Bharat Gears Ltd Management Discussions

Global Economy

The global economy demonstrated stability throughout 2025, effectively navigating evolving trade policies and diverse regional performance variations. Strategic investments in technology played a key role in offsetting the impacts of emerging tariffs and policy shifts. Worldwide inflation stabilised at 4.1%, with several nations achieving rates below initial market forecasts. Household spending grew consistently across the globe during the year, supported by technology-driven investments and wage increases in major regions. In the United States and emerging Asia particularly, consumer expenditure on goods and services accelerated as financial conditions eased, helping to counterbalance tariff-related pressures.

The Russia-Ukraine conflict persisted through 2025, continuing to unsettle global energy markets and supply chains while creating uncertainty around commodity prices and international trade flows. Simultaneously, intensifying tensions in the Middle East placed additional strain on oil supplies and amplified inflationary pressures across multiple economies. These geopolitical developments posed significant challenges to manufacturing industries worldwide and tested the limits of international diplomatic efforts.

Global employment markets remained robust despite trade uncertainties and policy concerns. Strong hiring momentum in technology and services sectors compensated for more subdued job creation in manufacturing. This employment resilience supported household incomes and contributed to broader economic well-being. The services sector emerged as a critical pillar of global growth in 2025, expanding steadily even as physical goods trade experienced volatility. Solid performances in financial services, technology, and tourism helped offset manufacturing slowdowns, particularly evident in Europe and Asia, ultimately sustaining overall economic momentum.

World GDP growth stood at 3.3% in 2025, though results varied significantly by region. Advanced economies expanded by 1.7%, with the United States recording 2.1% growth driven by technology investments and fiscal measures. The euro area managed 1.4% growth, while Japan achieved 1.1%. Emerging markets outperformed with 4.4% growth overall, led by Indias robust 7.3% expansion and Chinas 5.0% increase.

World trade volumes expanded to 4.1% in 2025, up from 3.6% the previous year in 2024. Trade tensions eased following a US-China agreement that reduced tariffs and suspended export restrictions on electronic components and critical minerals. The United States also lifted select agricultural tariffs, maintaining overall tariff levels comparable to prior periods. Although policy uncertainties had declined from their late-2025 peaks, they remained elevated compared to the previous year. Financial conditions generally supported economic activity despite some market fluctuations, with high-growth technology stocks outperforming broader market indices. Global trade stability persisted, bolstered by robust technology-related exports originating from Asia.

Central banks effectively controlled inflation through measured policy adjustments, including interest rate reductions in the United States and United Kingdom. These actions sustained a supportive financial environment amid ongoing trade and geopolitical challenges.

Q (Source: World Economic Outlook (IMF))

Outlook

The global economy enters a period of stability in 2026, with projected growth of 3.3% before moderating to 3.2% in 2027. This trajectory reflects a decisive shift toward technology-led productivity gains, particularly as artificial intelligence integrates more deeply into industrial processes and medical applications, helping to offset lingering trade tensions and evolving political pressures.

Advanced economies anticipate 1.8% growth in 2026, led by the United States at 2.4%, bolstered by tax incentives under the One Big Beautiful Bill Act and market recovery following the brief 2025 federal shutdown. These measures create a favourable environment for private investment and domestic consumption. The Eurozone expects more measured expansion at 1.3%, maintaining its role as a stable anchor in global markets, while Japans growth recalibrates to 0.7% amid recent policy adjustments.

Emerging markets sustain robust momentum above 4.0%, with China projected at 4.5% growth supported by domestic financial stimulus and improved US trade relations. India continues as a standout performer with 6.4% expansion, cementing its position as a critical hub for manufacturing and digital innovation.

Headline inflation is expected to ease gradually to 3.8% in 2026 and further to 3.4% in 2027, as advanced economies approach targets more slowly - particularly the United States. Central bank policy rates are expected to decline steadily in the United States and United Kingdom, hold steady in the euro area, and rise modestly in Japan. World trade growth is expected to moderate to 2.6% in 2026 amid tariff recalibrations, yet remains underpinned by resilient technology exports.

Q (Source: World Economic Outlook (IMF))

Indian Economy

The Indian economy in 2025-26 demonstrated steady strength against a global backdrop of trade uncertainty and market swings. First Advance Estimates project real GDP growth at 7.4% and Gross Value Added at 7.3%, highlighting the durability of a growth model led by domestic demand. Strong agricultural output supported rural incomes, while urban consumption improved due to steady employment and lower inflation.

In a significant milestone, India has surpassed Japan to become the worlds fourth-largest economy with a current GDP of $ 4.18 trillion. The country is on track to become the third-largest economy by 2030 with a projected GDP of $ 7.3 trillion. These figures confirm that India remains the fastest- growing major economy, supported by resilient domestic demand and ongoing structural reforms.

Private consumption remains a primary driver, aided by lower inflation and higher real incomes. Investments increased with public capital expenditure of Rs. 12.2 Lakh Crore (as per the Union budget 2026-27), which enhanced infrastructure and spurred activity in manufacturing, construction, and energy. Government initiatives like Viksit Bharat 2047 promote self-reliance and capacity building despite external pressures.

The Union Budget for 2026-27 reaffirms the focus on driving economic growth while managing finances responsibly. By continuing to prioritise long-term investments in infrastructure and manufacturing, the budget supports the broader vision of a developed India. Significant emphasis has been placed on energy transition, digital innovation, and support for small and medium enterprises. New measures to simplify business operations and improve access to credit are expected to boost industrial production and create a solid foundation for sustainable future growth.

