Kennametal India Ltd Management Discussions

Overview

1. Global Economy

The International Monetary Fund (IMF) report estimates a slowdown in global economic growth to a 3% in the year 2025 from a 3.3% in 2024. Heightening of geopolitical tensions, trade barriers and policy uncertainties present a concerning outlook, spawning deceleration in most economies over last year. The slowdown is not dramatic, but it signals a structural softening in global economic momentum that could de ne the decades trajectory. The Advanced Economies are expected to grow at a marginal 1.5% in the year 2025 as compared with 1.8% last year, while Emerging Markets and Developing economies are expected to perform better at 4.1%, underscored by favourable domestic demand and policies, though offset by the global uncertainties that have impacted export orders.

The overall projection for global economic growth is expected to remain tepid in 2026-27, further subdued by geopolitical tensions and associated supply chain disruptions, uncertainty around trade barriers, policies and softer con dence. The East Asia and Pacific region could witness an upside in manufacturing activities on account of investment in industries such as semiconductors, shifting supply chains and a conducive business environment to develop indigenous capabilities for catering to global markets.

2. Indian Economy

India continued to sustain its position as the fastest growing economy in FY ended March 31, 2025, registering a 6.5% GDP growth, though lower than a significantly higher base last year. The core sector output saw a moderate growth as compared to FY 2024-25 with manufacturing and mining being the slowest, while steel, power generation and construction picked up momentum towards the end of the scal year. FY 2024-25 ended with an industrial production output (IIP) of 4%, lower than 5.5% recorded in the last year. Private consumption has remained robust, supported by rising real incomes, income tax relief for the middle class, and a strong agricultural recovery following a favourable monsoon. Retail in ation treaded at 4.6%, the lowest since FY 2018-19 on the back of robust monetary policies by the government. On the investment front, the governments capital expenditure is projected to rise by over 17% in FY 2025-26, with a clear emphasis on infrastructure and logistics. The auto sales (in numbers) saw a significant growth of 7.3%, led by two-wheelers and three wheelers that benefited from rural demand. Passenger vehicles started the year with a slump on account on inventory built up, but saw improved sales through the year to the end with a 2% growth. Commercial vehicles continued to face slowdown with a decline of 1.3%, while the tractors industry bounced back with an 8% growth and on its way to cross the one million mark. Entering FY 2025-26, the pent up demand post-pandemic is expected to ease out further, moderating the growth trends across sectors. With India rising in the ranks to become the third most preferred destination for technology investments, manufacturing activities will remain buoyant with faster growth in segments like electronics. Driven by a strong domestic demand, with in ation under control, and scal consolidation on track, India appears well-positioned to sustain a GDP growth of 6.2 6.5 %, even as global headwinds persist.

3. Business Segments

Your Company has been successful in positioning itself as a reliable industrial technology leader in materials science, tooling and wear resistant solutions for customers across the aerospace, earthworks, energy, general engineering, and transportation industries. With strong business verticals under the Hard Metal and Machining Solutions Group (MSG), your Company is well positioned with a balanced business portfolio.

The Hard Metal segment is dedicated to delivering world-class metalworking solutions and services through our two trusted brands viz., Kennametal and WIDIA. Through these brands, your Company offers a complete portfolio of precision-engineered products and custom solution services. With an array of milling, turning, hole making, threading, and tooling systems products, backed by a skilled network of authorized distributor partners and spares support, your Company is positioned to service the customers end-to-end. Your Company is a market leader in wear solutions, engineered components and earth cutting and construction tools that deliver productivity, reliability, and extended life to a wide range of industries with the ability to deliver high performance in a challenging environment. Through years of expertise and innovation in matching advanced material solutions and technologies to various applications, your Company helps customers solve wear problems, avoid costly downtime, prevent catastrophic failures and aids them in achieving significant savings.

The Machining Solutions Group (MSG) manufactures special purpose machines, horizontal machining centers, vertical turning lathes, deep hole drilling machines and tool & cutter grinding machines as well as xture and tooling solutions through the "WIDMA" brand. With an expanding customer base, MSG has set high standards in the industry by engineering the most complex components with high precision, be it small size tools or large structural parts for railways and construction equipment.

4. Enterprise Risk Framework

Before delving into risks & opportunities, we append hereunder a brief

overview of your Companys ERM framework.

