenges, as the existing hardships fail to dampen the fundamental grit. Ongoing structural reforms and policies aimed at promoting investment, productivity and controlling inflationary pressures are collectively charting a path for Indias sustained economic growth.

In terms of fiscal prudence, the Central Government is expected to achieve its fiscal deficit target of 5.90% of GDP in 2023-24, while state government deficits consolidate, together leading to a decline in the general government deficit. Consequently, the debt-to GDP ratio is projected to stabilize. Additionally, the current account deficit is estimated to narrow down to 2.10% of GDP in 2023- 24, driven by robust service exports and a declining merchandize

trade deficit, (source: https://www.worldbank.org/en/news/pressrelease/2023/04/04/indian- economy-continues-toshow-resilience-amid-global-uncertainties) Indias strong economic growth and sociopolitical stability has turned it into a favoured destination for foreign direct investment (FDI). This is evidenced by the highest-ever gross FDI inflows of USD 84.57 Billion in 2021-2022. However, in the year 2022-23, the gross inflows of FDI dropped to USD 71 Billion. This drop in inflows is attributed to the policy changes of the US Federal Reserve and the ongoing Russia-Ukraine crisis.

(source: https://timesofindia.indiatimes.com/india/ first-dip-in-decade-fdi-inflows-fall-16-in- fy23/ articleshow/100459552.cms)

INDUSTRY STRUCTURE AND DEVELOPMENTS

Between 2012 and 2021, the production of Indian ceramic tiles experienced significant growth, with a CAGR of 8.6%. The production volume doubled during this period, reaching an impressive 2.5 billion square meters. This expansion was made possible by the establishment of over 900 highly efficient production lines. According to projections from the MECS research center, Indias ceramic tile production is expected to continue its upward trajectory, reaching a volume of more than 3.7 billion square meters by 2026, maintaining a steady year-on-year growth rate of nearly 8%. For the foreseeable future, the majority of this production (about 70%) is likely to be absorbed by domestic demand, indicating a strong domestic market. However, exports are also set to play a significant role, with estimates suggesting that they will exceed 1 billion square meters. The export sector has experienced remarkable growth over the past decade, expanding by an impressive factor of 15, soaring from slightly over 33 million square meters in 2012 to surpassing 483 million square meters in 2021. (source: https://ceramicworldweb.com/en/economicsand-markets/india-ceramic-tile-market) The ceramic tiles market is experiencing a consistent upward trend, fueled by the recovery of the construction sector after a prolonged period of decline. The construction industry serves as a crucial catalyst for the expansion of the ceramic tiles market in India. Additionally, the Government of India (GOI) has implemented various programs and investments to promote infrastructure development, further contributing to market growth. Notably, initiatives such as the Pradhan Mantri Awas Yojana (PMAY) and the Smart Cities Mission are anticipated to significantly boost the demand for ceramic tiles in India, (source :https://www.imarcgroup.com/indiaceramictilesmarket#:~:text=Market%20Overview %20 2023%2D2028%3A,to%20reach%201 %2C451.9%20 Million%20Sq)

Going forward, the Indian ceramic industry is poised to become the worlds largest ceramic producer in coming years. The sector has already established itself as a major global player in the ceramic tile market, second only to China in terms of manufacturing, consumption, and export. This expansion is being driven by Indias expanding urbanization and construction activity, leading to a surge in demand for various types of tiles, particularly glazed vitrified tiles. These tiles are popular among customers because they are incredibly durable and have a

visually attractive appearance. The development of glazed vitrified and full body vitrified tiles has provided a tremendous impetus to the industry, with vitrified tiles often hailed as the Tiles of the future ,(source:https://www.thetilesofindia.com/tile-news/indian-ceramics-asia-2023/, https://viterotiles.com/ blog/indian-tile-industry-2021)

FUTURE OUT LOOK

The low per capita consumption of tiles, rapid urbanization, increasing disposable income of nuclear families, untapped rural market and stable replacement demand shall continue to augur well for the Indian tile industry. In addition, forecast of a normal monsoon, improved consumer sentiment and implementation of e-way bill promise healthier performance.

