Delta Manufacturing Ltd Management Discussions

1. Economic Review

Global Economy Overview and Outlook

The global economy proved more resilient in 2025 than most forecasters had expected at the start of the year. Despite a sharp escalation in trade protectionism, including steep tariff increases by the United States, global growth for calendar year 2025 is estimated at approximately 3.3% by the International Monetary Fund (IMF), supported by front-loading of trade ahead of tariff implementation, technology-driven investment, easier financial conditions and fiscal support in several major economies.

The IMF, in its January 2026 World Economic Outlook update, projects global growth of approximately 3.3% for 2026 and 3.2% for 2027. Growth in advanced economies is projected at around 1.8% in 2026, while emerging market and developing economies are expected to grow at about 4%. Global inflation is expected to continue declining, although at an uneven pace across countries.

Risks to the outlook remain tilted to the downside. Prolonged trade policy uncertainty, further protectionist measures, a possible repricing of elevated technology-sector valuations, fiscal vulnerabilities in major economies and an escalation of geopolitical tensions, including the conflict in West Asia, could weigh on global activity, commodity prices, freight rates and supply chains. Policy efforts globally remain focused on restoring fiscal buffers, preserving price and financial stability and reducing uncertainty.

India retained its position as the fastest-growing major economy for the fourth consecutive year. As per the provisional estimates released by the National Statistics Office in June 2026 (under the new 2022-23 base year series), real GDP grew by 7.7% in FY 2025-26, up from 7.1% in FY 2024-25, with manufacturing recording double-digit growth and the services sector expanding strongly.

Growth during the year was underpinned by a twin engine of consumption and investment. Private final consumption expenditure grew by approximately 7.7%, supported by benign inflation, the restructuring of personal income tax slabs, and the landmark GST 2.0 rate rationalisation implemented in September 2025, which materially improved affordability across consumer categories including automobiles, appliances and apparel. Successive repo rate cuts by the Reserve Bank of India improved the availability and cost of financing. Gross fixed capital formation grew by approximately 8.2%, reflecting sustained public capital expenditure and improving private investment.

On the external front, the year was challenging. Reciprocal tariffs imposed by the United States on Indian goods, which rose to 50% by end-August 2025 and remained elevated until early February 2026, weighed on merchandise exports to Indias largest market. This was partially offset by robust services exports, record remittances and significant progress on Indias Free Trade Agreement agenda, including agreements with the UK, Oman and New Zealand and the conclusion of negotiations with the European Union. The current account deficit remained moderate and foreign exchange reserves provided a comfortable cushion. The Economic Survey 2025-26 projects real GDP growth of 6.8-7.2% for FY 2026-27.

For our Company, the operating environment in FY 2025-26 was markedly better on the demand side than the previous year. Lower inflation, tax relief and GST rationalisation revived discretionary consumption, directly benefiting the automotive, consumer electronics and textile and apparel sectors that we serve. At the same time, elevated US tariffs for most of the year created uncertainty for export-oriented garment customers, and geopolitical developments, including the conflict in West Asia towards the end of the fiscal year, introduced fresh risks to supply chains, commodity prices and freight costs.

The Indian textile and apparel industry remained a cornerstone of the national economy, demonstrating resilience in a difficult external environment. Indias textile exports (including handicrafts) grew by 2.1% to approximately Rs. 3.16 lakh crore (about US$ 33 billion) in FY 2025-26, despite the imposition of steep US tariffs for most of the year. Ready-made garments remained the largest contributor, growing 2.9% to approximately Rs. 1.39 lakh crore, and export growth was recorded across more than 120 destinations, indicating meaningful geographic diversification, with notable gains in the UAE, UK, Germany, Spain and Japan.