Enterprise Risk Management Framework Overview

Your Company follows a structured methodology in identifying,

assessing, and mitigating risks:

At Kennametal, focus is always on having in place an enterprise risk overview and a mitigation monitoring program that is strategic, comprehensive, practical and embedded in the heart of every decision making - the Kennametal Way.

Risk Identi cation:

The India Leadership Council (ILC) brainstorms before inking the macro level risks from their respective areas. Risks having an impact of 5% or more on the profit after tax of the previous year are pegged as a threshold for risks identi cation.

The internal and external risks identified by the ILC take into account a number of factors that are operating in the environment, including external market conditions, technology disruptions, changing customer dynamics, the regulatory situation, uncertainty surrounding continuity in operations, risks identified for the year under review by the parent Company - Kennametal Inc., and so on.

Risk Assessment:

The risks identified are assessed and ranked based on the probability of occurrence of a risk, severity if the said risk were to occur and the plausible mitigation plans that are available to counter the said risk. Risk stakeholders corresponding to the top risks are mapped and an active monitoring of the said risks is set into action.

Monitoring the Risk Mitigation Plans & Re-assessing Risks

Periodically:

Of risks assessed by the ILC, the top risks are supervised periodically by the Risk Management Committee of the Board of Directors. Any significant observations emanating from those internal risks are brought to the attention of the Risk Management Committee and the Board of Directors, from time to time, as part of a risk re-assessment exercise.

Risk mitigation plans are presented by the risk owners and subsequently implemented with a strong sense of accountability. Risk owners, in collaboration with cross functional teams, chart out the list of activities with timelines and periodically update the ILC. This helps the ILC in understanding as to whether, the risk mitigation plans are working in the desired direction. The Risk Management Committee meets periodically to monitor the status of the risk mitigation plans and review the prioritization.

Once in every 6 (six) months or earlier, as the case may be, the risks are re-assessed and re-ranked. This granular level of monitoring helps re-ranking/ re-positioning the risks and aids in bringing requisite changes in risk mitigation strategies from time to time.

5. Risks & Opportunities

The Indian economic growth remained strong at 6.5%, though witnessed by moderation post-pandemic as pent up demand continues to dissipate. Governments CAPEX push and favourable policies to boost domestic manufacturing propelled growth in Kennametals end use segments.

The Hard Metal segment increased business by offering end-to-end solutions, expanding the customer base as well as retaining existing customers, and will continue the momentum. The business focused on new and growing end-use segments like medical, MSME, Aerospace, Mining and Construction to offset the external slowdown. The team also worked on building a portfolio blending t-for-market products developed regionally with Kennametals global innovations to offer an optimum product mix in the domestic market. On the other hand, your Companys MSG business expanded its footprint in the domestic market and diversi ed into segments that helped in building a robust order pipeline. The business launched several products during the year to cater to the General Purpose Machining requirement, provide standard products to span a wider customer base and augment its Tool & Grinding machines range to offer comprehensive solutions. These mitigation plans have immensely helped your Company in obviating any major impact to its FY 2024-25 performance.

6. Threats & Concerns

Geopolitical tensions and in ationary trends:

The global economic growth slowed down in FY 2024-25 to 2.3%, and is expected to further taper down in FY 2026-27, marred by heightening of geopolitical tensions, trade barriers and supply chain disruptions. On the other hand, the situation augurs well for nations to build their local manufacturing prowess and benefit from shifting supply chains.

While in ation is expected to remain on the downside, there is a risk of volatility in energy and commodity prices and escalation of logistics costs. In the wake of these challenges, India continues to accelerate growth and insulate its economy from external shocks. Your Company, being a subsidiary of a US-based MNC, is well positioned in different geographies to make sure that supplies to customers globally remain unhindered and geographical risks are minimized. With a state-of-the-art facility in Bengaluru, your Company is also well positioned to capitalize the localization drive and Atmanirbhar Bharat initiative of the government for supply to the public sector and government undertakings.

Your Companys MSG business vertical continues its efforts to increase its product line and cater to more customers across industrial segments. A number of brand building and product portfolio expansion initiatives are underway to build a robust business model.

Retaining talent amidst dynamic changes:

While we have been successful in retaining key talent, we saw an overall increase in attrition (in numbers) for FY 2024-25. We had put some good measures in place to check attrition, and will continue with those efforts for FY 2025-26 too.

