Austin Engineering Company Ltd Management Discussions

OVERVIEW- ECONOMY & BEARING INDUSTRY:

As per the World Economic Outlook (WEO) released by the International Monetary Fund (IMF) in April 2025, the global growth is projected to decline from 3.3 percent in 2024 to 2.8 percent in 2025, before modestly recovering to 3 percent in 2026. These projections represent downward revisions of 0.5 percentage points for 2025 and 0.3 percentage points for 2026 compared to earlier estimates, with nearly all countries affected. The widespread downgrades primarily reflect the direct consequences of newly implemented trade measures, as well as their indirect effects through global trade linkages, elevated uncertainty, and weakening economic sentiment. For advanced economies, growth forecast expected to decline from an estimated 1.8 percent in 2024 to 1.4 percent in 2025, followed by a slight increase to 1.5 percent in 2026. The growth projection for 2025 has been revised downward by 0.5 percentage points compared to the earlier projection in January 2025. The revised forecasts for 2025 reflect notable downward adjustments for Canada, Japan, the United Kingdom, and the United States, along with an upward revision for Spain. For emerging market and developing economies, growth forecast projected to decline to 3.7 percent in 2025 and 3.9 percent in 2026, following an estimated expansion of 4.3 percent in 2024. In the case of China, the GDP growth forecast for 2025 has been revised downward to 4.0 percent, compared to 4.6 percent in the earlier estimate. (Source: IMF)

Global Growth hovered around 3 percent in the past few years, and global output came close to potential. The five-year-ahead growth projection stands at 3.2 percent, below the historical average of 3.7 percent recorded during the period 2000-2019. Global headline inflation is anticipated to decline to 4.3 percent in 2025 and further to 3.6 percent in 2026. Inflation is expected to return to target levels earlier in advanced economies, reaching 2.2 percent by 2026, in contrast to emerging market and developing economies, where it is projected to ease to 4.6 percent over the same period. Significant policy shifts are reshaping the global trade system, introducing uncertainty that is once again challenging the resilience of the global economy. Uncertainty, especially that regarding trade policy, has surged to unprecedented levels. Since February, the United States has implemented several rounds of tariffs on trading partners, prompting some of them to respond with countermeasures. The trade policy uncertainty is anticipated to remain elevated through 2025 and 2026. (Source: IMF)

Indias bearing market size was estimated to be around $2.4 Bn in FY 2024. Based on internal estimates, Indian Bearing market over has grown at a CAGR of 11.9% over the period 2017-2024. Under the Make in India initiative, government policies are aimed at promoting domestic manufacturing and minimizing import dependency.

The International Monetary Fund (IMF) has revised Indias GDP growth forecast for FY26 downward to 6.2%. This is a downward revision by 0.3 percent compared to earlier estimates in January 2025 citing escalating trade tensions and the imposition of tariffs by the United States. A further moderation to 6.3% projected for FY27. Despite these downward revisions, India expected to remain the fastest-growing economy among both emerging and advanced markets. Indian economy is less vulnerable and better positioned to handle the effects of a global growth slowdown, heightened financial market volatility, and weakened consumer and investor confidence, as its growth is primarily fueled by domestic demand. (Source: IMF and Economic Times)

As per IMF, amidst mounting economic challenges and a weakening outlook in many advanced economies, Indias growth outlook for 2025 remains "relatively more stable" buoyed by private consumption, especially in rural areas. Indias real GDP is expected to reach US$ 4.3 trillion in 2025, closely trailing Japans US$ 4.4 trillion and Germanys US$ 4.9 trillion. Considering this current growth, India is poised to surpass Japan as the worlds fourth-largest economy in 2025 and is expected to overtake Germany to become the third largest by 2028. The Reserve Bank of India (RBI) has retained its inflation projection at 4% for FY 2025-2026, with quarterly estimates at 3.6% for Q1,3.9% for Q2, 3.8% for Q3, and 4.4% for Q4. United States (US) announced 90-day pause on the higher tariff rates imposed earlier on some countries including India.

