Diffusion Engineers Ltd Management Discussions

GLOBAL ECONOMY

2025-26: Tenuous Resilience amid Persistent Uncertainty

The global economy navigated a challenging environment in FY 2025-26, marked by renewed trade- policy headwinds and geopolitical disruption, even as it demonstrated underlying resilience. The IMFs July 2025 World Economic Outlook Update revised global GDP growth upward to 3.0% for 2025 and 3.1% for 2026, reflecting stronger-than-expected Front-loading of trade activity, lower effective tariff rates compared to early April 2025, and easier financial conditions including a softer U.S. dollar.

The October 2025 WEO subsequently revised estimates to 3.2% for 2025 and 3.1% for 2026, while the January 2026 update projected 3.3% for 2026 and 3.2% for 2027.

Source: IMF World Economic Outlook Update, July 2025 Declining Inflation

Global inflation continued its gradual descent during FY 2025-26, reaching approximately 4.2% in 2025 and projected to ease further to 3.7% in 2026, according to the IMF. Advanced economies have converged closer to their central bank targets, with the U.S. Federal Reserve navigating a delicate balance between easing inflation and trade-induced price pressures.

The European Central Bank continued monetary easing to support its lagging industrial base. Emerging market economies, including India, achieved notable disinflation, with some recording inflation at multi-year lows.

Source: IMF WEO October 2025

Trade Policy Disruptions

The year was defined by significant trade policy turbulence. U.S. tariffs, which entered a 90-day pause in April 2025, were partially reintroduced through August 2025, disrupting global supply chains, particularly U.S.- China trade corridors.

Countries across Southeast Asia, India, and parts of the Middle East benefited from trade diversion, attracting incremental manufacturing orders and FDI as global multinationals diversified their sourcing geographies. Global trade growth moderated as a result of these disruptions, though front-loading activity in early 2025 provided some buffer.

Industry and Manufacturing

Manufacturing and industrial activity remained mixed across geographies. Asia-Pacific, led by India and parts of Southeast Asia, continued to drive industrial output growth, supported by infrastructure investment, PLI- style schemes, and expanding domestic demand. Europes manufacturing sector remained under pressure from elevated energy costs, weak end-market demand, and cautious business sentiment. The U.S. manufacturing sector experienced some resilience supported by reshoring-linked investment, even as tariff uncertainty suppressed new capacity decisions. Globally, flux- cored wire and electrode demand rose in tandem with infrastructure-linked construction activity.

Consumption and Trade

Global consumption grew modestly, supported by real wage recovery in economies that achieved significant disinflation, particularly the U.S. and India while Europe lagged on account of subdued consumer sentiment and structural economic challenges. Global trade growth was volatile, with the first half of 2025 seeing front-loading and the second half experiencing a correction as tariff effects took hold. Commodity prices, particularly for steel, nickel, tungsten, chromium, and others continued to exhibit elevated volatility, with significant implications for input cost management across the welding consumables and wear solutions supply chain.

According to SNS Insider, the Stainless Steel Market was valued at USD 185.75 billion in 2025 and is expected to reach USD 378.23 billion by 2035, growing at a CAGR of 7.41% during the forecast period 2026?2035. These factors include rising building and infrastructure development, increased manufacture of automobiles, and the development of renewable energies.

However, iron ore, coal and scrap steel used to make new steel are all critical inputs whose costs can vary significantly based on global supply-demand imbalances as well as geopolitical tensions and trade curbs. These fluctuating prices have significant impacts on the price of production, profit margins, and bring about uncertainty to manufacturers, which can hinder long-term investment planning as well as stable pricing for end-use industry.

Source: Steel Market Size, Share & Global Forecast 2026-2033

Outlook

The global economic outlook for FY 2026-27 remains cautiously constructive but fragile. Growth is projected in the 3.1-3.3% range, with emerging economies particularly India and Southeast Asia continuing to outperform advanced economies. Key risks include a resurgence of trade tensions, geopolitical escalation in the Middle East, and financial market volatility linked to higher-for-longer interest rates in the U.S. On the upside, breakthroughs in trade negotiations, structural reforms, and accelerating digital and energy-transition investment could lift growth above baseline projections.

Source: IMF World Economic Outlook April 2026

INDIAN ECONOMY

Indias Growth Performance in FY 2025-26

Indias economy delivered an outstanding performance in FY 2025-26, with real GDP expanding by 7.7%, the sharpest annual growth rate since the post-pandemic rebound in FY 2022, and well above the initial government projection range of 6.3-6.8%.

India maintained its position as the fastest-growing major economy and the highest-growing G20 nation, demonstrating remarkable resilience in the face of U.S. tariffs (which reached 50% by August 2025), elevated energy costs from rerouted oil sourcing, and the broader geopolitical uncertainty stemming from the Middle East conflict. GDP at constant prices (base 2022-23) reached Rs 323.12 lakh crore for the full year, with nominal GDP of Rs 346.36 lakh crore.

According to data published by World GDP Ranking List on Cleartax, in 2026, Indias per capita income is estimated at $2,813 (approximately Rs 2.35-Rs 2.45 lakh), reflecting a steady improvement. While India remains a $4.15 trillion economy, its per capita income continues to rise alongside sustained economic growth and structural reforms. For comparison, Indias per capita income was around $2,500 in 2024, indicating consistent expansion in income levels and domestic production. The latest global GDP estimates for 2026 reflect updated projections for major economies. While the US and China remain the top two economies, India currently ranks 6th in nominal terms with a nominal GDP of around $4.15 trillion. The country also remains the worlds fastest-growing major economy.

KEY HIGHLIGHTS

United States:	$32.38 trillion GDP, remains the worlds largest economy.
China:	$20.85 trillion GDP, continues as the second-largest economy.
India:	$4.15 trillion GDP, currently ranks 6th among the largest economies.
Fastest Growth:	India leads major economies with a projected calendar-year 2026 growth rate of 6.48%.
Source: World GDP Ranking 2026 List, Clear Tax

Quarterly Growth Trajectory

The quarterly growth trajectory For FY 2025-26 was notably strong. Q1 FY 2025-26 recorded 7.8% growth, followed by a further acceleration to 8.2% in Q2, the sharpest quarterly growth since Q4 FY 2023-24 driven by resilient domestic demand, strong manufacturing output (9.1% in Q2), and buoyant financial and real estate services (10.2%). Q3 moderated amid U.S. tariff headwinds, before growth recovered to 7.8% in Q4, consolidating the full-year outcome at 7.7%. The RBI progressively revised its GDP forecast upward through the year, From 6.5% initially to 7.4% by its February 2026 policy meeting, reflecting the economys consistent outperformance.

Source: PIB: Indias Growth Story Strengthens Q2 FY 2025-26 GDP Data Inflation - A Historic Low

FY 2025-26 was a landmark year for inflation management in India. Headline CPI inflation declined for nine consecutive months through mid-year, reaching a multi-year low of approximately 1.6% in July 2025 before edging up to 2.1% by August.