COMPANY OUTLOOK

The violent incident occurred on 27.01.2012 had impacted the whole town of Yanam with several people depending on the Company being deprived of the benefits they were enjoying before. Your company has settled the issues with the workers satisfactorily and also with the lenders successfully. Your company is optimistic about resolving all the pending issues peacefully and hence has settled the Insurance claim.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Your Company believes that human resource is the most important asset of the organization and lays importance on competence and commitment of human capital for its growth.

Your company hopes to resolve the strained labour relations and the matters pending before the industrial tribunal in the near future. As the Company is in the process of reviving its operations,it shall hire the employees in the coming future. An enabling environment that fosters continuous learning and innovation remains a key focus area of your company.

BUSINESS REVIEW AND FINANCIAL PERFORMANCE

During the year under review, the Company has earned revenue through sale of goods and have made significant efforts towards reviving and refurbishment of the Plant and is optimistic of commencing the production this year.

THREATS, RISKS AND CONCERNS

Alongside the multiple opportunities, the building material sector in India, particularly the ceramic industry and bathware sector, faces a range of challenges as well. These challenges include competition from the unorganized sector, which poses a threat to the organized players. Additionally, the sector faces unstable input costs, which can negatively impact profitability. Furthennore, there are macroeconomic volatilities, including currency fluctuations, that can affect the sector.

Besides, environmental regulations and changing consumer preferences pose a threat to the sector. With the rising awareness of environmental issues, consumers are displaying an escalating preference for eco-friendly building materials, which could lead to a shift in demand away from traditional materials. Supply chain disruptions, such as those caused by the Covid- 19 pandemic, can also have a negative impact on the sector. To overcome these challenges and remain resilient in the future, the sector should demonstrate innovation, proactively seek alternative fuel sources, diversify revenue streams. In order to maintain a strong position in the coming years, the industry must also possess flexibility and adaptability to navigate evolving economic circumstances. Likewise, it is crucial for the Company to possess the agility and foresight to effectively address present and future challenges.

OPPORTUNITIES

The coming year presents a plethora of opportunities for the tiles and bath ware market which is set to benefit the Company as well as the industry. One potential factor, boosting the prospect, is the reduction of supply chain disruptions, translating into lower freight costs and increased profitability. Moreover, reduced natural gas prices led to lower manufacturing costs, boosting the market competitiveness of products.

The Governments focus on infrastructure development through rising capital expenditure will serve as a catalyst for private players to augment their own capital expenditure. Further, rising awareness towards sustainability and sustainable products is set to drive the demand for eco friendly building materials. This will provide vast opportunities to capitalize on. Additionally, new technologies such as 3D printing may result in the development of new products and more efficient manufacturing methods. Moreover, rapid urbanization in India will continue to uplift demand for residential and commercial constructions, resulting in increased demand for building materials. These variables, if combined with macroeconomic factors, set in motion a huge development potential in Indias building material business in 2023.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has a robust and effective internal control mechanism in place, one that is commensurate with the size, nature and complexities of its business. Internal control mechanism, which is benchmarked with evolving best practices at regular intervals, ensures Companys adherences to all applicable regulations in letter and spirit. It also protects Companys various assets from un authorised use while also ensuring accuracy of financial reporting.

The internal audit is entrusted to an independent Chartered Accountants firm, M/s. Brahmayya and Co, Chartered Accountants. The Audit Committee periodically reviews the efficacy of control mechanism, offering improvement suggestions, as and when required. Internal control on financial reporting is attested by the Companys statutory auditors.

DETAILS OF SIGNIFICANT CHANGES IN KEY RATIOS

During the period under review, there was no significant change in the key ratios, since the Company is still in the process of reviving its operations.