Kanohar Electricals Ltd Management Discussions

Our leadership, strategy and execution efforts are currently overseen by the third generation of Promoters. Our Individual Promoter, Chairman and Managing Director, Dinesh Singhal, is a graduate of Indian Institute of Technology Roorkee (formerly known as University of Roorkee), with over 40 years of experience in the transformer manufacturing industry. Our Individual Promoter and Whole-time Director, Adesh Singhal, a graduate of Indian Institute of Technology Roorkee (formerly known as University of Roorkee), has been associated with our Company since 1981. Our Individual Promoter and Whole-time Director, Vivek Singhal, a graduate of Indian Institute of Technology Bombay, has been associated with our Company since 2000. Our

Individual Promoter and Whole-time Director, Abhishek Singhal, a graduate of Indian Institute of Technology Delhi, has been associated with our Company since 2002 and currently leads our design and development activities.

The following table sets forth certain key performance indicators for the periods indicated:

( in million, unless otherwise indicated)

Notes:

(1) Annual Installed Capacity is based on two 8-hour shifts per day and 300 working days per year.

(2) Order Book is calculated as opening order book during the year + orders received during the year revenue recognised during the year. (3) Revenue from Operations is calculated as revenue from sale of goods + revenue from sale of services + other operating revenue. (4) Y-o-Y Revenue Growth is calculated as (Revenue from operations of the current year / revenue from operations of the previous year) 1. (5) Total Income is calculated as revenue from operations + other income

(6) Gross margin is calculated as Gross profit / revenue from operations, where Gross profit = revenue from operations cost of goods sold (“COGS”); and COGS = cost of material consumed + purchase of stock in trade + changes in inventories of finished goods, stock-in-trade and work-in-progress. (7) EBITDA is calculated as profit before tax + finance cost + depreciation and amortization expense - other income (8) EBITDA Margin is calculated as EBITDA/ revenue from operations (9) PAT for the year is calculated as profit before tax total tax expense (“PAT”) (10) PAT Margin is calculated as PAT/ Total income (11) ROE is calculated as Restated profit/(loss) after tax for the relevant fiscal / average of opening and closing equity for such fiscal (12) ROCE is calculated as EBIT/ average capital employed; where: EBIT = EBITDA depreciation and amortization, and capital employed = total equity + non-current borrowings + current borrowings cash and cash equivalents and bank balances other than cash and cash equivalents (13) Gross Debt/ Equity is calculated as Gross Debt = total non-current borrowings + current borrowings, and Equity = equity share capital + other equity (14) Gross Debt/ EBITDA is calculated as gross debt/ EBITDA

(15) Net Fixed Asset Turnover Ratio is calculated as revenue from operations / average net fixed assets; where: average net fixed assets = net fixed assets (current year) + net fixed assets (previous year) / 2, and net fixed assets = property, plant and equipment (16) Net Working Capital Days is calculated as net working capital days = trade receivables days + inventory days trade payable days; where Trade Receivable Days = average of opening and closing trade receivables for the year / revenue from operations * 365 days (366 days for Fiscal 2024), inventory days = average of opening and closing inventories for the year/ cost of goods sold * 365 days (366 days for Fiscal 2024), and trade payable days = average of opening and of opening and closing trade payables for the year/ cost of goods sold * 365 (366 days for Fiscal 2024).

SIGNIFICANT FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A significant portion of our revenues are derived from central and state electricity utilities, transmission and distribution companies, PSUs, railways, renewable energy developers, and large infrastructure contractors. Consequently, our business and results of operations are directly and indirectly dependent on government infrastructure spending, budgetary allocations, and policies in the power and renewable energy sectors, as well as associated regulatory developments. These factors are subject to political, economic and strategic considerations that are beyond our control.

We are dependent on our customers from the High Growth Sectors for a significant portion of our operating revenue. Set out below are details of our operating revenue generated from the High Growth Sectors, for the Fiscals indicated:

Our financial performance and growth prospects are significantly dependent on the timing and receipt of project awards and tenders in the power, railway and renewable energy infrastructure sectors. A substantial portion of our revenues are derived from government and PSUs as well as other infrastructure developers, who typically follow a competitive tendering process for awarding projects. The volume and timing of such tenders are dependent on government budgetary allocations, infrastructure priorities, approval processes and policy directions, which are outside our control.

