XPRO India Ltd Management Discussions

We have pleasure in submitting the Managements Discussion & Analysis Report ("MDA") on the Companys businesses. We have included specified matters, to the extent relevant and within boundaries that in our opinion are reasonably imposed by the Companys strategic and competitive position.

Global growth is projected, per the IMF World Economic Outlook, to stay at 3.1 percent in 2024 and rise to 3.2 percent in 2025. Elevated central bank rates to fight inflation and a withdrawal of fiscal support amid high debt weigh on economic activity. Inflation is falling faster than expected in most regions, amid unwinding supply-side issues and restrictive monetary policy. The outlook also pegs Indias growth rate at 6.8%, while per the ADB report, growth is forecast to remain strong at 7 % for fiscal year 2024-25, and is expected to accelerate to 7.2% in 2025-26 as rising consumption complements continued investment growth. Services will remain the growth mainstay, with manufacturing expected to play a strong supporting role. An overall economic overview is covered in the Directors Report.

Our performance continues to reflect the overall climate in our markets, impact of strategic steps during the last few years and our position as a key supplier to, the growing white goods and dielectrics segments. Aggregate production volumes grew by 4.8 % to 27,891 MT (26,607 MT – excluding toll-manufacture from erstwhile unit discontinued in the previous year). Overall sales value was lower by 8.9% at INR 465.41 crores. The fall in sales value reflects the net impact of (a) the lower polymer prices prevailing through much of the year (average raw material consumption cost lower by over 10%); (b) discontinuation of toll manufacture at our erstwhile packaging film unit following completion of transfer in October 2022 (INR 5.08 crores reduction); (c) export consignment (INR 1.44 crores) still on high-seas due extended sailing times and (d) increases in value addition. Global recognition for Xpro products remains strong. Exports of dielectric films were curtailed due to capacity constraints to one-third previous year level while exports of other extruded sheets and films was significantly higher bringing total exports to INR 13.44 crores (INR 17.46 crores previous year). Production costs were controlled with productivity enhancements. PBIDT was marginally higher at INR 78.33 crores, (INR 78.28 crores). In the previous year all long term (other than towards working capital) loans were re-paid. Continuing to reduce term loans for existing operations, during the year outstanding working capital term loans (INR 15.31 crores) under Guaranteed Emergency Credit Line (government guaranteed) were repaid well before schedule. There are now no outstanding term borrowings for existing operations. Interest and other finance costs were accordingly lower at INR 5.01 crores against INR 7.53 crores in the previous year. Profit before exceptional items and tax was INR 62.18 crores (INR 59.23 crores). Exceptional items were INR 2.02 crores being a right to recompense exercised by our bankers notwithstanding our demonstrated creditable performance on prepayment of outstanding borrowings over the last few years (detailed in Directors Report). Accordingly, Profit before tax was INR 60.16 crores (INR 59.23 crores).

Changes in key financial ratios: PBT ratio up from 11.6% to 12.9%, debt service coverage ratio up from 0.88 to 3.84, and debt : equity down from 0.15 to 0.07 as a consequence of raising of capital. [Ratios detailed in Notes to accounts.]

The exercise aimed towards identifying and driving various sustainable cost reduction and operational efficiency improvement initiatives at our production units undertaken with Deloitte Touche Tohmatsu India LLP was completed in the previous year. Some suggestions have been implemented, other are being studied for possible implementation; continuing results are expected to be derived in future.

Pursuant to the approval in the previous year, and in terms of the Share Purchase Agreement (SPA) entered into with Tata Power Renewable Energy Limited and TP Mercury Limited, the Company has acquired 26% of the equity share capital of TP Mercury Limited for a consideration of INR 1.36 crores. TP Mercury Limited is a SPV with Tata Power Renewable Energy Limited for sourcing Solar energy for the Companys Ranjangaon Unit under Captive Open Access mode, from a 3.125 MW (approximately 4.5 MWp) facility being set-up. While generation equipment installation is about 90% complete, Tata Power team had communicated some delays in erection of the transmission systems pending State Government approvals, which have since been resolved. The associate company is expected to commence supply of lower cost solar energy through Open Access to the Companys Ranjangaon unit by October 2024.

