Magna Electro Castings Ltd Management Discussions

For over three decades, Magna Electro Castings Limited has operated in the Precision Component industry. Under the Magna MasterCAST identity, the Company manufactures low-to-medium volume machined castings in the 1-250 kg range, across a wide range of materials and complex geometries, for global original equipment manufacturers in the United States, Europe and India.

The Company remains steadfast in its commitment to sustainable and ethical business practices. Through its ESG framework, Magna integrates environmental stewardship, social responsibility, and sound governance into day-to-day operations. On the environmental front, the Company continues to advance energy-efficient manufacturing, responsible resource utilisation, and waste reduction to minimise its footprint - reinforced this year by initiatives such as its rainwater harvesting system and 100% sand reclamation, and by meeting 73% of total energy consumption from captive renewable sources. Socially, Magna fosters an inclusive workplace culture, prioritises employee well-being, and engages meaningfully with the communities in which it operates. Governance is grounded in transparency, accountability, and full statutory compliance, supported by regular audit reviews and adherence to applicable regulations.

Industry structure and Development:

India is the worlds second-largest producer of metal castings and a critical link in global manufacturing supply chains, serving the automotive, aerospace, construction equipment, railways, pumps, wind energy, and general engineering sectors. As per Mordor Intelligence, the India foundry market was valued at approximately USD 26 billion in 2025 and is projected to reach approximately USD 47 billion by 2031, growing at a compound annual growth rate of around

10%. The industry remains highly fragmented, with roughly 5,000 units nationwide and the top 20 groups controlling an estimated 35-40% of revenue. Sand casting continued to dominate at about 59% of the market in 2025, while ferrous alloys held around 84% of revenue; automotive remained the largest end-user segment at approximately 32%, even as investment casting and aerospace applications emerged as the fastest-growing routes.

Growth across the sector is being driven by buoyant domestic demand and a progressive shift toward long-term supply programmes that reward metallurgical consistency and lower embedded carbon. Notably, ongoing global geopolitical realignment - including supply-chain diversification away from China under China-plus-one strategies - is creating fresh opportunities for Indian foundries to win business from global OEMs seeking reliable alternative sourcing destinations. At the same time, the industry faces meaningful headwinds, including heightened geopolitical and trade-policy uncertainty that continues to weigh on global manufacturing. Persistent geopolitical conflicts, shifting tariff regimes and trade tensions among major economies, volatility in crude oil and energy prices, freight and shipping-route disruptions, and currency fluctuations all affect input costs and export competitiveness for Indian foundries.

Technological progress with the use of automated production processes - instead of manpower, simulation, digitalisation of the process chain with software and ERP systems or 3D printing - is becoming increasingly important. At the same time, environmental aspects for CO2 reduction are becoming more important, especially in the use of raw materials and auxiliary materials.

Indian foundries are also increasingly focusing on environmentally friendly materials, recycling, and waste reduction in order to keep an eye on their ecological footprint.

Operations:

The Operating Revenue of the Company has increased by 11.33% from Rs. 17,644.92 Lakhs in the previous year to Rs. 19,643.75 Lakhs in the current year. Sale of castings, patterns and tools grew 9.95%, from Rs. 17,242.29 Lakhs to Rs. 18,958.38 Lakhs. The balance of the increase arises in other operating revenue - export incentives, net foreign exchange gain and scrap sales - which rose from Rs. 402.64 Lakhs to Rs. 685.37 Lakhs.

The Export revenue during the year was Rs. 9,283.18 lakhs compared to Rs. 8,681.48 Lakhs in the previous year, registering an increase by 6.93%. During the year, the domestic market also increased by 13.02% from Rs. 8,560.81 lakhs in the previous year to Rs. 9,675.20 Lakhs in the current year. Exports accordingly represented 47.3% of revenue against 49.2% in the previous year. Profit Before Tax was Rs. 2,517.84 Lakhs against Rs. 3,104.46 Lakhs in the previous year, a decrease of 18.9%. Profit

After Tax was Rs. 1,847.45 Lakhs against Rs. 2,311.70 Lakhs, and earnings per share were Rs. 43.65 against Rs. 54.62. The commissioning of the Third Moulding Line was a key driver of the decrease in PBT. Depreciation increased from Rs.