Set out below are the details of our revenue from tenders floated by government and private entities during the last three Fiscals:

(In million, except percentages)

The proportion of revenue derived from government entities and private entities may vary depending on the timing of order execution during a financial year. For instance, in Fiscal 2026, the percentage of revenue from private entities declined primarily due to the execution of certain orders from government entities that were received and completed within the same Fiscal. As these orders were executed during the Fiscal, they contributed to revenue but did not form part of our Order Book, which represents confirmed orders pending execution as at the reporting date and may not directly correspond to revenue mix for a particular period. Further, the high proportion of our Order Book from private entities as at March 31, 2026, will translate into revenue in Fiscal 2027 and Fiscal 2028.

Any delay in the announcement of new tenders, deferment of approvals, or cancellation of tenders could adversely affect the pace of execution of our projects, Order Book position and revenue recognition.

Our EPC Business is also dependent on timely release and award of projects by state and central government entities. These projects are subject to multiple layers of approvals, budget clearances and funding availability, which can delay tendering cycles. In addition, certain projects may be cancelled, restructured, or deferred due to changes in government priorities or financial constraints.

The power transmission industry is witnessing rapid technological advancements, driven by increasing emphasis on energy efficiency, adoption of smart grids, digitalization of power infrastructure and advanced short circuit testing capabilities. To remain competitive, we are required to continuously upgrade our technology, manufacturing processes and product portfolio in line with evolving industry standards and customer requirements.

Our inability to adopt new technologies or develop innovative products in a timely and cost-effective manner may adversely affect our competitiveness, order inflows and long-term growth prospects. Any delay in adopting technological advancements or failure to innovate could result in our products becoming less attractive to customers, thereby impacting our ability to win new tenders and retain existing clients.

Additionally, product innovation often requires significant investments in research and development, testing and certification. If we are unable to make adequate investments or recover these costs through higher pricing or increased sales volumes, our margins and financial performance may be adversely affected.

While we do not have long-term supply agreements, we have established strong relationships with our suppliers, both domestic and international. Our top 10 suppliers accounted for 3,360.26 million, 1,864.53 million and 1,432.06 million, representing 71.49%, 70.65% and 63.03% of our total cost of raw materials and components purchased Fiscals 2026, 2025 and 2024, respectively.

Despite this, our business remains exposed to raw material price volatility. Global commodity prices of copper, CRGO steel, mild steel and transformer oil are influenced by a wide range of factors including demand-supply imbalances, inflationary pressures, currency fluctuations, environmental regulations, tariffs, international trade restrictions and geopolitical developments. Any significant increase in input costs, without a corresponding increase in product pricing through pass-through mechanisms available under certain contracts, may adversely affect our profitability and gross margins.

Further, certain raw materials, particularly insulating materials like enamel and paper, can be procured only from a limited number of qualified suppliers due to the criticality of maintaining specific process compositions. This further restricts our sourcing flexibility. Any delay in supplies, inability to secure raw materials at competitive prices, or loss of a key supplier could affect our ability to manufacture products in a timely and cost-effective manner.

Our operations depend heavily on the availability and cost of key raw materials such as copper, CRGO steel, mild steel, transformer oil, insulating materials (including enamel and paper), and packing materials. These raw materials are critical to our manufacturing processes, and any disruption in their availability or increase in their cost could adversely affect our operations.

Copper and CRGO steel are the most significant inputs, and their prices are highly volatile due to fluctuations in global commodity markets, currency movements, changes in supply demand dynamics, and international trade policies. While we currently follow a back-to-back booking arrangement with customers for copper procurement to mitigate volatility, any sharp movement in commodity prices or inability to pass through increased costs to our customers may adversely impact our profitability.

In addition, the supply base for certain insulating materials such as enamel and paper is limited due to the criticality of maintaining precise process compositions. This restricts the number of qualified suppliers we can source from and increases our dependence on a few players. For other raw materials and components, although we source from a network of both domestic and international suppliers, our purchases are concentrated, with our top suppliers contributing a significant proportion of our raw material procurement. We do not have long-term supply contracts with most of our vendors, relying instead on long-standing business relationships and periodic POs.

Any disruption in supply due to operational breakdowns, financial difficulties of suppliers, geopolitical factors, regulatory restrictions, or logistical delays could affect our ability to procure raw materials in a timely and cost-efficient manner. Further, raw materials are also subject to risks of inflationary trends, supply shortages, currency volatility and changes in import duties or government policies.