The sharp decline was driven by a prolonged 10.5% fall in food prices over nine months the longest such decline in the CPI series. GST rationalisation effective September 22, 2025, further reduced consumer prices across approximately 11.4% of the CPI basket. The RBI revised its full-year CPI inflation forecast progressively downward to 2.0%, compared to the earlier estimate of 3.1%. This benign inflation environment enabled the RBI to maintain an accommodative monetary stance and support credit growth without reigniting price pressures.

Source: PIB: Macroeconomic Update H1 FY 2025-26

Monetary Policy - Calibrated Easing

The Reserve Bank of Indias Monetary Policy Committee navigated the year with a series of carefully calibrated rate cuts. The repo rate was reduced to 5.25% by December 2025 (a 25 bps cut) and held steady at 5.25% through February 2026, maintaining a neutral stance. The RBI raised its GDP growth forecast for FY 2025-26 to 7.4% at its February 2026 meeting, reflecting confidence in the economic trajectory.

The reduction in the cost of credit, combined with healthy bank balance sheets and improved liquidity, supported strong credit disbursement to the industrial, infrastructure, and MSME segments, all of which are key customers of Diffusion Engineers product and service portfolio.

Source: RBI Monetary Policy Decisions - Trading Economics India Interest Rate

Industrial Production and Manufacturing

Indias Index of Industrial Production (IIP) maintained a healthy pace, with the capital goods sub-index recording particularly strong growth of 8.1% in December 2025 and 14.0-14.1% year-on-year in April-May 2025. Manufacturing GVA growth accelerated to 7.72% in Q1 and 9.13% in Q2 FY 2025-26, driven by PLI-linked production ramp-ups, infrastructure-linked demand for construction materials, and expanding electronics and automotive manufacturing. The construction sector grew 8.4% in Q2, while double-digit manufacturing growth was recorded in Q3, reinforcing the broad-based nature of industrial momentum.

Source: Economic Survey 2025-26: Capital Goods Sector External Trade and FDI

Indias export performance was resilient despite the tariff environment. Merchandise exports grew 2.4% during April-December 2025, while services exports expanded at a strong 6.5% pace. Indias total exports (goods and services) reached USD 825.3 billion in FY 2025. The Current Account Deficit narrowed sharply to 0.2% of GDP in Q1 FY 2025-26 (from 0.9% a year earlier), supported by strong services exports and remittances of USD 35.3 billion, the worlds largest recipient. Gross FDI inflows remained robust at USD 37.7 billion in April-July 2025, reaching USD 51.8 billion in H1, growing 19.4% year-on- year. Indias three sovereign credit rating upgrades during the year underscored growing international confidence in its economic fundamentals.

Source: PIB: Indias First Advance Estimates FY 2025-26 GST Collections and Fiscal Health

Indias Goods and Services Tax collections continued to demonstrate the economys ongoing formalisation and compliance improvements. The Union Budget for FY 2026-27 maintained Indias fiscal consolidation trajectory, with the fiscal deficit brought below 4.5% of GDP in FY 2025-26.

The governments capital expenditure allocation was maintained at a record Rs 11.21 lakh crore (3.1% of GDP) in FY 2025-26 and proposed to increase by 9% to Rs 12.2 lakh crore in FY 2026-27. This sustained public investment commitment keeps the multi-year infrastructure pipeline of highways, railways, housing, and energy firmly on track.

Source: PIB: Union Budget FY 2026-27 ? Capital Goods Sector

Outlook

Looking ahead, the RBI projects GDP growth of 6.9% for FY 2026-27 (with some downward revision risk from the Middle East conflict and energy price pressures). Private consumption, now accounting for 61.5% of GDP, the highest since FY 2012, remains the primary growth engine. Infrastructure investment, digital transformation, clean energy scale-up, and manufacturing diversification under Make-in-India will continue to drive domestic demand, providing a constructive backdrop for industrial companies serving core sectors.

Source: Trading Economics: India Full Year GDP Growth

INDUSTRIAL STRUCTURE & DEVELOPMENT

Global Welding Consumables Industry

Welding consumables comprising electrodes, filler wires, fluxes, shielding gases, and flux-cored wires remain the cornerstone of industrial Fabrication across construction, automotive, energy, shipbuilding, and heavy engineering sectors.

The global welding consumables market was valued at approximately USD 18.70 billion in 2025, growing to an estimated USD 31.6 billion in 2035 at a CAGR of 5.4%.

Asia-Pacific dominates with a share of approximately 47% of global revenue in 2025 (approximately USD 8.8 billion), driven by Chinas manufacturing base, Indias expanding industrial footprint, and Southeast Asias growing automotive and construction sectors. Stick electrodes hold the largest product segment at approximately 31% of consumption, while flux-cored wires are the fastest- growing sub-segment, expanding at a CAGR above 6% on account of automation-driven demand.

TYPES AND APPLICATIONS

Types of welding consumables in use include:

(1) Electrodes - coated metal rods for manual arc welding;

(2) Solid Wires - for MIG/MAG welding;

(3) Flux-Cored Wires - for semi-automated and automated welding and cladding, offering higher deposition rates;

(4) Submerged Arc Wires and Fluxes - for heavy-duty industrial fabrication;

(5) Thermal Spray Powders and Strip Electrodes - for hardfacing and cladding applications; and

(6) Cold Repair Compounds - for in-situ machinery rehabilitation without welding heat.

These consumables find application across construction (steel beams, bridges, buildings), automotive (chassis, body structures, EV battery enclosures), shipbuilding, oil and gas (pipelines, rigs), energy (wind towers, nuclear vessels, coal plant components), and heavy industry repair and maintenance.

Growth Trends and Drivers

Key demand drivers include: the global construction boom requiring structural welding across residential, commercial, and industrial sectors; automotive industry transformation linked to EVs requiring specialist aluminium and high-tensile weld materials; rising shipbuilding in South Korea, Japan, and China for container vessels and LNG carriers; energy infrastructure expansion (both renewables and fossil fuels); and the growing adoption of robotic and automated welding systems that favour flux- cored and solid wire consumables.

The advancement of flux-cored welding consumables for automated fabrication and Air Liquide Welding expanded for technical support services for industrial automation during the year signal market direction toward automation-compatible premium consumables.

Source: Research and Markets: Welding Consumables Market 2026-2032

EMERGING TRENDS

The welding consumables industry is being shaped by several emerging trends:

(1) Increased Automation and Robotics - Robotic welding systems are being rapidly adopted in automotive and manufacturing, driving demand for flux-cored wires compatible with automated deposition heads.

(2) Eco-Friendly Consumables - Manufacturers are developing low-fume, chromium-free, and low-emission formulations aligned with ESG mandates and regulatory requirements.

