Popular Vehicles & Services Ltd Management Discussions

Review of the Global Economy

In calendar year 2024 (CY24), the global economy experienced modest growth, with global light vehicle sales reaching 89 million units, a 2% increase from the previous year. This growth was uneven across regions, influenced by factors such as geopolitical tensions, inflation, and trade uncertainties.

The automotive sector faced challenges, particularly in the U.S., where the introduction of 25% tariffs on imported vehicles led to an initial surge in car sales, followed by a sharp decline. In June, the annualised sales rate dropped to 15 million units from Aprils 17.6 million. Similarly, the UKs vehicle production in May fell to its lowest since 1949, primarily due to reduced exports to the U.S. following the imposition of tariffs.

Despite these challenges, the electric vehicle (EV) market remained a bright spot. Global EV sales reached 17.1 million units in 2024, marking a 25% year-over-year increase. China continued to dominate this segment, accounting for a significant share of global EV production and sales.

Indian Economy

In 2024-25, the Indian economy remained resilient amid global uncertainty, with real GDP growing at 6.5%·the

highest among major economies. Growth was driven by consumption recovery, improved net exports, and robust activity in the rural and services sectors·all of which supported the auto sectors momentum. The agriculture sectors 4.6% growth, backed by a favourable monsoon and government support, boosted rural incomes and sustained demand for two-wheelers and entry-level vehicles. While industrial growth moderated to 4.3% due to a manufacturing slowdown, the Production- Linked Incentive (PLI) scheme continued to catalyse investments in auto and EV components. Construction and infrastructure activity also remained strong, driving demand for commercial vehicles, despite limited traction in mining and electricity output.

Easing inflation (4.6%) and accommodative monetary policy·with the repo rate cut to 6.0%·improved financing conditions and aided vehicle affordability. The EV segment gained policy momentum through targeted subsidies, enhanced FAME II rollout, and state-level incentives that encouraged both manufacturing and adoption. Improved liquidity, active equity and bond markets, and robust forex reserves supported capital availability for automakers investing in clean mobility. Despite rupee depreciation pressures, auto exports· especially in the two- and three-wheeler EV categories· remained steady, reinforcing Indias evolving role as a global automotive and electric mobility hub.

Performance of the Indian Auto Industry

Passenger Vehicles: Resilient Growth Anchored by Utility Segment

In FY 2024-25, the Passenger Vehicle (PV) segment witnessed sustained momentum, achieving a domestic sales volume of 43,01,848 units. This performance was underpinned by the continued popularity of Utility Vehicles (UVs), which deepened their dominance within the PV category. Despite the moderation in growth rate due to a high base effect from the previous year, the segment benefited from multiple tailwinds, including the launch of aspirational new models, improved vehicle availability, and a conducive retail environment supported by promotional schemes. The increasing preference for feature-rich models, particularly among first-time buyers and urban families, helped maintain steady showroom footfalls throughout the year.

Passenger Vehicles sold 43,01,848 units in FY25 - the highest ever recorded for the segment.

Commercial Vehicles: Slight Moderation Amid

Structural Shifts

The Commercial Vehicles (CV) segment registered domestic sales of 9,56,671 units during the fiscal year. The segment experienced a mild contraction compared to the previous year, largely due to a slowdown in the medium and heavy commercial vehicle (MHCV) category, despite signs of a rebound in the last quarter. A shift in fleet preference towards higher gross vehicle weight (GVW) configurations to optimise logistics efficiency has begun to redefine the freight segment. At the same time, the bus category saw notable traction, driven by the governments infrastructure push and enhanced focus on inter-city and intra-city public transport systems.

Commercial Vehicles recorded domestic

sales of 9,56,671 units in FY25, reflecting a marginal contraction.

Three-Wheelers: Full Recovery and New Peak Achieved

Three-Wheelers reached a significant milestone in FY 2024-25, with domestic sales touching 7,41,420 units. This represents a full recovery beyond the prepandemic peak of FY2019. The surge in demand was primarily propelled by passenger three-wheelers, which benefitted from the growing requirement for affordable last-mile urban mobility. The adoption of electric three- wheelers, supported by improved financing options and increasing urbanization, further fuelled volumes. The commercial usage of these vehicles in tier-2 and tier-3 cities added depth to demand, marking this segments comprehensive revival.

Three-wheelers registered their highest-ever domestic sales of 7,41,420 units in FY25.

Two-Wheelers: A Steady Climb Backed by Rural and Electric Push

The Two-Wheeler segment saw domestic sales climb to 1,96,07,332 units in FY 2024-25, reflecting a recovery- oriented momentum after multiple subdued years. The uptick was supported by an improvement in rural and semi-urban demand, with scooters particularly finding favour due to better road connectivity and increased affordability. The segment also witnessed growth in the premium and commuter motorcycle categories. Notably, electric two-wheelers contributed to a growing share of overall volumes, spurred by evolving consumer preferences and competitive pricing from new and established players.

Two-Wheelers achieved domestic sales of

1,96,07,332 units in FY25, with rural and EV tailwinds aiding the recovery.

Production Overview: Expanding Manufacturing

Footprint

The total production across all vehicle categories· Passenger Vehicles, Commercial Vehicles, Three- Wheelers, Two-Wheelers, and Quadricycles·stood at 3,10,34,174 units in FY 2024-25. This underscores the industrys robust manufacturing ecosystem and its ability to meet rising domestic as well as international demand. The scale of production also reflects Indias growing role as a key export and production hub in the global automotive value chain.

Total vehicle production in FY25 was

3,10,34,174 units, reaffirming Indias

strength as an automotive manufacturing hub.

