Gretex Industries Ltd Management Discussions

Global Economic Landscape: Resilient but Uneven Consumer Momentum

The global economy navigated FY 2024–25 amid elevated policy and trade uncertainty. The United States tariff measures in early

2025 and subsequent retaliatory actions significantly disrupted sentiment, with the International Monetary Fund (IMF) revising global GDP growth for 2025 to 2.8%, down from 3.3% in its January estimate. Growth in advanced economies is expected to remain modest at 1.4%, while emerging markets are forecast to expand at 3.7%, led by Asia.

Disinflation continued globally, though unevenly. Headline inflation is projected to average 4.3% in 2025, remaining above central bank targets in several economies. The U.S. Federal Reserve held its benchmark interest rate between 5.25–5.5% through FY25, while select emerging economies began easing policy rates to support growth. Exchange rate volatility and elevated freight costs also shaped global trade flows in H1, though partial normalization occurred in H2.

Retail and lifestyle sectors, including leisure and education-oriented consumption, experienced a phased recovery — particularly in digital and urban channels. While consumer sentiment was dampened early in the fiscal year, a gradual rebound in Q3 Q4 aligned with easing inflation, modest monetary loosening in key markets, and normalization of real wages in segments of the developed world.

The IMF projects a global recovery to 3.0% growth in 2026, contingent on the resolution of trade tensions and stabilization of geopolitical risks. Demand-side momentum in cultural, discretionary, and youth-focused sectors is expected tobenefitfrom improving consumer confidence and digital integration globally.

Indias macroeconomic environment remained resilient during FY 2024–25, with GDP growth estimated at 6.5%, driven by private consumption, services, and public capex. Gross Value Added (GVA) expanded 6.4%, led by strong agricultural performance and steady growth in contact-intensive services.

Headline inflation, which reached 6.2% in October 2024, moderated to 3.6% by February 2025, aided by easing food prices and stable core inflation. In response, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points in February 2025 to 6.25%, marking its first easing since February 2023 and signalling the beginning of a more accommodative phase in monetary policy.

Indias external sector showed strength despite a volatile global backdrop. The current account deficit(CAD) was contained at 1.2% of GDP in Q3 FY25, supported by a record-high services trade surplus. The monthly merchandise trade deficit averaged USD

19–20 billion, while foreign exchange reserves stood at USD 646 billion by March 2025 — providing over 10 months of import cover.

On the fiscal front, India maintained its path of consolidation. The fiscal deficit for FY25 was 5.8% of GDP, aligning with revised estimates, while the FY26 target has been reduced to 5.1%. GST collections averaged 1.7 lakh crore per month, reflecting double-digit growth over FY23. Notably, capital expenditure constituted nearly 22% of total government spending, indicating a shift toward quality-driven public finance.

These trends were reflected in financial markets. 10-year G-sec yields softened to around 7.10% by March 2025, from 7.32% a year earlier, reflecting investor confidence in the countrys inflation trajectory, stable fiscal path, and real interest rates. Bond market stability helped maintain favourable conditions for corporate debt issuance and equity capital formation.

Indias consumption-led sectors — including education, entertainment, cultural retail, and leisure — showed sequential improvement during the fiscal. Expanding urbanization, enhanced digital penetration, and growth in youth-oriented spending categories supported this trend. Government initiatives promoting cultural education, musical training in schools, and performance-based learning under NEP 2020 also contributed indirectly to the demand environment for creative and lifestyle goods.

Looking ahead to FY 2025 26, India is projected to grow at 6.7%, with inflation expected to average 4.2%, assuming a normal monsoon and stable global commodity prices. Continued fiscalconsolidation (FY26 deficit target: 4.4%), strong macro buffers, and the G-sec inclusion in global bond indices are expected to support domestic liquidity, reduce borrowing costs, and create a structurally favourable backdrop for consumer-led sectors.

The global musical instruments industry is undergoing a period of strategic recalibration. Having experienced a post-pandemic normalization in consumer demand, the market faced headwinds from macroeconomic uncertainty, geopolitical disruptions, and inflationary pressures on inputs such as raw materials and logistics. Despite these challenges, industry fundamentals remain resilient, supported by innovation cycles, diversification in product categories, and renewed investment in music education and creative expression.

While global revenue has remained broadly stagnant over the last three fiscal years hovering around USD 10 billion the industry is now entering a phase of moderate recovery, with projected compound annual growth of 3–5% over the next three years. This projected rebound is underpinned by the following drivers:

Digitalization of Music-Making: The proliferation of portable, app-integrated, and hybrid musical instruments is reshaping demand, especially among younger, tech-savvy musicians.