(3) Advanced Alloy Compositions - new consumables with cobalt-free, low-spatter, and cryogenic-resistant formulations are gaining share in aerospace, defence, and extreme-environment applications.

(4) Digital Integration - IoT-enabled welding process monitoring and data analytics are optimising consumable usage and ensuring weld quality traceability.

(5) Additive Manufacturing Compatibility - Metal powders compatible with directed energy deposition are emerging as a nascent but fast-growing sub-segment.

Indian Welding Consumables Industry

Indias welding consumables market, estimated at USD 1.66 billion in 2026 (Fortune Business Insights), is on a strong growth trajectory driven by infrastructure expansion, manufacturing PLI schemes, and growing renewable energy installations.

The Indian market is expanding at a regional CAGR above the global average, supported by growing automobile assembly operations, renewable energy infrastructure development, and the governments continued push for infrastructure-led growth. Stick electrodes continue to dominate in volume terms, Favoured For their versatility, low equipment cost, and effectiveness in outdoor and adverse conditions, while flux-cored wires are the Fastest- growing segment.

Source: Fortune Business Insights: Welding Consumables Market India 2026

SECTORS DRIVING GROWTH

• Infrastructure: Initiatives such as PM Gati Shakti, Bharatmala, Sagarmala, Vande Bharat, and Smart Cities Mission are driving rapid construction of bridges, highways, tunnels, ports, and buildings-all requiring extensive structural welding.

• Manufacturing: The PLI scheme and Make-in-India campaign are boosting domestic manufacturing output, with welding consumables as an essential input across automotive, electronics, and industrial machinery production.

• Automotive-EV Transition: Indias rapidly growing EV industry is creating new welding requirements for lightweight aluminium alloy structures and battery pack enclosures, demanding specialised consumables.

• Renewable Energy: Wind tower fabrication and solar mounting structure welding represent growing consumption channels.

• Shipbuilding and Defence: Growing indigenisation of defence equipment and expansion of Indian shipyards are creating sustained demand for high- performance electrodes and wires.

Opportunities and Challenges

Indias welding consumables sector offers significant import-substitution opportunities in specialty electrodes and flux-cored wires, where domestic manufacturers with NABL-accredited testing and proprietary alloy formulations hold a quality advantage. However, challenges persist from low-cost East Asian producers particularly China on standardised SKUs. Domestic companies with differentiated offerings, technical service capabilities, and strong OEM relationships are best positioned to capture premium market share and resist commoditisation pressure.

Source: IMARC Group: India Welding Consumables Market

Global Wear Plates / Wear Parts Industry

Wear plates and wear parts are critical consumables in industries operating under conditions of high abrasion, impact, corrosion, and erosion. Wear plates (e.g., AR400, AR500, Chromium Carbide Overlay) are protective shields bolted or welded onto machinery surfaces, while wear parts are replaceable active components like teeth, blades, liners, rollers that directly engage abrasive material, absorbing wear to protect the equipment itself. Together, they extend machinery life, reduce unplanned downtime, and lower total cost of ownership.

The global wear plates market was valued at USD 3.74 billion in 2024 and is projected to reach USD 5.45 billion by 2030, registering a CAGR of 6.7% during 2025?2030. Asia Pacific accounted for over 42% of the global market in 2024, supported by rapid industrialisation, expanding mining activities and rising investments in infrastructure and heavy equipment. Growing demand for durable, cost-effective wear-resistant materials continues to drive market expansion across key industrial sectors.

Source: Wear Plates Market (2025 - 2030), Grandview Research

Increased use of automation and precision processing for customized wear resistant steel solutions and expanding demand for lightweight yet high-performance materials in heavy equipment applications help in a consistent and continuous growth trajectory for the market.

Product Types and Segments

On the broader wear-resistant steel plate definition, which SNS Insider sizes at USD 5.21 billion in 2025 rising to USD 9.63 billion by 2035 at a CAGR of 6.35%, the segment structure is as follows. By product type, Abrasion Resistant (AR) Steel Plates dominate with a 42.15% market share in 2025, owing to their durability and wide use in tough industrial settings. Chromium Carbide Overlay (CCO) Plates are the fastest-growing sub-segment, expected to grow at a CAGR of 8.58% From 2026 to 2035, driven by their exceptional hardness and wear life in extreme environments.

The Mining Industry holds the largest share as abrasive material handling environments make durable wear solutions essential. Industrial and Manufacturing is the fastest-growing end-user segment driven by growing PLI-linked factory automation and equipment protection requirements. By hardness, the 400-500 HB category dominates and is also the fastestgrowing, reflecting balanced performance for high-impact industrial applications.

Key Growth Drivers

The wear plates and parts industry is driven by:

(1) Expanding mining activities globally for critical minerals (lithium, cobalt, copper) required for the energy transition;

(2) Infrastructure construction-bridges, dams, tunnels which require wear-resistant liners in excavation and material handling equipment;

(3) Cement and steel sector capacity expansion;

(4) Focus on sustainability and reducing equipment replacement frequency, as longer wear-life solutions directly lower carbon footprints; and

(5) Technological innovation in composite materials, ceramic overlays, and weld-deposited CCO plates that offer superior performance-to-cost ratios versus OEM replacements.

Source: GlobalNewsWire: SNS Insider Wear Resistant Steel Plate Market Report 2026

Indian Wear Plates / Wear Parts Industry

India is emerging as one of the fastest-growing wear plates markets in Asia Pacific, driven by sustained investments in infrastructure, mining, construction and industrial manufacturing. The Indian wear plates market was valued at USD 122.8 million in 2024 and is expected to reach USD 186.8 million by 2030, expanding at a CAGR of 7.2% during 2025-2030. India accounted for 3.3% of the global wear plates market in 2024 on the USD 3.74 billion Grand View Research base cited above, with demand supported by increasing adoption of wear- resistant materials across mining equipment, cement plants, earthmoving machinery and other heavy industrial applications.

The market is underpinned by robust demand from the cement, steel, mining, sugar, and power sectors, all of which are undergoing capacity expansion and operational intensity increases. Indias reliance on imported wear plates, particularly CCO and ceramic composite variants from China, Germany, and the U.S., presents a significant import-substitution opportunity for domestic manufacturers with advanced overlay and bonding capabilities.

Growth Drivers

Rapid Industrialisation: Indias cement sector is adding over 40 million tonnes per annum of new capacity by FY 2026-27, while the steel sector continues to expand under DMISP 2025 and Vision 300 MT targets. Both are intensive users of wear liners, rollers, crusher plates, and chute liners. Mining Expansion: The coal sectors targeted 42% output increase by 2030 and growing extraction of critical minerals expand the addressable market for crusher screens, conveyor chutes, and bucket liners. Manufacturing: PLI-linked production ramp-ups across automotive, electronics, and defence sectors increase wear part requirements in stamping dies, conveyor systems, and machining fixtures. Atmanirbhar Bharat: Government policy actively encourages import substitution in industrial components, creating a favourable procurement environment for domestic wear solution providers.

