Aro Granite Industries Ltd Management Discussions

Global Economy

The global economy entered FY26 on a steadier footing but lost momentum as the year progressed. The International Monetary Fund estimates that world output grew by about 3.2% in 2025, and projects growth of close to 3% in 2026, a downward revision from the 3.4% expected before conflict in the Middle East disrupted energy markets. Growth in the advanced economies is projected at about 1.8% in 2026, supported by lower policy rates even as elevated trade barriers weighed on sentiment and investment.

Source: IMF, World Economic Outlook, April 2026 and July 2026 Update.

The most consequential development of the year was the reversal of the disinflation seen in the preceding period. Global consumer prices, which rose by 4.1% in 2025, are projected to increase by 4.7% in 2026, as the closure of the Strait of Hormuz late in February 2026 tightened oil and gas supply and pushed energy prices higher. The IMF expects oil prices to be almost a third higher in 2026 than in the prior year, a shift with direct consequences for petrochemical and resin costs. Global debt remained elevated, constraining the room available to policymakers, while the United States economy proved comparatively resilient and China continued to record a large trade surplus.

Source: IMF, World Economic Outlook, April 2026.

Trade policy compounded the uncertainty. A wave of reciprocal tariffs introduced by the United States early in 2025, their subsequent escalation, and their eventual invalidation by the courts, left international trade flows unsettled for much of the year and complicated pricing and procurement decisions across globally traded goods, including natural stone. The interplay of slower growth, renewed inflation and unpredictable trade measures defined an unusually difficult operating environment for exporters.

India remained the fastest-growing major economy through FY26. Provisional estimates from the Ministry of Statistics and Programme Implementation place real GDP growth at 7.7% for the year, up from 7.1% in the previous year, led by an expansion of 10.7% in manufacturing and sustained strength in services. Domestic consumption, public investment and improved agricultural output underpinned the economys resilience amid external headwinds.

Source: Ministry of Statistics and Programme Implementation, Provisional Estimates of Annual GDP, 2025-26.

Retail inflation stayed benign for most of the year, easing well below the mid-point of the Reserve Bank of Indias 2% to 6% tolerance band and averaging close to 2%. This gave the central bank room to support growth. After cumulative reductions of 125 basis points since early 2025, the repo rate stood at 5.25% at the February 2026 review, with the policy stance kept neutral. Gross Goods and Services Tax collections for FY26 crossed ^22.27 lakh crore, an increase of 8.3% over the prior year, and exceeded ^2 lakh crore in a single month for the first time in March 2026, reflecting steady consumption and improved compliance.

Source: Reserve Bank of India, Monetary Policy Statement, February 2026; Ministry of Finance / Press Information Bureau, 2026.

The Reserve Bank has projected GDP growth of 7.4% for the year, and the medium-term outlook remains constructive, anchored by domestic demand, continued formalisation and a stable financial system, though external risks from trade policy and energy prices persist.

The global granite sector continued to expand steadily, supported by demand for natural stone across residential, commercial and infrastructure applications. The worldwide granite market was valued at about US$20 billion in 2025 and is projected to grow at a compound annual rate in the region of 3% to 4% over the coming decade, with Asia-Pacific accounting for the largest share of demand.

Source: Market Growth Reports and Global Growth Insights, Granite Market, 2025-2026.

Granite, a coarse-grained igneous rock composed chiefly of quartz, feldspar and mica, remains valued for its strength, durability and appearance, and is widely used for countertops, flooring, monuments and landscaping. Demand is underpinned by a growing preference for premium building materials and by rising appreciation of the materials distinctive character. The sectors prospects over the medium term rest on continued construction activity and on granites enduring appeal across both residential and commercial segments.

Urbanisation and Infrastructure Growth: Rapid urbanisation and significant infrastructure development continue to drive demand within the global granite sector. Countries such as China and India are investing heavily in construction and urban projects, and these developments are expected to raise granite consumption materially. The World Bank has reiterated that infrastructure investment is vital for economic progress and stimulates greater use of essential materials such as granite.

Sustainability Initiatives: Environmental responsibility increasingly influences the granite sector. Consumers and industry participants alike are placing greater emphasis on ethically sourced materials with a reduced environmental impact. The industry is responding by adopting sustainable quarrying practices and advancing recycling, while the use of resin-based binders and less harmful adhesives is rising, aligning the sector with broader global sustainability objectives.

