De Neers Tools Ltd Management Discussions

The global hand and power tools industry continues to stand at a structural inflection point. The overall global tools market, valued at approximately US$100 billion in 2022, remains on track toward the US$190 billion projection for 2035 — a compound annual growth rate of nearly 6%. Within this, the hand tools segment (US$34 billion in 2022, projected to reach US$60 billion by 2035) and the power tools segment (US$63 billion in 2022, projected to reach US$134 billion by 2035) continue to be propelled by infrastructure development, the growing DIY culture, and industrial automation across emerging economies (Source: NITI Aayog, "Unlocking $25+ Billion Exports: Indias Hand & Power Tools Sector," April 2025).

Indias domestic hand tools market, valued at approximately US$1.3 billion in 2023, is estimated to have crossed the US$1.5 billion mark during 2025 and remains on track toward the US$2.6 billion projection for 2033 — a compound annual growth rate of approximately 7.2%, continuing to outpace the global average of around 6% and reflecting Indias position as the worlds fastest-growing major economy (Source: Future Market Insights / CareEdge).

Indias public capital expenditure push, a key structural driver for the industrial and infrastructure end-markets our tools serve, continued into FY26. The Union Budget 2025-26 provided for capital expenditure of approximately Rs. 11.21 lakh crore, building on the 11.11 lakh crore outlay in Budget 2024-25, and continues to be supplemented by initiatives such as "Make in India" and the Smart Cities Mission.

Industry Structure and Developments

Indias hand tools industry continues its structural shift from the unorganised to the organised segment. Roughly 80% of the sector remains unorganised, creating continuing headroom for organised, quality-certified players such as the Company to gain share, aided by GST-led formalisation, digital-payment adoption, rising quality consciousness over price sensitivity, and expanding demand from the aviation, heavy engineering, automotive, gardening, woodworking and construction sectors segments predominantly served by the organised sector.

The Shift to Organized

OPPORTUNITIES AND THREATS Opportunities

• EV segment penetration:

Government targets of 30% EV sales penetration by 2030 (30% private vehicles, 70% commercial vehicles, 40% public buses, 80%

two-and-three-wheelers) continue to drive demand for VDE-certified insulated tools. During FY26 the Company secured brand approvals from Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. for specialised EV/insulated tools, validating this strategy and supporting its ambition to become Indias first indigenous manufacturer of VDE-certified insulated tools.

• Import substitution:

Insulated tools remain predominantly

China-sourced today; domestically manufactured, IEC 60900/VDE-certified product gives the Company a cost, lead-time and supply-security advantage aligned with the "Make in India" initiative.

• Middle East expansion:

DENEERS TOOLS TRADING LLC, Dubai - with a dedicated experience centre and warehouse — completed its first full year of consolidated operations in FY26, positioning the Company as the first Indian hand-tool brand with dedicated, localised Middle East infrastructure and direct connectivity into GCC and African markets.

• OEM/industrial channel:

The Companys OEM roster grew to an estimated 13 accounts (FY25: 12; FY26: 66), spanning automotive and industrial clients, reducing intermediary costs and building brand credibility.

• Omni-channel/D2C:

Continuing scale-up on Amazon, Flipkart and JioMart supports brand visibility beyond the 350+ dealer network, particularly among younger, digital-first customers.

Threats

• Continued import competition from lower-cost Chinese manufacturers; India is estimated to operate at a 14-17% cost disadvantage on key inputs and logistics.

Raw material price volatility: the Companys tools use vanadium-alloyed steel at 5-10% above industry-standard content, making steel/vanadium input-cost inflation a direct margin risk.

• Working-capital intensity: inventory and trade receivables both grew materially faster than revenue in FY26, increasing reliance on borrowings and finance costs.

Currency and cross-border risk associated

• Execution risk in the still-nascent EV insulated-tools manufacturing initiative, which requires new testing/certification infrastructure before it scales.

Segment / Business-wise Performance

I Domestic Dealer Network: the Companys core distribution channel, expanding to an estimated 350+ dealer partners (FY25: 300+) spanning an estimated -3,080 cities/- towns (FY25: -2,750), supported by -50,000 sq. ft. of warehousing across three Delhi locations.

Industrial/OEM Channel:

OEM count grew to an estimated 13 (FY25: 12, FY26: 66), with key accounts including Maruti Suzuki, Hyundai, Havells, Polycab, JBM Group, Eicher-Vol- vo,RenaultandATSEIgi.

I Middle East (Dubai):

DENEERS TOOLS TRADING LLC contributed to a full year of consolidated results in FY26. Consolidated revenue of Rs.178.03 crore (+23.0% YoY) grew materially faster than standalone revenue of Rs.158.26 crore (+9.2% YoY), and consolidated PAT of Rs.25.24 crore (+60.0% YoY) grew far faster than standalone PAT of Rs.20.57 crore (+16.7% YoY) — both reflecting the Dubai operations growing contribution to the Group

D2C Channel:

continued scale-up via Amazon, FlipkartandJioMart.