Structural drivers of the domestic market remain intact: the continuing shift from unbranded to branded products, rapid growth of e-commerce and omnichannel retail, and rising demand for casual wear and specialised categories. Government support continued through the extension of the RoSCTL and RoDTEP export remission schemes beyond March 2026, the PM MITRA parks programme and the Production-Linked Incentive (PLI) scheme. The Free Trade Agreements concluded or progressed during the year, particularly with the UK and the EU, are expected to be significant medium-term demand drivers for Indian garment exports and, by extension, for garment trims.

The Indian automotive industry delivered a record FY 2025-26, with total domestic wholesales of approximately 2.83 crore units, a growth of 10.4% over the previous year. For the first time in seven years, every vehicle category posted its highest-ever annual sales, aided by GST 2.0 rate rationalisation, personal income tax relief and lower borrowing costs following successive repo rate cuts.

• Passenger Vehicles: Record sales of approximately 46.4 lakh units, up 7.9%, with utility vehicles continuing to dominate the segment mix. PV exports touched a new high of about 9.05 lakh units.

• Two-Wheelers: Highest-ever annual sales of approximately 2.17 crore units, up 10.7%, with scooters growing 18.5%, well ahead of motorcycles. Two-wheeler exports reached a record of about 51.8 lakh units.

• Three-Wheelers: Best-ever performance at approximately 8.36 lakh units, up 12.8%, supported by rising urban mobility needs and growing adoption of electric autorickshaws.

• Commercial Vehicles: Sales grew approximately 12.6% to about 10.8 lakh units, supported by freight demand from construction, mining and agriculture.

• Exports: Total vehicle exports surged 24% to approximately 66.5 lakh units, reflecting growing global acceptance of Indian-made vehicles.

Industry bodies expect steady growth in FY 2026-27 on the back of robust domestic fundamentals, although uncertainties arising from the West Asia conflict, commodity and fuel prices and tariff changes in select export markets need to be monitored. The continued rise in EV penetration remains a structural driver of demand for magnetic components and electronics.

The Indian electronics industry sustained its rapid expansion in FY 2025-26. Total electronics production is estimated to have risen to approximately Rs. 13.1 lakh crore, and electronic goods consolidated their position as Indias third- largest export category, with exports of approximately US$ 48 billion in FY26, up about 24%, led by smartphones. India remains the worlds second-largest mobile phone manufacturer.

Policy support deepened during the year. In addition to the PLI schemes for Large Scale Electronics Manufacturing and White Goods, the Government notified the Electronics Component Manufacturing Scheme (ECMS) in April 2025 with an outlay of approximately Rs. 22,919 crore to build a domestic component ecosystem, while the India Semiconductor Mission progressed on fabrication and assembly capabilities. The white goods segment continued to grow on rising disposable incomes, urbanisation and premiumisation, further supported by GST rate reductions on appliances. The build-out of a domestic component ecosystem is directly relevant to our magnet division, both as a demand driver and as an opportunity for import substitution.

Delta Manufacturing Limited (DML) is one of the older business houses in India, incorporated in 1982. In a world of continuing technological disruption and end-market volatility, our direction for growth revolves around transformation, technology, innovation and the need to generate new value · to unlock new opportunities, drive growth and deliver new efficiencies. We continue to transition from traditional products to a wider range of technologically advanced components and sub-systems, integrating new strategic businesses with the existing business to differentiate ourselves and build a platform for future growth.

We have two primary business lines:

• The manufacture and supply of soft ferrites magnets to automobile OEMs, railway projects, electronic component manufacturers and aerospace OEMs in India and worldwide, undertaken through our soft ferrite magnet division.

• The design, manufacture and supply of a wide range of garment trims in India · woven labels, heat transfers, fabric printed labels, and elastic and non-elastic tapes · primarily to major garment and textile companies in India.

We have 3 operating manufacturing-cum-R&D facilities in India, including the trims facility at Tirupur, Tamil Nadu commissioned in the previous year.