Challenges and Threats

Despite strong demand growth, the Indian wear plates market faces challenges: significant import volumes, primarily from China (the dominant supplier), Germany, and the U.S., driven by the cost-competitiveness and scale of foreign producers; a perception gap in domestic product quality for the most demanding applications (CCO and ceramic composites); and the need for technical sales capabilities to demonstrate life-cycle cost advantages over lower-priced imports. Import data shows year-on-year growth of 23% in wear plate imports during 2023-24, signalling both the growth in demand and the persistent gap in domestic supply capability for high-specification variants.

Source: Verified Market Reports: India Wear Plate Market Source: Grand View Research: India Wear Plates Market

Global Heavy Engineering Equipment Industry

The global heavy engineering equipment industry encompasses large-scale machinery used in construction, mining, energy, and industrial production including excavators, cranes, crushers, bulldozers, and material handling systems. The global heavy construction equipment market is projected to grow from USD 160.11 billion in 2026 to USD 226.91 billion by 2033, at a CAGR of 5.1%. Broader definitions that also capture mining and material-handling equipment size the market at USD 209?224 billion in 2025, growing at 4-5% annually. Asia- Pacific commands the dominant regional share, driven by large-scale infrastructure programmes in China, India, Japan, and South Korea.

Source: MarketsandMarkets: Heavy Construction Equipment Market 2026-2033

Key Growth Drivers

• Infrastructure investments: Governments worldwide are allocating unprecedented budgets to transportation networks, smart cities, energy infrastructure, and urban development. The World Bank estimates USD 1.4 trillion in annual global infrastructure investment.

• Mining and energy transition: High-intensity mining operations for critical minerals and large-scale land development for renewable energy installations are expanding the addressable market For earthmoving and material handling equipment.

• Technological innovation: Automation, IoT-enabled predictive maintenance, Al-integrated excavators (e.g., Komatsus intelligent systems launched in 2025), and electric/hydrogen-powered machinery are boosting efficiency and aligning with sustainability mandates.

• Electrification: Electric and hybrid construction machinery is gaining regulatory and market traction, particularly in Europe and urban-constrained markets. JCB secured commercial licensing from eleven European authorities for electric machinery in January 2025.

Source: Fortune Business Insights: Heavy Construction Equipment Market 2026-2034

Indian Heavy Engineering Equipment Industry

Indias heavy engineering and capital goods sector is in the midst of a structural transformation, emerging as one of the countrys most strategically important industries. The capital goods sectors output nearly doubled over the past decade, reaching Rs 4,29,001 crore in 202324. PLI schemes have attracted over Rs 2 lakh crore in realised investments as of September 2025, creating strong upstream demand for industrial machinery, specialised engineering systems, and high-performance components. The sector currently contributes significantly to Indias GDP, with a multiplier effect across downstream manufacturing industries. The IIP capital goods sub-index surged 8.1% in December 2025 and 14.0-14.1% in April-May 2025, signalling a structural, not cyclical, growth phase.

Source: Invest India: Indias Capital Goods Boom ? March 2026 Construction Equipment Segment

India is the worlds third-largest market for construction equipment. The construction equipment market, valued at approximately Rs 69,046 crore (USD 7.91 billion) in 2025, is projected to reach Rs 1,02,827 crore (USD 11.78 billion) by 2030, with sales expected to cross 165,000 units by 2028. In FY 2024-25, the construction equipment sector achieved low single-digit year-on-year volume growth despite general election-related project delays and new emission norm implementation. Earthmoving equipment led with an approximately 71% market share. In FY 202526, resumed infrastructure spending and accelerated project execution across Bharatmala, Smart Cities, and metro rail programmes drove a recovery in construction equipment demand. India constructed 5,313 km of highways in FY 2025-26, surpassing the target of 4,640 km.

Source: IBEF: India Engineering & Capital Goods Industry Capital Goods Production and Exports

Capital goods production across sub-sectors continued to grow strongly in FY 2025-26. Earthmoving and Mining Machinery output surged to Rs 73,000 crore in 202324 (from Rs 31,020 crore in FY 2019-20), reflecting the combined impact of infrastructure investment and mining sector growth.

Exports of engineering goods reached Rs 9,86,328 crore (USD 116.67 billion) in FY 2024-25. Capital goods exports continued to benefit from global demand for cost- competitive Indian-made equipment. The Ministry of Road Transports allocation in Union Budget 2026-27 rose 8% to Rs 3,09,875 crore, maintaining strong demand visibility for earthmoving, road-building, and material handling equipment manufacturers.

Government Policy and Incentives

The National Capital Goods Policy, formulated by the Ministry of Heavy Industries, targeted increasing the sectors contribution to manufacturing from 12% (2016) to 20% by 2025, doubling production, and increasing exports to at least 40% of total production. Phase-II of the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector supports Advanced Centres of Excellence, Common Engineering Facility Centres, and technology upgrading initiatives. Union Budget 2025-26 proposed adding 35 capital goods for EV battery manufacturing and 28 for mobile phone battery manufacturing to the exempted list, directly stimulating domestic production. Hi-Tech Tool Rooms are proposed to be established at two locations by CPSEs to enhance high-precision machining capabilities.

Source: PIB: Make in India and the Capital Goods Revolution

Source: PIB: Union Budget FY 2026-27 ? Capital Goods Strengthening

Opportunity Landscape

The Union Budget 2026?27 underscores the capital goods sector as a key driver of Indias growth and industrial transformation. It prioritises expansion of manufacturing capacities in seven strategic and frontier sectors, supported by focused interventions for capital goods. The Budget strengthens the sectors role across manufacturing, and the energy transition to enhance productivity and quality standards. These measures aim to reinforce domestic capacity while supporting Indias deeper integration with global markets. The Economic Survey 2025-26 notes that manufacturing GVA growth accelerated in FY26, reaching 7.72% in Q1 and 9.13% in Q2, supported largely by ongoing structural transformations within the sector.

Source: https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=157180&ModuleId=3&reg=44&lang=1

The power sector has planned government investment of Rs 25 lakh crore over the next five years For generation, transmission, and distribution. The cement industry is adding over 40 MT per annum of new capacity by FY 2026-27. Data centre capacity is projected to double by FY 2026-27.

