ISGEC Heavy Engineering Ltd Management Discussions

Management Discussion and Analysis Report

Global Economy

In 2025, the global economy continues navigating a complex landscape shaped by geopolitical uncertainties, escalation of trade wars, policy uncertainty, rapid technological advancements, environmental imperatives, and evolving consumer behaviour.

According to the International Monetary Fund (IMF), the world economy is expected to grow at 2.4% in 2025 down from 3.3% during the last year. This is largely due to rising trade tensions, geopolitical conflicts, and supply chain disruptions.

Positive Drivers of the Global Economy

1. Driving Sustainable Growth:

Renewable energy, clean technologies, and circular economy are expected to attract investments and drive economic growth, although investments in various green fuel projects have been deferred by various energy majors.

2. Emerging Market Contributions:

The rise of the middle class, urbanisation and digitisation across emerging economies is significantly boosting global consumption and economic dynamism.

3. Derisking Supply Chains:

Global companies are increasingly mitigating the supply chain risks associated with sourcing from China. This is driving the major international companies to consider sourcing from other parts of the world as an alternative.

4. Technological Advancement:

Artificial Intelligence, automation, digitisation, as well as R&D in respective fields, among others, are contributing to faster innovation, enhanced operational efficiency, productivity improvement and cost reduction, which are expected to have an overall positive impact on global trade.

5. Bilateral Trade Agreements:

Driven by the trade wars, countries and regions are increasingly opting for mutual Trade Agreements, which are presently under negotiation. Once concluded, these are expected to partly mitigate the negative effects of tariff wars.

Challenges Facing the Global Economy

1. Geopolitical Instability:

Ongoing conflicts, heightened trade tensions, and rising protectionism are disrupting international trade and investment flows, contributing to supply chain disruptions and market uncertainty.

2. Environmental Challenges:

Climate change, resource scarcity, and environmental degradation are imposing significant economic costs and driving stricter regulations such as the Carbon Border Adjustment Mechanism (CBAM).

3. Inflationary Pressures & Supply Chain Vulnerabilities:

Persistent inflation and supply chain vulnerabilities in key sectors are eroding consumer purchasing power and hindering production.

4. Dumping of Goods:

Given the size of the Indian market and its appetite for consumption, the ongoing trade wars could lead some countries, such as China, to begin dumping their products in the global market at unrealistic prices, thereby adversely impacting the market.

5. Rising Defence Expenditure:

Ongoing conflicts and geopolitical instability are driving the major countries to substantially increase their defence expenditure. This has the potential to crowd out the investment from other sectors of the economy.

Conclusion

Considering the above factors, the global economic growth is likely to face headwinds. The International Monetary Fund (IMF) has downgraded its 2025 global growth forecast to below 3% from the previous 3.3%. This reflects the impact of escalating trade tensions. The rapid intensification of these trade and geopolitical conflicts, coupled with increased policy uncertainty, is projected to significantly constrain global economic activity.

Indian Economy

India vs. Global GDP - Projected Growth Outlook (2025-2035)

Indias economic growth has demonstrated notable resilience despite heightened geopolitical tensions and moderation in global economic momentum. Macroeconomic stability has been strengthened by ongoing fiscal consolidation efforts and a well-managed current account deficit, supported by the robust performance of the services and agriculture sectors. Prudent economic policies, sustained structural reforms, a strong digital infrastructure foundation, and improving corporate balance sheets have collectively reinforced Indias economic strength, reaffirming its position as the fastest-growing major economy.

As of April 2025, the International Monetary Fund (IMF) revised Indias economic growth forecast downwards to 6.2% for the fiscal year 2025-26 from its earlier estimate of 6.5%. Driven by supportive policy measures and robust demand, the IMF predicts a marginal improvement in the growth to 6.3% during the next fiscal year, and further to about 6.5% in the longer term.

This downward revision for the fiscal year 2025-26 reflects the anticipated impact of geopolitical conflicts, global trade uncertainties, particularly the imposition of tariffs by the United States. However, India is expected to maintain its status as the fastest-growing major economy globally.

Key Growth Drivers:

a. Sustained structural reforms across taxation, labour and digital economy.

b. Favourable demographic dividend and rising consumption patterns.

c. Strategic Infrastructure investments, import substitution, and the "Make in India" initiative.

d. Policy initiatives in green hydrogen, renewables, and decarbonisation tech.

e. China +1 sourcing strategy of major international companies to derisk their supply chains.

f. Moderation in direct taxation leading to growth in consumption.

Inflation in India reached a five-year low of 3.34% in March 2025. The Reserve Bank of India (RBI) indicated the possibility of further interest rate reduction to stimulate economic activity.

