Hindustan Hardy Ltd Management Discussions

a. Industry structure and developments.

Sales are primarily to 4 customer segments - domestic OEMs, export customers, industrial customers and aftermarket. During FY 2025-26, Domestic OEMs remained the Companys largest market segment, followed by Exports, Aftermarket and Industrial customers. Growth during the year was driven primarily by higher domestic OEM demand, continued expansion of exports and increasing acceptance of the Companys products in the aftermarket segment.

The Company serves 4 sectors - commercial vehicle, agricultural, off-highway and construction equipment and industrial. Demand from the agricultural machinery sector remained strong during the year

India continues to strengthen its position as a global manufacturing hub as customers diversify their supply chains and seek reliable sourcing partners outside traditional manufacturing regions. This trend continues to create long-term opportunities for Indian engineering manufacturers with strong quality systems and manufacturing capabilities.

The Indian propeller shaft industry continues to be highly competitive, with pricing pressure from both domestic and international manufacturers. Maintaining competitiveness therefore requires continuous investment in product development, manufacturing technology, quality improvement and operational excellence rather than competing solely on price.

Increasing consolidation amongst global driveline manufacturers presents both opportunities and challenges. Larger global players continue to expand their manufacturing footprint in India while OEMs increasingly expect suppliers to deliver global quality standards at competitive costs.

India continues to benefit from global supply chain diversification. Many multinational companies are adopting a China + 1 sourcing strategy and are increasing procurement from India. In addition, several Indian manufacturers are actively localizing components that were previously imported, creating further opportunities for domestic component suppliers.

Geopolitical developments, including conflicts in Eastern Europe and the Middle East, together with evolving global trade policies, have resulted in higher logistics costs, longer shipping routes and increased uncertainty in international trade. While these developments create short-term challenges, they also encourage global customers to diversify their supplier base, creating opportunities for competitive Indian manufacturers.

The domestic aftermarket remains highly fragmented with significant competition from low-cost, unbranded suppliers. However, increasing customer preference for reliable, high-quality products provides opportunities for established manufacturers with strong brands and proven product performance. The Company continues to strengthen its aftermarket presence and expand its product portfolio.

Maintaining margins in the current cost escalation scenario poses the biggest challenge in the current financial year. At present demand in the Indian market is robust and suppliers are facing capacity and manpower constraints and therefore are in a strong position to demand price increases.

• The company operates in a single segment.

• Total revenue from operations in FY 25-26 was Rs. 10994.00 Lakh as compared to 8196.68 Lakh in FY 24-25, representing a growth of 34%.

Growth was driven primarily by higher domestic OEM sales, continued export growth and increased aftermarket business. Quarterly performance improved progressively throughout the year, with the fourth quarter recording the highest sales due to stronger domestic and export demand

Collection performance continues to remain satisfactory. Debtors turnover ratio increased due to heightened focus on collections especially for smaller customers

Inventory increased during the year as the Company consciously increased safety stocks of selected long lead-time items to improve delivery performance and reduce the risk of production interruptions arising from supply chain constraints.

Interest coverage remained healthy despite higher borrowing costs. However cost pressures resulted in a reduction in margins during the year.

Outlook

The global economy is expected to continue growing at a moderate pace during FY 2026-27. However, geopolitical tensions in the Middle East and Eastern Europe, evolving global trade policies and continued uncertainty surrounding tariffs are expected to keep the external environment challenging. These factors may continue to influence freight costs, energy prices, exchange rates and business confidence.

India is expected to remain one of the fastest-growing major economies, supported by strong domestic demand, continued government investment in infrastructure, increasing mechanization in agriculture and ongoing emphasis on manufacturing under various government initiatives. These structural drivers are expected to support demand across the Companys key customer segments.

The Company will continue to focus on expanding its domestic OEM and export business, increasing its presence in the aftermarket. India has gained increasing acceptance in the global market the company needs to increase its efforts to gain more export customers. This coupled with improving manufacturing productivity through automation, process improvement and employee capability development will help better position the company for future growth.. Continued emphasis on quality, cost competitiveness and customer satisfaction will remain central to the Companys long-term growth strategy.

Geopolitical uncertainty, including developments in the Middle East and Eastern Europe, together with changing global trade policies, could impact export demand, logistics costs and supply chains.

Continued pricing pressure from OEM customers, together with increasing labour and conversion costs, may impact operating margins if not offset by productivity improvements.

Increasing competition from both domestic manufacturers and multinational companies expanding their manufacturing presence in India remains an ongoing challenge.

Customer expectations relating to quality, delivery performance and product development continue to increase. Failure to meet these expectations could adversely affect future business opportunities.

Over the longer term, electrification of commercial vehicles and changing driveline technologies may alter demand patterns for certain conventional products. The Company continues to invest in product development and diversification to address evolving market requirements.

The Company has established adequate internal financial controls commensurate with the size and complexity of its operations. These controls are designed to ensure orderly and efficient conduct of business, safeguarding of assets, accuracy of financial reporting and compliance with applicable laws and regulations.

The effectiveness of internal controls is reviewed regularly by management, monitored by the Internal Auditors and periodically reviewed by the Audit Committee and the Board of Directors. No material weakness in the internal control system was observed during the year.

f. Discussion on financial performance with respect to operational performance.

During FY 2025-26, the Company achieved strong revenue growth while maintaining healthy profitability despite higher costs in most key areas. Improved volumes, particularly in the domestic OEM and export businesses, contributed positively to operating performance.

Margin expansion was moderated by higher outsourced manufacturing costs arising from capacity constraints, delays in raw material, escalating input costs increased employee costs and continued investment in new product development and validation activities. Management continues to focus on improving operational efficiency, optimizing manufacturing costs and increasing capacity utilisation to support sustainable profitable growth.

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

Total number of employees decreased to 96 from 110 at the end of the prior financial year. The reduction in employee strength compared with the previous year was primarily due to the retirement of several long-serving employees.

The Company continues to invest in employee training, skill development and leadership development while strengthening safety, productivity and quality awareness across the organisation. Industrial relations remained cordial throughout the year, and the Company continues to enjoy a positive and constructive relationship with its employees.