462.39 Lakhs to Rs. 887.38 Lakhs and finance cost from Rs. 26.98 Lakhs to Rs. 98.52 Lakhs, together accounting for Rs. 496.53 Lakhs of the reduction in Profit Before Tax. This is the expected profile in the year a major capacity investment is commissioned: the expense arrives ahead of any increase in volume.

Excluding the depreciation and interest attributable to the Third Moulding Line, Profit Before Tax was approximately Rs.

148 Lakhs below the previous year. Net cash generated from operating activities was Rs. 2,127.72 Lakhs against Rs.

3,960.22 Lakhs. The reduction reflects the settlement of project related expenses. Gross additions to property, plant and equipment were Rs. 5,708.06 Lakhs, and capital work-in-progress reduced from Rs. 4,121.46 Lakhs to Rs. 475.74 Lakhs as the Third Moulding Line project was capitalised. Total borrowings including lease liabilities stood at Rs. 1,488.07 Lakhs at the year end against cash, bank and other bank balances of Rs. 1,585.42 Lakhs. Outstanding capital commitments as on the Balance sheet date were Rs. 239.94 Lakhs against Rs. 372.69 Lakhs.

During the Financial Year 2025-26, 73% of the Companys total energy consumption was derived from green energy sources as against last years 66.49%, generated through its in-house Windmills and Solar power plant (Captive user basis).

Opportunities:

At present, the Indian foundry industry has strong opportunities from rising demand in automobiles, railways, defence, infrastructure, renewable energy, and industrial machinery, which need more precision and high-value castings. It is also benefiting from smart foundry adoption, automation, predictive maintenance, and 3D printing, which help reduce defects, waste, and downtime. Another major opportunity is export growth, as global supply chains are shifting toward India for reliable and cost-effective casting supply. Overall, Indian foundries that invest in technology, quality, and energy efficiency are best placed to grow in the current market.

Threats :

At present, the main threats to the Indian foundry industry are high raw-material and energy costs, shortage of labour and skilled workers, and low profitability for small units, which makes it hard for many foundries to modernize or expand.

Export-oriented foundries are also under pressure from higher US tariffs and tighter trade barriers, while cheaper imports increase domestic competition. Environmental compliance and the need for cleaner, more efficient production are adding further cost burdens, especially for MSMEs with limited capital. Overall, the industry faces a challenging mix of cost, trade, and technology challenges that can slow growth if not addressed quickly.

Environment, Safety and Energy Conservation Policy:

The Company commits to environmental stewardship by minimizing its impact on natural resources, ecosystems and air quality. It adheres to all applicable environmental laws, regulations, and standards. The Company has Wind Energy Generators and also invested in Solar Power Generation Project. The Company has also invested in Sand Reclamation Plants as a part of its drive to preserve precious natural resources. It establishes safety protocols, conducts regular training, and ensures compliance with safety regulations.

Risks and Concerns:

Trade policy and tariffs: Exports constituted 47.3% of revenue during the year, principally to the United States and

Europe. The Companys export sales are made on terms under which the customer is the importer of record and is responsible for any duties levied by the importing country. Tariffs applicable to iron and steel articles and their derivatives nonetheless affect the delivered cost of the Companys products relative to alternative sources of supply, and may therefore affect order volumes, sourcing decisions by customers, and pricing negotiations. Logistics and Input costs: The Companys export shipments move principally by container from Indian ports.

Disruption to international shipping routes arising from geopolitical conflicts has reduced effective container availability and increased freight rates and transit times on the Companys principal export lanes. Restricted availability may delay dispatches, with a consequent effect on finished goods inventory levels and the working capital cycle. Input and energy cost volatility. Pig iron, steel scrap and ferro alloys constitute a substantial proportion of the Companys cost base, as do energy and fuel inputs including electricity, LPG and diesel. Escalation in geopolitical conflicts, and the associated volatility in crude oil supply and pricing, has increased uncertainty in the cost of these inputs. Movements in raw material and fuel prices, and any lag between cost increases and contractual price revision with customers, may adversely affect margins. The Companys captive renewable generation provides a partial hedge against grid power cost.

