Akar Auto Industries Ltd Management Discussions

Industry Structure and Developments:

GDP: Indias Real GDP (constant prices) is estimated to reach ~ H323 lakh crore in FY26, compared to around H300 lakh crore in FY25, reflecting continued economic expansion. Real GDP growth is estimated at ~ 7.6%, while nominal GDP is expected to grow by ~ 8.6%, supported by stable inflation within the tolerance band.

Indias economic growth during the year was driven by strong domestic demand, particularly urban consumption, robust services sector performance, and sustained public capital expenditure, while investment activity showed gradual improvement. Within this macroeconomic backdrop, FY26 for the automotive industry evolved as a "tale of two halves". In the first half of the year, demand relatively muted, consumer sentiment remained cautious, and growth was largely supported by underlying demand trends and festive build-up.

According to the IMFs World Economic Outlook (April 2026), global growth is projected at 3.1% in 2026, increasing marginally to 3.2% in 2027, supported by easing inflation and stable financial conditions. Global headline inflation is forecast to decline from 4.4% in 2026 to 3.7% in 2027. However, the external environment remains fragile, with intermittent flare ups in trade policy and geopolitics continuing to shape risk sentiment and capital flows.

Geopolitical risks have intensified, particularly due to escalating tensions in the Middle East, including Iran- related developments, which pose upside risks to energy prices and could reignite global inflationary pressures. Simultaneously, US-China trade relations remain uncertain, shaped by selective tariff adjustments, export controls in strategic sectors such as semiconductors and rare earths, and evolving bilateral arrangements.

Against this backdrop, India continues to be one of the fastest-growing major economies globally, demonstrating resilience despite geopolitical uncertainties, supply- chain disruptions, and evolving trade dynamics. Strong domestic consumption, government-led infrastructure

investment, digital transformation, and manufacturing growth continue to underpin economic activity.

Automobile Industry:

The Indian automobile industry has long been a reliable barometer of economic performance, given its critical role in both macroeconomic expansion and technological advancement. Within the sector, the twowheeler segment dominates in terms of volume, driven by a growing middle class, a predominantly young population, and rising demand from rural markets. Demand for commercial vehicles has also strengthened, supported by the expansion of logistics and passenger transportation services. Market growth is expected to be shaped by emerging trends such as vehicle electrification, particularly in three-wheelers and small passenger cars.

Automobile exports rose 19% in FY25 to over 5.3 million units, led by robust demand for passenger vehicles, two- wheelers, and commercial vehicles in global markets. Complementing this momentum, government initiatives such as the Automotive Mission Plan 2026, the scrappage policy, and the production-linked incentive (PLI) scheme are expected to position India as a global leader in both the two-wheeler and four-wheeler markets.

India enjoys a strong position in the global heavy vehicles market as the largest tractor producer, second- largest bus manufacturer, and third-largest heavy truck manufacturer in the world. The total production of Passenger Vehicles*, Three Wheelers, Two Wheelers, and Quadricycle in January 2026 was ~2.9 million units. Two- wheelers and passenger vehicles dominate the domestic Indian auto market. Two-wheelers and passenger cars accounted for 77.26% and 16.13% of market shares, respectively, In FY26 (April-December 2025) Passenger car sales are dominated by small and midsized cars.

Indias auto-component industry is poised to reach US$ 200 billion by 2030, supported by its cost competitiveness, skilled workforce, and growing domestic demand, according to a McKinsey report titled Shaping the future of Indias auto component industry.

Opportunities:

The medium to long-term outlook for the Indian automotive industry remains highly positive. Growth is expected to be driven by rising motorisation levels, infrastructure development, premiumisation, export expansion, localisation initiatives, and the transition toward sustainable mobility. While short-term challenges such as commodity price fluctuations, regulatory changes and global economic uncertainties may persist, Indias automotive sector is well positioned to remain one of the key pillars of the countrys manufacturing and economic growth story.

The Company operates in the automotive and engineering manufacturing sector, which is expected to benefit from Indias continued economic expansion, rising infrastructure investment, increasing vehicle ownership, and the Governments sustained focus on domestic manufacturing. The medium to long-term outlook for the industry remains favourable, creating several opportunities for Akar Auto Industries Limited across its product segments of leaf springs, forged components, and engineering products.

Indias growing emphasis on Make in India, Atmanirbhar Bharat, and production-linked manufacturing initiatives is encouraging greater localisation of automotive and engineering supply chains. Global OEMs and component manufacturers are increasingly diversifying sourcing away from concentrated manufacturing geographies, creating export opportunities for cost- competitive Indian manufacturers with established manufacturing capabilities and quality systems. The Company is well positioned to leverage this shift through its manufacturing infrastructure, technical capabilities, and long-standing relationships with customers in the automotive and engineering sectors.

In addition, the Companys initiatives towards energy cost optimisation through renewable power sourcing and operational efficiency improvements are expected to enhance cost competitiveness and improve margins over the long term. Lower energy costs, improved manufacturing productivity, and prudent capital allocation will enable the Company to compete more effectively in both domestic and export markets.

While global geopolitical developments, commodity price volatility, and trade policy uncertainties remain important

external considerations, Indias strong domestic demand, infrastructure-led growth, and manufacturing expansion continue to provide a favourable operating environment. The Company remains focused on capacity utilisation, product quality, customer diversification, export development, and cost optimisation to capitalise on emerging opportunities and strengthen its long-term growth trajectory.

Threats:

The Company operates in a highly competitive automotive and engineering manufacturing environment and remains exposed to a range of domestic and global risk factors that could affect demand, costs, and overall profitability.

