India Nippon Electricals Ltd Management Discussions

GLOBAL ECONOMY

The global economic landscape for 2026 is marked by heightened uncertainty even as headline growth remains relatively steady. The IMFs World Economic Outlook Update (April 2026) projects global growth at 3.1% in 2026, moderating slightly to 3.2% in 2027. This is broadly in line with the estimated 3.4% growth recorded in 2025. Despite this steady headline trajectory, rising geopolitical tensions, particularly in the Middle East, have introduced significant downside risks.

Energy prices are a key transmission channel. Supplydisruptions have pushed crude oil prices higher in theshort term, with gradual normalization expected if supplystabilizes. However, the outlook remains highly sensitive tothe duration and severity of these disruptions. Sustained

shocks could keep energy costs elevated, intensify inflation,and weigh significantly on global output.Inflation remains at the center of policy debate. Rising energycosts have led central banks to reassess near-term forecastswith caution, given past underestimations of inflationpersistence. This raises the possibility of delayed easingor even tighter policy if inflation proves more entrenched.

Financial markets have already reacted: equity prices havedeclined, credit conditions have tightened, and interest rateexpectations have shifted. These developments add further drag on economies with weak domestic demand.

(Source: https://www.spglobal.com/market-intelligence/en/ news-insights/research/2026/03/global-economic-outlook-march-2026)

Outlook

The 2026-27 global outlook points to moderate but fragile growth. Geopolitical tensions in the Middle East are driving higher energy prices, elevated inflation, and tighter financial conditions, creating stagflationary pressures across major economies. Growth is expected to remain uneven: energy-importing regions and fiscally constrained economies are more vulnerable, while commodity exporters may see partial gains. Central banks must navigate a balance between controlling inflation and supporting growth. Any prolonged energy market disruption could further weaken output, increase recession risks, and amplify global economic volatility.

INDIAN ECONOMY

The Indian economy continues to exhibit strong resilience, with real GDP projected to grow by 7.6% in 2025-26, per the NationalStatisticsOffices Second Advance Estimates.

The economy remains supported by rising productivity and a policy focus on inclusive, stable development, aligned with the long-term Viksit Bharat 2047 vision.

Infrastructure remains central to Indias growth story. The Indian government has maintained a strong capital expenditure focus across railways, waterways, logistics, and urban development. Allocations in these sectors have risen to Rs. 12.2 Lakh Crores from Rs. 11.2 Lakh Crores in 2025-26. This investment is set to improve connectivity, streamline supply chains, and generate broad multiplier effects across allied industries, supporting sustained long-term growth.

Outlook

Growth for 2026-27 is expected to moderate slightly to 6.6%-6.9%, reflecting external pressures from geopolitical tensions in West Asia and global energy market volatility. However, Indias macroeconomic fundamentals remain sound, supported by tax rationalization. Expanding trade engagements with key partners, including the UK, EU, and the US, are likely to support export competitiveness. At the same time, the expanding digital economy and a resilient services sector continue to provide buffers against global shocks. Both these factors position India well to sustain a medium-term growth trajectory of around 7% through 2028, balancing external uncertainties with strong domestic drivers.

GLOBAL AUTOMOTIVE INDUSTRY

The global automotive industry in 2026 is undergoing strategic recalibration. The earlier push toward full more pragmatic,electrification multi-pathway approach. While the long-term zero-emission ambition remains intact, manufacturers are recalibrating near-term strategies in response to moderating demand for Battery Electric Vehicles (BEVs) in Western markets. Elevated vehicle prices and persistent charging infrastructure gaps have driven a renewed emphasis on hybrid and advanced internal combustion engine (ICE) technologies. The transition reflects a growing hybrid-first mindset among legacy automakers, who are combining growth opportunities next-generation combustion technologies with thermal efficiencies.

Global light vehicle sales in 2026 are projected at ion strategies. As charging approximately 91.8 Million units, indicating a phase of subdued growth following the post-pandemic recovery surge. This plateau is shaped by a confluence of macroeconomic pressures, including elevated interest rates and persistently high vehicle pricing. It is further influenced by the gradual withdrawal of EV subsidies across key markets. The Asia Pacific region continues to anchor global demand, accounting for nearly half of total sales. In China, domestic demand is shifting toward Plug-in Hybrid Electric Vehicles (PHEVs) and Extended Range Electric Vehicles (EREVs). However, competitively priced EV exports remain strong. India has solidified its position as a reliable growth engine, driven by a cost-efficient, localized supply chain built around affordability and scalability.