Average headline Consumer Price Index (CPI) Inflation (retail inflation) reached a historic low of 1.7% during the first nine months of FY 2025-26. This price stability has been a key driver in strengthening domestic purchasing power. Moving forward, inflation expectations remain well-anchored, with the RBI projecting a rate of 2.0% for the full year. This stability is supported by disciplined government spending and steady growth in bank credit. Furthermore, the banking sector remains resilient with strong capital reserves and low levels of bad loans. With foreign exchange reserves exceeding $ 700 billion, India has become the fourth-largest economy, and it is well-positioned to withstand global volatility.

o (Source: PIB)

Outlook

The outlook for the Indian economy remains positive and stable. For the upcoming 2026-27, real GDP is expected to grow between 6.8% and 7.2%. This demonstrates Indias ability to maintain strong momentum even during times of global uncertainty.

This growth will likely be driven by continued government spending on infrastructure, a steady increase in private sector investment, and a strengthening manufacturing base. Additionally, the services sector is expected to maintain its consistent expansion. Supported by a stable economy and steady policies, India is well-prepared to manage global challenges while ensuring that economic progress remains inclusive and sustainable over the long term.

Industry Overview

Global Tractor Sector

The global tractor industry is set for sustained growth, with market value projected to reach $ 95.03 billion in 2026, expanding to over $ 126.18 billion by 2031 at a CAGR of 5.83%. Growth is driven by rising agricultural mechanisation, expanding farm sizes, and steady investments in rural infrastructure, most notably in the Asia-Pacific region, which accounts for more than 48% of global sales, led by India and China.

Adoption of modern technologies, electrification pilots, and autonomous machinery is enhancing productivity and efficiency in both farming and non-farm applications. Tractors above 100 horsepower are expected to grow fastest, meeting the needs of larger farms and diversified agricultural operations. Government subsidies, favourable financing, andthe push for sustainable, emissions-compliant equipment are further supporting global demand.

North America and Europe show mature purchasing cycles and innovation through electric, hybrid, and autonomous tractor offerings, while emerging markets drive high-volume sales of mid-range units. Export growth and increased global food demand continue to underpin the long-term resilience of the sector, despite regional regulatory changes and fluctuating input costs.

Indian Tractor Sector

The Indian tractor market is a core segment of the countrys agricultural and allied equipment ecosystem, supporting the mechanisation of farming, construction-linked activities, and infrastructure-related tasks through a diverse range of horsepower graded platforms.

The Indian tractor market was valued at $ 9.39 billion in 2025 and is projected to reach $ 16.80 billion by 2034, growing at a CAGR of 6.12% during 2026-2034, as per the IMARC Group report. This expansion reflects rising farm income levels, deeper mechanisation of small and medium-sized holdings, and policy-linked financing and subsidy support that together improve rural purchasing power for tractors.

By power output, the 40 HP - 100 HP segment dominated the market with a 55.2% share in 2025, as this mid range band offers an optimal balance of performance, fuel efficiency, and versatility across Indias varied cropping systems and fragmented landholdings. This band efficiently handles ploughing, sowing, hauling, and harvesting, supports a wide range of attachments, and benefits from relatively lower maintenance and operating costs.

By application, agriculture accounted for 82.4% of the Indian tractor market share in 2025, underpinning the centrepiece of the sectors demand base. Tractors are critical for ploughing, tilling, harvesting, and powering attachments such as rotavators, seed drills, and irrigation linked equipment, with demand sustained by seasonal crop cycles and policy backed modernisation programmes. Non agricultural segments such as construction, infrastructure, and forestry are growing in importance, broadening the tractors addressable application base beyond pure farming.

Growth is being driven by rising agricultural mechanisation imperatives, small farm and marginal farm focused incentives, and low interest financing and leasing schemes, which collectively lower the effective entry barrier for tractor ownership. Farmers are increasingly seeking multi task, compact, and fuel efficient models that can operate on narrow lanes and fragmented plots while handling a wide range of attachments, reducing labour dependency and operational costs. Durability, operator comfort, and ease of service, including digital instrument clusters and improved cooling systems, are becoming important purchase criteria, especially for long duration field operations.

The sector is also witnessing greater adoption of digital platform based tractor marketplaces, which connect farmers with equipment, financing, and transparent pricing mechanisms, thereby improving access and utilisation in remote areas. In parallel, sustainable traction innovations such as electric tractors and low emission, high efficiency diesel platforms are gaining traction, reflecting a shift toward eco-friendly and cost-efficient mechanisation.

Despite strong fundamentals, the market faces affordability barriers for small and marginal farmers, monsoon-linked demand volatility, and rising compliance costs under TREM IV and upcoming TREM V emission norms, which can increase per unit manufacturing complexity and pricing. Limited formal credit access in some remote rural belts and infrastructural gaps in low mechanisation regions also moderate the pace of penetration.

Looking ahead, the Indian tractor market is expected to benefit from continued expansion of tractor penetration in central and eastern India, deeper mechanisation of labour intensive crops, and technological upgrading of existing fleets, all of which are anchored in the 2025 based size and 6.12% CAGR scenario projected by the source report.

o (Source: IMARC)

Global Construction Equipment Sector

The global construction equipment market is a core segment of capital goods demand, providing earth moving, lifting, material handling, and paving machinery that supports infrastructure, construction mining, energy, and industrial projects worldwide.