Indias manufacturing sector is undergoing a structural transformation, underpinned by strategic policy interventions aimed at strengthening the nations global competitiveness. A key pillar of this initiative is the Production Linked Incentive (PLI) Scheme, which plays a crucial role in the governments objective to establish India as a global manufacturing hub by promoting innovation, enhancing productivity, and driving competitiveness across priority sectors. The Indian manufacturing sector is expected to reach a valuation of 87.57 lakh crore (US$ 1 trillion) by FY2026, propelled by significant investments in core industries such as automobiles, electronics, and textiles, as well as by supportive government initiatives like the Make in India campaign and the Production-Linked Incentive (PLI) schemes. (Source: EY-India Economic Pulse & Economic Times)

The industrial sector is projected to grow by 6.2 percent in FY25, driven by strong performance in electricity and construction. Domestic electronics manufacturing continues to expand, with smartphone production reaching 99 percent localization. The pharmaceutical sector maintained steady growth, with a total annual turnover of INR 4.17 trillion. MSMEs have emerged as a key economic driver, with government initiatives such as the Self-Reliant India Fund (INR 500 billion) supporting their growth.

The Indian bearings market is projected to grow significantly, reaching USD 853.9 million by 2029, fueled by factors like increasing automation, heavy industry demand, and electric vehicle production. The market is segmented by end-user, product type, and geographical region. Key trends include the rise of smart bearings and condition monitoring, expanding export opportunities for Indian manufacturers, and the increasing use of additive manufacturing in bearing production.

Your Company, with its overall reputation and its wide range of products will continue to deliver the performance and sustainable results to its customers. However your Company maintains status quo position on sale front.

Indias industrial landscape is making a lot of headway when it comes to the consumption of anti-friction bearings in various sectors, which is driving up the overall demand for bearings market. So far, this growth has been driven by an expanding industrial sector, technology innovations and increased use with a variety of new applications. Ball and roller bearing solutions are becoming more popular due to their ability to reduce friction, improve efficiency and extend equipment lifespan. One of the biggest parts of this increase in consumption is coming from the automotive sector. However, as India slowly starts transitioning into electric vehicles (EVs), their high-tech demands could actually end up being great news for manufacturers who produce them. EVs typically need fewer bearings than traditional vehicles do but tend to come with specialized smart bearings that go much faster than others on top of that.

The national implementation of Bharat Stage VI emission norms a year back may have also played a role in the surge for anti-friction bearings lately in the India bearings market. These norms push for a reduction in vehicle weights, therefore changing up bearing designs and altering demand patterns. Anti-friction bearings are already heavily used outside of the automotive industry as well. They are frequently found in manufacturing plants, construction sites, mines and farms to name a few examples. As these industries continue to grow across India at large, so will their machinery and equipment usage which will benefit anti-friction bearing consumption even more.

Bearing industry being capital intensive, there is always a threat of under utilization of expensive resources to be used and lesser absorption of fixed cost faced by the Company. Continual increase in raw material and consumables is another area of threat. Increase in labour cost will have to be matched by the corresponding increase in the productivity to retain competitiveness of industry. The shortage of appropriately skilled labour across is emerging as a significant and complex challenge to the companys growth and future.

Your Company continues to focus on quality and technology innovations besides further developing application engineering and R & D capabilities to strengthen the competitiveness.

The Directors and the top management of the Company are well experienced and technically qualified and sound. The Company is in this line of business for more than three decades and enjoys high reputation in the name of its brand and in the market. The Company has wide market network with established customer base. The Company is able to obtain skilled workmen at comparatively lower cost.

The Company primarily operates in two segments of activities namely "Bearing", "Power". The segment wise revenue results and capital employed has been given here under by way of amount

Rupees in Lakhs.

An important aspect of good Corporate Governance is a well-defined "Internal Control" and "Internal Audit" system. Therefore, your company views internal audit as a continuous process to keep management regularly appraised about the existence, adequacy and effectiveness of control systems and processes in the operations of the organization.