We anticipate substantial investments and capacity expansions in the Industrial sectors of our interest over the next 5-6 years. Accordingly, we are expanding the production capacities for our various products.

Industry Structure & Development

The Heavy Engineering Industry forms the backbone of Indias infrastructure development, playing a critical role in building infrastructure for all core sectors.

Strong growth is expected in almost all core sectors, fuelled by a combination of capex spend by the government, various government schemes such as Make in India, focus on import substitution, as well as, China +1 strategy of various global companies to derisk their supply chain.

Isgec supplies manufactured equipment, as well as turnkey solutions to all core sectors, thus mitigating the risk of periodic cyclicity in the investment in the individual sectors.

Opportunities and Threats

The heavy engineering industry in India is characterised by a dynamic interplay of opportunities and threats, which are shaping its growth trajectory and competitive landscape.

Opportunities

The Indian economy is experiencing robust growth across several key sectors, thus presenting opportunities for growth for Isgec. This section provides an overview of these sectors and highlights Isgecs strategic positioning and contributions.

Thermal Power:

• Indias strategic focus on energy security and rapid industrial growth is driving significant expansion in the thermal power sector. The Central Electricity Authority (CEA) proposes to add approximately 80 GW of thermal power capacity by 2032. This expansion is expected to attract substantial investments and stimulate demand in allied sectors like steel, cement, and capital goods.

• Isgec supplies boilers, material handling solutions, emission control solutions, built—to—print equipment, steel castings, and pre-fabricated piping spools to thermal power plants.

Ports:

• The expansion of Indias port infrastructure is critical to support increasing trade volumes and enhance logistics efficiency. An additional capacity of about 800 million tonnes is expected to come up in the next 5-6 years.

• Isgec provides a comprehensive range of material handling solutions that is vital for efficient port operations.

Coal & Minerals:

• As per the Ministry of Coal, the total coal extracted during 2024 was close to 998 MT. The government has targeted to increase this to 1.3 BT in 2025 and further to 1.5 BT by 2030. Large investments in mining infrastructure are anticipated.

• Isgec supplies complete range of material handling solutions, castings, as well as built-to-print equipment to the sector.

Cement:

• The Indian cement industry is experiencing significant growth, driven by infrastructure development, housing projects, and increasing urbanisation. CRISIL estimates the production capacity in India to grow from 690 million tonnes to 1072 million tonnes in the next 5-6 years.

• Isgec supplies material handling solutions, waste heat recovery boilers, emission control solutions, castings, and built-to-print equipment to the Cement industry.

Iron & Steel:

Indias iron and steel sector is a cornerstone of its industrial development, with significant growth expected in the coming years. The Ministry of Steel projects the steel production capacity to grow to 300 million tonnes from the existing 200 million tonnes in the next 5-6 years, driven mainly by increased infrastructure spending, manufacturing growth, and rising domestic consumption.

Isgec offers a wide range of products for the iron and steel sector. Our offerings include emission control solutions, high efficiency boilers, waste heat recovery boilers, material handling solutions, iron and steel castings, built-to-print equipment, and boiler fuel conversion applications using biomass firing.

Fertiliser:

• The sector is expected to grow from 56 million tonnes to 65 million tonnes in the next 5-6 years.

• Isgecs product portfolio includes critical process equipment for ammonia and urea plants, skids and modules, pre-fabricated piping spools, and heat recovery steam generators.

Sugar:

• The Indian sugar industry plays a significant role in the agricultural economy, and its growth is closely linked to the demand for sugar and its by-products, including ethanol. The Indian Sugar Manufactures Association (ISMA) projects that Sugar production capacity will increase from 37 million tonnes to 43 million tonnes.

• Isgecs product portfolio includes complete sugar plants, co-generation boilers, slop-fired boilers, raw sugar to refined sugar plants, and ethanol distilleries. We also provide operation and maintenance services for sugar plants, demonstrating our long-term commitment to supporting the industry.

Refinery:

The projected rapid economic growth as well as the growing population, will propel the demand for fossil fuels. According to the Ministry of Petroleum, the oil refining capacity is expected to be increased from approximately 256 MMTPA at present to around 310 MMTPA by 2030. Consequently, 5 new refinery projects are likely to be implemented in the next few years.

• Isgec has an impressive track record of supplying critical process equipment, oil and gas-fired boilers, waste heat recovery boilers, and pre-fabricated piping spools to the refineries.

Chemicals & Petrochemicals:

• After a modest 2024 performance, growth is expected to pick up gradually from 2025. The sector is expected to grow to US$300 billion in 2025 and further to US$1 trillion by 2040.

• Isgec provides turnkey solutions such as Sulfuric Acid plants, boilers, process equipment of exotic metallurgy, skids and modules, pre-fabricated piping spools to this sector.