Growth of Music Education: As music education rebounds globally—fuelled by EdTech platforms and institutional curriculum integration—demand for entry-level and intermediate instruments is expanding.

Regional Expansion and Localization: Companies are increasingly diversifying their production and distribution footprints across emerging markets, reducing reliance on historically dominant regions.

Key regions contributing to the industrys volume and value continue to be North America, Europe, and parts of East Asia. However, growth is increasingly skewed toward emerging markets, particularly in South and Southeast Asia, where demographic profiles and digital adoption trends are favourable.

In contrast to the subdued global environment, India represents a structurally accretive growth market, poised to significantly outpace global industry growth over the medium term. Industry estimates indicate a 13% CAGR over the next three years, positioning India as one of the fastest-growing musical instruments markets worldwide.

This trajectory is being driven by multiple secular tailwinds:

Demographic Advantage: With a median age under 30, Indias large and youthful population is naturally inclined toward creative and expressive pursuits, including music.

Cultural Embedding of Music: Music holds a deep-rooted presence in Indian cultural life, particularly in association with entertainment, live performances, film, and festivals. The rise of independent music and vernacular genres is further broadening musical appetites.

Urbanization and Aspirational Consumption: Rapid urbanization, rising disposable incomes, and aspirational consumption patterns are driving higher demand for both beginner-level and premium musical instruments.

Digital and EdTech Ecosystems: The surge of online music learning platforms has made structured learning more accessible, increasing instrument uptake among students, professionals, and hobbyists alike.

Expanding Institutional Demand: Music academies, international schools, and live event venues are contributing to higher institutional purchases across major cities and Tier 2 centres.

Market participants are aligning with these trends through a range of strategic actions:

Sales Network Expansion: Companies are aggressively broadening their distribution footprint by partnering with local retailers, deploying experience centers, and enhancing digital sales channels.

Localized Offerings: There is an increasing focus on tailoring instruments to local tonal preferences and price sensitivities. This includes the introduction of region-specific models and content localization across marketing and education tools.

Integrated Manufacturing and Sales: An integrated approach is being adopted to reduce lead times, manage costs, and improve availability—particularly for fast-moving categories such as digital keyboards and guitars.

Audio Solutions Synergy: With live performances and content creation on the rise, the audio equipment segment—particularly speakers and personal amplification systems is also witnessing accelerated growth, supported by strategic alliances and branding synergies.

Operating revenue from the sale of musical instruments increased by 5.15% to 32.92 crores in FY25 compared to FY24, demonstrating steady growth in core trading operations. However, total income declined by approximately 23% year-on-year, primarily due to the normalization of other income components. FY24 had included exceptional investment income comprising capital gains, dividends, and interest receipts, which returned to normalized levels during FY25. The underlying operating performance reflects resilience in a challenging global market environment.

Total expenses increased marginally in alignment with enhanced business activity levels. Key cost movements included:

Inventory and Procurement: The company undertook strategic inventory accumulation at year-end to meet anticipated demand,

. Cost of materials consumedresultinginsignificantchanges increased finished correspondingly, driven primarily by enhanced procurement activities at the Guwahati branch operations.

Stamp Duty Charges: The establishment of a new retail location in Pune necessitated additional capital deployment and operational setup costs, including one-time stamp duty expenses associated with the facility establishment.

Finance Costs: Financing expenses increased by 117% compared to FY24, attributable to expanded borrowing requirements for the Pune location establishment and increased working capital financing through overdraft facilities to support business growth initiatives.

Marketing and Business Development: The company implemented an enhanced marketing and business development strategy during FY25, resulting in increased expenditure on travel, advertising, marketing initiatives, and sales incentive programs including commissions and brokerage payments. The full impact of these strategic investments is anticipated to materialize in the current financial year.

Custodian Charges: FY25 witnessed the merger of Apsara Selection Ltd. and Sankhu Merchandise Pvt. Ltd. with Gretex Industries

Ltd. This consolidation resulted in increased annual custodial charges payable to depositories (NSDL and CDSL), reflecting the expanded entity structure and enhanced compliance requirements.

Other Expenses: Other operational expenses demonstrated controlled growth aligned with business activity levels, indicating disciplined cost management practices across non-strategic expenditure categories.