Our focus on technology-enabled capability development continues to drive growth and enhance stakeholder value. We build capability by establishing ourselves in new locations for manufacturing and R&D, pursuing select value- accretive partnerships and expanding our customer base. Key developments during the year are summarised below:

(i) Tirupur trims facility: FY 2025-26 was the first full year of operation of our trims manufacturing facility at Tirupur, Tamil Nadu. We have achieved full utilisation of our installed production capacity, underscoring the need for planned capacity expansion in the coming year. In addition, we have secured official approvals from a couple of leading brands to commence supplies from this facility, creating further growth opportunities.

(ii) Joint venture with PREMO S.L., Spain: Our joint venture for the manufacture of soft ferrite magnets progressed during the year, enabling fuller utilisation of the divisions capacity and expanding our participation in higher value-added applications. We have secured approximately 20% of the targeted business and successfully completed validation for nearly nine additional parts. These validated parts provide a strong pipeline for growth and are expected to significantly increase business volumes in the coming year.

(iii) Hard Ferrite Magnet Division was closed due to sustained financial underperformance, structural market challenges, low capacity utilisation, high capital intensity and limited prospects for achieving sustainable profitability and long-term returns.

(Rs. in Lakhs)

The broad-based revival in private consumption, aided by GST 2.0, income tax relief and lower interest rates, bodes well for sustained demand in the automotive, electronics and textile and apparel segments in which we operate. Record automobile volumes, rising EV penetration and the Governments push to build a domestic electronics component ecosystem are structural tailwinds for our ferrite magnet division, while FTAs with key markets and the shift towards branded apparel support medium-term demand for garment trims.

In anticipation of growing demand, the Company continues to evaluate capacity expansion, with increased infrastructure and facilities in the trims segment, to allow scalability and the ramp-up of incremental machinery and manpower. The joint venture with PREMO S.L. positions the soft ferrite magnet division to participate in higher value- added soft ferrite magnet applications, including those linked to electric mobility and electronics.

The Company remains focused on liquidity management through cost-reduction initiatives and working capital optimisation, with a stated aim of becoming a net debt-free company. We continue to restructure the customer and product portfolio with the single objective of growing the business profitably, and we believe we are well positioned to capitalise on existing and emerging opportunities through innovation, partnerships and joint ventures, and a widening global presence.

Risk is an inherent part of any business. Various types of risks can affect a company · strategic risk, business risk, finance risk, environment risk, personnel risk, operational risk, reputation risk, regulatory risk, technology risk and political risk, among others. During the year, geopolitical risk was particularly prominent, with elevated US tariffs affecting export-linked demand for most of the year and the conflict in West Asia posing risks to supply chains, commodity prices and freight costs towards the year-end. Raw material import dependence in the magnet division and working capital pressure from delayed customer payments remain areas of continued attention. Your Company aims at enhancing and maximising shareholder value by achieving an appropriate trade-off between risk and return.

The Company is committed to maintaining adequate internal control systems as part of efficient corporate governance. The system ensures that all transactions are authorised, recorded and reported correctly, to safeguard assets and protect them from loss due to unauthorised use or disposition. Operating managers ensure that all operations within their areas are compliant and safeguarded against risks, while auditors carry out random audits to detect flaws in the system, keeping it effective and efficient. Internal audit reports are prepared to create awareness and drive corrective action in the respective units or areas needing rectification. These reports are reviewed by the management team and the Audit Committee for follow-up action.

The Company believes that human resources are among its most vital assets and a key pillar of competitive advantage in the current business environment. The man-and-machine combination is balanced optimally, and the Company provides extensive training to employees to develop their skills and keep them motivated. The Company appreciates the productive cooperation extended by its employees in the managements efforts to take the Company to greater heights.

As on 31st March, 2026, the Company had an employee strength of 251 on its payroll.

The statements made above may be construed as forward-looking statements within the meaning of the applicable laws and regulations. Actual performance of the Company may vary substantially depending upon the business structure and model from time to time. Important external and internal factors may force a downtrend in the operations of the Company.