Source: IBEF: Engineering & Capital Goods ? Detailed Industry Presentation

OPPORTUNITIES & THREATS

Opportunities

The Company operates at the intersection of Indias industrial and infrastructure growth story, and the current environment presents a broad set of demand tailwinds across its core end-markets. Indias cement industry has entered a Fresh expansionary cycle, with more than 40 million tonnes of new capacity slated for commissioning by FY 2026-27, supported by infrastructure spending and renewed affordable-housing demand under PMAY- Urban 2.0. Every new kiln installation and life-extension programme generates recurring demand for the Companys anti-wear welding consumables, wear plates and liners, and turnkey heavy-engineering services such as kiln shell replacement and roller reconditioning. The steel sector offers a parallel opportunity: as the worlds second-largest crude steel producer, Indias Vision 300 MT ambition and allied policy support are driving both greenfield capacity additions and brownfield efficiency upgrades, each requiring regular hardfacing electrode maintenance, precision roller supply, and wear-part replacement. The Companys delivery of over 300 continuous casting roller assemblies with specialised hardfacing in FY 2024-25 positions it well for repeat and expanded orders as steel capacity grows.

The energy transition creates a rare dual thrust. On the renewable side, Indias target of 500 GW of non-fossil capacity by 2030 - following more than 25 GW of clean- energy additions in FY 2025 - sustains welding-intensive wind-tower fabrication and solar-structure assembly, where the Companys PTA powders and laser cladding solutions are well suited. On the thermal side, life- extension of legacy plants, underpinned by power-sector investment of around Rs 25 lakh crore over five years, drives demand for in-situ repair services, high-chrome electrode overlays, and heavy-engineering fabrication. The ethanol blending programme, targeting 30% blending under the E30 roadmap by 2030, is spurring distillery capital expenditure and recurring, annuity-type demand for the Companys hardfacing consumables, cold-repair compounds, and in-situ repair services across the sugar vertical. In nuclear energy, where installed capacity is expected to nearly triple to over 22,480 MW by 2031, the Companys DSIR-recognised R&D facility and NABL-accredited laboratory provide the testing and certification platform to pursue ASME-grade, nuclear- qualified product approvals.

The mining sector offers dual growth of its own - coal output targeted to rise 42% to 1.5 billion tonnes by 2030 alongside an emerging critical-minerals push in lithium, cobalt, nickel and rare earths - both of which rely heavily on the Companys customised CCO wear plates and field- installed hardfacing in crushers, conveyors, screens and bucket assemblies. Railway electrification and fleet modernisation, spanning Vande Bharat and Amrit Bharat programmes, freight locomotive upgrades and dedicated freight corridors, extend the addressable market for the Companys automated welding systems and in-situ machining capabilities in maintenance workshops and among component OEMs. Defence indigenisation is a further avenue: with domestic production of Rs 1,269 billion in FY 2024 and growing private-sector participation, precision fabrication, hardfacing and specialised consumable supply present new opportunities, reinforced by the emerging defence corridors in Uttar Pradesh and Tamil Nadu. Finally, the India-UK Free Trade Agreement and the UAE CEPA, together with Indias improving relative cost competitiveness amid shifting global tariffs, strengthen the Companys export prospects, building on its established track record of international heavyengineering deliveries such as the rotor assembly export to Russia and kiln shell exports.

Threats

These opportunities are balanced by a set of risks that the Company actively monitors and mitigates. Its core inputs - nickel, chromium, high-alloy steels, ferro-alloys and specialty wire rod - are globally traded commodities prone to sharp price swings; nickel alone moved nearly 18% within the first quarter of 2025, and such spikes can compress margins on fixed-price project contracts. Multi-vendor sourcing, quarterly repricing clauses and selective commodity hedging limit but do not eliminate this exposure. Demand is also closely linked to capital- expenditure and maintenance cycles in steel, cement, power and mining, so a prolonged downturn in any of these could defer shutdowns and reduce oFF-take - a cyclicality partly cushioned by diversification across power, railways, mining, defence and sugar, and by maintenance agreements guaranteeing minimum callout levels. Low-cost imports, particularly of electrodes, wires and wear plates from China, continue to pressure commoditised segments, countered through life-cycle cost audits, proprietary alloy formulations, technical- service differentiation and Make-in-India preferences in government tenders.

On the cost side, the Companys heat-intensive operations at Nimji remain sensitive to electricity tariff and fuel-price escalation, which it addresses through on-site solar capacity, energy-efficiency retrofits and cost pass-through provisions in multi-year service agreements. Rupee depreciation against the dollar and euro raises the landed cost of imported specialty alloys, flux ingredients and precision spares; export earnings provide a natural partial hedge, while forward covers and progressive localisation of select alloy grades reduce residual exposure. Related geopolitical and logistics disruptions to specialty-alloy imports are managed through strategic safety stocks, dual-port routing and continued localisation.

On compliance and operations, Cyber-security is a growing concern, as manufacturing has become one of the most targeted sectors for ransomware in India, and an incident affecting the Companys ERP, production control or laboratory systems could disrupt operations and quality records; in response, it is investing in IT-OT security protocols, network segmentation and employee awareness programmes, and has taken cyber and crime insurance. Lastly, lengthening receivable cycles with public-sector undertakings, EPC contractors and large industrial clients pose working-capital and credit risk as project values scale - mitigated through stricter credit screening at order acceptance, milestone-based billing for heavy-engineering projects, and day-sales- outstanding KPIs, supported by the meaningful liquidity headroom of a stronger, largely deleveraged post-IPO balance sheet.

DOMAIN-WISE BUSINESS PERFORMANCE

Diffusion Engineers provides an integrated range of specialised solutions designed to extend equipment life, reduce maintenance costs, and improve operational reliability for customers across Indias core industrial sectors. Across its product lines, the Company recorded a number of significant order wins and project completions during FY 2025-26, reflecting sustained demand, deepening customer relationships, and expanding technical capability.

Anti-Wear Welding Consumables

The Companys portfolio of anti-wear electrodes, flux- cored wires (FCW), thermal spray powders, and cold- repair compounds (Diffcor) continued to generate strong demand in FY 2025-26, supported by the need for high equipment availability and a growing manufacturing installed base across infrastructure-linked industrial sectors. Backward integration and capacity expansion at Unit V further strengthened the segment during the year: a new strip slitting plant - which manufactures the steel strip that is the critical raw material for FCW - commenced operations in FY 2025-26, reducing dependence on external procurement and improving control over this key input. Electrode manufacturing capacity at the same facility was augmented by 10 tonnes per day, positioning the segment to cater to growing demand without supply constraints. Commercial momentum was equally evident: the Company secured a single order of 185 tonnes of HVF wire, underscoring robust demand for its hardfacing consumables among large industrial users; established supply of welding powders to a leading private pump and valve manufacturer, extending its metal-powder footprint into precision flow-control applications; and designed and delivered a custom automation solution to the same manufacturer, reinforcing its growing capabilities in industrial automation and machine building.