The global construction equipment market was valued at $ 192.59 billion in 2025 and is projected to grow from $ 205.38 billion in 2026 to $ 283.22 billion by 2031, expanding at a CAGR of 6.64% during 2026-2031, as per the Mordor Intelligence report. This growth reflects sustained investment in infrastructure, urban expansion programmes, and energy transition linked projects, alongside rising demand for specialised and high productivity machinery in developed and emerging market economies.

Indian Construction Equipment Sector

The Indian construction equipment market is a critical enabler of infrastructure, construction and industrial development projects, supplying earth moving machines, lift cranes, and material handling equipment that underpin highways, urban sprawl, railways, and energy linked construction.

The Indian construction equipment market was valued at $ 8.55 billion in 2025 and is projected to grow from $ 9.24 billion in 2026 to $ 13.61 billion by 2031, expanding at a CAGR of 8.05% during 2026-2031, as per the Mordor Intelligence report. This growth is driven by the governments multi year infrastructure spend roadmap, including national-level highway programmes, metro rail expansions, and defence and energy related construction, which collectively sustain demand for heavier and more specialised machines.

Key industry trends include increasing digitalisation and automation, with telematics, IoT-enabled monitoring, and predictive maintenance systems delivering efficiency gains. Electrification and sustainability are shaping new product development. Over the next five years, sales of electric and hybrid equipment are predicted to increase nearly threefold, as environmental regulations and customer preferences evolve. Equipment rental and subscription models are also gaining traction, providing contractors access to the latest technology while optimising capital expenditure.

By equipment type, excavators led the Indian construction equipment market in 2025 with 47.42% share, owing to their versatility in road building, trenching, and multi attachment jobs across highways, municipalities, and mining linked sites. Backhoe loaders captured 21.09% share and are expected to grow at a CAGR of 7.23% to 2031, supported by demand from utility trenching, small building, and rural infrastructure projects. Telehandlers are projected to register the fastest growth at 14.34% CAGR, as solar farm and industrial warehouse construction favour multi-level materials handling machines with high reach capabilities. Other key segments include dump trucks, motor graders, and crane variations, which cater to earth moving, grading, and lifting linked work scopes.

By application, civil construction accounted for 51.65% of the market share in 2025, underpinned by residential tower building, township development, and housing scheme linked projects that rely on excavators, dump trucks, and lift machines. Road construction is the fastest growing application, expected to grow at a 14.15% CAGR to 2031, supported by the expansion of national and state highway networks, urban freeways, and connectivity corridors. Agriculture linked uses, including bunding, canal laying, and farm modernisation, also contribute a notable share, while the mining and quarrying segment demand is expanding in line with mineral extraction linked activities.

Growth is being driven by a strong government-led infrastructure push, including flagship national highway expansion programmes, metro rail and urban mass transit projects, and defence and energy-related construction spend, which collectively sustain demand for heavier grade machines. Expectations of lower interest rate cycles post 2026 are expected to ease the high ticket nature of construction equipment purchases, making financing and leasing based acquisitions more affordable for contractors and agricultural users.

Looking ahead, the Indian construction equipment sector is expected to benefit from sustained infrastructure investments, increasing mechanisation, and rising demand for specialised equipment, including compact excavators, truck-mounted cranes, and telehandlers suited for urban and space-constrained projects. Continued investments in roads, railways, mining, and urban infrastructure, along with increasing adoption of equipment rental solutions and technologically advanced machinery, are expected to support the sectors long-term growth trajectory.

Global Automobile Industry

The global automobile industry is a large scale, technology intensive sector that spans passenger vehicles, commercial vehicles, and related components, serving mobility, logistics, and industrial transport needs across the world. The market is anchored by continuous product development cycles, supply chain reconfiguration, and evolving regulatory requirements on emissions, safety, and digital connectivity.

The global automotive market was valued at $ 2.75 trillion in 2025 and is projected to grow to $ 3.26 trillion by 2030, expanding at a CAGR of 3.46% during 2025-2030. This growth reflects stable vehicle ownership expansion in emerging economy urban centres, gradual replacement of ageing fleets in mature markets, and rising demand for connected and higher feature content vehicles across both personal and commercial segments.

By vehicle type, the market separates into passenger cars and commercial vehicles, with passenger cars forming the largest share of production and retail volume, while commercial vehicles are critical for freight, logistics, and public transport networks. Within passenger vehicles, SUVs and crossovers are capturing a growing share of registrations, reflecting consumer preference for higher riding, spacious, and safety perceived platforms. Commercial vehicles are increasingly tailored to e commerce driven last mile delivery, inter city freight, and public bus fleet modernisation programmes that demand higher utilisation and lower emission solutions.

The sectors growth is being driven by rising vehicle ownership in emerging economy cities, renewal of ageing fleets in mature markets, and policy push for low emission and connected mobility solutions, all of which are reflected in the 3.46% CAGR to 2030. Digital cockpit and telematics driven services and modular EV platform strategies are extending OEM value beyond the initial hardware sale and supporting higher engineering and services content.

However, the industry faces critical mineral supply bottlenecks, semiconductor sourcing risks, and evolving regulatory frameworks on emissions, cybersecurity and data privacy, which are pushing manufacturers to invest in resilient supply chains, local content strategies, and higher investment in R&D. Over the forecast period, the global automobile industry is expected to remain a high capital, high volume, and technology velocity sector, anchored to the 2025-2030 size and growth trajectory set out in the Mordor Intelligence report.