The Company has a sound system of internal controls for financial reporting of various transactions and compliance with relevant laws, rules, and regulations. The Company has well documented policies, procedures, and authorization guidelines commensurate with the level of responsibility and standard operating procedures specific to the business.

The Internal Audit Department has extensive audit programs for the year. The post audit checks and reviews are also carried out to ensure follow up on the observations made by the Audit Committee. The Audit Committee reviews the internal audit reports and the adequacy of internal controls periodically and takes corrective action as and when necessary.

All transactions are authorized as per companys approval and signature guidelines, which are recorded and reported in an organized manner.

"AECL" operates primarily in bearings and related components segments which are used in a wide range of applications across industries. The government policy appears to be on positive front. The macro environment has improved.

Your company has been consistently practicing prudent finance and working capital management. The strong focus on working capital and liquidity management has helped timely generation of sufficient internal cash flow to invest in long-term strategic objectives of the company. The Company was assigned rating of "SME1" by SMERA Ratings Private Limited (formerly SME Rating Agency of India Limited), Mumbai, under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, ensuring transparency for investors. SME1 is the highest rating on SMERAs Bank Loan Rating Scale for SMEs, indicating the highest level of creditworthiness and the lowest credit risk for meeting financial obligations, such as loan repayments.

"AECL" is the leading manufacturer of all types of anti-friction bearings, and it offers wide range of varieties to the different segments of people.

The Company blend optimism with caution as it looks ahead to short term future. Easing of inflation and liquidity will set better chance for investment and consumption.

At the company level, the majority of product range is the import substitute and we are focussing more and more on export front. A number of steps for strict cost control and improving efficiency and production at all levels have been taken which is expected to further enhance the performance of company in the years to come. At the core of "AECL", technical up gradation and advancement is a perpetual effort soliciting involvement of the top management which itself endeavours to encourage new development, continuous quality improvement and strong desire to prove that your companys technology is proficient to compete with any top technologically advanced organization and thus, resulting in unshakeable customer confidence in India and abroad for "AEC" bearings.

The Company is trying to focus on sharpening its competitiveness and offering various product- mixes which is totally market driven.

The Company restricts its export domain only to the most quality-conscious market like the United States and European Union which accounts majority of its revenue. We have 100% subsidiary in USA which also acts on marketing front. What may come as a surprise to the most is that, despite our very modest size, we have the widest range of bearings in the domestic market, weighing from 50 gms to over 500 kgs.

We manufacture bearings for demanding applications. It is among a handful of customized bearing manufacturer worldwide producing bearings of 1800 mm diameter.

Ours special bearing range includes:

1. Steel Plant bearings

2. Mining Equipment.

3. Material handling equipment.

4. Bearings for cement, sugar, paper and other continuous process industry

5. Special bearings for high-speed heavy-duty turbines (used in power plants)

6. Oilfield applications

7. Agro-machinery

8. Gear Box

9. Motor/Pumps

The Company believes that the quality of its employees is the key to its success in the long run and therefore is committed to provide necessary human resource development and training opportunities to equip them with skill, enabling them to adapt to contemporary technological advancements. Industrial relations during the year continued to be cordial. The company is committed to maintain good relations through negotiations and meetings and it encourages its employees to be "entrepreneurial" and focus on experimenting and being innovative.

The performance linked bonus and rewards were instituted, which not only helped to improve productivity but also brought the culture of healthy competitive performance within the organization. The gap between existing and desired skills has been filled up in the employees through training and development.

Your Company firmly believes that Human Resource Development strategies and practices will continue to provide sustained competitive advantage. The management of your company deeply appreciates the spirit and commitment of dedication of its employees.

Certain statements in the Management Discussion and Analysis describing the companys objectives, projections, estimates, expectations, or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied therein. Important factors that could make a difference include raw material availability and prices thereof, cyclical demand and pricing in the companys principal markets, changes in government regulations and tax regime, economic developments within India and the countries in which the company conducts business and other incidental factors. The Company will not be in any way responsible for any actions based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.