On the manufacturing side, AI has moved from experimental to operational. Generative AI-driven production copilots are optimizing assembly line performance and enabling real-time predictive maintenance. Gigacasting continues to gain traction, though widespread adoption is being weighed against aftermarket repairability considerations. Meanwhile, cybersecurity compliance under frameworks such as UNR155 has become an operational requirement across vehicle fleets.

(Source:https://www.spglobal.com/automotive-insights/en/ blogs/2026/01/five-predictions-2026-automotive-industry-outlook#: :text=Global%20light%20vehicle%20sales%20enter,at%20 around%2091.8%20million%20units)

GLOBAL TWO-WHEELER INDUSTRY

The global two-wheeler market was valued at USD 118.27 Billion in 2025 and is projected to reach USD 201.33 Billion by 2034, expanding from USD 123.89 Billion in 2026 at a CAGR of 6.26%. Asia-Pacific dominates, accounting for 70.09% of the global market share in 2025.

Growth is primarily driven by rising demand for efficient urban mobility amid increasing traffic congestion, particularly in densely populated regions. Two-wheelers offer a practical and cost-effective transportation solution, enabling easier navigation through congested roads and convenient parking. Lower purchase and maintenance costs, along with superior fuel efficiency, make them an attractive option across price-sensitive markets. A key structural trend is the gradual development of EV charging infrastructure, which foris expected to unlock significant electric two-wheelers.

In response, manufacturers, both emerging and established, areacceleratingtheir infrastructure improves and ecosystem support strengthens, the electric two-wheeler segment is poised to witness meaningful acceleration, reinforcing its role as a critical growth lever for the industry.

(Source:https://www.fortunebusinessinsights.com/two-wheeler-market-106884)

INDIAN AUTOMOTIVE INDUSTRY

Indias automotive sector entered a transformative phase in 2025-26, propelled by two catalysts: GST 2.0 and the India-EU Free Trade Agreement (FTA). These structural reforms have reduced cost barriers, accelerated global integration, and helped drive retail vehicle sales to a record 2.97 crore units, a 13.3% year-on-year surge.

(Source: https://www.autocarpro.in/news/weekly-news-wrap-record-fy26-sales-set-tone-jlr-price-cut-toyota-vinfast-product-plans-tvs-production-131971)

DOMESTIC SALES TREND FOR AUTOMOBILES

(Nos.)

Category	2020-21	2021-22	2022-23	2023-24	2024-25	2025-26
Passenger Vehicles	27,11,457	30,69,523	38,90,114	42,18,746	43,01,848	55,39,115
Commercial Vehicles	5,68,559	7,16,566	9,62,468	9,67,878	9,56,671	11,70,150
Three-Wheelers	2,19,146	2,61,385	4,88,768	6,91,749	7,41,420	13,00,805
Two-Wheelers	1,51,20,783	1,35,70,008	1,58,62,087	1,79,74,365	1,96,07,332	2,66,91,916

(Source: https://www.siam.in/)

GST 2.0: Unlocking Mass-Market Demand

The rollout of GST 2.0 in September 2025 became a major trigger for domestic automotive demand. It replaced the earlier multilayered tax system with simplified slabs of 5%, 18%, and 40%, reducing complexity and improving affordability.

- Entry Segment Expansion: GST on small petrol/CNG cars ( 1200cc) and motorcycles ( 350cc) dropped from 28% to 18%, improving accessibility for first-time buyers and price-sensitive consumers.

- Hybrid Adoption Upswing: Hybrid vehicles moved into the 18% slab, accelerating adoption. Various companies saw a strong uptick in hybrid sales, as buyers increasingly preferred fuel-efficient options over fully electric vehicles.

- Premium Segmentation: GST on luxury SUVs and large-engine vehicles rose to 40%. This sharpened the mass-market versus premium divide, and incentivized local assembly of high-end vehicles to manage costs.

(Source: https://cleartax.in/s/gst-impact-automobile-industry#: :text=Small%20cars%20now%20taxed%20at,vehicles%20 moderately%20simplified%20in%20pricing. )

India-EU FTA: Elevating Global Integration

The India-EU Free Trade Agreement, concluded in January 2026, marked a pivotal shift in Indias trade engagement with Europe.

- Tariff Rationalization: Import duties on European fully built vehicles will reduce from 110% to 10% within an annual quota of 2,50,000 units. This move will significantly enhance the price competitiveness of

European luxury car brands.

- Supply Chain Synergies: The agreement removes tariffs on 99.5% of traded goods, including auto components. Indian Tier-1 suppliers can export parts to European manufacturers without duty barriers, while European firms gain easier access to advanced components for use in India. This strengthens cross-border production linkages and supports a more integrated glocal manufacturing model.