Indian Automobile Industry

The Indian automobile industry has reached a decisive stage in its development, with India now recognised as the worlds third-largest automobile market, having overtaken Japan in recent years. The sectors valuation exceeds Rs. 22 Lakh Crore (~ $ 260 billion), reflecting rapid growth driven by strong domestic demand, government incentives, and a strategic shift toward electric vehicles (EVs). The Union Minister for Road Transport and Highways, Nitin Gadkari, has reiterated the governments ambitious goal of making India the worlds number one automobile manufacturing nation by 2030, supported by expanding exports, job creation, and large scale infrastructure and sustainability initiatives.

This aspirational target rests on strong fundamentals, including rising income levels and urbanisation that sustain domestic demand, growing export volumes to global markets, and rapid technological transformation in design, connectivity, and electrification. The sector is also being reshaped by green mobility policies and production linked incentive schemes, which are accelerating the adoption of EVs and hybrid technologies across passenger vehicles, two-wheelers, and commercial fleets. As a result, India is evolving from a cost competitive manufacturing base into a broader global mobility hub, with domestic manufacturers and global OEMs increasingly treating the country as a design, export, and innovation support centre.

The Indian automobile market is valued at $ 137.06 billion in 2025 and is expected to grow to $ 147.58 billion in 2026, with forecasts indicating a rise to $ 213.74 billion by 2031, at a CAGR of 7.69% during 2026-2031. This growth is underpinned by large scale vehicle production, with the industry manufacturing around 28.43 million vehicles in FY 2023-24, highlighting the sectors position as one of the largest in the global automotive landscape.

By ownership, personal vehicles commanded 75.94% of the Indian automobile market size in 2025, reflecting the dominance of privately-owned cars and two-wheelers, while commercial fleets are projected to grow at a CAGR of 9.16% to 2031, driven by expanding logistics, e commerce, and inter city transport networks.

The sectors growth is being driven by population led consumption demand, rising household incomes, policy backed electrification, and a robust domestic manufacturing base that also supports export-oriented production. Strengthening infrastructure, digital payment adoption, and financing product innovations are further improving affordability and access to automobiles, especially in Tier II and Tier III markets. Looking ahead, the industry is expected to deepen its electrification, connectivity, and emission control capabilities, reinforcing Indias position as a leading automotive production and consumption hub in Asia.

Automobile Domestic Sales Trend

Category	2020-21	2021-22	2022-23	2023-24	2024-25	2025-26
Passenger Vehicles	27,11,457	30,69,523	38,90,114	42,18,746	43,01,848	46,43,439
Commercial Vehicles	5,68,559	7,16,566	9,62,468	9,67,878	9,56,671	10,79,871
Three-Wheelers	2,19,446	2,61,385	4,88,768	6,91,749	7,41,420	8,36,231
Two-Wheelers	1,51,20,783	1,35,70,008	1,58,62,087	1,79,74,365	1,96,07,332	2,17,05,974
Tractors	8,99,407	8,42,266	9,45,311	8,67,237	9,39,713	11,60,231
Grand Total	1,95,19,640	1,84,59,872	2,21,49,473	2,47,20,700	2,65,47,104	2,94,25,746

Company Overview

Bharat Gears Limited (BGL or the Company) stands as one of Indias most trusted and foremost manufacturers of automotive gears. The Company caters to a diverse range of industries both in India and internationally.

Established in 1971, BGL has a strong commitment to engineering excellence. The Company has continuously evolved by integrating cutting-edge technology, advanced manufacturing processes, and a customer-centric approach to strengthen its leadership position in the automotive gears and components industry.

Market Position and Products

With a legacy spanning several decades, BGL has become a preferred partner for leading automotive OEMs, off-highway vehicle manufacturers, and the aftermarket sector.

The Company specialises in producing a wide array of high-quality products, including:

• Spiral Bevel Gears

• Transmission gears and shafts

• Differential gears

• Heat-treating furnaces

• A host of other precision-engineered components that are critical for enhancing vehicle performance and efficiency worldwide

BGLs success is built upon an unparalleled dedication to innovation, product quality, and sustainability. The Company manages state-of-the-art manufacturing facilities. These plants use advanced CNC machines, heat treatment processes, and strict quality control systems. This ensures every product manufactured meets global industry standards without exception. Backed by strong engineering capabilities, BGL constantly seeks new ways to advance technology, improve process efficiencies, and enhance products. This allows the Company to meet the ever-changing needs of the automotive sector.

The Company has an extensive global footprint spanning key automotive markets. BGL exports products across multiple continents. We have established long-term relationships with customers by providing value-driven solutions, customised engineering support, and consistently reliable products. Through clever collaborations, efficient supply chains, and a commitment to operational excellence, BGL maintains its position at the leading edge of industry trends and market activity.

The automotive sector is transforming quickly due to the rise of electric vehicles, sustainable manufacturing, and digital integration. BGL is proactively adapting to this change so it can thrive. The Company continues to invest in next-generation technologies, automation, and talent development. These investments strengthen our competitive position and secure future growth.

Business Departments

The Company operates across several key industrial sectors, providing specialised engineering components and equipment.

Gears

The Companys production includes a wide variety of gear and transmission technologies. This portfolio encompasses products such as ring gears, pinions, transmission gears, shafts, differential gears, and specialised sub-assemblies, with the primary focus remaining on automotive applications.

