Arabian Petroleum Ltd Management Discussions

GLOBAL ECONOMIC SCENARIO

In 2024, the global economy experienced moderate growth of 3.3% (IMF World Economic Outlook, April 2025) amid a challenging macroeconomic environment. Persistent geopolitical tensions, disruptions in trade routes, and high interest rates in major economies created headwinds for global trade and consumption. However, resilient labour markets, easing inflationary pressures, and stable private consumption helped sustain economic activity, particularly in emerging markets.

Global headline inflation continued its downward trajectory, declining from 6.7% in CY 2023 to 5.8% in CY 2024. However, it varies widely across regions while many advanced economies are making significant progress towards meeting their target inflation rates, some emerging markets continue to grapple with high inflation due to currency depreciation and lingering supply chain disruptions. As inflationary pressures eased, major central banks began to pivot away from tight monetary policies and initiate gradual interest rate cuts, potentially improving liquidity conditions and supporting a revival in private investment.

Looking ahead to 2025, the IMF has cut its forecast for the global economic growth to 2.8% following tariff measures being announced by the United States and countermeasures taken by its trading partners. Global growth is expected to recover to 3% in 2026. The United States and the Euro Areas are expected to grow at 1.8% and 0.8% respectively. The emerging markets while impacted by the tariff shocks continue to be the growth drivers and are expected to grow by 3.7% in 2025 and 3.9% in 2026.

DOMESTIC ECONOMIC SCENARIO

India remained one of the fastest-growing major economies in FY 2025, demonstrating strong macroeconomic fundamentals despite global uncertainties. The economy grew at a robust pace, supported by resilient domestic demand, infrastructure-led government spending, and gradual easing of inflationary pressures. According to estimates, Indias GDP growth for FY 2024 25 is expected to remain strong at around 7.0%, following a growth of 7.6% in FY 2023 24. This sustained momentum was driven by higher public capex, strong private consumption, and a recovery in the manufacturing and construction sectors. Services and digital infrastructure also played a key role in boosting economic activity.

Key economic indicators and trends:

- Inflation remained within the Reserve Bank of Indias target range, with CPI inflation expected to average around 5.4% in FY 2025, helping stabilize input costs.

- The RBI maintained a tight monetary policy stance, keeping the repo rate at 6.5%, balancing growth and inflation control. - Crude oil import volumes remained high, reflecting strong domestic energy demand across transportation, industrial, and power sectors. - The Indian Rupee remained stable despite global currency volatility, supported by strong forex reserves and capital inflows. For the petroleum sector, domestic consumption of petroleum products witnessed steady growth, with increased demand from mobility, aviation, and industrial segments. Demand for petrol, diesel, and LPG continued to rise, supported by urban expansion and rural energy needs. The governments focus on energy security, refining capacity enhancement, and transition towards cleaner fuels also shaped sectoral priorities.

Indias energy landscape is evolving, with a continued emphasis on balancing fossil fuel use with clean energy targets. However, in the medium term, petroleum remains critical to meeting the countrys growing energy demand.

INDUSTRY REVIEW

The petroleum sector in India plays a pivotal role in meeting the countrys energy requirements. During FY 2025 26:

- Demand Growth: Fuel consumption in transportation, aviation turbine fuel, and industrial sectors continued to expand, supporting refinery throughput. - Refining & Marketing: Indian refiners focused on balancing export opportunities with growing domestic demand. Private refiners increased supply to the domestic market to capture rising retail demand. - Crude Price Volatility: Global crude oil price fluctuations affected input costs, necessitating careful inventory and hedging strategies. - Lubricant Segment: Lubricant demand recorded steady growth, supported by automotive recovery and industrial activities. Premiumisation trends continued with increasing adoption of synthetic and semi-synthetic lubricants. - Sustainability Push: Companies invested in cleaner fuels, low-sulphur products, and renewable integration (biofuels, ethanol blending, hydrogen pilots).

INDIAN LUBRICANT INDUSTRY

The Indian lubricant industry exhibited stable performance in FY 2025, supported by sustained growth in the automotive, industrial, and infrastructure sectors. India continues to be the third-largest lubricant market globally, following the U.S. and China, with a well-diversified demand base across sectors.