- EV Strategy Protection: Phased EV tariff reductions will ensure that domestic manufacturers retain a strategic advantage while scaling indigenous capabilities.

(Source: https://ec.europa.eu/commission/presscorner/detail/ en/ip_26_184#: :text=India%20will%20grant%20the%20EU,after% 20five%20to%20ten%20years, (Source: https://www.autocarpro.in/ analysis/india-eu-fta-what-we-know-so-far-130863#: :text=On%20 27%20January%202026%2C%20the,mother%20of%20all%20deals)

By 2026, the Indian passenger vehicle market is projected at USD 45 Billion, with SUVs commanding an over 53% share. Despite intermittent challenges such as geopolitical volatility impacting fuel prices, tax rationalization and trade liberalization have enhanced both demand visibility and supply-side competitiveness.

INDIAN TWO-WHEELER MARKET

Indias two-wheeler market was valued at USD 28.84 Billion in 2025. It is projected to reach USD 38.68 Billion by 2031 from USD 30.29 Billion in 2026, at a steady CAGR of 5.02%.

Growth is being driven by policy support for electrification, recovering export demand, and expanding digital retail channels. Meanwhile, rising disposable incomes and the increasing need for agile, cost-effective mobility in densely populated urban centers are sustaining domestic demand.

(Source:https://www.mordorintelligence.com/industry-reports/ india-two-wheeler-market)

Demand is shifting toward feature-rich, technology-enabled vehicles with advanced connectivity, safety systems, and app-based integrations. Manufacturers are responding with smarter, high-specification models. The industry is also undergoing a broader digital transformation aimed at redefining the customer journey. Smart dealerships, omnichannel sales models, and integrated digital platforms are reshaping how customers discover, purchase, and service vehicles. From virtual showrooms and online booking to predictive maintenance and connected after-sales support, digitalization is a key differentiator in an increasingly competitive market.

Last-mile delivery and logistics fleets continue to reinforce volume growth, positioning two-wheelers as a critical component of Indias mobility ecosystem. milestone inDespite the momentum toward electrification, ICE vehicles still dominate, accounting for 88.15% of the market in 2025, supported by widespread fuel infrastructure and lower upfront costs. Electric two-wheelers are gaining ground, projected at a 7.02% CAGR through 2026-2031. Subsidized pricing, battery-as-a-service offerings, and declining renewable energy costs are driving this growth. For commercial users, particularly fleet operators covering 80-100 km daily, total cost of ownership parity is already visible. Break-even timelines of 18-24 months are further accelerating adoption.

(Source: https://www.mordorintelligence.com/industry-reports/ india-two-wheeler-market)

INTERNAL COMBUSTION ENGINE MARKET

Indias ICE market is projected to reach USD 8.3 Billion by 2031, expanding at a CAGR of 7.6% between 2025 and

2031. Despite the gradual shift toward electrification, demand remains steady, particularly in the passenger vehicle segment.

(Source: https://www.6wresearch.com/industry-report/india-internal-combustion-engines-market-2020-2026)

KEY GROWTH DRIVERS Increasing Demand for Vehicles

Rising populations and expanding middle-class incomes are sustaining demand for both two-wheelers and four-wheelers. This trend is especially pronounced in developing markets such as India, where mobility and economic advancement are closely linked. Rapid urbanization and ongoing infrastructure development are amplifying transportation needs across key sectors including logistics, last-mile delivery, and personal mobility.

ICE 2.0 - The Combustion Resurgence

Internal combustion engine technology is entering a renewed innovation phase. Rather than declining, modern ICE and hybrid powertrains are strengthening their relevance, emerging as key beneficiaries of recent tax reforms. They offer a practical, cost-efficient solution for long-distance travel and rural mobility, where EV charging infrastructure is still developing.

India as a Global Export Hub

The 2025 26 period marked a significant automotive export story. Passenger vehicle exports surged to nearly 9,00,000 units, up 16% year-on-year, signaling rising global confidence in Indias automotive capabilities.

Two-wheeler exports led the way, reaching an impressive 5.1 Million units. Indian motorcycles now command a strong presence across international markets, particularly in Africa, Southeast Asia, and Latin America, valued for their affordability, durability, and fuel efficiency.

Regulatory Evolution

Regulation has evolved from a compliance requirement to a value driver. The Bharat New Car Assessment Program has reshaped consumer priorities: over 75% of buyers considered safety ratings a top purchase criterion by early 2026. Manufacturers have responded by standardizing advanced safety features such as six airbags and electronic stability control across a wider range of models. As a result, the industry is witnessing higher selling prices and improved margins driven by premium safety positioning.