BGL supplies these key components to major Original Equipment Manufacturers (OEMs) in both the I ndian and international markets. Our products serve diverse automotive segments, including:

• Heavy, medium, and light trucks

• Tractors and utility vehicles

• Construction equipment

• Off-highway vehicles

Automotive Components

Beyond its core gear production, the Company supplies a full spectrum of automotive components. This extensive range includes critical parts such as:

• Automotive clutch assemblies and components

• Turbochargers and related parts (including the core and rotor)

• Driveline products

• Axle shafts

• Flywheel assemblies and rings

• Propeller shaft components

• Universal Joint (U-J) Crosses

• Steering components

• Differential cages

• Steel wheel rims

• Straight bevel components

• Ceramic buttons

• Brake linings

Heat-Treating Furnaces

The Furnace division is a key part of the Company, specialising in thermal technology solutions.

• Product Focus: The division manufactures highly dependable heat-treating furnaces, offering both batch and continuous models.

• Technology Source: The design and technology for these furnaces are provided by AFC-Holcroft, USA.

• Design Features: These units are engineered for end-to- end processing capability and has features which enable highly user friendly operations.

• Local Suitability: They are designed for straightforward, cost-effective maintenance, ensuring they are well-suited for the requirements of the Indian operational environment.

Market Segmentation & Customer Base

The Companys customers are grouped into four major industry segments.

• Agricultural Machinery: The primary focus in this segment is tractors. This sector is the most important as it brings in the largest share of the Companys revenue.

• Automotive: The Company provides engineered goods mainly for medium and heavy commercial vehicles. This category includes heavy, medium, and light trucks, alongside utility vehicles and off-highway vehicles.

• Construction Equipment: BGLs product lines support several key areas within the construction industry. These include earth-moving equipment, various material handling equipment, and road construction machinery.

• Others: The Companys products are also used in a variety of other sectors that need specialised engineering goods. This includes areas like wind turbines, oil drilling, hydraulic systems, cooling towers, and general material handling systems.

Business (Plants) Operations

Bharat Gears Limited (BGL) operates manufacturing facilities across three key locations: Mumbra and Lonand in Maharashtra, and Faridabad in Haryana. All three plants hold IATF certification, which guarantees high standards of quality and operational efficiency. Furthermore, the Faridabad and Lonand plants have achieved ISO 14001:2015 and ISO 45000:2018 certifications.

Plant Specialisation

• The Mumbra plant, the oldest facility, specialises in the production of bevel, transmission, and differential gears

• The Lonand plant focuses primarily on the manufacture of transmission gears and sub-assemblies

• The Faridabad plant produces both bevel and transmission gears

BGL consistently invests in the modernisation of its manufacturing facilities, continuously incorporating the latest technological advancements.

Quality and Operational Excellence

The Company has earned international recognition for its commitment to quality and technological progress. BGL continuously improves its manufacturing capabilities with cutting-edge technology and implements industry best practices across all plants. These practices include:

• Kaizen (continuous improvement)

• Total Quality Management (TQM)

• 5S Systems

• Autonomous maintenance

• Visual management

Safety remains a top priority at BGL, demonstrated by the Companys strong safety record.

Key Focus Area

Production and Manufacturing Excellence:

Built-in Quality

The Company is deeply committed to improving quality for long-term success through complete customer satisfaction. Quality is a core value at BGL, and every employee actively participates in enhancing processes, products, services, and the overall culture. Bharat Gears employs various quality methodologies, and the impressive results achieved during the reported financial year are detailed below.

Mumbra Plant

• Several process improvement initiatives were undertaken to enhance productivity and reduce rejection levels, including migration of bevel bore grinding operations to hard turning processes, conversion of conventional milling to VMC turning, elimination of top face hard grinding through improved dimensional control, and development of hard turning operations for larger-size Ring Gears through in-house fixture modifications. Productivity improvements were also achieved through fixture redesign and optimisation of loading patterns for heat treatment and shaping operations across multiple components.

• The plant continued to strengthen quality assurance and inspection systems through the introduction of phosphating coating thickness gauges, the replacement of old MPI machines in the Bevel and Heat Treatment shops, the installation of auto polishing machines in the Metallurgy Laboratory, and the development of a dedicated Safe Launch Room for New Product Development (NPD) and layout inspection activities.

• Multiple tooling and cost optimisation initiatives were implemented during the year, including replacement of CBN and ceramic inserts with carbide inserts in hard turning operations, and the improvement in cutting tool life through enhanced coating practices.

• Operational efficiency and workplace management were strengthened through improvements in material handling systems, shop floor flooring upgrades, machine painting activities, and installation of oil trays to support enhanced 5S implementation and better workplace conditions.

• The Mumbra Plant continued to promote a strong quality and continuous improvement culture through active participation in ACMA Quality Circle competitions and Monthly Kaizen Award Ceremonies. During FY 2025-26, a total of 2,368 Kaizens were implemented, averaging nearly 200 Kaizens per month. The plant also received recognition during the year, with the Best-in- Class Quality Award from JD Pune.

Lonand Plant

• The plant continued its "Zero Tolerance Culture Drive" for material handling and movement for the second consecutive year, alongside the implementation of Quality Culture initiatives based on 3A and 3C concepts. These initiatives significantly strengthened process discipline and contributed to a 95% reduction in customer complaints during the year.

• Quality awareness and employee participation initiatives remained a key focus area, with more than 100 awareness and training sessions conducted every month by the Quality and Production teams. The plant also actively promoted Small Group Activities (SGA) and Quality Circle initiatives to address major defect contributors through employee-driven continuous improvement practices.

• Several inspection and traceability enhancement initiatives were implemented during the year, including the introduction of Compact DOP Testers in place of micrometres, the installation of multi-gauging checking units, and the implementation of 100% QR code traceability through laser marking across all of a top customer, resulting in improved quality assurance and inspection reliability.

