Aarnav Fashions Ltd Management Discussions

Global Economy

The global economy has held up better than many expected. The IMFs latest estimates put 2025 growth at around 3.2%, easing only slightly to 3.1% in 2026, helped along by front-loaded trade activity ahead of tariff changes, softer effective tariff rates, and easier financial conditions in several major economies. Advanced economies are tracking growth of roughly 1.5-1.6%, while emerging and developing economies remain the primary growth engine at just above 4%.

The US economy has continued to show resilience, supported by steady consumer spending and a gradually easing interest rate environment, with growth expected near 2.4% in 2026. The Eurozone remains the relative laggard among major blocs, still weighed down by soft industrial demand and structural rigidities in labour and capital markets. China continues to "normalise" toward more moderate, lower single-digit growth as stress in its property sector persists.

Global headline inflation has continued to cool, estimated at around 4.1% for 2025 and projected to ease further to roughly 3.8% in 2026. That said, the path isnt perfectly smooth — geopolitical tensions, including the conflict in the Middle East, and shifting trade policy remain the key swing factors that could push growth or inflation off course. On balance, 2025-26 has been a story of cautious resilience: growth holding up better than feared, inflation trending the right way, but with real downside risk still on the table.

Indian Economy

Indias growth story has, if anything, strengthened over the past year. Real GDP grew 7.8% in Q1 FY 2025-26 — a five- quarter high at the time — and then surprised further with 8.2% growth in Q2, comfortably ahead of the RBIs own projections. On the back of this momentum, the RBI has revised its full-year FY 2025-26 growth forecast upward more than once, moving from 6.5% to 6.8% and then to 7.3%, with some private estimates now running closer to 7.6%.

This acceleration has been driven by resilient private consumption (up nearly 7.9% in Q2), a pickup in investment activity, and tailwinds from the GST rate rationalisation effective September 2025, softer crude prices, and continued monetary easing. Manufacturing (up 9.1% in Q2) and financial, real estate and professional services (up over 10%) have been standout performers, while agriculture posted a more moderate 3.5%.

Inflation has been the other bright spot for the year — CPI inflation fell to an eight-year low of around 1.6% by mid-2025 before ticking up modestly, staying comfortably within the RBIs target band and giving the central bank room to keep policy supportive. Indias external position has also improved, with the current account deficit narrowing on the back of strong services exports and record remittance inflows.

Looking ahead to FY 2026-27, growth is expected to moderate somewhat but remain robust, with RBI projections pointing to around 6.6-6.9% and the IMFs latest estimate for India at roughly 6.3-6.5%. Indias ambition to sustain close to 8% annual growth on the road to its 2047 developed-economy goal remains intact, though it will continue to hinge on lifting capital formation and deepening participation in global value chains.

Outlook — Macroeconomics

Indias position as the worlds fourth-largest economy, with a GDP of about USD 4 trillion, reflects real structural progress rather than a one-off cyclical bounce. The outlook for the rest of FY 2025-26 and into FY 2026-27 remains constructive, underpinned by strong domestic investment, expanding manufacturing activity, and improving trade and financial market conditions.

Several policy measures already put in place are expected to keep consumption momentum going. The revision of the income tax exemption limit to ^12.75 lakh has added to household disposable income, and the GST rate rationalisation rolled out in September 2025 has meaningfully lowered consumer prices across a broad basket of goods. The RBI, after a cumulative 100 basis point rate cut through the first half of 2025, has kept the repo rate steady at 5.25% through 2026 under a neutral stance, balancing continued growth support with inflation vigilance. The 8th Pay Commission, constituted in November 2025, remains in the consultation stage, with the fitment factor and revised pay structure yet to be finalised — actual salary revisions are likely to take effect only over 2027-28, with arrears backdated to January 2026.

Externally, Indias trade agenda has moved from negotiation to execution. The India-UK Comprehensive Economic and Trade Agreement, signed in July 2025, formally came into effect on 15 July 2026, cutting tariffs on the large majority of goods traded between the two countries and opening up better market access for Indian textiles, leather, footwear and engineering goods. Coupled with moderating inflation, this is expected to support consumer demand, broaden market access, and reinforce Indias growth trajectory over the medium term.