1. Market Overview

The lubricant market in India grew at an estimated 3 4% during FY 2025 in volume terms, aided by: - A rebound in automobile sales, especially in the two-wheeler and passenger vehicle segments. - Strong rural demand driven by higher agricultural activity and stable monsoons.

- Continued momentum in the infrastructure and construction sectors, boosting demand for industrial lubricants. - Increased use of synthetic and high-performance lubricants across automotive and industrial applications. The market is broadly categorized into: - Automotive Lubricants (accounting for ~55 60% of total demand)

- Industrial Lubricants (~30 35%)

- Marine and other specialty applications (~5 10%) 2. Segmental Trends

- Automotive Lubricants: Growth was driven by increased vehicle usage, improving road infrastructure, and expansion in personal mobility. OEM tie-ups and demand for synthetic engine oils also contributed to value growth. - Industrial Lubricants: Demand remained firm, particularly from sectors like steel, cement, textiles, and general manufacturing. Focus on energy efficiency and maintenance optimization boosted the uptake of high-performance lubricants. - Greases and Specialties: Though a niche segment, demand for specialty greases grew moderately, supported by the needs of sectors like railways and mining.

3. Trends and Challenges

- Shift toward synthetic and semi-synthetic lubricants due to improved engine technologies and emission standards (BS-VI). - Growth in EVs is gradually reshaping the demand outlook for automotive lubricants, though the impact remains limited in the near term. - Raw material cost volatility (base oils and additives) influenced margins across the value chain.

- Sustainability focus, with increased interest in biodegradable and energy-efficient lubricants.

The Indian lubricant market is expected to remain on a stable growth trajectory, supported by increasing mechanisation, evolving mobility needs, and the expanding industrial base. While electrification in transport may gradually impact traditional automotive lubricants, diversification into specialty fluids, synthetic oils, and industrial applications is expected to drive future growth. Companies focusing on innovation, supply chain agility, and customer-centric solutions will be well positioned in the evolving market landscape.

Growth Catalysts

Automotive growth - The expanding automotive sector, driven by rising vehicle ownership, especially two wheelers and passenger cars, will significantly boost demand for lubricants in India. Increased rural vehicle usage and growing logistics, with more commercial vehicles on the road, will further propel lubricant consumption, particularly heavy-duty variants. Vehicle Ownership Potential - As income levels rise in India, crossing the $2,700 per annum threshold, vehicle ownership is expected to surge, contributing to greater demand for automotive lubricants. Strong Prospects from the Rural Economy - Along with increased mechanization and automation of farming activities, machinery such as tractors finds extensive usage in the agriculture sector. This is expected to drive demand for lubricants in the rural economy as well. Advancement of Engine Technology - With a focus on emission control and efficiency, new technology is being used to improve the capacity of engines. The replacement of older BS III or BS IV with newer BS VI will enhance fuel efficiency and increase the demand for superior-quality lubricants. Along with this, increased use of lighter viscosity and synthetic oils will further drive value growth.

Indias positioning as a Manufacturing Hub - The governments emphasis on Atmanirbhar Bharat and Make in India has helped increase the manufacturing output of Indian companies and positioned the country as a global manufacturing hub.

The China+1 strategy is also enhancing Indias prospects as a manufacturing hub.

Positive Demographic Trends - Urban migration and a younger population are fueling demand for personal and commercial transportation, thereby increasing lubricant usage. The expected doubling of the middle class by 2047 will further drive demand for higher quality products, brands, and services in the vehicle and lubricant markets.

OUR BUSINESS:

We are in the business of manufacturing wide range of Lubricants including Specialty Oils, Coolants etc used for Industrial and Automotive applications. Our business is categorized into two distinctive product division: (i) Automotive Lubricants Arzol and (ii) Industrial Lubricants Daimler Trucks. We are dedicated to consistently providing products that deliver stellar quality and comply with statutory requirements in the Automotive and Industrial Lubricants domain.