• The plant undertook multiple automation and productivity improvement initiatives, includingthe replacement of conventional gear hobbing machines with automated CNC hobbing machine, the implementation of PPC gear-saving automation, and the introduction of pick-and-place automation with conveyor systems on existing hobbing machines. These initiatives substantially improved machine utilisation, productivity, and operational efficiency during the year.

• Material handling systems were further strengthened through the introduction of VFC with Clip-Lok boxes, resulting in improved space utilisation and smoother operational flow across the shop floor.

• During the year, the Lonand Plant received the "Excellence in Gear Manufacturing" award from Gear Technology and secured the 3rd position in the Quality Circle Awards organised by ACMA for the Western Region.

Faridabad Plant

• The plant implemented multiple process improvement initiatives during the year to enhance machining efficiency and reduce throughput time. These included the development of Gang Hobbing processes for twin gears and shaft-type components, the implementation of multi-start HOB technology, and the shifting of certain bore grinding operations to hard turning processes, resulting in improved productivity and process efficiency. The plant also implemented a QR code-based traceability system across all parts for a key customer, enabling 100% process traceability across operations.

• Several productivity enhancement initiatives were undertaken through process optimisation, fixture development and modification, automation, and improved machine utilisation. These initiatives, implemented across several critical components, delivered productivity improvements ranging from 36% to 67%, while multiple-part loading fixtures further enhanced operational efficiency across key manufacturing processes.

• The plant also achieved significant operational improvements by shifting selected machining operations from high-cost equipment to more efficient machines, resulting in higher output and improved cost efficiency. While automation in key machining operations improved productivity by 21%. The plant further strengthened machining productivity through the development of new cutting inserts for hard turning processes.

• During the year, the Faridabad Plant received the Best-in-Class Quality Award from JD Pune and secured the Silver Award in the Best Quality Circle category from Escorts Kubota, recognising the plants continued focus on quality excellence and continuous improvement initiatives.

Sustainability Efforts

This year, we continued to advance our sustainability journey, building on last years official launch of Project Vasundhara - our comprehensive ESG initiative. We commenced our first-ever ESG maturity and materiality assessments, crucial steps to align our business with global best practices and evolving stakeholder expectations. These foundational efforts have successfully laid the groundwork for an effective ESG framework that will guide our actions going forward. With pride, we announce the publication of our inaugural ESG Report, a significant milestone that reflects our commitment to transparency, responsibility, and sustainable growth. In our ongoing pursuit of global best practices and to demonstrate our commitment to sustainable supply chains, this year we also underwent an EcoVadis assessment, a globally recognised sustainability rating.

As we move forward, we aim to set measurable, science-aligned ESG targets, strengthen our climate action initiatives, and consistently raise the bar to become the most sustainable automotive gear manufacturer in the industry.

Further details on the Companys plant level initiatives are provided in the ESG chapter of this Annual Report (Pages 20-24)

Energy Conservation

The Company is actively dedicated to meeting its sustainability objectives, with a strong focus on energy conservation. The goal is to reduce the energy intensity used across both manufacturing processes and infrastructure. Bharat Gears Limited (BGL) plants have implemented a range of specific actions, including regular audits, to boost energy performance and ensure efficient operations.

These energy-saving initiatives include:

• Power Factor Management: Installation of in-house automatic power factor correction (APFC) panels in the Low Tension (LT) Room to effectively manage and stabilise the power factor.

• Natural Lighting: Cleaning all transparent roof sheets at the Mumbra and Lonand Plants. This increases the use of natural light on the shop floor, resulting in reduced electrical power consumption.

• Performance Maintenance: The Company ensures the maintenance of a unity power factor consistently throughout the year.

As part of its ongoing green energy initiatives, the Company commenced rooftop solar power generation at its Faridabad plant during Q4 FY26, marking a further step towards increasing the use of renewable energy in its operations. The Company is also progressing the implementation of a Group Captive Open Access solar power arrangement for its Faridabad and Mumbra plants to support its long-term energy sustainability objectives.

Safety Management

The Company prioritises the safety of its staff and the continuity of operations across all manufacturing locations. The Company maintains a comprehensive safety management system. This includes strict measures such as removing hazardous materials like kerosene and asbestos and providing all employees with necessary protective gear and uniforms.

Proactive Safety Measures and Training

A safe working environment is ensured through continuous employee awareness programmes. Machinery is carefully chosen based on its compatibility with the 5S System principles, and Kaizen methodology is applied for continuous improvement. The Company conducts safety checks routinely:

• Monthly: Safety Committee meetings, audits, firefighting, and first aid training sessions.

• Quarterly: Fire and mock drills.

These safety initiatives strengthened the Companys workplace safety performance, resulting in zero fatalities and zero lost time injuries across its operations.

Governance and Compliance

An updated emergency preparedness plan is always in place. The commitment of senior management to Environmental, Health, and Safety (EHS) is integrated into every system. Housekeeping and safety audits, training sessions, and mock drills are carried out throughout the year. Unsafe conditions are identified and fixed immediately, and strict discipline is enforced when handling hazardous materials. The Lonand Plant completed its ISO 45001 recertification audit. To further strengthen safety, a dedicated Safety Department has been established, led by a qualified Safety Officer and supported by Safety Marshals.

Operational Support System

The Company relies on IT systems to support all operational activities. This includes a custom-built Enterprise Resource Planning (ERP) system, which manages both core and support functions. IT tools are used extensively across engineering and manufacturing to achieve several key objectives: improving products, managing technical knowledge, handling customer relationships for reporting, and resolving problems efficiently.