Any significant increase in input costs, coupled with an inability to secure alternate sourcing arrangements or pass on such costs to our customers, may adversely impact our gross margins, cash flows and overall financial condition. Conversely, prolonged supply shortages or supplier concentration risks could affect our ability to meet customer delivery schedules, potentially resulting in loss of business or reputational damage.

We face significant competition in our business from other manufacturers and suppliers in the transformer manufacturing and EPC sectors. The transformer and EPC industries are characterized by intense competition, driven by the presence of organized players with established capacities, as well as a large number of unorganized players. The pace of innovation in product development, digitalization and energy efficiency requirements further intensifies the competitive environment, requiring companies to continuously upgrade their technology, product offerings and execution capabilities to remain relevant in the market.

Our competitors may possess wider product portfolios, larger sales and service networks, greater brand recognition and access to financial, technological and research resources as compared to us. Many of them may also have stronger marketing and distribution capabilities, larger manufacturing capacities and established long-term customer relationships, which may provide them with significant competitive advantages. Certain competitors may specialize in niche product verticals or EPC solutions and may be able to dedicate significantly greater resources towards developing technologically superior products, thereby gaining enhanced customer visibility in those segments. In addition, our competitors may enter into business alliances or strategic partnerships to strengthen their market position or expand their product and service portfolios. Such alliances may also limit our ability to enter into similar arrangements, which could adversely affect our competitive position. Increasing competition in the industry may result in pricing pressures, margin erosion, reduced profitability, or loss of market share.

To maintain and grow our market share, we are required to compete effectively on multiple fronts including pricing, product quality, technological advancement, delivery timelines, after-sales service and customer relationships. Any inability to compete successfully in these areas may substantially harm our business prospects, financial condition and results of operations.

We operate in an industry that is subject to extensive regulation, and our operations are governed by various central, state and local laws relating to environmental protection, industrial safety, electricity and rail infrastructure. We are required to obtain and maintain multiple statutory and regulatory licenses, registrations, permits and approvals for carrying out our business activities and operating our manufacturing facilities, warehouses, branch offices and project sites. These requirements relate, among other things, to occupational health and safety, emissions and discharges, handling, storage and disposal of hazardous materials, and compliance with electricity and rail sector regulations.

Our manufacturing processes generate hazardous waste such as oil, waste enamel, waste thinner and empty oil or enamel containers, which are handled in accordance with applicable environmental laws and disposed of through authorized treatment facilities. Any lapse in compliance, whether due to operational issues, regulatory inspections or evolving requirements, could result in penalties, suspension of operations, or closure of facilities.

Further, regulatory approvals and licenses obtained by us are subject to various conditions, some of which are onerous and may require substantial compliance expenditure. Any tightening of existing regulatory requirements, introduction of new environmental or industrial safety standards, or delays in obtaining renewals or approvals, could increase our compliance costs and adversely impact our operations and financial performance.

Our continued ability to operate effectively depends on strict adherence to applicable laws and regulations.

We derive a substantial portion of our revenue from tenders floated by government entities and PSUs, which contributed 85.37%, 64.09% and 90.10% of our revenue from operations in Fiscal 2026, Fiscal 2025 and Fiscal 2024, respectively. These contracts are typically awarded through competitive bidding processes, where margins may be influenced by prevailing competition, qualification criteria and project specifications. The award and execution of such projects are subject to several external dependencies, including policy changes, changes in government or administrative priorities, budgetary constraints, procedural delays, availability of funding, and compliance requirements. In addition, delays in tender finalisation, cancellation of awarded projects or significant variation in project scope can impact our ability to convert bid pipeline into executable orders.

Our engineering, procurement and construction (“EPC”) business involves execution of long-duration contracts for transmission lines and substations, where timely completion and cost management are critical to maintaining profitability. These projects are susceptible to time and cost overruns due to factors such as delays in obtaining right-of-way or regulatory approvals, adverse weather conditions, unexpected site conditions, price escalation in raw materials, shortage of skilled labour, and logistical challenges in transporting equipment to remote locations. As at Fiscal 2026, Fiscal 2025 and Fiscal 2024, our Order Book stood at 18,183.23 million, 8,614.72 million and 5,958.48 million, respectively.

While our Order Book provides visibility on future revenue, it may not necessarily translate into actual sales or margins, as projects may be delayed, cancelled, have their scope reduced, or face payment delays or defaults from customers. Any such adverse event in relation to our EPC projects could materially affect our revenue realisation, working capital cycle, cash flows and overall profitability.