We believe all our businesses are backed by necessary skills and expertise; our core competency can be seen to lie in the extrusion field, particularly co-extrusion. Our market standing is generally representative of the competitiveness of our core operations and high quality of our products and services. The Company, being essentially a business-to-business supplier, has its output really determined by the end-markets of its industrial clients. Resultantly demand and related pricing power of the Company can get influenced by several factors such as consumer sentiment, production of electrical goods, and aggressive pricing tactics adopted by foreign suppliers (sometimes due to spillover from their regular markets).

It may be mentioned that the plastics industry as a general class, particularly in the context of single-use plastics, has been kept entangled with environmental concerns. None of the Companys product ranges have, however, been linked with these environmental concerns.

Company and Industry Structure

Company operations are focused around our core competencies viz. Polymers Business, organized into 3 operating units each with multiple manufacturing lines. Each operating unit is kept self-sufficient managerially to perform its own duties and functions. Marketing is a central function with finance, legal and other support provided at a corporate level as and when required. For day-to-day management convenience the operations have been organized into divisions, as under:

* under implementation

A summary of performance is given below:

(Net of inter-unit adjustments; Production includes sheet for captive consumption for forming)

(Additionally, toll-manufacture of 1,250 MT ( INR 5.08 crore) BOPP films were undertaken in 2022-23 in erstwhile unit, transferred w.e.f. October 20, 202 2)

The industry structure in the field of polymers processing is spread wide, from miniscule to fairly large capacities. There is usually no direct thumb-rule in terms of "size vs. profitability"; it is possible for players to work out their own viable economics depending upon various factors, mainly a combination of product mix and market segment or niche. Supply chain linkages to clients play an additional role for some. Since polymers are generally freely available at prices synchronized to global prices, market focus besides technical and service competence has been the key to success. It is fair to say that the Company is a mid-sized player with significant strengths in its market segments, but remains subject to usual market pressures. In the overall, the Companys operations are relatively capital intensive; raw material and power constitute the largest proportions of direct costs. We believe that opportunities are substantial both in terms of market growth and product diversity and that threats from replacement products are not significant. The main raw materials used by the Company are Thermoplastic Resins (such as Polypropylene, including special grades for dielectric films, Styrenic Polymers and LD/LLD Polyethylene, etc.).

We firmly recognize that total customer satisfaction is the key to our success. Our aim is to build sound customer relationships through creation of value for them, and in the process earn an equitable return for ourselves. Quality is built into products through appropriate manufacturing technology and work methods. Manufacturing at all units is carried out by suitably qualified personnel under strict quality standards. Continuous product development for specific applications and equipment up-gradation has helped us in proactively developing technically sustainable solutions with clear customer benefits. Integrated Management Systems (IMS) covering Quality, Environmental, Energy Policies and Safety & Health standards at Biax Division, Barjora Unit have been duly certified under ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018. Biax Barjora Unit manufacturing dielectric films is also certified under IATF 16949:2016 which is mandatory for organizations manufacturing parts for the automotive industry. Similarly, Quality Management Systems at Coex division manufacturing unit at Greater Noida and Ranjangaon are certified under relevant ISO 9001:2015 standards. The Environmental Management Systems at Ranjangaon and Greater Noida units are duly certified under ISO 14001:2015 standards. Energy management and conservation systems at Barjora Unit and Greater Noida unit have been accredited under ISO 50001:2018. Manufacturing units also adopt and conform to specialized quality systems and methods as may be required by major customers. The Companys Coex division - Greater Noida Unit and Ranjangaon Unit have received a Silver and a Bronze rating respectively under the Green Co initiative reflecting adoption of a life cycle approach towards ecological sustainability and steps taken to make products, services and operations greener.

The Company consistently receives awards on recognition and appreciation for vendor support, product development, quality and excellence by leading customers. Awards received during the year include (a) at the 48th ELCINA Awards for performance in 2022-23: First Prize for Excellence in Quality Management, Second Prize for Business Excellence, Second Prize for Excellence in Research & Development, Certificate of Merit for Excellence in Innovation and Certificate of merit for Excellence in Environmental Protection & Sustainable Development; (b) 3rd FICCI & Ministry of Chemicals & Fertilizers, Department of Chemicals & Petrochemicals, Leader in Water Management Award 2023; (c) 1st FICCI Excellence in Plant Maintenance (Silver award); (d) at the 9th The Machinist (Times of India) Super Shop Floor Awards: First Prize for Excellence in Quality, and 2nd Prize for Excellence in Innovation; and (e) 1st Prize for Excellence in Product Innovation at the QuPID PRO MFG Media Awards 2023-24.