The Companys Human Resources team is dedicated to support the manufacturing workforce. Their function ensures the continuous availability of skilled personnel required to achieve business goals related to industry leadership, process efficiency, product quality, and customer satisfaction. BGLs HR policy actively promotes competitiveness, work-life balance, and a positive work culture. Furthermore, regular training and engagement programmes are conducted to continuously improve the skills and capabilities of the employees. As of 31 March 2025, the company employed 1,107 permanent staff members.

Financial Highlights

( In Lakhs)

Particulars	FY 2025-26	FY 2024-25	Variance (%)
Operating Revenue	78,417	64,753	21.10%
Other Income	633	251	152.19%
EBITDA	5,859	2,781	110.68%
Interest	1,400	1,708	-18.03%
Cash Profit	4,459	1,073	315.56%
Depreciation	2,257	2,363	-4.49%
Exceptional Items	-	1,684	-100.00%
Profit/(Loss) Before Tax	2,202	394	458.88%
Tax	552	(75)	-836.00%
Net Profit/(Loss)	1,650	319	417.24%

Key Financial Ratios

( In Lakhs)

Particulars	FY 2025-26	FY 2024-25	Variance (%)
Debtors Turnover Ratio	7.45	6.08	22.53%
Inventory Turnover Ratio	8.07	7.39	9.20%
Interest Coverage Ratio	4.18	1.63	156.44%
Current Ratio	1.23	1.22	0.82%
Debt Equity Ratio	0.44	0.54	-18.52%
Operating Margin	4.56%	0.64%	612.50%
Net Profit Margin	3.00%	1.00%	200.00%
Return on Net Worth	14.00%	3.00%	366.67%

The Company achieved a robust 21% year-on-year growth in revenue, largely propelled by a resurgence in the domestic tractor market following a favourable monsoon. This domestic momentum was further bolstered by strategic gains in the export sector, driven by new business acquisitions from existing clients and the successful onboarding of a key client in the recreational vehicle segment.

The Companys profitability metrics, including interest coverage, operating profit margin, net profit margin, and return on net worth, have shown significant improvement, primarily driven by higher volumes, which led to better absorption of fixed cost & ongoing cost optimisation activities.

While operational performance was strong, the current ratio saw only marginal improvement due to a temporary working capital blockage. This was caused by an inverted duty structure following GST rate cuts, under GST 2.0 reforms.

The debt-equity ratio has improved due to debt repayments.

Strategic Outlook

The Companys strategic plan concentrates on several key priorities aimed at securing market leadership and sustained development.

• Revenue and Sales Growth: The Company targets revenue through expansion of its diversified customer base with a target CAGR of 10%.

• Powertrain Components Leadership: BGL aims to establish leadership across powertrain components through product range expansion and segment diversification. The Company will strengthen its position in bevel gears while building similar leadership in transmission gears. New product development processes and First Time Right culture support this technology focus.

• Strategic Partnerships: The Company will identify partners for BGLs proprietary products, along with pursuing joint ventures and contract manufacturing arrangements for forgings. These partnerships create access to new technologies, markets, and production capabilities while sharing development costs and risks.

• Operational Excellence: Operational excellence drives cost competitiveness with a peer-aligned cost structure and a zero-defect culture. The Company launched the ACMA turnaround project at the Faridabad plant with learnings deployed across units. Key focus areas include reducing WIP levels, lowering PPM through automation, and improving process capability for reliable contemporary processes.

• Talent and Culture Development: BGL builds a performance-driven culture with a highly engaged workforce and leadership in technical innovation skills. Plans include revamping the appraisal process, deploying KPIs with variable pay, career succession planning, and inducting specialists for key roles. Trainings to strengthen technical competence and customer centricity.

• Sustainability Leadership: Sustainability becomes core to operations with an EcoVadis score target above

70%. The Company drives sustainability initiatives across facilities while launching the Vision, Mission, Values programme with 100% coverage. Customer first culture, technical expertise, superior manufacturing, and minimum response times create clear market differentiators.

BGL remains well positioned for strong growth through the execution of its strategic initiatives.

Risk and Concerns

The Company places significant emphasis on effective risk management, meticulously monitoring both internal and external factors for potential threats. This constant vigilance allows for the early identification of emerging risks, enabling the swift implementation of appropriate mitigation strategies. Through this proactive risk reduction approach, the Company aims to maintain a secure and stable operating environment.