Wear Plates and Wear Parts

The Companys precision-engineered wear plates and parts - designed for severe operating environments in mining, cement, steel, power generation, and sugar - continued their growth trajectory in FY 2025-26. Customer adoption of CCO and ceramic composite solutions for extreme-abrasion applications increased, reflecting growing market recognition of their lifecycle cost advantages over lower-priced commodity alternatives. The major capacity expansion at Nimji, aimed at doubling installed production capacity across wear plates and other product lines, progressed significantly during the year. The Company added 18 torches - equivalent to three machines - at the Nimji plant, increasing annual hardfacing capacity by 16,848 m²/year and lifting total wear-overlay and cladding throughput to more than 70,000 m²/year. During the year, it also executed a wear plate order for Howden, strengthening its position in supplying wear-resistant solutions to the air and gas handling equipment sector.

Heavy Engineering

The Company successfully executed a series of landmark projects during FY 2025-26 that reinforced its technical credentials and supported new business development across multiple sectors. These included a Tandem Tippler for the mining sector and Compound Cast Rollers for the cement industry - the latter drawing multiple follow-on orders, underscoring the trust clients continue to place in the Companys engineering capabilities. Kiln Tyres for cement applications and a Filter Press for mining were also delivered during the year, further strengthening the Companys presence in these core segments. In the thermal power space, the Company supplied multiple Industrial Fans and Rotary Air Pre-Heaters, broadening its footprint across critical process industries and reinforcing its position as a reliable partner for heavy engineering solutions.

Beyond these operational milestones, the Company continues to invest in long-term capacity building. The expansion of the Nimji Facility is currently underway and, once completed, is expected to double the Companys plant capacity - a development that will significantly enhance production scale, improve operational flexibility, and position the Company to meet growing demand across its key end markets. This capacity expansion, combined with the strong project execution track record established during the year, lays a solid foundation for sustained growth in the periods ahead.

In-situ Job Work

The in-situ repair and maintenance services segment - enabling critical repairs directly at client operational sites - demonstrated strong demand in FY 202526, driven by expanded maintenance agreements and a growing customer preference for minimising equipment downtime. The Companys skilled technician team, equipped with advanced portable welding, in- situ machining, and coating systems, responded to an increased volume of service calls across cement, steel, and power sector clients. This segment provides a highly recurring, relationship-dependent revenue stream with strong customer-retention characteristics.

Underpinning this domain performance, the Company also advanced two operational initiatives during the year that strengthen its manufacturing base and long-term cost competitiveness.

Energy Transition - Solar Commissioning A 1.4 MW on-site solar installation at Nimji is expected to reduce energy costs at this heat-intensive manufacturing facility, provide a partial hedge against grid tariff increases, and contribute to the Companys ISO 14001:2015 environmental management objectives and broader ESG commitments.

MANUFACTURING AND TESTING EXCELLENCE NABL

-Accredited Laboratory - The Quality Backbone

The Companys NABL-accredited materials laboratory continues to serve as the cornerstone of product quality assurance. Every production batch-whether special electrodes, flux-cored wires, thermal spray powders, or wear plates-passes through this facility for validation against stringent internal and customer-specific standards. The laboratorys dual-path abrasion testing capability-Dry-Sand Rubber-Wheel (simulating low- stress sliding wear) and Air-Jet apparatus (reproducing high-velocity particle erosion)-allows precise formulation of consumables optimised for each customers specific operating environment.

5S and Operational Discipline

The structured 5S implementation programme, launched across all major production units in FY 2024-25, continued to deliver measurable operational improvements in FY 2025-26 including reduced material handling time, improved space utilisation, shorter setup times, and a culture of continuous improvement. This operational discipline is central to the Companys ability to manage quality consistency as production volume scales with the Nimji capacity expansion.

R&D and DSIR Recognition

The Companys R&D facility, recognised by the Department of Scientific and Industrial Research (DSIR) with certification valid through March 31, 2027, continues to develop new consumable formulations including low- fume electrodes, chromium-free flux-cored wires, and advanced alloy compositions for specialised industries such as nuclear, aerospace, and cryogenic applications. This DSIR recognition also provides the Company with tax benefits under Section 35(2AB) of the Income Tax Act, effectively subsidising R&D investment and supporting the development of differentiated products.

GO-TO-MARKET STRATEGY Three Reinforcing Pillars

Diffusion Engineers commercial strategy for FY 2025-26 continued to be anchored on three reinforcing pillars:

(1) Market Coverage - widening geographic and sector penetration through an expanded dealer network and geographically distributed sales force;

(2) Product Leadership - reinforcing technical differentiation through application engineering, product training, and on-site workshops; and

(3) Performance Discipline - achieving the optimal product mix, improving blended profitability, and embedding customer-success KPIs across the sales organisation.

New Business Development

The Companys dedicated New Business Development Department continued to pursue opportunities in segments and geographies with limited prior presence. This includes extending heavy engineering capabilities into new OEM relationships in the nuclear, aerospace, and defence sectors, and developing new application areas for thermal spray and laser cladding solutions in industries transitioning to more complex wear environments.

Dealer Network Expansion

The Company formalised MoUs with more than 50 channel partners across India in FY 2024?25, with continued expansion and deepening of these partnerships in FY 2025?26. As part of a structured channel development strategy led by the Sales & Marketing function, we have significantly strengthened the partner ecosystem through a systematic Channel Partner Improvement Program.

This program focuses on capability building, performance monitoring, and alignment with the Companys growth objectives. Key initiatives include structured onboarding, periodic technical and commercial training, defined stock and service norms, and performance-linked incentive Frameworks. These efforts have resulted in improved partner productivity, enhanced market intelligence, and stronger brand positioning at the regional level.

In addition, the Company has expanded its channel footprint both in depth and width by increasing the number of active and committed partners. This has enabled deeper penetration into Tier-2 and Tier-3 industrial clusters, while also establishing initial access to select international markets through strategic partners. The structured dealer programme, with clearly defined revenue-sharing models, inventory norms, and training obligations, ensures consistent product availability, faster response times, and superior customer support. This approach has also allowed the Company to enter and service new geographies that would otherwise be uneconomical through a direct sales model.

Overall, the strengthened channel network has become a key growth driver, contributing to increased market reach, improved order conversion, and sustainable revenue growth, while maintaining operational efficiency.

Technical Service and Customer Engagement

Regular product training sessions and on-site workshops conducted jointly by application engineers and product heads have been institutionalised as a core element of the Companys customer engagement model.

These sessions, tailored to specific industry use-cases, help plant teams optimise consumable usage, reduce unplanned downtime, and adopt best practices in wear management. They also function as a valuable feedback mechanism for product refinement and new application development. This hands-on approach reinforces the Companys positioning as a technical-solutions partner rather than a transactional vendor.

CERTIFICATIONS AND AWARDS

Quality and Safety Certifications

Diffusion Engineers maintained its suite of internationally recognised management system certifications throughout FY 2025-26, providing a rigorous framework for operational quality, environmental responsibility, and employee safety:

• ISO 9001:2015 ? Quality Management System: Ensuring consistent delivery of products and services that meet customer and regulatory requirements, supported by continuous improvement processes.