Volatility in the prices of key raw materials, particularly steel and alloy steel, continues to be one of the most significant risks for the Company. Fluctuations in input costs may not always be passed on to customers immediately, resulting in pressure on operating margins and working capital requirements.

The automotive industry is inherently cyclical and closely linked to economic activity, freight movement, infrastructure spending, and industrial production. Any slowdown in commercial vehicle demand, delays in infrastructure projects, reduced industrial output, or moderation in capital expenditure by OEMs could adversely impact demand for leaf springs, forged components, and other engineering products manufactured by the Company.

The external environment remains uncertain due to geopolitical tensions, including developments in the Middle East and evolving global trade policies. Such events can disrupt international supply chains, increase freight and logistics costs, create volatility in energy prices, and affect the availability and cost of raw materials and imported inputs. Changes in tariff structures, export controls, or trade restrictions may also influence the competitiveness of Indian manufacturing exports.

The automotive sector is undergoing rapid technological transformation, including increasing adoption of electric vehicles, lightweight materials, and alternative suspension technologies. Failure to adapt product offerings, manufacturing processes, and customer requirements in line with evolving industry trends could affect the Companys long-term competitiveness.

Intense competition from domestic and international manufacturers continues to exert pressure on pricing, product quality, delivery performance, and customer retention. The Company also faces the risk of customer concentration, whereby any reduction in business from key OEM or aftermarket customers could have an impact on revenue and capacity utilisation.

The Company continues to monitor these risks proactively and remains focused on strengthening customer diversification, improving operational efficiency, enhancing product quality, optimising procurement, and maintaining prudent financial discipline to mitigate the impact of adverse market conditions.

Segment-wise or product-wise performance:

The information in this regard is given in Note No. 39 of the Notes forming part of the financial statements.

Outlook:

The outlook for the Indian economy remains positive, supported by sustained public infrastructure investment, increasing private capital expenditure, improving rural demand, and continued emphasis on domestic manufacturing under the Make in India and Atmanirbhar Bharat initiatives. India is expected to remain one of the fastest-growing major economies globally, providing a favourable environment for the automotive and engineering manufacturing sectors.

The Company expects demand from the commercial vehicle, trailer, agricultural equipment, and industrial engineering segments to remain stable over the medium term. Continued investment in roads, highways, railways, logistics infrastructure, construction, and mining is expected to support freight movement and transportation activity, thereby creating opportunities for manufacturers of leaf springs, forged components, and engineering products.

During the year, the Company continued to focus on operational efficiencies, cost optimisation, and energy management initiatives. The utilisation of renewable power under the open-access framework is expected to contribute to lower energy costs and improved manufacturing competitiveness over the long term. The Company will continue to pursue initiatives aimed at improving productivity, enhancing product quality, optimising procurement, and strengthening working capital management.

With its established manufacturing capabilities, experienced management team, long-standing customer relationships, and continued focus on efficiency and value creation, Company is well positioned to capitalise on emerging opportunities in the automotive and engineering sectors and pursue sustainable long-term growth.

Risks and Concerns:

The Company operates in the Hand Tools, Leaf Springs, and Forging segments, which are exposed to various domestic and global business risks. One of the key risks for the Company is the volatility in prices of steel and alloy steel, which constitute a significant portion of the raw material cost across all business verticals. Fluctuations in input prices, energy costs, freight charges, and foreign exchange rates can affect profitability, particularly where cost increases cannot be passed on to customers immediately.

In addition, disruptions in global supply chains, geopolitical tensions, and changes in international trade policies may impact the availability, cost, and movement of raw materials and finished goods.

The Companys performance is also influenced by the overall health of the automotive, engineering, construction, and industrial sectors. Any slowdown in commercial vehicle demand, delays in infrastructure projects, reduced industrial activity, or lower capital expenditure by OEMs and industrial customers may affect demand for leaf springs, forged components, and hand tools.

The Company continuously monitors these risks through appropriate internal control systems, procurement planning, customer diversification, inventory management, and operational efficiency initiatives.

Internal Control Systems and their adequacy:

The Company has an adequate system of internal controls in place. It has documented policies and procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls for ensuring reliability of financial reporting, monitoring of operations and protecting assets from unauthorised use or losses, compliances with regulations. The Company has continued its efforts to align all its processes and controls with global best practices.

Financial Performance with respect to Operational Performance:

During the financial year 2025-26, the Company recorded revenue from operations of H34,108.12 Lakhs, as against H37,716.18 Lakhs in the previous financial year 2024-25, registering a decline of 9.57%. The Profit Before Tax (PBT) stood at H395.97 Lakhs for FY 202526, compared to H908.50 Lakhs in the previous financial year. The Profit After Tax (PAT) for FY 2025-26 was H92.18 Lakhs, as against H645.49 Lakhs in FY 2024-25.

Material Developments in Human Resources / Industrial Relation:

The Company believes that the success of any organisation depends upon availability of human capital. Our assets are our people who work to innovate

beyond and challenge established boundaries. Thus, employees are vital to the Company. We have favourable y work environment that encourages innovation and _, meritocracy. We focus on attracting the best and _sl brightest talent and the meritocracy is the sole criteria for

It selection. The Company firmly believes that manpower is the most important asset, above all. The Company has l good cordial relation with trade union and employees _s representatives and views these relationships as contributing positively to the success of the business. The total number of employees of the Company as on March 31, 2026 stood at 333.

Statements in the Management Discussion and Analysis describing the Companys objective, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.