Digital Transformation: Digitalisation is reshaping the industrys operating environment. Technologies such as virtual reality and three-dimensional modelling are being used to preview and incorporate granite installations within building designs before work begins, while online platforms facilitate direct engagement between buyers and suppliers, improving transparency and reducing dependence on intermediaries. Greater automation across both quarrying and processing is further improving efficiency and minimising material wastage along the supply chain, allowing producers to serve customers more responsively and at lower cost.

Technological Advancements: Continued innovation is improving both productivity and quality across the sector. The adoption of modern techniques, including Multi-Wire technology and precision waterjet cutting, enables granite to be extracted and processed with greater efficiency and accuracy. These advances support the creation of more intricate and tailor-made products that respond directly to evolving architectural and consumer demands, and they help producers extract greater value from each block of raw material.

Customisation and Design Trends: A growing preference for bespoke granite solutions is evident among homeowners and designers alike. Interest is rising in rare varieties valued for their distinctive veining and vivid colour, and methods such as bookmatching and advanced waterjet cutting are making it possible to produce unique statement pieces. This trend reflects a broader shift towards personalised, visually distinctive interiors and a greater emphasis on design individuality across both residential and commercial projects.

Despite maintaining an upward path, the granite industry contends with notable challenges, including persistent supply chain disruption and heightened geopolitical tension. The escalation of conflict during the year contributed to elevated shipping costs and longer delivery times, affecting international trade flows and logistics efficiency, and exerting upward pressure on prices, thereby compressing margins for enterprises in affected markets. Even so, the industrys continued emphasis on sustainability and technological advancement offers substantial growth prospects. With consumer demand shifting towards environmentally responsible and bespoke offerings, and with ongoing investment in innovation and sustainable practices, the sector is increasingly well placed to leverage these emerging opportunities and to strengthen its global competitiveness over the medium term.

The Indian granite industry holds a distinguished position in the global marketplace, recognised for its extensive range of colours, superior textures and consistently high-quality stones. As one of the worlds leading producers and exporters, India makes a substantial contribution to global granite supply chains, catering to varied aesthetic preferences and functional applications on an international scale.

Key Trends: India is celebrated for a wide spectrum of granite types, including Black Galaxy, Kashmir White and Absolute Black, which command strong demand in overseas markets. The countrys considerable geological diversity enables the extraction of rare and distinctive granites suited to varied aesthetic preferences and bespoke requirements on an international scale. Ongoing advances in quarrying and processing technology have significantly benefited the sector by improving operational efficiency and product excellence. The adoption of methods such as diamond wire sawing and waterjet cutting has reduced material wastage and enhanced cutting precision, empowering the industry to meet rising demand for elaborate and tailored granite designs from both domestic and global consumers.

Challenges: The industry continues to face several challenges. Foremost is raw material availability, made more acute by periodic mining restrictions in key producing states. States across southern India, particularly Tamil Nadu and Karnataka, have experienced recurring mining bans on environmental and regulatory grounds, limiting access to premium raw granite, disrupting supply chains and raising production costs. The sector also faces complex regulatory requirements, including strict environmental standards and intricate approval processes that can lead to project delays and higher compliance costs, while a shortage of skilled labour, as workers migrate to urban centres, poses further risks to timely production and quality.

Opportunities: The industry is nonetheless well placed to capitalise on several opportunities for growth and advancement. Continuing urbanisation and significant infrastructure development within India are steadily lifting domestic consumption, and government initiatives focused on smart cities and modernising urban infrastructure are anticipated to further invigorate the construction sector, thereby increasing granite uptake across both residential and commercial projects across the country.

A rising focus on sustainable mining and heightened environmental stewardship is strengthening the industrys credibility while aligning Indian granite with prevailing global sustainability expectations, thereby appealing to environmentally conscious markets. Many companies are prioritising green technologies and adopting practices aimed at reducing their ecological impact. The sector is also placing greater emphasis on the production of value-added offerings, including bespoke countertops, tiles and decorative articles. This transition towards premium, higher-margin products enables the industry to meet evolving consumer preferences and to improve profitability, both domestically and in international markets, positioning Indian granite favourably for the years ahead.

The global quartz industry has recorded robust growth in recent years, driven by its increasing presence in residential and commercial construction. The engineered quartz surface market was valued at about US$25.5 billion in 2025, up from US$23.7 billion in 2024, and is growing at a compound annual rate of around 7.7%, supported by rising demand for durable, low-maintenance surfaces. North America remains the largest market, while Asia-Pacific is the fastest-growing region.

