Hindustan Composites Ltd Management Discussions

1. Industry Structure and Development

Global Economic Overview

The global economy demonstrated resilience during 2025-26 despite geopolitical tensions, trade realignments, supply chain disruptions, and inflationary pressures in several regions. Advanced economies are witnessing moderate growth, while emerging markets continue to remain key growth drivers. Increasing investments in artificial intelligence, digitalization, sustainability, renewable energy, and infrastructure are reshaping industrial and manufacturing ecosystems worldwide. However, the escalation of conflict in West Asia has materially altered this outlook. In its latest World Economic Outlook, the IMF has revised global growth down to 3.1%, cautioning that the conflict could derail an already fragile recovery and potentially trigger one of the most severe energy crises in recent history. This revised projection falls below the recent growth trend of 3.4% seen during 2024–25 and remains well under the long-term average of 3.7% recorded between 2000 and 2019, with developing economies expected to bear a disproportionate impact. The disruption of energy supply chains, including risks around the Strait of Hormuz and damage to regional infrastructure, has led to a sharp increase in energy prices. The IMF now estimates oil prices to rise by 21.4% in 2026 contributing to a higher global inflation outlook of 4.4%, compared to the earlier expectation of 3.8%. Looking ahead, downside risks remain elevated. Intensifying geopolitical tensions, fiscal constraints, trade frictions, and volatility linked to evolving artificial intelligence investment cycles could further weigh on global growth and financial stability.

The automotive industry globally is undergoing a significant transformation led by electrification, connected mobility, autonomous technologies, sustainability initiatives, and stricter emission norms. OEMs across the world are accelerating investments in electric vehicles (EVs), lightweight materials, advanced braking systems, and smart manufacturing technologies.

Indian Economy

As per the Monthly Economic Review of the Department of Economic Affairs (DEA), Indias economy remained resilient through February 2026, supported by strong domestic demand and broad-based industrial activity across both supply and demand indicators. However, the outlook has become more uncertain amid escalating geopolitical tensions in West Asia, which have disrupted global energy and logistics channels. The DEA highlights four key transmission risks for India: disruptions in oil, gas, and fertiliser supplies; potential impact on exports; higher import prices; and increased freight and insurance costs. These factors are expected to exert pressure on growth, inflation, and the balance of payments. Despite these external headwinds, domestic fundamentals remain strong. Continued public capital expenditure, infrastructure investment, stable consumption, and sustained expansion in manufacturing and services have supported industrial resilience, while services exports continue to anchor trade performance.

Key economic drivers included:

- Continued focus on infrastructure development and logistics enhancement.

- Expansion under the Production Linked Incentive (PLI) schemes.

- Growth in digital economy and formalization of businesses.

- Strong government emphasis on “Make in India” and manufacturing competitiveness.

- Improvement in rural demand and consumption patterns.

Reflecting this underlying strength, the International Monetary Fund has projected Indias GDP growth at 6.5% for FY 2026-27, with momentum expected to sustain into 2027, positioning India as the fastest-growing major economy despite global uncertainties. Going forward, maintaining policy agility and vigilance will be critical to navigating evolving external risks.

The Reserve Bank of India maintained a balanced monetary policy approach to support growth while keeping inflation under control. Continued investments in roads, railways, ports, renewable energy, and urban infrastructure are expected to provide sustained momentum to economic growth during FY 2026-27.

Despite a positive outlook, challenges remain in the form of global economic uncertainties, crude oil price fluctuations, currency volatility, and geopolitical developments.

Indian Automobile Industry

The Indian automobile industry recorded one of its strongest performances in FY 2025-26, achieving the highest-ever sales across all vehicle categories. The sector benefited from improved consumer sentiment, supportive policy measures, GST reforms, lower financing costs, and increased infrastructure spending.

Industry Performance FY 2025-26

The industry also recorded strong export growth across vehicle categories, supported by demand from the Middle East, Africa, Latin America, and neighboring countries.

Key trends shaping the industry include:

- Rapid growth in electric mobility.

- Increasing focus on vehicle safety and regulatory compliance.

- Rising adoption of advanced driver assistance systems (ADAS).