HYBRID VEHICLE ENGINE MARKET

Indias hybrid vehicle market is a central force in the countrys evolving mobility landscape. The market is projected to reach USD 0.68 Billion in 2026, accelerating toward USD 1.5 Billion by 2029, at a robust CAGR exceeding 24%. GST 2.0 and the India-EU Free Trade Agreement (2026) have reshaped pricing dynamics. These reforms have reduced thethe cost burden on electrified gap between conventional petrol vehicles and hybrids. As a result, premium European hybrid SUVs have become 20-30% more accessible, while domestically produced hybrids are positioned in the high-demand Rs. 15-25 Lakhs segment.

(Source: https://www.autocarindia.com/car-news/india-eu-fta-agreement-import-duties-slashed-to-10-percent-on-european-cars-438906#: :text=India%20and%20the%20European%20 Union,2%2C50%2C000%20vehicles%20a%20year.)

In the Indian two-wheeler market during 2025, the hybrid vehicle segment primarily comprised mass-market mild-hybrid models equipped with Smart Motor Generator (SMG) technology. Against the backdrop of a domestic two-wheeler market exceeding 21.7 Million units, the mild-hybrid segment remained a niche category, with estimated annual sales of approximately 0.25 Million to 0.35 Million units, accounting for nearly 1.5% of the overall market.

ELECTRIC VEHICLE MARKET

Indias EV market has moved beyond early adoption into high-volume execution. The sector is on track to reach USD 110.7 Billion by 2029, driven by deeper structural shifts rather than incentive-led demand alone. of this evolution is the localization of A intelligence. Indian manufacturers have shifted focus from only assembling vehicles to producing high-value components such as battery cells, power electronics, and motor control systems. This shift is reflected in market performance: passenger EV sales grew 77% in 2025, crossing 1.76 Lakh units and lifting segment penetration to 4.0%. Overall EV adoption across categories reached a record 8.5% by the end of 2025-26.

(Source: https://www.evfy.in/blogs/indias-ev-sales-rise-over-77-percent-in-2025-fada#: :text=Indias%20passenger%20EV%20 sales%20increased,Q.)

Policy direction has also matured. The Union Budget 2026-27 pivots from demand-side subsidies to strengthening long-term manufacturing capability. The PM E-DRIVE program, succeeding FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles), has been allocated Rs. 1,500 crore for 2026-27. This focuses on public transport electrification and charging infrastructure as subsidies for smaller vehicle segments phase out. In parallel, the government has significantly increased its commitment to the domestic industry. The PLI scheme for automobiles and auto components received an outlay of Rs. 5,939.87 Crores to support advanced EV platforms and localized production.

(Source: https://www.evfy.in/blogs/union-budget-fy27-allocates-rs-1500-cr-for-pm-e-drive-scheme#: :text=Budget%20FY27%20 Allocates%20Rs%201%2C500,and%20three%2Dwheelers%20 near%20expiry.)

Sustainability is embedded at the core. Removal of basic customs duty on lithium-ion battery scrap and black mass enables domestic recycling of critical materials like lithium and cobalt. Aligned with the broader National Manufacturing Mission, these developments position India both as a fast-growing EV market and a globally competitive production hub.

CHALLENGES FACED BY THE EV INDUSTRY Affordability and Residual Value Pressures

While technology has advanced, EVs carry a 20-30% upfront price premium over ICE vehicles, limiting mass adoption. Beyond cost, consumer hesitation is growing around residual value. Buyers remain cautious about battery degradation over a 5-7-year cycle, leading to concerns about resale performance.

Charging Infrastructure

Indias charging network has expanded rapidly, but consistency remains a challenge. Non-functional stations, fragmented payment systems, and a lack of interoperability across networks are common pain points. For most apartment residents, installing private chargers is hindered by inadequate electrical infrastructure or regulatory friction within housing societies, limiting access to home charging.

Supply Chain Dependence and Recycling Gaps

Despite progress under localization initiatives, the EV ecosystem still relies heavily on imports, with 85-90% dependency on foreign sources for battery cells and specialized equipment. Further, Indias battery recycling ecosystem is still underdeveloped. While policy frameworks such as Extended Producer Responsibility

(EPR) are emerging, a fully integrated, closed-loop system is still absent, restricting sustainability and sustained resource security.

Grid Readiness and Policy Transition

The growing concentration of EV charging is beginning to strain urban power infrastructure. Without timely upgrades to distribution networks and the adoption of smart grid technologies, peak demand could cause localized disruptions. Simultaneously, the shift toward the PM E-DRIVE framework and phasing out of consumer subsidies is pushing manufacturers to achieve cost parity through innovation rather than policy support.