OUTLOOK

The Companys FY26 performance

standalone EBITDA margin expansion of 216 basis points to 21.28%, and consolidated PAT growth of 60.0% — provides a platform to continue pursuing the Vision 2030 targets of 25% CAGR revenue and profitability growth and 25%+ ROE. Continued investment in EV- insulated tool manufacturing, Middle East scale-up, and deepening OEM relationships are expected to remain the primary growth drivers into FY27, alongside a renewed focus on working-capital discipline given the increase in receivable and inventory days noted below.

Risk & Concern

• Elongation of the working-capital cycle: standalone trade receivables grew 45.1% against revenue growth of only 9.2%, and the Trade Receivables Turnover Ratio declined by approximately 25% year-on-year (Section 9.3) — this warrants Board attention and may reflect extended credit terms to new dealers/OEMs or invoicing skewed toward the year-end.

• Customer/channel concentration inherent in a dealer-led distribution model, exposing the Company to channel-level credit and inventory risk.

• Raw material (steel, vanadium alloy) price volatility.

• Import competition from the unorganised sector and Chinese manufacturers.

• Foreign exchange exposure through the Dubai subsidiary and imported inputs.

• Execution risk on the EV insulated-tools manufacturing build-out, a new, capex- and certification-dependent segment.

Internal Control Systems and their Adequacy

The Company has in place internal financial controls commensurate with the size, scale and nature of its operations, covering the safeguarding of assets, prevention and detection of fraud and error, accuracy and completeness of accounting records, and timely preparation of reliable financial information, as reviewed by the Statutory Auditors in the course of their audit for the year ended 31 March 2026.

Human Resources

The Company continues to view its employees as a key stakeholder group and maintained cordial employee relations through the year. Standalone Employee Benefit Expenses increased from E4.08 crore in FY25 to ?4.96 crore in FY26 (Consolidated: E4.38 crore to !f5.70 crore), in line with the Companys growth and headcount additions across its expanding dealer-support, OEM-servicing and Middle East operations.

DISCUSSION ON FINANCIAL PERFORMANCE

Standalone

Metric	FY25	FY26	Change
Revenue from Operations (Rs. cr)	144.92	158.26	+9.2%
EBITDA (Rs. cr)	28.35	33.86	+21.5%
EBITDA Margin	19.12%	21.28%	+216 bps
Profit Before Tax (Rs. cr)	23.78	28.12	+18.3%
Profit After Tax { Rs. cr)	17.63	20.57	+16.7%
PAT Margin	12.17%	13.00%	+83 bps
EPS - Basic (Rs.)	20.48	23.90	+16.7%
Net Worth (Rs. cr)	72.81	93.38	+28.3%
Total Assets (Rs. cr)	153.18	195.60	+27.7%

Consolidated

Metric	FY25	FY26	Change
Revenue from Operations (Rs. cr)	144.70	178.03	+23.0%
EBITDA (Rs. cr)	26.48	38.97	+49.9%
EBITDA Margin	17.85%	21.75%	+390 bps
Profit Before Tax (Rs. cr)	21.91	33.23	+51.7%
PAT after Minority Interest (Rs. cr)	15.77	25.24	+60.0%
PAT Margin	10.90%	14.18%	+328 bps
EPS - Basic (Rs.)	18.33	29.32	+59.9%
Net Worth (Rs. cr)	70.87	95.30	+34.5%
Total Assets (Rs. cr)	162.40	206.59	+27.2%

Details of Significant Changes in Key Financial Ratios (Standalone)

In terms of Regulation 34(3) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 / Rule 8 of the Companies (Accounts) Rules, 2014, the Company is required to explain any change of 25% or more in a key financial ratio as compared to the immediately preceding financial year. Ratios are computed on a standalone, closing-balance basis.

Ratio	FY25	FY26	% Change
Current Ratio	2.60	2.77	+6.5%
Debt-Equity Ratio	0.75	0.79	+4.1%
Trade Receivables Turnover Ratio	3.95x	3.62x	-24.8%
Trade Payables Turnover Ratio	8.47x	7.91x	-6.1%
InventoryTurnover Ratio	1.58%	1.39x	-20.8%
Interest Coverage Ratio	7.27x	6.65x	-8.5%
Operating (EBITDA) Margin	19.56%	21.39%	+11.3%
Net Profit Margin	12.17%	13.00%	+6.8%
Return on Net Worth	24.21%	22.03%	-9.0% i

Explanation for the Trade Receivables Turnover Ratio (the only ratio with a change of 25% or more): Trade receivables grew 45.1% year-on-year to U51.71 crore against revenue growth of only 9.2%, causing debtor turnover to slow from 4.07x to 3.06x (receivable days rising from approximately 92 to approximately 119). This is attributed to the expanding dealer and OEM base being extended standard credit terms as they ramp up, and to a higher proportion of billing toward the close of the financial year; the trend is being monitored and is expected to normalize as new accounts mature.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business, and other incidental factors.