Risk	Impact	Mitigation
Macro Environment Risk	Economic downturns can negatively impact the Companys business operations. Any significant decline or recession in global markets may sharply reduce the demand for both industrial and automotive components. This reduction in demand could potentially disrupt the Companys operational activities.	The Company conducts regular assessments of its order book, execution plans, market opportunities, and changes in the overall business environment across its various markets. This continuous analysis allows the Company to refine its strategy for sector and geographic diversification. This enables the Company to actively capitalise on emerging opportunities and quickly adapt its approach to address any new challenges that arise.
Technological Risk	The adoption of novel manufacturing technologies, such as automation and digitalisation, presents specific challenges. These new methods could potentially impact both production efficiency and final product quality. Furthermore, if the Company fails to adopt cutting-edge technology, it may struggle to satisfy changing global market requirements, possibly resulting in the loss of future business opportunities.	The Company places a high priority on proactive investment in modern and sustainable technologies. This investment strategy aims to maintain high product quality while simultaneously expanding the product range. Additionally, our efforts are focused on emerging technologies, applications, and market trends. The ultimate goal of this is to continually improve manufacturing processes, quality control, and product enhancements.
Financial Risk	The Companys global operations expose it to several financial risks. These risks stem from foreign exchange fluctuations, rising interest rates, and changes in the availability of credit and liquidity. If these factors move adversely, they can negatively affect the Companys profit margins and overall profitability. A further risk is the potential for unexpected inventory write-offs due to either insufficient protection or obsolescence. Such events could harm the Companys reputation and lead to financial losses.	The Company takes several active steps to reduce these financial risks: Currency Risk: The Company diligently monitors exchange rate movements and uses a hedging strategy to minimise the effects of adverse currency fluctuations. Credit and Liquidity: Robust credit policies, effective collection procedures, and established banking relationships all help mitigate risks related to liquidity and access to credit. Inventory Management: The Company conducts regular evaluations of its inventory targets and policies concerning slow-moving items. Additionally, it has set up appropriate storage facilities and material handling systems to protect the inventories.
Supply Chain Risk	Disruptions within the supply chain present a significant risk, potentially leading to material or component shortages. Such shortages could result in lost sales or increased operational costs. Furthermore, recent geopolitical tensions have added considerable pressure to the entire global supply chain network.	The Company has addressed this by actively strengthening its supply chain network and developing strong relationships with key suppliers and vendors to ensure uninterrupted operations. Wherever feasible, the Company has implemented a dual sourcing strategy for materials to further reduce potential supply risks.
Raw Material & Inflation Risk	Price increase of essential inputs, such as steel, energy, and other raw materials, significantly affects the Companys overall cost structure. This rise in input costs presents a clear risk to the Companys profitability and its ability to deliver finished products on time, within budget, and to the required quality standards.	The Company uses a comprehensive strategy to minimise the risks associated with inflation and raw material price movements. Inflation is closely monitored, and export contract prices are adjusted as needed. Contracts are structured with clients to pass on variations in raw material costs, which helps protect profit margins. Cost-saving efforts are ongoing, including implementing process automation, shifting towards renewable energy sources, and improving supply chain efficiency. Furthermore, the Company maintains strong relationships with vendors and enforces rigorous inventory control to procure materials at competitive prices. These combined efforts are designed to protect the Companys profitability and maintain operational efficiency.
Regulatory Risk	The components produced by the Company are vital for many critical industrial and commercial applications. Since any failure could lead to major losses, our products must meet the rigorous regulatory requirements, quality standards, and technical specifications set by OEMs and authorities. Non-compliance with these stringent standards is a serious concern, as it could result in business losses and significant damage to the Companys reputation.	To maintain high levels of precision, quality, and productivity, the Company continuously invests in upgrading its manufacturing facilities and developing the skills of its workforce. Beyond standard testing by the Inspection and Quality Assurance team, we actively seek client feedback on product quality. Furthermore, the Company protects itself from potential financial setbacks associated with product failures by securing product liability insurance.
Natural Calamities & Crisis Risk	The Company faces risks from natural disasters and wider global or national crises. These events include pandemics, earthquakes, geopolitical instability, and wars. Such crises have the potential to cause significant operational disruptions, leading to facility shutdowns, production reductions, project delays, supply chain obstacles, and increased construction expenses.	The Company prioritises the safety of its stakeholder community and the maintenance of business continuity during any unforeseen crisis. It concentrates on several strategies to insulate business operations during challenging circumstances:
		• Delaying capital expenditures
		• Managing liquidity
		• Establishing alternative supply and manufacturing options
		• Implementing strict cost-reduction measures
People Risk	Excessive manpower can create several operational issues. These include industrial relations problems, decreased gross margins, lower productivity standards, and negative impacts on support systems. On the other hand, a lack of qualified personnel for key business positions can severely impede the organisations growth potential. Furthermore, inadequate development of the leadership team and a weak succession planning process also present significant long-term challenge for the Company.	The Company takes proactive measures to manage its workforce effectively. It conducts benchmarking studies across all its plants to identify and adopt best practices, which in turn improve manpower utilisation. Key measures prioritised include enhancing machine maintenance to increase overall productivity and implementing lean layouts across facilities. Furthermore, a structured process is used to accurately identify critical positions requiring immediate and formalised succession planning.

Internal Control Systems & Their Adequacy

Bharat Gears Limited operates as an organisation driven by systematic processes. An effective internal control system is essential for maintaining efficient daily operations. The Company utilises a structured approach for financial reporting across transactions, ensuring operational efficiency, strong asset protection, and adherence to all relevant laws and regulations.

The Company maintains a continuous and systematic audit process. This process provides the foundation for evaluating the overall effectiveness of internal control systems. These internal controls are appropriately designed to ensure the reliability and accuracy of financial and other records, which are necessary for preparing accurate financial information and related data.

Internal audits are conducted by appointed internal auditors, who receive necessary support from the Companys functional teams. Reports from the Internal Auditors are formally reviewed during Audit Committee meetings. Recommendations for enhancing internal controls are proposed and carefully considered. Furthermore, the Boards Audit Committee reviews and deliberates on these suggestions on a quarterly basis. The ultimate objective of this rigorous review cycle is to achieve continuous improvement in the Companys internal controls and systems.

Cautionary Statement

The statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, and expectations may be forward-looking statements within the meaning of applicable securities laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand, supply, and price conditions in the domestic & overseas markets in which the Company operates, changes in Government regulations, tax laws & other statutes, and other incidental factors. The Company assumes no responsibility in respect of forward-looking statements, which may be amended or modified in the future.