• ISO 14001:2015 ? Environmental Management System: Demonstrating commitment to minimising environmental impact, managing waste streams responsibly, and reducing the carbon footprint of manufacturing operations.

• ISO 45001:2018 ? Occupational Health and Safety Management System: Providing systematic safeguards for employee health, safety, and wellbeing across all manufacturing and field service operations.

• NABL Accreditation ? In-house Testing Laboratory: Ensuring the highest standards of testing accuracy, reliability, and compliance for all materials and product batches, as the testing backbone of the Companys quality value chain.

• DSIR Recognition ? R&D Facility: Recognition by the Department of Scientific and Industrial Research, Government of India, valid through March 31, 2027, affirming sustained investment in indigenous technology development and process improvement.

AWARDS

Hurun

Diffusion Engineers Limited was featured among the Barclays Private Clients Hurun India Most Valuable Family Businesses, placing the Company among Indias top 300 family-run enterprises by value. The promoter N K Garg Family was further conferred the Visionary Leadership Award for building a world-class industrial engineering enterprise and driving export-led growth. This recognition affirms the Companys multi-generational stewardship, disciplined governance, and consistent long-term value creation.

Dun & Bradstreet

Diffusion Engineers Limited was recognised as one of the ‘Leading SMEs of India 2025 in Dun & Bradstreets report, Rethinking the Future of Indias Small and Mid-Sized Businesses. This recognition reflects the Companys financial strength, operational resilience, and sustained growth momentum, and its standing among Indias leading small and mid-sized businesses.

Great Place to Work

The Company continues to be a certified Great Place to Work. This sustained recognition reflects its employee centric culture, investment in leadership development, and the collaborative, trust-based working environment built across all levels of the organisation, differentiating Diffusion Engineers as an employer of choice in an increasingly competitive talent market.

OUTLOOK. RISKS AND CONCERNS

Outlook

India enters FY 2026-27 with a broadly supportive macroeconomic backdrop. Real GDP growth of 7.7% in FY 2025-26 has been confirmed as the sharpest since FY 2022 and positions India firmly as the worlds Fastest- growing major economy. Headline inflation, having moderated to a multi-year low through much of FY 202526, is expected to remain within manageable bounds despite some upward pressure from energy prices linked to the Middle East situation.

The governments capital expenditure allocation of Rs 12.2 lakh crore in FY 2026-27-a 9% increase over FY 202526 keeps the multi-year infrastructure pipeline on track across highways, housing, railways, and energy.

Demand indicators for the Companys core end-markets like cement dispatches, crude steel utilisation, renewable energy build-out, nuclear programme acceleration, and defence indigenisation all point to continued mid-to-high single-digit growth.

The Companys largely OPEX-linked business model, tied to equipment wear rates and maintenance schedules rather than greenfield capex cycles, provides an important degree of revenue resilience across economic swings.

Source: Trading Economics: India Full Year GDP Growth FY 2025-26

Risks and Concerns

Core inputs such as nickel, chromium, and high-alloy steels remain susceptible to sharp price movements, and sudden cost spikes can compress margins until customer prices reset. The Company manages this exposure through multi-vendor sourcing, quarterly repricing clauses, selective commodity hedging, and input localisation via Indian ferro-alloy suppliers.

Rupee depreciation against the dollar and euro inflates the landed cost of imported alloys and specialty spares. This is partly offset by export revenues acting as a natural hedge, forward covers on large-value dollar payables, and the progressive localisation of key inputs.

Geopolitical events and port congestion could delay specialty-alloy imports and disrupt logistics timelines. The Company mitigates this through strategic safety stocks, dual-port routing, and the localisation of select grades.

East Asian producers continue to exert price pressure on standardised SKUs. The Company defends its position through life-cycle cost audits, technical- service differentiation, proprietary high-performance formulations, and Make-in-India preference in government and PSU procurement.

Lengthening receivable cycles with PSUs and EPC contractors can strain liquidity as project values scale. This is addressed through stricter credit screening, milestone-based billing for project contracts, and day- sales-outstanding targets embedded in sales KPIs.

OVERALL ASSESSMENT

FY 2025-26 was a year of operational consolidation, strategic capacity investment, and project execution for Diffusion Engineers. The business benefited from a strongly supportive domestic macroeconomic environment, Indias 7.7% GDP growth, record-low inflation, and an infrastructure-led government capex agenda, alongside resilient demand across its core end- markets. Capacity expansion investments across flux- cored wire, wear plates, special electrodes, and heavy engineering machining have significantly enhanced the Companys ability to capture a larger share of Indias growing industrial maintenance and capital equipment market.

Management enters FY 2026-27 with a robust order pipeline, strengthened balance sheet post-IPO, and a deepened technical service and channel partner network. The Companys differentiated value proposition across its technical expertise, NABL-accredited quality assurance, integrated wear solutions, and insitu service capability positions it as a preferred partner rather than a commodity supplier.

Vigilance in managing raw material costs, working capital cycles, and cyber-security risks will be essential, and the Company believes its multi-pronged mitigation strategies are adequate to navigate these challenges. The Company is well-positioned to deliver sustained, profitable, and responsible growth for all stakeholders in the years ahead.

INTERNAL CONTROL SYSTEM & ADEQUACY

Regulatory Framework

In accordance with Section 134(5)(e) of the Companies Act, 2013, the Company has maintained robust Internal Financial Controls (IFC) throughout FY 2025-26. The IFC framework is designed to ensure orderly and efficient conduct of business, adherence to internal policies, safeguarding of assets, prevention and detection of frauds and errors, and timely preparation of reliable financial information.

ERP and Technology Infrastructure

The Companys robust ERP system continues to serve as the technology backbone for capturing, consolidating, and reporting financial and operational data across all locations, enabling seamless information exchange and efficient, informed decision-making. Continuous efforts are made to align internal controls and processes with globally recognised best practices, including periodic system upgrades and user training to ensure data integrity and access control.

Internal Audit and Audit Committee Oversight

The Internal Auditor, operating under a structured quarterly audit plan reviewed in consultation with the Statutory Auditors and the Audit Committee, conducts systematic audits across project execution, finance and accounting, procurement, human resources, travel, insurance, and IT systems. The Audit Committee maintained active oversight of the internal control environment, reviewed all findings and recommendations on a quarterly basis, ensured timely corrective action on significant observations, and kept the Board of Directors updated on all material developments. The delegation of authority framework?with prescribed approval limits

For both revenue and capital expenditure?remained in force and was reviewed for adequacy relative to the Companys expanded scale.

Adequacy Assessment

The internal control systems at Diffusion Engineers are assessed as appropriate and commensurate with the size, scale, and complexity of its operations. The systems provide reasonable assurance regarding the reliability of financial and operational information, compliance with applicable laws and regulations, protection of assets from unauthorised use, and conformity with established corporate policies.