Industry Overview

The Indian textile and apparel sector continues to move through a period of real transformation, backed by sustained government support and favourable global demand trends. The Production Linked Incentive (PLI) scheme and the PM MITRA Parks initiative — seven integrated parks approved with a combined outlay of over ^4,445 crore — are progressively building integrated textile hubs with shared infrastructure, common effluent treatment facilities, and accredited testing labs, giving manufacturers scale advantages that were previously out of reach for most players. Branding initiatives such as Kasturi Cotton continue to position Indian cotton as a premium, traceable global commodity.

The industry is also steadily embracing Textiles 4.0 — automation, digitisation, and data-driven production — alongside a growing emphasis on sustainable manufacturing, as global buyers place increasing weight on traceability and environmental compliance. Taken together, these developments should continue to improve productivity, sharpen competitiveness, and draw further foreign investment, positioning India to expand its role as a key global textile hub for both domestic and export demand.

Strengths

• Robust Domestic Market: Indias growing middle class and rising disposable incomes continue to fuel strong domestic demand for textiles and apparel, providing a stable consumption base that cushions the industry against global downturns.

• Competitive Advantage in Cotton: As one of the worlds largest cotton producers, India enjoys raw material security and cost efficiency that supports both domestic manufacturing and exports of cotton-based textiles.

• Government Support: Initiatives such as the PLI scheme, PM MITRA Parks, and export incentives are building world-class infrastructure and strengthening Indias positioning in global value chains.

• Skilled Workforce: A vast pool of skilled and semi-skilled workers in weaving, spinning and garment manufacturing gives the sector flexibility and productivity across traditional and modern setups.

Weaknesses

• Fragmented Industry Structure: The predominance of small and medium enterprises limits economies of scale and bargaining power, constraining investment in technology and brand-building.

• Technology Gaps: Adoption of Industry 4.0 practices — automation, digitisation, advanced manufacturing — remains slower than among global peers, affecting efficiency and competitiveness in high-value markets.

• High Dependence on Cotton: Despite rising global demand for synthetic and blended fabrics, the industrys continued reliance on cotton limits diversification and exposes it to output and price fluctuations.

• Compliance Challenges: Stricter global norms on sustainability, labour, and ESG disclosure remain difficult for many smaller firms to meet, risking reputational damage and lost export opportunities.

Opportunities

• Global Shift to Sustainable Textiles: Rising consumer preference for eco-friendly, organic and recyclable fabrics gives India a chance to differentiate through sustainable production and capture premium markets.

• Rising FDI Inflows: Foreign investment in integrated textile parks and advanced manufacturing is accelerating technology transfer and building global supply chain linkages.

• Export Expansion: The India-UK Comprehensive Economic and Trade Agreement, now in effect from 15 July 2026, cuts tariffs on the bulk of goods traded between the two countries and should meaningfully lift Indias textile and apparel export share; further agreements under negotiation, including with the EU, add to this pipeline.

• Textiles 4.0: Automation, AI-driven production and digital supply chain management can materially improve productivity and cost efficiency, helping Indian firms meet global buyers expectations on speed, transparency and traceability.

Threats

• Global Economic Uncertainty: Slower growth in advanced economies and volatile consumer demand could weigh on export momentum, with any downturn in global retail and fashion markets posing risk to order volumes.

• Geopolitical Tensions: Trade disruptions, evolving tariff structures and currency fluctuations continue to create uncertainty for exporters, with developments in key markets affecting supply chain reliability and profitability.

• Climate Risks: The sector remains highly exposed to climate change, from cotton crop failures due to erratic monsoons to the pressures of water-intensive manufacturing, affecting both input costs and long-term sustainability.

• Intense Global Competition: Competitors such as Bangladesh and Vietnam, with lower production costs and preferential trade access, continue to press on Indias market share and margins.

Risks and Concerns

The Company has put in place a comprehensive risk management system designed not only to identify and manage the risks linked to its operations, but also to inform the decision-making that guides the Company toward its objectives. By curbing potential losses, sharpening how uncertainty is managed, and helping the Company make the most of opportunities as they arise, the framework supports the achievement of the Companys broader goals. Its core purpose remains to anticipate, assess, and mitigate risks capable of materially affecting the Companys business.