- Localization of components and supply chains.

- Growing demand for premium and feature-rich vehicles.

- Expansion of export opportunities for Indian manufacturers.

Industry stakeholders remain optimistic regarding FY 2026-27, although crude oil prices, commodity costs, exchange rate fluctuations, and geopolitical developments continue to require close monitoring.

Automotive Components Industry

Indias automotive components industry continues to play a critical role in the countrys manufacturing ecosystem. The sector benefits from increasing localization, rising exports, technological advancements, and growing demand from domestic OEMs.

Key growth drivers include:

- Expansion in vehicle production across segments.

- Increasing content per vehicle due to safety and emission regulations.

- Growth in electric vehicle component demand.

- Global OEMs adopting India as a sourcing and manufacturing hub.

- Government support through PLI schemes and manufacturing incentives.

The component industry is witnessing significant investments in automation, digitization, quality enhancement, sustainability initiatives, and advanced engineering capabilities to meet evolving customer requirements.

Commercial Vehicle Outlook

The commercial vehicle (CV) segment delivered strong growth during FY 2025-26, supported by infrastructure investments, logistics expansion, mining activity, e-commerce growth, and improved freight movement. Industry demand remains healthy despite fluctuations in fuel prices and commodity costs.

Continued investments in highways, urban transport, construction, and industrial projects are expected to support demand for medium and heavy commercial vehicles in FY 2026-27.

Indian Railways and Rail Component Industry

Indian Railways continues to be one of the largest rail networks in the world and remains a key driver of Indias infrastructure development. The Government of India has maintained a strong focus on modernization, capacity expansion, safety enhancement, electrification, and development of high-speed and semi-high-speed rail corridors.

The Union Budgets continued emphasis on railway infrastructure, station redevelopment, dedicated freight corridors, and indigenous manufacturing under the "Make in India" initiative has created significant opportunities for the rail equipment and component industry.

Key developments in the rail sector include:

- Accelerated deployment of modern passenger trains, including Vande Bharat trains.

- Expansion of Dedicated Freight Corridors (DFC) to improve logistics efficiency.

- Continued electrification of railway routes, improving operational efficiency and sustainability.

- Modernization of signalling, braking, and safety systems.

- Redevelopment of railway stations under the Amrit Bharat Station Scheme.

- Increased emphasis on indigenous sourcing and localization of critical components.

The rail component industry is witnessing growing demand for advanced braking systems, friction materials, suspension components, safety products, and engineered solutions. As Indian Railways continues to upgrade rolling stock and freight infrastructure, opportunities are expected to increase for manufacturers possessing strong engineering capabilities, quality systems, and proven product performance.

The freight rail segment is expected to benefit from growth in steel, cement, coal, containerized cargo, automobiles, and industrial goods transportation. Simultaneously, rising investments in passenger rail infrastructure will drive demand for technologically advanced and safety-critical components.

For companies operating in braking systems and engineered components, the rail sector offers a significant diversification opportunity alongside the automotive business. Increasing focus on safety, reliability, life-cycle costs, and sustainability is expected to support long-term growth prospects for the railway component industry.

Rail Sector Outlook

The long-term outlook for the Indian rail sector remains highly positive. Continued government investment, modernization initiatives, freight corridor expansion, indigenous manufacturing programs, and increasing passenger mobility are expected to drive sustained growth. The sector is poised to emerge as a major contributor to Indias infrastructure-led economic development while creating substantial opportunities for component manufacturers and technology providers.

Railway Business Opportunities

- Expansion of freight wagon manufacturing.

- Growing demand for advanced brake systems and friction materials.

- Increased localization under Make in India initiatives.

- Opportunities arising from Vande Bharat and metro rail projects.

- Long-term supply contracts with rail OEMs and system integrators.

- Export opportunities in rail braking and safety components.

This will position the company as both an automotive and rail mobility solutions provider, which is viewed positively by investors and stakeholders.

Opportunities

- Increasing vehicle production across segments.

- Growth in EV and hybrid vehicle platforms.

- Rising demand for advanced braking and safety systems.

- Export opportunities in emerging markets.