Dielectric (Capacitor)Films

Biax division Barjora Unit manufactures a range of special purpose Polypropylene based Dielectric Films (Capacitor Films) on dedicated sophisticated and automated production lines, Our focus and strategic intent remains dedicated within our core strengths to special products and niche markets, largely thin films for specialized electrical applications, where we remain the significant domestic producer and which together with consistent high quality and service standards has enabled us to maintain high capacity utilization. Customers in sophisticated segments have upgraded their processes and equipment thus requiring upgraded film products. The broad portfolio of low, medium and high voltage applications in standard and high temperature grade dielectric films ranging from 3 micron to 16 micron for metallized polypropylene as well as oil impregnated capacitors, developed as import substitutes conforming to international standards, have brought substantial benefits to Indian capacitor manufacturing units, while already contributing substantially to the overall performance of the Company. Our available capacity is fully utilized, maintaining a respectable domestic market share through the year (over 30% - with the balance being substantially met through imports), besides export opportunities pursued from a strategic and long term intent. Besides growth in conventional applications, growth in the electric automobile (EV) segment and non-conventional energy (mainly Solar) is expected to substantially add to the market potential. Development activities for semi-rough films and ultra-thin films are continuously undertaken; hazy films for power capacitors and semi-rough film developed for locomotive applications are now commercialized and part of the product range. Considering the need for additional capacity, we have placed firm orders for two manufacturing lines (together with required ancillary equipment) on reputed well established European Suppliers. The first of the new lines, which would essentially double capacity at the existing facility at Barjora, is expected to be in commercial operation during the second half of 2024-25. The second line is expected to be shipped end-2024, taking into account long equipment delivery periods - which incidentally is the critical-path activity for this investment. Project implementation work is proceeding to schedule. Production of Dielectric/Capacitor films at Barjora was 3,629 MT (3,635 MT previous year) and sales value was INR 145.90 crores (INR 156.35 crores) During the year Film thickness measuring and control system was further enhanced and upgraded at Barjora Dielectric Films unit. The erstwhile packaging film line was transferred to the buyer on October 20, 2022 and production/toll-manufacture discontinued immediately thereafter.

Coextruded sheets & thermoformed refrigerator liners

Coextruded sheets, and thermoformed refrigerator liners are manufactured on multiple lines available with Coex division units at Ranjangaon and Greater Noida. Our products are usually custom-made to customer needs and based on various polymers including ABS, Polystyrene, and PP. Applications for the Xpro product range are wide, including sheets for refrigerator liners, disposable containers, automotive parts, etc. India remains one of the fastest growing consumer appliances markets globally with higher disposable incomes, easing in consumer credit, the growing working population rural electrification and the work-from-home concept being the key drivers of demand. The production of refrigerators in India, comprising a key market for Xpro Coextruded Sheets and Thermoformed Liners, grew by 7% to 16.34 million units during the year, reflecting a slowing growth rate over the 17% achieved in the previous year. During April - September 2023, the market was flattish to slightly declining in volume terms. A slow recovery commenced in the third quarter with low single digit growth rates, improving with the festival season amidst expectation of strong demand recovery and a good summer. In the overall, production of sheets and liners during the year was higher by about 2.5%. We continue to be the leading supplier of sheets and liners to the white goods industry through consistent focus on product quality, development, reliability and superior service, which have also been recognized by major customers; these factors helped us to sustain market share. New products and applications continue to be developed in association with key customers. Reflecting overall market circumstances, the total production of sheets, including as liners, (adjusted for inter-unit transfers) at the Greater Noida and Ranjangaon units was 20,447 MT during the year with sales value at INR 255.64 crores.