Rising Demand in Construction and Infrastructure. Construction remains a primary engine for the quartz market. Quartz is valued for its durability, appearance and resistance to weathering, establishing its use in countertops, flooring and decorative elements. Continued urbanisation and infrastructure development, particularly in the Asia- Pacific region, are prominent factors behind growing demand for advanced materials such as quartz.

Technological Advancements. Recent progress in quartz extraction and processing has improved both efficiency and finished-product quality. The use of advanced techniques, including waterjet cutting and precision grinding, has enabled the industry to deliver more intricate and tailored designs, while reducing waste and supporting more sustainable production.

The United States Market for Kitchen Countertops.

In the United States, engineered quartz has become one of the leading materials for kitchen countertops, valued alongside granite for its non- porosity, resistance to stains and scratches, and low maintenance. Engineered quartz is estimated to account for close to 29% of material-based demand in the United States countertop market and is expected to grow at around 7% a year, offering a wide diversity of colours and patterns that replicate natural stone while delivering strong performance.

Challenges and Opportunities. The quartz industry faces supply chain disruption, geopolitical complexity and environmental regulatory pressures, all of which may influence supply and pricing. The disruption to petrochemical markets late in the year, which raised the cost of resin used in engineered quartz, is a further pressure. Even so, the growing global acceptance of quartz as a countertop material, together with substantial untapped potential, offers considerable prospects for continued expansion.

Established in 1988, Aro Granite Industries Limited is among Indias foremost processors and exporters of premium granite. With manufacturing facilities at Hosur and Jaipur, the Company transforms raw granite into high-quality finished products and, since introducing engineered quartz manufacturing at Hosur in 2020, has broadened its product portfolio. Operating as a 100% Export Oriented Unit at Hosur and a Special Economic Zone unit at Jaipur, the Company maintains an annual production capacity of one million square metres.

FY26 presented a demanding operating environment, shaped by subdued demand in core export markets, an unsettled trade-policy landscape, and rising raw material costs late in the year. Demand for construction materials remained weak in the United States and Europe, and the tariff structure in force for much of the year placed Indian material at a competitive disadvantage against key competing origins. The Company reported total operating revenue of ^73.52 crore and a net loss of approximately ^11.92 crore for the year, compared with a net loss of ^6.23 crore in FY25. Disciplined control of working capital and continued cost rationalisation limited the impact of a difficult year on the bottom line.

Looking to FY27 and beyond, the operating landscape remains unsettled. The tariff framework in the United States has yet to be replaced by a durable arrangement, and the disruption to raw material markets has intensified since the year end. The Company is evaluating alternative sourcing and pricing measures in response. With earlier investments in capacity, plant modernisation and a transition towards value-added offerings, and with a continued emphasis on agile decision-making and prudent risk management, the Company is positioned to benefit as conditions stabilise.

At Aro Granite Industries Limited, our workforce remains at the core of our operations. In a sector that values both efficiency and continual innovation, the Company recognises the importance of a skilled and dedicated team, whose contribution extends from process and management excellence to intellectual enrichment across the organisation.

As we enter a new financial year, our commitment to developing human capital and attracting able talent endures, supported by a positive working environment and regular training programmes that strengthen capability. Empowered by an engaged team, we are confident in our readiness to create value for all stakeholders. As at 31 March 2026, the Company employed over 150 individuals.

The prudent and vigilant leadership of the Company ensures that its internal control system is sufficiently robust to meet its operational requirements. Management retains primary responsibility for the safeguarding of assets and for the integrity and accuracy of financial records. The internal control system ensures that all transactions are duly authorised, documented and reported, with continuing efforts directed towards system enhancement. Regular measures are undertaken to secure Company assets and to prevent their unauthorised use. In addition, the Audit Committee meticulously reviews the financial statements, ensuring that internal controls remain adequate at all times. A comprehensive CCTV surveillance system oversees the factory premises to protect materials and ensure safety, and all controls are continuously assessed by management, with improvements instituted as necessary to uphold their effectiveness.

Statements in this Management Discussion and Analysis describing the Companys aims, forecasts, expectations and anticipated results, whether relating to the Company or to any of its subsidiaries or associates, may constitute forward-looking statements within the meaning of applicable laws and regulations. Actual outcomes may differ materially from those expressed or implied. Factors that could influence performance include economic conditions affecting demand and supply, pricing dynamics in domestic and overseas markets, changes to government regulation or tax frameworks, and various other incidental factors.