Internal Financial Control Systems and their Adequacy

The Company maintains an internal control system that is adequate for its size and the nature of its business, aimed at ensuring operational efficiency and optimum use of resources. These controls safeguard assets, help detect and reduce fraud and error, and support the accuracy, completeness and timely preparation of financial information. Internal audits are carried out on a regular basis.

Discussion on Financial Performance with Respect to Operational Performance

PARTICULARS	2025-2026	2024-2025
Revenue from Operations	46240.44	37908.37
Other Income	67.59	95.31
Total Income	46308.03	38003.68
Profit/(Loss) before Finance Cost, Depreciation & Tax	3074.02	3010.58
Less: Depreciation /Amortization/Impairment	817.48	801.84
Less: Finance Costs	943.43	1019.00
Profit/(Loss) Exceptional items and Tax Expense	1313.11	1225.87
Profit/(Loss) before Tax	1313.11	1225.87
Provision for Taxation - Current Tax	385.00	370.00
Deferred Tax	(91.49)	(82.28)
Excess provision for Tax expense for earlier years	84.97	14.20
Profit for the year	934.64	923.94
Total Comprehensive Income/Loss	1010.16	962.20

REVIEW OF BUSINESS OPERATIONS AND FUTURE PROSPECTS:

During the year under review, Company has earned total income of Rs. 46308.03 Lakh as against the total income of Rs. 38003.68 Lakh of previous year. The total income of the company was up by 21.85% over previous year. Further, Profit before Tax in the financial year 2025-2026 stood at Rs. 1313.11 Lakh as compared to Rs 1225.87 Lakh of last year and Net Profit after Tax stood at Rs. 934.64 Lakh compared to profit of Rs. 923.94 Lakhs for previous year. The profit of the Company increased about 1.16% as compared to previous financial year.

Material Developments in Human Resource / Industrial Relations, Including Number of People Employed

The Company continues to view culture and employee experience as key differentiators in an increasingly competitive landscape, and remains focused on building a workplace where people feel valued, supported and empowered to do their best work. A significant share of our business leaders have grown from within the organization, reflecting our continued emphasis on nurturing internal talent. The Company also continues to prioritise diversity and inclusion, with a particular focus on increasing the representation of women across the workforce.

Details of Significant Changes in Key Financial Ratios, with Explanation

In line with the Listing Regulations, the key financial ratios of the Company are set out below, along with explanations for any change of 25% or more compared to the immediately preceding financial year (treated here as a significant change).

Ratio	FY26	FY25	% Variance	Reason for Variance
Current ratio	1.65	1.54	6.59%	N.A.
Debt-Equity ratio	0.55	0.53	4.40%	N.A.
Debt-Service Coverage ratio	2.39	1.49	60.37%	Decrease in old long-term borrowings
Return on Equity ratio	4.88%	5.06%	-3.49%	N.A.
Inventory Turnover ratio	3.38	2.37	42.53%	Increase in trading sales
Trade Receivable Turnover ratio	4.02	3.69	8.96%	N.A.
Trade Payables Turnover ratio	8.32	5.80	43.50%	Increase in trading purchases
Net Capital Turnover ratio	4.89	4.57	7.04%	N.A.
Net Profit ratio	2.02	2.44	-20.58%	Increase in trading sales
Return on Capital Employed	6.61%	7.12%	-7.13%	N.A.
Return on Investment	0.00%	0.05%	0.00%	N.A.
Interest Coverage ratio	3.46	3.06	12.94%	Decrease in interest expenses

Change in Return on Net Worth

Return on Net Worth (RoNW) has increased substantially compared to the immediately preceding financial year, primarily on account of a significant improvement in Earnings Before Depreciation, Interest and Taxes (EBDIT).

Cautionary Statement

This section contains the Companys objectives, projections, expectations and estimates, which may constitute forwardlooking statements within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events, the accuracy or realisation of which the Company cannot assure. Actual results may differ materially from those expressed or implied on account of factors beyond the Companys control. The Company undertakes no obligation to publicly update, amend or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.