- Localization initiatives by global OEMs.

- Government focus on infrastructure and manufacturing growth.

Risks and Concerns

- Geopolitical uncertainties and supply chain disruptions.

- Volatility in steel, aluminum, copper, and other commodity prices.

- Foreign exchange fluctuations.

- Changes in regulatory and emission norms.

- Intensifying competition from domestic and international players.

- Rising logistics and energy costs.

Considering above factor, demand for the companys products used in segments like Commercial Vehicles, passenger cars, tractors, railway and industry should improve considerably. Our company will remain part of this change with appropriate products and solutions for customers. The company will continue to put a thrust on new product development to meet the changed requirements of customers, provide better customer service and continue to work towards up-gradation of technology, improvement in quality, cost rationalisation, cash preservation, and digitalisation. Besides, the company will continue to aggressively pursue opportunities for new OEM approvals, improve market share in OE and aftermarket. The company will keep working with Indian railway and wagon manufacturers to develop superior friction material for its requirements. Your company, with established expertise in braking and friction materials across rail and automotive sectors, is well positioned to leverage this dual market transformation.

2. Segment-wise or product-wise performance

The Company operates in three segments viz. composites products, investment, and Trading in Metals and Commodity. During the year under review, the revenue from composites products stood at Rs 31,504 Lakh (Previous F.Y. Rs 28,427 Lakh), investments segment stood at Rs 3,963 Lakh (Previous F.Y. Rs 4,081 Lakhs) and in the Trading in Metals and Commodity stood at Rs 1,995 Lakhs (Previous F.Y. Rs Nil).

The segment result before unallocable expenses, interest and tax from Composite products was Rs 4,029 Lakh (previous F.Y. Rs 3,481 Lakh), Investments was Rs 2,211 Lakh (previous F.Y. Rs 2,869 Lakh) and Trading in Metals and Commodity was Rs 40 lakhs (previous F.Y. Rs Nil).

3. Outlook

Despite geo-political uncertainties and global slowdowns, the outlook for FY 2026-27 remains positive. India is expected to continue its growth trajectory supported by strong macroeconomic fundamentals, infrastructure investments, favourable demographics, and increasing manufacturing competitiveness. The automotive industry is likely to maintain steady growth across vehicle categories, driven by domestic demand, exports, technological advancements, and policy support.

4. Risks and concerns

The Company has laid down a well-defined Risk Management Policy covering risk mapping, trend analysis, risk exposure, potential impact and risk mitigation process. A detailed exercise is carried out from time to time to identify and evaluate both business and non-business risk. The Board periodically reviews the risks and suggests steps to be taken to control and mitigate the same through a properly defined framework.

5. Internal control systems and their adequacy

The Company has in place proper and adequate internal control systems commensurate with the nature of its business, size and complexity of its business operations. Internal control systems comprising of policies and procedures are designed to ensure reliability of financial reporting, compliance with policies, procedures, applicable laws and regulations and that all assets and resources are acquired economically, used efficiently and are adequately protected.

6. Discussion on financial performance with respect to operational performance

The Companys financial performance with respect to operational performance is already discussed in the Directors Report, which forms a part of the Annual Report.

7. Material developments in Human Resources / Industrial Relations front, including number of people employed

The thrust of the Companys human resource development is to create a responsive and market-driven organization with emphasis on performance. Continuous appraisal of personnel competence in line with job requirements, is carried out to provide for necessary training to personnel thereby facilitating higher levels of output and productivity. The industrial relations at Paithan and Bhandara plants remain satisfactory. As on 31st March, 2026, total 528 permanent employees on the rolls of Company were employed in the Company.

8. Details of significant changes in key financial ratios / return on net worth

* Due to changes in fair valuation

Note: Previous years ratios have been recalculated wherever necessary to conform to current years classification.

9. Cautionary Statement

The statement in the Management Discussion and Analysis Report cannot be construed as holding out any forecasts, projections, expectations, invitations, offers, etc. within the meaning of applicable securities, laws and regulations. This report basically seeks to furnish information, as laid down within the different headings to meet the requirements of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

For and on behalf of the Board of Directors

of Hindustan Composites Limited