We had planned more On Our Mind sessions with different leaders during the year. Based on the feedback we received from employees, we initiated changes in people related policies and processes. Further, we focused on actions related to Employee Well-Being (largely related to Mental Health, Financial and Physical Well-Being).

Accordingly, we did programs focused on Mental Well-Being for all employees. There were two different online sessions on Understanding Microaggressions and Understanding Emotional Triggers, both of which were well-received.

Your Company continues its focus on Talent Management and has driven a few initiatives in this direction. This includes, and is not limited to, retaining talented resources with different actions and skilling on key competencies and nally, succession plans.

People Development Council (PDC) discussions were initiated to identify opportunities and programs to support talent development in the businesses and ensure continuous engagement throughout the year. At the country level, we have leveraged our People Development Council (PDC) meetings to facilitate senior management discussions and prepare actions plans.

Going forward, our discussions will continue to focus on Succession for Critical Positions and additionally on Hi-Potential Employees and Emerging Talent in the Organization.

7. Operations

Your Company has recorded 6.40 % year-on-year growth with an

operational revenue of 11,703 million during FY 2024-25 against 10,999 million during FY 2023-24. To grow in this challenging

market, your Company is continuously focused on development of new products and initiatives to bring operational effectiveness as well as cost optimization to all its customers. With a clearly laid out strategy for growth in both the Hard Metal and MSG businesses, your Company is well positioned to retain and grow its market share.

Segment-wise performance/reporting:

Your Companys business has been categorized into two broad segments in line with Accounting Standard 17 - Segment Reporting. The primary segments and secondary segments have been categorized based on the nature of the products and services offered by the Company and the business risks associated with the above products /services in markets served.

The primary segments for financial reporting continue to be:

(i) Hard Metal Products; and

(ii) Machining Solutions Group

Apart from the primary business segments, the secondary segmental reporting is based on the geographical locations of the customers, viz. domestic and international. Common allocable costs are allotted to each segment to the extent of services utilized and activities involved.

8. Companys Outlook

With FY 2025-26 expected to grow at the same pace as the last year, with sustained domestic demand partially offset by continued uncertainties from external economic environment, your Company remains cautious in its outlook for the year amid the prevailing geopolitical events.

The intensity of competition is expected to continue with almost all global players making India a manufacturing location for production of tools. The trend of commodity in ation is also expected to remain volatile. Despite these headwinds, the management continues to focus on various growth initiatives and development of new products as key drivers to maintain a pro table growth. Pro tability improvement with high focus on revenue growth and cost optimization will continue to remain a key priority area for FY 2025-26.

With the automotive segment in India expected to grow, your Company is focussed on expanding its customer base, driving innovations to deliver customer value and leverage its people competencies to deliver growth. With a well-designed strategy to expand its footprint in aerospace, general engineering, defense and other segments, your Company continues to be con dent to compete in these markets. Leveraging its state-of the-art manufacturing facility at Bengaluru, your Company is well positioned to actively participate as a supplier to Public Sector Undertakings (PSU) under the localization drive/"Atmanirbhar Bharat". To remain cost-effective amidst the volatility in raw material prices, your Company is focused on optimizing costs and improving its bottom-line through a number of initiatives. The metal cutting Brand Strategy helps Kennametal to remain efficient while being a strong player to deliver on its commitment to customers. With wider choice of cutting tools from different brands suitable for different applications, your Company is well poised to participate in all the three segments of the market viz., full solution, performance and performance value.

The Machining Solutions Group with its expanding footprint in the domestic market and Southeast Asia, sees greater potential from a broader customer base. The growing trade tensions also make India an attractive destination for safe investments, for both sales in India and for exports from India.

Your Companys mindful investment in increasing identified capacities in the Hard Metal segment has enhanced the con dence of all stakeholders and your Company shall continue to remain focused on incremental investments in deserving areas. The new inserts manufacturing facility at Bengaluru reinstates Kennametals commitment to growing in India and strengthening local manufacturing capabilities. Your Company will continue to drive growth through efforts aimed at offering the best service and differentiated products to its customers in the coming years.