Consumer Perception: Safety and Range Confidence

Past battery-related incidents have had a lasting impact on public trust. Stricter safety standards and testing protocols are in place but perception recovery takes time.

Range anxiety persists, particularly for inter-city travel, where charging infrastructure still lacks the reliability and convenience of traditional fuel networks.

INDIAN AUTO COMPONENT INDUSTRY

Indias auto component industry is operating at an unprecedented scale. In 2025-26, the sector was valued at approximately USD 85.8 Billion, supported by a steady 8-10% year-on-year growth rate.

(Source: https://www.motorindiaonline.in/auto-component-industry-grows-6-8-in-h1-fy26-acma/#: :text=The%20aftermarket%20 delivered%20a%20stronger,penetration%20of%20organised%20 service%20channels.)

A key structural shift is the accelerating pivot toward export-led growth and deeper global supply chain integration. Indian component manufacturers are increasingly recognized as dependable alternatives to traditional sourcing hubs. Exports reached nearly USD 12.1 Billion in the first half of 2025-26, with the US and Germany as core markets. To sustainthis,theindustryhascommittedacapitalinvestmentof

Rs. 30,000 Crores (USD 3.6 Billion) during 2025-26, focused on expanding capacity and localizing advanced technologies.

(Source: https://www.motorindiaonline.in/auto-component-industry-grows-6-8-in-h1-fy26-acma/#: :text=On%20the%20 trade%20front%2C%20auto,150%20million%20in%20H1%20 FY25.&text=ACMA%20noted%20that%20export%20growth,Mr)

At the same time, premiumization is redefining product development and manufacturing priorities. Rising consumer preference for larger, feature-rich vehicles, particularly SUVs and premium two-wheelers, is driving demand for higher-value, technology-intensive components. The shift toward software-defined vehicles is evident: connected mobility features in new passenger vehicle launches rose 35%. In parallel, compliance with stricter regulatory frameworks such as Bharat Stage VI (BS-VI) and the growing adoption of advanced driver assistance systems (ADAS) are accelerating the industrys transformation.

(Source: https://www.technavio.com/report/india-auto-component-market-industry-analysis#: :text=This%20trend%20has%20 shortened%20vehicle,in%20new%20passenger%20car%20variants.)

SWOT ANALYSIS Strengths

- Strong Demand Fundamentals: Rising incomes, a growing middle class, and rapid urbanization, especially in emerging markets like India, are driving sustained, scalable vehicle demand.

- Mature and Competitive Ecosystem: A well-established mix of domestic and global manufacturers fosters healthy competition, continuous innovation, and strong consumer confidence.

- Strong FDI Inflows and Emerging Global Manufacturing Hub: The automobile sector has attracted over Rs. 3.23 Lakh Crores (USD 37.85 Billion) in FDI between April 2000 and March 2025, accounting for roughly 5% of Indias total inflows. This underscores Indias growing stature as a preferred global hub for automotive manufacturing, R&D, and supply chain integration.

- Acceleration of Advanced Technologies: Rapid uptake of EVs, connected mobility, and autonomous systems positions the industry at the forefront of next-generation transportation.

- Supportive Policy Environment: Government initiatives across electrification, infrastructure development, and domestic manufacturing are enabling long-term growth and sustained investment.

- Broad Market Coverage and Adaptability: The ability to serve segments from two-wheelers to commercial and specialized vehicles enhances market resilience and expands revenue opportunities.

WEAKNESSES

- Cost and Operational Pressures: Rising input costs, fuel price volatility, and ongoing supply chain disruptions continue to strain margins and operational efficiency across the value chain.

- Uneven Pace of Technological Adoption: Legacy players in certain segments have been slower to adopt electrification, digital integration, and advanced mobility technologies, weakening their competitive positioning as consumer expectations evolve.

- Limited Premium Positioning in Select Segments: Gaps in features, design sophistication, and brand perception are limiting appeal in urban and higher-income markets.

- EV Infrastructure Constraints: Insufficient charging networks and battery-swapping infrastructure remain key bottlenecks to large-scale EV adoption.

Battery Localization Deficit: Despite strong EV momentum, domestic manufacturing of lithium-ion cells remains underdeveloped and heavily import-dependent, creating cost vulnerabilities and supply chain risks that could impact long-term EV economics.

- Low Vehicle Penetration and Affordability Barriers: At 38 vehicles per 1,000 people, structural affordability constraints and limited access to financing continue to restrict mass-market expansion, especially in entry-level four-wheelers.