Foreign exchange: Export receivables are denominated in foreign currency. Heightened global macroeconomic uncertainty has increased the level of exchange rate volatility, and adverse movements may affect reported revenue and margins.

Skilledworkforce: significant The Company anticipates opportunities in the low to medium volume engineered castings.

However, to take up this opportunity availability of skilled engineers and ability to scale engineering workforce has to be addressed. Timely action on addressing the engineering capability and scale will decrease these risks. Cyber security: The Company has cyber security systems in place. As a proactive measure, the Company is planning to take cyber security audits to enhance and strengthen cyber security defences.

Internal control systems and their adequacy:

The Company has adequate Internal Financial Control Systems in place. It has also engaged third party consultants to assess the adequacy or otherwise of its Internal Control Systems and to suggest various measures to improve the controls. This is also been monitored at periodical intervals by the Audit Committee of the Board.

Personnel:

Magna believes that by embracing Human resource development, the Company can build a more agile, responsive and people-centric organization. Magna concentrates on employees safety measures, good infrastructure, healthy food and sanitation facilities etc., at its workplace. Further the Company ensures utmost care for employees safety at workplace by providing necessary equipment and safety measures and guidelines at regular intervals. Industrial relations at the Companys manufacturing facility remained cordial throughout the year.

Key Financial Ratios:

There is significant change in some key financial ratios when compared with previous year and below are ratios;

Particulars	2025-26	2024-25
Trade Receivables Turnover Ratio	4.00	3.89
Trade Payables Turnover Ratio	2.53	2.81
Inventory Turnover Ratio	12.61	14.15
Working Capital Turnover Ratio	3.81	3.77
Interest Coverage Ratio	35.56 times	97.60 times
Particulars	2025-26	2024-25
Current Ratio	2.52	2.13
Debt Equity Ratio	0.103	0.085
Operating Profit Margin	21.08%	23.00%
Net Profit Margin	9.40%	13.10%
Return on Net worth	12.74%	17.88%
Return on Capital Employed	18.04%	24.22%

Further the Company confirms that no different accounting treatment has been followed than prescribed in accounting standard while preparing financial statements.

Detailed explanations for significant changes in key financial ratios: Interest Coverage Ratio:

During the year the Company drew a term loan to part-fund the Third Moulding Line project. Finance cost accordingly increased from Rs. 26.98 Lakhs to Rs. 98.52 Lakhs. The previous years ratio of 97.60 times reflected a year in which the

Company had negligible borrowings and is therefore not a directly comparable measure.

Debt Equity Ratio:

The Debt Equity Ratio increased from 0.085 to 0.103 following the drawdown of the term loan for the Third Moulding Line project, and remains conservative.

Return on Networth:

Profit after tax declined from Rs. 2,311.70 Lakhs to Rs. 1,847.45 Lakhs, a reduction of 20.1%, for the reasons set out under Operations. Total Networth increased from Rs. 12,930.41 Lakhs to Rs. 14,499.97 Lakhs through retained earnings.

The ratio therefore reflects a lower numerator against a larger equity base.

Net Profit Margin:

Revenue from operations grew 11.33% and Operating profit declined by 2.33%. Depreciation increased by Rs. 424.99 Lakhs and finance cost by Rs. 71.54 Lakhs following commissioning of the Third Moulding Line and the drawdown of the associated term loan.

Return on Capital Employed:

Attributable to lower earnings before interest and tax in FY25-26 for reasons stated under Operations. In addition, the capital base has increased following the completion of the Third Moulding Line project, the benefits of which are expected to accrue as new capacity is fully utilized.

Cautionary Statement:

The statements in this Management Discussion and Analysis Report describing the companys views, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied. Any investment by shareholders/ investors should therefore be based on their individual analysis.