Automotive:

• India is the worlds fourth largest automobile manufacturer. Indias automotive sector has shown steady growth because of the rise in Indias middle class, revival in the rural economy, and supportive government policies.

Despite being the fourth largest automobile manufacturer, Indias share of the global automotive value chain is only 3%. NITI Aayog has targeted to increase it to 8% by 2030. Coupled with the expected rapid growth in the Electric Vehicles market, the sector is poised for substantial sectoral growth in the next few years.

• Isgec is Indias largest press manufacturer with impressive references with OEMs, Tier 1 & Tier 2 manufacturers of automotive components in India and overseas. Our presses are equipped with automation and Industry 4.0 features.

Nuclear:

• Nuclear energy has been recognised as a key contributor in efforts to decarbonise and achieve net zero carbon emissions. India has envisioned reaching 100 GWe of nuclear capacity by 2047. Twelve reactors of 700 MWe are already under construction, leading to a capacity of 22 GWe. Considering the Governments vision of 100 GWe by 2047 there is a huge scope for many more nuclear reactors. In a significant departure from the policy, the Government has allowed private sector participation in setting up Bharat Small Reactors (BSRs). The business prospects from this sector are very promising at present and in the coming decade.

• Isgecs Process Equipment Division, as well as built-to- print equipment group, are well-positioned to address the business potential for critical equipment for the nuclear reactors.

Hydro Power:

• The hydro power capacity of India is expected to increase by almost 50% of the current capacity to 67 GW by 2031-32. In addition, for providing grid stability and round-the-clock power from solar and wind power plants, India has identified Pump Storage Projects (PSP) as one of the main sources of energy storage. Consequently, the PSP capacity of 55 GW is expected to be added by 2031-32.

• Isgec provides Castings as well as built-to-print equipment to the sector.

The sectoral outlook highlights the significant growth potential across various industries in India. Isgecs diverse product portfolio, technological expertise, and focus on providing sustainable solutions position the company to effectively address the evolving needs of these sectors and contribute to Indias growth story.

Threats

• Global Economic Uncertainty: Prolonged geopolitical tensions, trade conflicts, and global inflation pose potential risks to investment cycles.

• Supply Chain Disruptions: Delays, uncertainty, and rising logistic costs in the global supply of critical components and metals could adversely affect project timelines and margins.

• Technology Disruption & Competitive Pressure: Rapid technological advancements and the entry of global OEMs and start-ups may pose a threat of obsolescence of technology. The precise impact will be known in due course after such technologies have developed and been commercialised.

Segment-wise Performance Overview

Industrial Projects Segment

Our Industrial Projects Segment offers total solutions with cutting- edge technologies in Sugar Plants, Distilleries, Emission Control, Solid Bulk Material Handling, Process Plants, Railway Workshops, Metro Depots, Captive Power Plants, as well as Boilers with wide range of configurations including Travelling Grate, Bubbling Grate, Pin Hole Grate, Reciprocating Grate, Circulating Fluidised Bed (CFB) and Waste Heat Recovery for almost all core sector industries.

In our endeavor to exercise fiscal prudence and considering the risks associated with large projects, we have focused on undertaking orders for technology-intensive, mid-value projects with shorter execution periods. Despite re-strategising, our order book and profitability of the segment during the year were good.

We are focusing on value-added services like Operation and Maintenance, increasing efficiency in existing plants, and other consulting services.

In addition, we are positioning ourselves to offer technology- embedded total solutions for emerging sectors such as renewable and green energy.

Manufacturing Business Segment

Isgec has been one of the major contributors to Indias manufacturing prowess. We have six manufacturing facilities with a covered production area spanning over 200,000 square metres. The product portfolio, which serves almost all core sectors includes Hydraulic Presses, Mechanical Presses, Press Brakes, Process Plant Equipment, such as Reactors, Pressure Vessels, Shell And Tube Heat Exchangers And Distillation Columns, Boiler Pressure Parts, Skids and Modules, Iron and Steel Castings, and Built-to-Print equipment (Contract Manufacturing).

Driven by Make In India, focus on import substitution, economic growth, and investment in various sectors, this segment realised an increase in revenues and order booking during the year.

In addition, our continuing efforts to improve shop floor productivity and reduction in cycle time led to a substantial improvement in profitability.

Considering the factors such as projected strong GDP growth, the governments target to increase the manufacturing sectors contribution to the GDP to 25% duly supported by enabling policies, we expect an increase in demand during the next few years.

During the current Financial Year, we invested approximately H65 Crores towards the expansion of our production capacities at Yamunanagar and Muzaffarnagar. Driven by the strong possibility of a robust demand during the subsequent years, we are planning further expansions in the shop capacities for all our products in the next financial year, and also focusing on manufacturing more value-added products.