Cast Coextruded Films

Cast Coextruded Films are high clarity films including stretch wrap and cling, specially formulated films for medical disposables, hygiene films, and others for packaging. In the cast films segment, our focus has been on special films and continuous innovation. Within our major market segments for cast films, the hygiene segment continues to exhibit consistent growth in excess of 10% per annum, with the medical disposables and adult incontinent product segments, in particular, poised for high growth; the release film segment also grew reflecting our continued strong presence in the tyres and tread segment. Steps are being continuously taken to optimize the production capabilities and improve production efficiencies on available cast film lines. Overall volumes in cast films from Ranjangaon, where are lines are located, at 3,815 MT was about 25 % higher than in the previous year. Sales value was INR 59.38 crores (INR 53.58 crores).

Environment and Safety

We firmly believe that safe and healthy working conditions in factories and other premises are as necessary and important as production, productivity and quality. Our policy requires conduct of activities to take foremost account of health and safety of all concerned, besides conservation of natural resources and protection of the environment to the extent possible. All necessary steps are taken towards our intent and policy of a safe working environment. We adhere to all Environmental laws as applicable at each location and are responding effectively to the changing regulations around plastic waste management.

Human Resources

Employees represent our greatest asset and potential. It is only through motivated, creative and business-minded employees that we can achieve our aims. Involvement, commitment, teamwork and updating of skills and knowledge are integral to our objectives of advancing a professional, productive high performance culture, built on trust and mutual respect. Permanent employment is 211 (last year 203).

Others

The Indian economy is expected to achieve close to 7% growth in 2024-25, based on strong high-frequency indicators, an above normal monsoon forecast and a benign global outlook, with several global development bank projections having been recently revised upwards to between 6.6% and 7%. Future growth would be driven by buoyant public investment, the governments continuing infrastructure push, and improved business confidence even as private consumption growth recovery remains. Logistics, demand patterns and labour remain uncertain variables. The global situation may further be compounded by the geo-political uncertainties arising from the war in Europe and the Middle East, and weather related shocks. We continue taking steps to conserve and protect liquidity. Our drivers remain scaling up profitable core operations, continuous innovation, operational excellence and competitiveness while learning to adapt thinking and operations with agility to the new normal. Barring any unforeseeable or extraordinary disruptive policy actions, there are no further or typical areas of risks or concerns outside the usual course of business, or the state of the economy, foreseeable at this time. Our primary manufacturing processes (including extrusion) are well established and our focus remains on timely capacity enhancement, process and efficiency improvements, and product & application development to provide a competitive edge. Internal control systems have been found to be adequate and are continuously reviewed for improvements. Our team is committed to the Boards dictates on standards of conduct as well as good governance and exercise of due diligence. We have taken all care to comply with applicable laws and regulations. The Company continues its initiatives towards operational improvements with a special emphasis on quality, control of overheads and broad-basing of markets, while focusing on managing uncertainties in a proactive manner. While domestic demand is expected to remain the main driver of growth, export market expansion is also a key target area. Positive policy actions towards growth, global climate change and steps towards control of carbon dioxide emission, control on inflation and rural income support are expected to translate into improved market sentiment boosting domestic and global consumption. However, the external environment, food inflation arising from extreme weather, tightening financial markets, pressures generated by imports competing with some products, potential crude and polymer price volatility and rupee volatility, continues to remain challenging. In the overall our outlook continues to remain one of cautious optimism. Our sincere thanks are due to all employees and teammates whose dedicated and hard work allowed results to be achieved. We are grateful to all our Bankers and all concerned Authorities for their continued support, and to all our customers for their faith and confidence. We remain committed to fullest customer satisfaction.

CAUTIONARY STATEMENT

Statements or narratives in this Report which seek to describe the Companys objectives, reasonable expectations, projections, estimates or predictions, or the Companys assessment of external circumstances (beyond its control) going forward, may be considered to be "forward-looking statements" within the meaning of applicable securities laws or regulations. Actual future results could differ materially from any expressed or implied. Additional important factors that could make a difference to the Companys operations and results include global and Indian containment, medical and economic recovery from possible recurrences of variants driven pandemic and, demand-supply conditions, effects of any extraordinary policy actions - domestic or global, supply chain disruptions generated by geopolitical turmoil, finished goods prices, feedstock availability and prices, power tariffs, cyclical demand and pricing in the Companys markets, changes in Government regulations, tax and tariff regimes, economic policies and developments within India and countries with which the Company conducts business besides other factors including but not limited to natural events, litigation and labour matters.