IP Rings Ltd Management Discussions

GLOBAL ECONOMY

The global economy experienced moderate growth in FY 25, this was mainly due to inflationary pressures, tight monetary policies in developed markets and geopolitical uncertainties along with increased trade tension and heightened policy uncertainty. These factors contributed to cautious consumer spending and disrupted global trade flows.

The International Monetary Fund (IMF) has projected growth of 3.2 per cent and 3.3 per cent for 2024 and 2025, respectively. Over the next five years, global growth is expected to average around 3.2 per cent, which is modest by historical standards. While the overall global outlook remains steady, growth varies across different regions.

Global cooperation is needed to restore a more stable and transparent global trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change.

The US economy has been buoyant, driven by strong growth in the services sector, a robust labour market and high real wages. Europe, including the UK, has faced softer growth due to the war in Ukraine, high energy prices, and slowdowns in manufacturing and services. Chinas growth was weaker than expected, with a slowdown in the real estate sector and industrial activity. The Asia-Pacific region is projected to be the fastest-growing.

The outlook largely hinges on the evolution of trade policy globally. Growth could turn out to be lower if trade restrictions escalate or if policy uncertainty persists, which could also result in a build-up of financial stress.

Global inflation is expected to decline steadily, easing from 4.5% in 2024 to 3.5% in 2025 - still somewhat higher than the 3.1% pace in 2019. Advanced economies are likely to bring inflation under control faster than emerging economies. However, the near-term trajectory to price stability may still face challenges with persistent services and wage inflation in several parts of the world leading to desynchronized monetary policy responses. Risks to the global inflation

outlook will be tilted to the upside given the prospects of increased protectionism, geopolitical tensions, derisking and demographic constraints.

A significant shift has occurred in global automotive production over the last 20 years from the established industrialized economies to the emerging markets. Several factors have contributed to this major shift. Cost optimization has been one of the major contributor for relocation of many manufacturing facilities from high cost regions of Western Europe and North America where the labour costs are significantly higher to emerging markets like China, India and Mexico.

Additionally, the proximity to growing markets in emerging economies not only provides lower-cost labour but also represent rapidly expanding consumer markets. The middle-class population in countries such as China and India have surged, leading to greater demand for automobiles. By establishing production facilities in these regions, global automakers can cater to local demand while also avail the advantage of low- cost manufacturing.

Another noteworthy factor for this surge in emerging markets are the favorable government policies and incentives that support the automotive sector in many emerging markets.

The global automotive components market is valued at USD 2 trillion, with the export share reaching approximately USD 700 billion. India has emerged as the fourth-largest global producer after China, USA and Japan, with an annual production of nearly 6 million vehicles. The Indian automotive sector has gained a strong domestic and export market presence, particularly in the small car and utility vehicle segments. Supported by initiatives like Make in India and its cost-competitive workforce, India is positioning itself as a hub for automotive manufacturing and exports.

Over the past five years, the market has consistently expanded at a steady annual growth rate of 4-6%. This consistent growth reflects the strong demand for automotive components in the global market and

underscores the critical role automotive components play in supporting the larger automotive ecosystem, which includes both traditional Internal Combustion Engine (ICE) vehicles and the rapidly emerging Electric Vehicle (EV) segment

The real gross domestic product (GDP) growth for FY25 is estimated to be 6.4 per cent. Private final consumption expenditure at constant prices is estimated to grow by 7.3 per cent, driven by a rebound in rural demand. The agriculture sector is expected to rebound to a growth of 3.8 per cent in FY25. The industrial sector is estimated to grow by 6.2 per cent in FY25. Strong growth rates in construction activities and electricity, gas, water supply and other utility services are expected to support industrial expansion.

The industrial sector grew by 6 per cent in H1 FY25. Q1 saw a strong growth of 8.3 per cent, but growth moderated in Q2 due to three key factors. First, manufacturing exports slowed significantly due to weak demand from destination countries, and aggressive trade and industrial policies in major trading nations. Second, the above average monsoon had mixed effects - while it replenished reservoirs and supported agriculture, it also disrupted sectors like mining, construction, and, to some extent, manufacturing. Third, the variation in the timing of festivities between September and October in the previous and current years led to a modest growth slowdown in Q2 FY25.

The services sector continues to perform well in FY25. Prominent growth in the first two quarters has resulted in 7.1 per cent growth in the first half of FY 25.

The Indian economy is on a steady growth path. The macroeconomic health checklist looks good. As the country aims to accelerate its economic growth rate in the coming years, it has the tailwind of strong balance sheets in the domestic corporate and financial sectors. But, globalization is on the retreat. Hence, raising the growth average in the next two decades will require reaping the demographic dividend through a deregulation stimulus.

Indias automobile sector is a cornerstone of its manufacturing ecosystem, playing a crucial role in the countrys economic growth and industrial development. As one of the largest automotive markets in the world, Indias automobile industry contributes nearly 7.1% to the national GDP and accounts for nearly 49% of the countrys manufacturing GDP. This contribution underscores the sectors importance as a driver of industrial output, employment, and technological advancement in India.