The companys balance sheet size demonstrated substantial growth by expanding from 29.60 Crores in FY24 to 39.62 Crores in

FY25, representing a ~34% increase. This expansion was primarily driven by a marked increase in working capital requirements. The company long term capital and asset structure grew marginally in line with the marginal increase in the companys core business.

Net cash generated from operating activities decreased to - 6.41 Crores in FY25 from 8.10 Crores in FY24. This was primarily due to substantially higher working capital investments as well as lower net profit in FY25 compared to FY24.

Cash used in investing activities totalled 1.60 Crores in FY25, compared to 4.44 Crores in FY24. The primary outflows comprised investments in non-current investments ( 1.40 Crores) and fixed asset additions ( 21.64 Lakhs).

Crores in FY25, compared to cash Financingactivitiesgeneratednetcashinflows usage of 3.63 Crores in FY24. This was largely due to a substantial increase in short-term borrowings amounting to 8.67 Crores.

Cash and cash equivalents increased to 36.87 Lakhs at the end of FY25 from 26.30 Lakhs in FY24.

Post-Pandemic Demand Normalization and Consumer surge in demand during Volatility: The industry experienced a significant the pandemic, driven by increased home-based recreational pursuits. However, with normalization of lifestyles and reallocation of discretionary spending, particularly in mature and urban Indian markets, consumption patterns have become more unpredictable. The Company must navigate the challenge of sustaining volumes in a demand environment that may not replicate prior tailwinds.

Limited Exposure to Indigenous Instrument Market: GIL operates predominantly in the Western musical instruments segment and does not participate in Indias vast market for classical and folk instruments. This segment, deeply entrenched in religious, ceremonial, and cultural traditions, represents a substantial demand pool that remains unaddressed. Consequently, GILs current portfolio, while aligned with urban and institutional consumption patterns, leaves out a significant cultural demographic.

Evolution of Consumer Preferences and Product Innovation: The rapid integration of digital technology into musical instruments—spanning hybrid models, smart learning interfaces, and app-linked products—is reshaping market expectations. Consumers are gravitating toward technologically advanced, compact, and interactive instruments. The inability to stay aligned with evolving preferences or sluggish product refresh cycles from global partners can render existing inventory less relevant, leading to markdowns or obsolescence risk.

Evolving Retail and Channel Dynamics: With the expansion of direct-to-consumer (D2C) strategies by global manufacturers and the proliferation of online aggregators, the traditional channel model is under pressure. Margins in brick-and-mortar retail are increasingly under scrutiny, especially where showrooming and online price competition prevail. GIL must continue to enhance its customer engagement strategies, omni-channel capabilities, and value-added services to retain relevance and pricing power.

Working Capital and Inventory Risk: Given the diverse and high-value nature of musical instruments, inventory turnover and working capital optimization remain key operational imperatives. Mismatches between demand and supply, seasonal loading, or misalignment between imported stock and current trends can result in working capital stress. Stocking slow-moving or low-rotation SKUs also increases holding costs and the risk of write-downs.

Cultural and Ecosystem Dependence: A meaningful portion of sales is linked to the broader music ecosystem—education institutions, concert venues, performance groups, and music tutors. Any disruption in this ecosystem, whether due to regulatory changes, shifts in academic priorities, or event cancellations, can lead to demand contraction, especially in institutional sales.

Sales and Marketing Dependency; Talent-Led Performance Variability: The industry is inherently sales and marketing intensive, with performance heavily influenced by the efficacy of localized campaigns, promotions, holiday-period discounting, and community-level engagements such as sponsorships and events. Notably, well-trained sales personnel play a disproportionately important role in influencing in-store conversions. The Company has observed material differences in store-wise performance tied to staff competency and engagement levels. Inadequate or inconsistent sales training, high attrition, or underinvestment in field marketing may result in underperformance, even in demographically favourable locations.

Brand Concentration Risk: A significant share of GILs portfolio is anchored around a select few international brands. While this enhances product credibility and consumer pull, it also exposes the Company to risks stemming from any adverse developments at the brand principal level—be it changes in strategic direction, pricing structures, distribution rights, or reputational issues.

Diversification within brand mix and product category remains a strategic imperative.

Geopolitical, Trade, and Currency-Linked Risks: The company operates within an ecosystem that is inherently linked to global trade flows. Accordingly, it remains vulnerable to second-order impacts arising from geopolitical tensions, trade restrictions, regulatory changes, and supply chain realignments, particularly in East Asia. Any escalation in cross-border frictions or disruption in international logistics can indirectly affect product availability, lead times, and inventory costs. The company also undertakes select export activities. The Indian markets sensitivity to currency fluctuations, especially in the USD-INR and JPY-INR corridors, can pose pricing and margin risks. Strategic hedging by upstream partners offers partial insulation, but residual foreign exchange volatility remains a consideration for downstream pricing and competitiveness.