OPERATIONAL & FINANCIAL PERFORMANCE

Summary of Financial Performance

The Company continued its strong growth trajectory in FY 2025-26, building on the robust financial performance. The table below provides a comparative overview across key financial parameters.

(Rs. Million)

Particulars	2025-26	2024-25	Increase %
Total Revenue (Standalone)	3733.71	3250.86	14.85%
Total Revenue (Consolidated)	4216.2	3445.23	22.38%
Earnings before interest, tax, depreciation (EBITD)- Standalone	469.29	409.62	14.57%
Earnings before interest, tax, depreciation (EBITD)- Consolidated	571.42	471.56	21.18%
Profit Before Tax (Standalone)	573.81	433.27	32.44%
Profit Before Tax (Consolidated)	650.36	469.04	38.66%
Profit after tax (PAT) (Standalone)	446.43	337.53	32.26%
Profit after tax (PAT) (Consolidated)	504.1	360.41	39.87%
Total Comprehensive Income (Standalone)	443.72	336.14	32.00%
Total Comprehensive Income (Consolidated)	511.89	360.92	41.83%
Basic Earnings Per Share (EPS) (Standalone)	11.98	9.02	32.82%
Basic Earnings Per Share (EPS) (Consolidated)	13.5	9.59	40.77%
Diluted Earnings Per Share (EPS) (Standalone)	11.98	9.02	32.82%
Diluted Earnings Per Share (EPS) (Consolidated)	13.5	9.59	40.77%

*Underlying EBITDA is defined by exclude exceptional item, other income and share of profit

KEY FINANCIAL RATIOS

The table below presents selected key financial ratios on a Consolidated and Standalone basis. The performance commentary that Follows is presented on a consolidated basis, so the two sets of figures are not directly comparable.

Consolidated Ratios

Sr. No. Ratio Analysis	31-Mar-26	31-Mar-25	% Variance	Remark
1 Current Ratio	3.28	4.38	-25.03%	Variance is due to increase in cash and cash equivalents due to IPO which are yet to be utilised
2 Debt Equity Ratio	0.07	0.06	12.29%	-
3 Debt Service Coverage Ratio	43.38	29.37	47.73%	Variance due to increase in profits
4 Return on Equity Ratio	13.03%	12.88%	1.13%	-
5 Inventory Turnover Ratio	5.73	5.44	5.32%	-
6 Trade Receivables Turnover Ratio	3.82	4.55	-16.08%	-
7 Trade Payables Turnover Ratio	6.34	6.68	-4.99%	-
8 Net Capital Turnover Ratio	1.78	2.29	-22.17%	-
9 Net Profit Ratio	12.59%	10.48%	20.12%	-
10 Return on Capital employed	16.27%	15.93%	2.11%	-
11 Return on Investment	12.42%	9.73%	27.63%	Variance due to increase in profits

Standalone Ratios

Sr No. Ratio Analysis	31-Mar-26	31-Mar-25	% Variance	Reason for variance
1 Current Ratio	3.42	4.20	-18.67%	-
2 Debt Equity Ratio	0.07	0.06	17.31%	-
3 Debt Service Coverage Ratio	39.70	27.75	43.06%	DSCR has increased due to increase in profit
4 Return on Equity Ratio	12.07%	12.66%	-4.61%	-
5 Inventory Turnover Ratio	5.47	5.77	-5.21%	-
6 Trade Receivables Turnover Ratio	3.61	4.19	-13.69%	-
7 Trade Payables Turnover Ratio	5.99	6.19	-3.30%	-
8 Net Capital Turnover Ratio	1.67	2.29	-27.27%	Variance is due to increase in cash and cash equivalents due to IPO proceeds
9 Net Profit Ratio	12.60%	10.68%	18.03%	-
10 Return on Capital employed	14.42%	12.09%	19.31%	-
11 Return on Investment	11.61%	9.51%	22.14%	-

Note: Significant movements in current ratio and net capital turnover in FY 2024-25 reflected the one-time effect of IPO proceeds.

The Company delivered a strong financial performance in FY 2025-26, with consolidated Revenue from Operations rising 21.28% to Rs 4,066.28 million, from Rs 3,352.76 million in FY 2024-25. Growth was driven by healthy demand across core industrial segments, an improved contribution From overseas operations and associates, and higher order inflows. EBITDA (excluding other income) grew 21.18% to Rs 571.42 million, with the EBITDA margin broadly stable at 14.05% (FY 2024-25: 14.06%).

Profitability strengthened materially at the bottom line. Profit Before Tax increased 38.66% to Rs 650.36 million, aided by a higher contribution From associates and increased other income, even after absorbing a one-time expense of Rs 7.00 million recognised in Q3 FY 2025-26 towards the estimated impact of the New Labour Codes on employee benefits. Profit After Tax rose 39.87% to Rs 504.10 million, lifting the PAT margin to 12.40% from 10.75% in the prior year. Earnings Per Share improved 40.77% to Rs 13.50, from Rs 9.59.

HUMAN RESOURCE

Our People - The Foundation of Excellence

Diffusion Engineers continues to place its people at the centre of its strategic agenda, recognising that sustainable competitive advantage ultimately rests on the quality, commitment, and capability of its workforce. The Company employed 524 employees and 174 workers as of March 31, 2026.

Leadership Development

Leadership development remains a cornerstone of the Companys HR strategy. Senior leaders are continuously participating in the Post Graduate Certification in Senior Management from IIM Nagpur, strengthening their capabilities in strategic thinking, decision-making, and leadership. This ongoing development initiative enhances the Companys readiness to manage increasing organisational complexity as it scales.

Employee Retention and Culture

The Companys high employee retention rates, sustained for multiple years, reflect the culture of trust, growth opportunity, and recognition that defines its working environment. HR policies continued to evolve toward greater inclusivity, transparent performance management, and competitive compensation, particularly for skilled technical roles in welding metallurgy, CNC machining, and field service engineering. The Great Place to Work certification for the third consecutive year validates the effectiveness of this people-centric approach.

During the year, the Company introduced an Employee Stock Option Plan (ESOP) to align the interests of key employees with long-term shareholder value creation and to strengthen the retention of critical talent. Senior leadership was further reinforced through the appointment of a National Sales Head and a Head of Operations, sharpening execution across the Companys commercial and manufacturing functions as it scales.

CAUTIONARY STATEMENT

This Management Discussion and Analysis contains certain forward-looking statements based on the current beliefs, plans, and expectations of the Companys management as of the date of this Report. These statements involve known and unknown risks, uncertainties, and other factors-including domestic and global economic conditions, regulatory changes, industry competition, raw material price movements, and geopolitical developments-that could cause actual results, performance, or achievements to differ materially from those expressed or implied herein. Readers are cautioned not to place undue reliance on forward-looking statements, which are made only as of the date of this Report. The Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. The Company and its management accept no responsibility or liability for any loss or damage arising from the use of or reliance on the information contained in this Management Discussion and Analysis.