Our domestic and international customers are spread across multiple industries, including pharmaceutical, FMCG, chemicals, steel, rubber and tyre, power, civil engineering, electrical appliances, textile, telecommunication, chemical, cables and conductors and automobile industry etc. Apart from private players, we also derive our revenues under the contracts from the Government sectors (both central and state) and associated entities. We are honoured to be one of the suppliers of lubricants to the Indian Armed Forces and have successfully delivered lubricant products to Border Security Force (BSF), Indian Air Force (IAF) and Indian Navy across various parts of the country. We have product approval certification from Volvo Group Trucks Technology, Renault Group and MACK Trucks for our product "Milage Synactivs 15W-40" engine oil. We have recently received OEM approval from Bharat Earth Movers Limited

(Formerly BEML Limited) for their entire range of products like Engine oil, hydraulic oil etc.

We also manufacture and package lubricants on private label basis for some of the customers for B2B as well as B2C verticals. Some of our clientele include: Varroc Engineering Limited, Mahindra First Choice Services Limited, Greaves Cotton Limited, Gabriel India Limited, Ki Mobility Solutions Private Limited - TVS Group Company, HELLA India Lighting Ltd, Petrel plus Inc, Nand Persaud & Co Ltd, J K Files (India) Limited - a Raymond Group Company, Godrej & Boyce Manufacturing Co. ltd etc. We also have government clientele including BEML Limited, Bharat Coking Coal Limited, Bharat Electronics Limited, Bharat Heavy Electricals Limited, Hindustan Aeronautics Limited, Indian Air Force, Mazagon Dock Shipbuilders Limited, Indian Navy (Controller of Procurement Material Organisation), Municipal Corporation of Greater Mumbai, Indian Railway, Western Coalfields Limited, South-Eastern Coalfields Limited, Northern Coalfields Limited etc. Furthermore, we are exporting our products to countries like: Guyana, Oman, Qatar, Vietnam, Sri Lanka, Sierre Leone, Zambia, Bangladesh, Chile, Jordan, Seychelles, Maldives, Fiji, Congo, Gautemala, Suriname, Peru, Mauritius, Dubai etc.

OUR COMPETITIVE STRENGTHS

We are one of the few manufacturers in India with comprehensive in-house capabilities of developing and manufacturing various types of Automotive and Industrial Lubricants including Specialty Oils, Coolants etc. Our products cater to multiple industries like: pharmaceutical, FMCG, chemicals, steel, rubber and tyre, power, civil engineering, electrical appliances, textile, telecommunication, chemical, cables and conductors and automobile industry etc. Our Company develops and manufactures a wide range of lubricating products with excellent demulsibility, oxidation and high thermal stability, low operational cost, protection against rust and corrosion, improved cleanliness, good water separating capability etc. We have special tailor-made products for onward usage by our customers to ensure efficient and effective functioning of their engines, appliances or machineries contributing to reduction in wear, noise and vibration levels through proper lubrication. All raw materials procured for manufacturing our products are sourced from trusted vendors and our quality control team applies stringent quality measurements at every manufacturing stage to ensure low rejection rate such that our finished product confirms to the exact requirement of our customers and successfully passes all validations and quality checks.

Moreover, our company has entered into exclusive agreement with the subsidiary company of Ukraine based XADO group for use of its raw materials with revitalizing technology in blending its PROBUZ and REVERTO lubricants. Owing to the critical end applications of our products and such stringent quality requirements, we believe it becomes very difficult for new players to get qualified for the products we manufacture.

Strengthening our Industrial and Automotive lubricants products portfolio

We believe increased focus on Industrial and Automotive lubricants product portfolio will result in consolidating our market position, broadening our offering capabilities in the industry and enhancing our brand visibility. We propose to strategically move along the production chain and diversify our product offerings beyond the existing range of oils, lubricants and greases we currently offer. We intend to further diversify our product base and include more value-added products which yield better margins such as Specialty metalworking fluids, Auto care range of products, Mechanical Maintenance products, etc.

For ARABIAN PETROLEUM LIMITED

SD/-

HEMANT DALSUKHRAI MEHTA

CHAIRMAN & MANAGING DIRECTOR

DIN: 02507616