During FY 2024–25, Gretex Industries Limited undertook a series of initiatives to enhance customer engagement, strengthen market visibility, and deepen its brand presence across metropolitan and emerging markets. These initiatives were structured around strategic brand alliances, experiential retail expansion, institutional outreach, and integrated digital engagement.

Strategic Brand Partnerships and Market Presence: The Company maintained and expanded its exclusive distribution arrangements with globally recognized brands including Yamaha, DAddario, Promark, Evans Drumheads, IA Stands, Boya, Gappu, and Beta 3. These partnerships underpin the Companys access to a wide portfolio of high-quality musical instruments and professional audio equipment and reinforce its credibility as a reliable and authentic source for both entry-level and professional users.

In addition to product-based alliances, the Company also undertook selective visibility-building initiatives, including a brand representation arrangement with international cricketer Alpesh Ramjani, aimed at extending recognition into adjacent aspirational segments.

Together, these brand-led initiatives supported product differentiation, enhanced consumer trust, and contributed to long-term positioning within the Indian music and audio retail market.

Retail Expansion and Experience-Driven Formats: The Company continued to invest in experience-oriented retail formats through its Yamaha Music Square stores, with the addition of a second outlet in Pune complementing the existing Mumbai location. These stores are designed to provide guided access to premium products, supported by informed assistance and in-store demonstration zones.

The retail strategy remains focused on Tier 1 and select Tier 2 and Tier 3 cities, where rising aspirational demand and growing interest in structured music learning are creating new customer segments. Future store development will emphasize localized inventory planning, after-sales support, and community engagement formats tailored to regional markets.

Engagement and Ecosystem Building: To broaden access and build long-term customer affinity, the Company participated in and sponsored several cultural and educational initiatives during the year. This included acting as title sponsor for "Jazbaa 3.0," a state-level inter-band competition in Maharashtra, as well as supporting music programs at academic institutions and recreational clubs. These activities were designed to enhance brand visibility among student communities, educators, and amateur musicians.

The Company also conducted a series of Yamaha Artist Workshops at its retail outlets, offering hands-on learning and product familiarization led by experienced musicians. These sessions served both educational and promotional purposes, reinforcing customer understanding of product features and use-cases.

Digital Engagement and Influencer Outreach:The Company significantly expanded its digital engagement model during the year.

It launched "Jam Square," a community platform featuring curated jam sessions held in Mumbai and Pune. These events brought together hobbyists, learners, and professional musicians, and provided a live-use environment to showcase select products from the Companys portfolio.

In parallel, the Company collaborated with music educators, content creators, and early-stage artists to produce performance-led content across social media platforms. These partnerships supported product awareness among new customer cohorts and contributed to higher engagement across digital channels.

Customer communication was further supported through targeted WhatsApp and email campaigns, particularly for new product introductions and event-based promotions. Collectively, these digital strategies enabled the Company to build an interactive brand presence that extends beyond traditional point-of-sale transactions.

Customer Feedback and Product Relevance: The Company continued to strengthen its customer feedback mechanisms across in-store, online, and post-sale channels. Inputs were collected through feedback from Yamaha Music Square staff, post-purchase surveys, social media listening, and direct dealer interactions. These data points were used to identify product preferences, emerging use cases, and demand-side signals across regions.

The resulting insights informed monthly product planning cycles, helping to optimize inventory mix, refine merchandising strategies, and align with customer expectations. This agile, feedback-led approach allowed the Company to respond effectively to shifts in preference, particularly in fast-moving or seasonal categories.

Responding to Evolving Consumer Trends: The Company observed notable shifts in music consumption and creation trends in

India, with increasing participation from independent musicians, regionalcontentcreators,anddigital-firstusers. These emerging segments are driving demand for portable, versatile, and semi-professional gear suited for home studios, live streaming, and short-form content.

In response, the Company expanded its offering in categories such as compact audio interfaces, loopers, recording kits, and creator-centric bundles. Product campaigns and educational initiatives were localized to reflect vernacular musical styles and region-specific preferences.

These actions are aligned with the Companys broader objective of supporting accessibility, creative expression, and skill development across Indias evolving music ecosystem.