9. Internal Control Systems and their Adequacy

Your Company has established adequate internal control procedures, commensurate with the nature of its business and size of its operations. These controls have been designed to provide a reasonable assurance regarding maintaining of proper accounting controls for ensuring orderly and efficient conduct of its business, monitoring of operations, reliability of financial reporting, accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, protecting assets from unauthorized use or losses, prevention and detection of frauds and errors, and compliance with regulations. The Company has in place a robust internal audit process, run by Ernst and Young (E&Y) India and monitored by the Internal Audit Department of Kennametal Inc., which is designed to provide reasonable assurance that assets are safeguarded against loss or damage and that accounting records are reliable for preparing financial statements. Internal controls are evaluated by the Internal Auditors and reviewed by Management and the Audit Committee. All audit observations and follow up actions thereon are tracked for resolution by the Internal Control function and reported to the Audit Committee. In addition, employees across the organization are required to undergo quarterly and annual refresher training on the Kennametal Code of Conduct which includes within its scope, transparency in financial reports, ethical conduct, regulatory compliance, con icts of interests review and reporting of concerns. The Company also has an active Anti Bribery and Whistle Blower policy and procedure in place.

As indicated in the overview of ERM framework, the Operational Risk Groups actively engage in bringing about necessary changes to the systems from time to time, on need basis, to strengthen internal controls and obviate excessive authority being vested in any one area. The enterprise level ERM is actively monitored by the Risk Management Committee of the Board.

The quarterly compliance reporting system in place has digitally mapped all stakeholders (compliance owners) to the tasks expected to be completed by them. Each of these tasks are updated as and when completed within the timelines. Auto generated emails from the system help in reminding the stakeholders of their deliverables to ensure adherence to the extant laws. A compliance report generated on a quarterly basis accompanied by certi cation by all functional heads to the effect that all laws are complied which is placed before the Board of Directors at the quarterly Board meetings.

In addition, the Company has policies and directions based on internationally accepted standards or best practices and wherever applicable, in line with Kennametal Inc. (ultimate holding Company) global policies and practices. These are periodically updated to align with changing developments and global best practices.

10. Financial Performance

Your Company has recorded operational revenue of 11,703 million in FY 2024-25 with a growth of 6.4% as compared to the previous year. Pro t Before Tax and Exceptional Items for the year was 1,402 million, up 1.15% over the previous year. The Companys profit was up in comparison with the previous financial year for the Hard Metal segment due to better utilization of plant capacity and favourable raw material costs. The Machining Solutions segment reported higher sales in FY 2024-25, however, segment pro tability was lower due to product mix and higher marketing spends. The Company has also earned higher other income on account of higher investments.

Your Company continues to have strong focus on receivables and the collection of outstanding receivables were on track with adequate support from your Companys distributors and direct customers. Your Company was able to maintain a healthy cash position and meet its obligations to all the stakeholders in a timely manner.

Return on Capital Employed (ROCE) remained at at 19% in FY 2024-25, as compared to FY 2023-24. Return (PAT) on net worth was 14% in FY 2024-25 as compared to 15% in FY 2023-24 due to one-off exceptional income in FY 2023-24 on account of interest income on income tax refund. Net operational cash flow generated during the year increased from 1,143 Million in FY 2023-24 to 1,448 million in FY 2024-25, driven by working capital movement.

There has been no accounting treatment different from that prescribed in the Accounting Standards laid down by the Institute of Chartered Accountants of India (ICAI) or as notified under the Companies Act, 2013.

^ Explanations have been provided for any change in the ratio by more

than 25% as compared to June 30, 2024.

*Interest Coverage Ratio and Debt Equity Ratio are not applicable as

the Company has no debt as on June 30, 2024 and June 30, 2025.

11. Material Developments in Human Resources & Industrial Relations

Your company has embarked on different people-related initiatives towards building a workplace that values flexibility, technology adoption, diversity, employee well-being, and compliance with regulatory standards. The emphasis is shifting from purely administrative HR to strategic, data-driven approaches that align employee experience with organizational goals.

A few initiatives and actions stood out for us this year. These initiatives were cutting across Businesses and Functions, positively impacting all the company and employees in your Company.

In FY2024-25, we continued on our EMERGE program. EMERGE is our early-career rotational leadership program focused on young engineers for building emerging leaders within Kennametal through diverse experiences, to expand their perspectives, develop functional expertise and accelerate career development. We onboarded 8 EMERGE trainees in FY 2024-25. They undergo an intense orientation program and gain diverse experience, one each in our Manufacturing, Sales and Machine Building Businesses. Apart from this, we facilitate regular senior leadership interactions for them to learn from leaders experience. Further, they are also imparted classroom trainings, which cover the technical aspects of the Business and later on covers various aspects of Personal development. EMERGE participants have a report-out to senior leadership after completion of each project, post which they are absorbed into the Businesses, based on their demonstrated skills / competencies and business needs.