OPPORTUNITIES

- EV Market Acceleration: The rapid shift toward sustainable mobility, backed by rising environmental awareness and government incentives, is catalyzing rapid EV ecosystem growth. This creates strong openings for investment, innovation, and partnerships.

- Export-led Growth: India is increasingly positioned as a competitive global manufacturing hub. As international markets diversify supply chains in search of cost efficiency and reliability, Indias auto component sector and vehicle exports are well-positioned to capture a significant share.

- Technology-led Differentiation: The convergence of ADAS, autonomous driving capabilities, and connected vehicle platforms is redefining mobility.

These advancements unlock high-margin revenue streams while enabling OEMs to build future-ready product portfolios.

- Rural Demand Expansion: Rising rural incomes, improving infrastructure, and improved financing access are unlocking latent demand. Affordable two-wheelers and compact passenger vehicles are well-positioned to drive volume growth in rural and semi-urban markets.

- Next-generation Mobility Models: Shared ecosystems, subscription-based ownership, and fleet-led demand are reshaping traditional paradigms. These models present new avenues for recurring revenue, customer lifecycle engagement, and asset optimization.

THREATS

- Disruptive Competition: A new wave of technology-led entrants, including agile domestic startups and well-capitalized global players, is redefining industry boundaries. Incumbents that lag on digital transformation and innovation risk rapid loss of market relevance.

- Regulatory and Policy Volatility: Frequent shifts in emission norms, subsidy regimes, and regulatory frameworks introduce structural uncertainty. This volatility can constrain long-term capital allocation and dampen investor confidence.

- Macroeconomic Headwinds: Global economic fragility, geopolitical disruptions, and currency volatility continue to pressure demand, input costs, and supply chain stability. This creates an increasingly complex operating environment for manufacturers.

- Rising Consumer Expectations: Demand for sustainability, advanced safety, and seamless digital integration requires accelerated innovation. Companies that cannot keep pace face heightened risk of obsolescence.

- Capital-intensive Transformation: Electrification, connected mobility, and software-defined vehicles demand significant and sustained capital investment.

Players lacking scale, localization capabilities, or financial resilience may struggle to remain competitive.

- Semiconductor and Critical Mineral Dependencies:

Increasing reliance on semiconductors and battery-grade critical minerals, concentrated within limited global geographies, exposes the industry to supply-side vulnerabilities. While Indian OEMs demonstrated relative resilience during the pandemic,

-driven the shift toward electrified architectures materially amplifies this risk.

INDUSTRY OUTLOOK

The sector is progressing along a dual-track trajectory. EV penetration neared 10% of total sales by late 2025, with electric two-wheelers exceeding 1.4 Million units. However, the ICE segment continues to anchor the market, particularly across commercial and long-haul transportation.

Innovation within the ICE ecosystem has moved beyond performance metrics toward sustainability-driven engineering. Advanced fuel-injection systems, hybridization,

ICEand efficiency-platforms relevant amid tightening emission standards. Policy interventions such as GST 2.0 have further enhanced the affordability of cleaner vehicle technologies. The commercial vehicle segment is witnessing a cyclical recovery in 2026, driven by replacement demand and the rapid expansion of e-commerce logistics. Light commercial vehicles (LCVs) are emerging as a high-growth category, pivotal for last-mile delivery and supply chain optimization.

COMPANY OVERVIEW

Since its inception in 1984, India Nippon Electricals Limited (INEL or the Company) has evolved into a distinguished player in automotive mechatronics, recognized for its precision engineering and dependable solutions. INEL offers a comprehensive range of high-performance, differentiated products for both domestic and international markets. Strengthened aftermarket services and a growing export footprint have enabled entry into global markets, including North America, Europe, and ASEAN. Strategic alliances with major OEMs have further elevated the Companys global positioning and opened avenues for deeper market penetration.

INELs adaptability is reflected in its robust financial and operational performance. The Company recorded its highest-ever turnover of Rs. 1,068 Crores in 2025-26, marking a healthy year-on-year growth of 26%. It retains a leadership position in the highly competitive two-wheeler segment, while its aftermarket business registered a notable growth of 20%, highlighting its customer-centric approach and commitment to quality.

The Companys manufacturing backbone comprises three strategically located facilities in Hosur (Tamil Nadu),

Puducherry, and Rewari (Haryana), all certified under ISO

14001:2015 and ISO 45001:2018 standards. Complementing its manufacturing strength is a deep commitment to innovation, supported by a state-of-the-art R&D center recognized by the Department of Scientific and Industrial

Research (DSIR).