The Indian Auto industry produced over 28 million vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles in April 2023 to March 2024, making it the fourth-largest automobile producer globally, following China, the United States and Japan. The sector encompasses a broad spectrum of vehicles, including passenger cars, commercial vehicles, two-wheelers, and three-wheelers, catering to both domestic consumption and exports. The industry is dominated by a few key players which together control a significant portion of the domestic passenger vehicle market.

The financial year 2024-25 was a tough year for the Company with sales hovering around Rs. 303 crores as against total sales of Rs. 316 croresduring the previous financial year. This drop in sales was mainly due to slump in demand from one of the major customers in the U.S. market. This degrowth in sales can also be attributed to certain actions undertaken by the company in the interest of its long-term growth. For instance, the Company has shifted to its new plant, Unit II to ensure better efficiency in the production of its products and augment its capacity.

OPPORTUNITIES AND THREATS OPPORTUNITIES:

The auto components market in India represents a strategic opportunity to boost its position in the

automotive value chain. Indias growing manufacturing base and cost advantages position it suitably for potential market leader in coming years. Indias auto component exports have risen from $7.4 billion in FY21 to $12.8 billion in FY24. Particularly, noteworthy is the fact that since FY21, India saw a ~73% surge in exports, thereby reflecting Indias post pandemic recovery and increasing global demand for auto component parts. Artificial intelligence (AI) presents a great opportunity for the Automotive Sector in terms of manufacturing by leveraging technologies along the Global Value Chain (GVC). The Company is continuously working on evolving its technologies to meet customer demand and is also mindful of the Environmental, Societal and Governance Parameters (ESG) parameters focused on by the government. Dedicated and talented pool of human resources with scientific and engineering background augurs well for the company as it enhances the research capabilities.

THREATS:

The revenue of the automotive components sector is expected to slow to 6-8% this fiscal and the next after growing ~ 14% last fiscal. The main reason for this drop in revenue is due to decreasing demand for new vehicles except two-wheelers. Additionally, exports are expected to grow at a slower rate than the 13% seen in fiscal 2024 as the macroeconomic environment in key markets abroad remain sluggish. However, steady replacement demand will support ongoing growth. The ongoing Geopolitical tensions would only add to the tepid growth in new vehicle registrations and this could affect the auto sales both locally and internationally

Your company operates in a single segment that is automotive, but the company has 4 products namely Piston Rings, Forgings, Crank Pin and Tooling. On the performance, Forgings contribute to 70% of the sale followed by Piston rings 20 %, Crank pin 8 % and finally tooling with 2%. The Forgings sales includes both local and export sales. All the products are supplied either to the OEM directly or to Tier-1 who in turn supply

to the OEM. Your company supplies to all types of vehicles ranging from two wheelers to Medium and Heavy commercial vehicles and to a Niche and high end vehicles.

OUTLOOK:

The Indian auto components industry is expected to grow by 5-7% in FY 2025. A confluence of factors, including healthy personal mobility and freight movement/economic activity are expected to benefit replacement demand. Other important factors like rising supplies to new platforms because of vendor diversification initiatives by global OEMs/Tier-Is and higher value addition, partly stemming from increase in outsourcing augur well for Indian auto component suppliers. Further, there would be opportunities for Indian players in metal casting and forgings because of many plants closing in EU due to viability issues. The ageing of vehicles and increased sale of used vehicles in global markets would aid in exports for the replacement segment. The outlook for the next year is positive and your company expects to grow in line with the market.

RISK AND CONCERNS:

Our risk management procedures consider both external and internal threats to devise effective mitigation strategies. Risk identification, analysis, mitigation and monitoring are undertaken periodically by the Management.

The Key risks confronting the industry are supply chain disruptions, increasing energy prices, shortages of skilled labour, growing expectations of the customers. Your company is actively working on entering new markets and diversifying its business to mitigate the risk and supply quality products to its customers. On raw material prices, your company is actively working with its suppliers and customers to reduce the impact.

INTERNAL FINANCIAL CONTROL SYSTEM:

Your company has a strong and well-ingrained internal controls framework. The internal audit plan is developed in consultation with the operating management / Statutory Auditors with focus on critical risks that matter and is aligned to the business

objectives of the Company. The Audit Committee meets every quarter and reviews the key internal / statutory audit findings and the management actions emanating from internal audit reviews. The Audit and Assurance function reassures the Board about the adequacy and efficacy of internal controls the risks involved and helps in anticipating/ mitigating emerging and evolving risks.

(Rs. In Lakhs)

Our Company continues to focus on the development of its human resources to improve its performance. As on March 31,2025 the company currently more than 400 permanent employees. IP Rings strives to provide a conducive work environment that empowers people to excel. The human resource team implemented several programs such as Training, Learning and Development, employee engagement, performance management and talent retention. The Company prioritizes safety, health and overall wellbeing of all employees including the contract workforce.