Further, we continue to drive a few initiatives in our Diversity & Inclusion (D&I) journey. India Regional D&I council ensures that the various initiatives under the different pillars (viz. Awareness, Acquisition, Development and Community) gets maximum participation and

Key Financial Ratios*	FY 2024- 25	FY 2023- 24	% Change FY 2024-25 vs. FY 2023-24	Reason for Variance
Debtors Turnover Ratio^	6.35	6.87	-8%	Not applicable
Inventory Turnover Ratio^	3.97	4.06	-2%	Not applicable
Current Ratio^	3.07	3.18	-4%	Not applicable
Operating Pro t Margin (%)	12%	13%	-5%	Not applicable
Net Pro t Margin (%)	9%	10%	-13%	Not applicable
Return on Capital Employed (ROCE) (%)	18.81%	18.98%	-1%	Not applicable
Return (PAT) on Net Worth (%)	14%	15%	-9%	As elucidated in point no. 10 of this Report

Key financial ratios and changes from last financial year are depicted in

the table below: leverages the opportunities to be a Company which embraces

Diversity.

One program which stood out was the one on financial planning, focusing only on women. This had a good participation and was well-appreciated by our employees. Another program focused on health and well -being was also conducted, again focused for our women employees.

Under the Development pillar (of D&I), we continued with our

rd

Mentoring program and concluded the 3 edition in this scal. This too, like the previous ones, has been a success, based on the feedback received from Mentors and Mentees, who have gained immensely from this initiative.

We believe that our employees growth and development is key to the

success of an organization.

In line with this understanding, we have been on a mission to equip our key leaders with important skills to drive and grow business, as well manage our talent. Leading with Purpose was one of the programs that we completed this year. Leading with Purpose as a program was designed for mid to senior leadership in the Business and was a result of inputs from the Business and Functional Leaders. The design was inclusive of classroom training as well as ably supported through coaching interventions for each leader who participated in the program.

Similarly, we have been focusing on developing the skills for our front-line commercial teams. For the scal year, we covered all eld sales employees on their presentation, communication and overall personality, which will enable them deliver better results.

We encourage all employees to discuss their development actions with their managers and ensure that they have a plan in place for the year. Our endeavor is to ensure that employees get all the required support to achieve that goal. This could in the form of on-the-job training, job rotations, classroom trainings, strategic projects and of course, online training.

We also embarked on a mission of employee value proposition (EVP) along with our RPO partners, who supported us in this exercise. The idea is to increase awareness about your organization (Kennametal) in the talent market and potential future employees, through videos and short clips creating awareness about our culture, values and opportunities that we have to offer to the right talent in the industry. We aim to achieve this by being present on job sites and other social

media avenues soon.

This year, our current Time & Attendance system reached an end-of-life cycle and therefore we embarked on a project to upgrade the Time & Attendance system (T & A). This is largely used by our shop floor colleagues. This was a cross-functional project which required collaboration between different departments viz., HR Business Partners, Manufacturing Managers, HRIS and HRSSC and external vendor partners who supported us in the implementation of the new system. This has gone LIVE and has been received well by all stakeholders.

We continue to invest in Community through our diverse philanthropic and educational events around our CSR initiatives and actions. Your Company has partnered with an NGO which supports STEM education for girl students. Further, we have Leaders in the company who have volunteered to be mentors to these students.

Your Company continued its focus on building technical skills, which we believe enables our employees to support customers. The Kennametal Knowledge Center (KKC) team supported Sales, Customer and Distributor teams on the technical front. KKC India successfully conducted 47 training events over 96 training days, engaging a total of 1081 attendees during FY 2024-25. These initiatives included both customer-focused and internal employee development programs. The agship MCAE Comprehensive training welcomed 127 participants, reinforcing technical expertise across regions. Additionally, 97 training sessions were delivered for the sales team, including distributor partners, to strengthen market readiness. These efforts reflect KKC Indias commitment to continuous learning and capability building across its ecosystem.

The total number of permanent employees in your Company as of

June 30, 2025 was 772.