At the forefront of INELs innovation ecosystem is the INEL Tech Center, dedicated to next-generation mobility solutions. Alongside established product lines such as flywheel magnetos, ignition coils, regulator rectifiers, and CDI/TCI units, the Company is actively developing cutting-edge technologies. These include EFI systems, ISG controllers, motor control units for electric vehicles, DC-DC converters, smart displays, and advanced sensor solutions. Staffed by over 100 engineers, the Tech Center manages end-to-end product development, from concept through commercialization, in alignment with

IATF TS16949 standards.

OPERATIONAL OVERVIEW

India Nippon Electricals entered 2025-26 with a clear intent to outpace industry growth, backed by a shift in both product mix and business strategy. While the broader auto component space is expected to grow steadily, the Company has aligned itself with faster-growing pockets, particularly the premium motorcycle segment. The 150cc-plus category saw stronger demand, and the Companys established presence and higher value-added offerings position it to benefit disproportionately.

Central to this evolution is a transition from a traditional component supplier to an integrated, system-level solutions provider. This raises the value per vehicle and strengthens customer stickiness, as OEMs prefer suppliers who can deliver complete, optimized systems. Margin expansion followed this shift in mix. Electronics-led products inherently command better realizations compared to commoditized components.

Exports have gradually become a meaningful contributor. INEL has expanded its presence across geographies and applications, including non-automotive use cases such as stationary engines and outdoor equipment. Despite temporary disruptions due to global uncertainties, demand traction returned, and the long-term outlook remains constructive. The aftermarket segment, though currently small, is scaling quickly. Investments in distribution, partnerships, and brand building are beginning to yield results. This business provides a steady, less cyclical revenue stream than OEM demand and carries superior margins, making it an important lever for future profitability.

On technology, the Company is preparing for the gradual transition toward EVs while continuing to leverage the significant runway remaining in ICE. The approach is balanced rather than binary, supporting ICE platforms while developing EV-related products such as DC-DC converters, sensors, and controllers. This ensures readiness without overexposure to near-term uncertainty in EV adoption rates.

FINANCIAL OVERVIEW Standalone Financial Snapshot

(in Rs. Lakhs)

Particulars	2025-26	2024-25
Gross Sales	1,06,440	84,055
Net Sales	1,05,292	83,194
Operating Profit	10,072	7,328
Depreciation	1,792	2,056
Profit After	11,126	8,203

Details of Key Standalone Financial Ratios

		(in Rs. Lakhs)
Particulars	2025-26	2024-25
Debtors Turnover Ratio	5.68	5.43
Inventory Turnover Ratio	9.06	8.12
Current Ratio (x)	2.51	2.38
Operating Profit Margin	9.4%	8.7%
Net Profit Margin	13.7%	12.2%
Return on Net Worth	14.5%	12.3%

RISKS AND MITIGATION STRATEGIES

Risk	Impact	Mitigation
Economic Risk	Economic fluctuations may affect day-to-day operations and impede growth and expansion plans.	The Company continuously assesses the business environment and implements appropriate strategies to mitigate potential operational and growth disruptions.
Geopolitical Risk	Tensions between the US and China have heightened rare earth supply chain risks. Maritime disruptions in the Red Sea driven by West Asia conflicts have intensified logistical delays and increased input costs, creating a highly challenging operating environment.	Despite continued geopolitical uncertainties, fluctuations in commodity prices, and anticipated impacts arising from labor code reforms, the Company remains resilient. Through a strong focus on execution excellence and disciplined cost optimization initiatives, including Value Analysis and Value Engineering (VAVE), along with increased adoption of ferrite magnets as an alternative to rare earth materials, the Company continues to strengthen operational efficiency, optimize costs, and sustain competitiveness.
Risk	Impact	Mitigation
Input Cost Volatility Risk	Fluctuating prices of silver and electronic components can increase production costs and pressure profit margins.	The Company uses long-term supplier agreements, VAVE, strategic inventory management, and continuous cost monitoring to stabilize input costs.
Competition Risk	Intense competition may pressure market share, margins, and return on capital employed, potentially affecting overall profitability and long-term growth.	The Company mitigates competitive pressures by capitalizing on its technological capabilities, strategic alliances, strong customer relationships, and a focus on innovation to sustain its market position.
Customer Risk	High dependence on a limited number of key customers can create vulnerabilities if these relationships change. In addition, limited awareness and proactive pursuit of emerging business opportunities could constrain growth prospects. A relatively low export footprint elevates exposure to geopolitical risks, potentially affecting operations and profitability.	Expanding market reach through direct sales and strategic partnerships, alongside the exploration of export opportunities, remains a key priority. The Company has also progressively reduced its dependency on key customers over the years, thereby strengthening business diversification and enhancing revenue stability.
Technology Risk	Rapid technological change necessitates continuous innovation and adaptability. Heightened EV competition from both established players as well as startups underscores the importance of differentiation and strong strategic positioning. Additionally, there is a significant risk of product obsolescence, as evolving technologies require ongoing upgrades and enhancements to sustain market relevance and customer interest.	The Company intends to pursue strategic technology partnerships in specialized areas to accelerate innovation and capitalize on its relationships with OEMs to identify new opportunities. Ongoing R&D investment will drive advanced, sustainable, and future-ready solutions.
IT and Cyber Risk	Existing measures to protect confidential and sensitive information from internal and external threats are currently inadequate.	The Company has completed a Security Incident and Event Management audit and implemented corrective measures. An Information Security Management System surveillance audit has also been successfully completed. Cybersecurity awareness programs are conducted regularly to enhance employee vigilance and audit trails have been established across all critical business applications. No security breaches or system outages were reported during the year.
Supplier Risk	Heavy reliance on single-source vendors and limited geographic diversification among import suppliers creates supply chain risk. While lead times for electronic components have improved, automotive parts continue to face longer lead times.	Strategic sourcing initiatives are being implemented to mitigate risks associated with high-risk vendors. The Company is also focused on expanding indexation coverage for commodities not currently included in customer settlements, enabling more effective and comprehensive cost management.
Risk	Impact	Mitigation
People Risk	Challenges in attracting and retaining top talent may impact long-term growth. Additionally, a misalignment between the organizational structure and strategic objectives could affect operational efficiency.	The Company is strengthening its employer branding efforts. It is also enhancing training and development programs to build leadership capabilities, with a focused approach on defining key result areas to drive performance and improve employee retention.
Regulatory Risk	The automotive industry operates under stringent safety and environmental regulations. Non-compliance may result in substantial penalties, reputational damage, and potential legal consequences.	INEL has established a robust compliance framework, supported by a software-driven system that continuously monitors and evaluates regulatory requirements. Ongoing engagement with regulators ensures that the Company stays informed of any changes in policies and can ensure ongoing compliance.

HUMAN RESOURCES

At INEL, employees form the foundation of long-term growth and operational excellence. The organization is committed to nurturing an inclusive, supportive, and dynamic workplace where its people can grow personally and professionally. Strategic HR initiatives focus on attracting, developing, and retaining talent, while promoting a culture of continuous learning, collaboration, and performance excellence. Ongoing investments in training and development programs and career progression opportunities reflect the Companys commitment to building a skilled, future-ready workforce. As of 31^st March, 2026, the Companys employee base stood at 2,601.

CORPORATE SOCIAL RESPONSIBILITY

INEL remains committed to fostering a sustainable future while generating meaningful economic value. Guided by an active CSR Committee, the Company maintains a structured CSR policy aligned with the vision of its Board of Directors. During 2025-26, INEL contributed Rs. 129.48 Lakhs toward impactful CSR initiatives focused on key areas such as education, rural development, healthcare, and sanitation. Through these efforts, the Company aims to drive long-term positive change in the communities it serves, reinforcing its position as a responsible and purpose-driven contributor to inclusive development.

INTERNAL CONTROLS SYSTEMS AND THEIR ADEQUACY

The Company has implemented a comprehensive internal control framework encompassing business processes, operations, financial reporting, fraud prevention, and regulatory compliance. INELs audit function provides reasonable assurance on the effectiveness and efficiency of operations, protection of assets, accuracy of financial reporting, and adherence to applicable laws. An integrated ERP system enables real-time monitoring, analysis, control, and compliance across business functions. Regular internal audits and inspections are conducted to ensure that responsibilities are carried out effectively. The Audit Committee periodically evaluates the performance of both statutory and internal auditors. It also reviews the adequacy and effectiveness of the internal control systems and recommends improvements in line with evolving business requirements.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis section that describe the Companys objectives, expectations, or predictions may be considered forward-looking statements under applicable laws and regulations. These statements are based on certain assumptions and expectations regarding future events. However, the Company does not guarantee that these assumptions or expectations will prove to be accurate or be realized. The Company undertakes no obligation to publicly update, amend, or revise any forward-looking statements in light of new information, future developments, or other events.

Accordingly, actual results and performance may differ materially from those expressed or implied in such statements. Readers are advised to review this discussion alongside the audited consolidated financial statements and the accompanying notes included in the Annual Report.