Performance Analysis of Indian Passenger Vehicle Manufacturers in FY2025

In FY2025 (April 2024 to March 2025), the Indian passenger vehicle market achieved a historic milestone by recording total domestic sales of 4.32 million units, representing a 2.5% increase over FY2024 and an impressive 11.3% growth compared to FY2023. This marked the highest number of passenger cars ever sold in a financial year in India, signalling both resilience and continued demand in the automotive sector.

Maruti Suzuki retained its dominant leadership position in the Indian market, with dispatches exceeding 17.6 lakh units. Although the company experienced flat volume growth when compared to FY2024, it still registered a healthy 9.6% increase in sales over FY2023. Crucially, Maruti was able to sustain a market share exceeding 40%, reaffirming its position as the most preferred car manufacturer in India, despite rising competition.

Hyundai Motor India maintained its second-place ranking with sales of 5.98 lakh units in FY2025. However, this marked a decline of 2.6% from the previous fiscal year, although the brand did post a 5.5% growth over FY2023 figures. Hyundai narrowly held onto its second position,

with just a 45,000-unit lead over Tata Motors, suggesting intensifying competition in the mid-segment passenger car market. The drop below the 6 lakh mark indicates pressure on the brands volume growth, especially in the face of strong performances from its closest rivals.

Tata Motors secured third place with a total of over 5.53 lakh units dispatched. Although its detailed year- on-year volume change was not specified, the company managed to maintain a robust market share of 12.8%. Tatas positioning remained stable despite being closely tailed by Mahindra & Mahindra, which came remarkably close with just 2,104 units fewer in overall sales. Both Tata and Mahindra concluded FY2025 with an identical market share of 12.8%, highlighting the stiff competition for the third-largest OEM position.

Mahindra & Mahindra emerged as one of the top performers of the fiscal year, recording the highest year-on-year growth among all manufacturers. With a focused portfolio of SUVs, the company successfully expanded its customer base and nearly overtook Tata Motors in total volumes. Mahindras rapid growth and market share gain underscore the effectiveness of its product strategy, which resonates well with the evolving preferences of Indian consumers, particularly in the utility vehicle space.

Toyota Kirloskar Motor also posted stellar performance in FY2025, registering one of the highest year-on-year growth rates alongside Mahindra. Although absolute volume figures were not disclosed, Toyota significantly increased its market share during the year. This growth can be attributed to its strategic product launches, the popularity of its hybrid models, such as the Urban Cruiser Hyryder and the Innova Hycross, as well as its platformsharing arrangements with Maruti Suzuki. Toyotas emphasis on hybrid powertrains and strong value offerings played a crucial role in attracting customers and expanding its market footprint.

To summarise the relative performance, Maruti Suzuki continued to lead the market by a wide margin, leveraging its scale and diverse portfolio. Hyundai faced marginal setbacks but managed to hold onto the second spot. Tata Motors maintained its stronghold, but Mahindra nearly closed the gap due to its exceptional growth trajectory. Toyota, though still outside the top three, showed significant improvement and gained ground in terms of market share, supported by a potent product mix and a growing inclination towards alternative fuel technologies.

Together, these trends reflect an increasingly dynamic and competitive automotive industry in India, where market shares are shifting based on innovation, fuel strategy, and customer preferences for specific vehicle segments, particularly SUVs and hybrids. FY2025 was not only a record-breaking year in terms of total volumes but also indicative of the growing realignment among key players vying for market leadership.

PVSLs FY2025 Performance: Realignment Amidst Industry Momentum

In contrast to the record-breaking momentum witnessed across the Indian automobile industry in FY2025, Popular Vehicles and Services Ltd. (PVSL) experienced a period of contraction, which revealed both structural vulnerabilities and prompting strategic recalibrations within its business model. While the broader industry saw passenger vehicle sales reach historic highs, PVSL reported a decline in total new vehicle sale volumes, down approximately 5.5% year-on-year. This divergence in performance underscores the pressures the company faced due to region-specific economic challenges, inconsistent festive demand, and an inflationary environment that particularly affected its mass-market segments.

The companys new vehicle volume for passenger vehicle segment, excluding luxury models, saw a decline of around 5%·a significant underperformance when compared to the modest industry growth. However, the standout was the luxury vehicle portfolio, which bucked the internal trend and delivered a robust 39% growth. This outlier performance reflects PVSLs strategic investment in premiumisation and its ability to tap into the changing consumer preference towards high-end vehicles. This was further validated by the recognition received at the national level by its JLR dealership arm, indicating not only volume traction but also service quality differentiation.

In the commercial vehicle (CV) segment, while the overall industry saw only a mild contraction, PVSLs 9% decline in new vehicle volumes signalled a more profound impact of freight and logistics demand volatility on its regional CV business. The pressure from underutilised inventory levels·particularly around the festive season·amplified the working capital strain and led to aggressive discounting. These actions, although essential for operational efficiency and inventory correction, significantly impacted the companys profitability metrics. EBITDA margins declined to 3.2% from 5.1% in the previous fiscal year, and the company reported a negative profit before tax.

Despite these pressures, PVSLs service and spares businesses remained relatively stable, providing much- needed margin support. The services vertical, which contributes significantly to EBITDA, recorded a modest revenue increase despite softened volumes. Spare parts distribution remained steady, with a slight revenue increase, reinforcing the companys resilience in its aftermarket operations. These high-margin, recurring income streams offered an important buffer against volatility in the vehicle sales business.

Importantly, PVSLs underperformance must be viewed in the context of the specific geographies it operates in, particularly Kerala and Tamil Nadu, where macro factors such as floods, heatwaves, and the political overhang of general elections disrupted retail momentum more

sharply than in other parts of the country. These region- specific headwinds were not uniformly felt across the industry and therefore created a relative disadvantage for PVSL. However, these were transient, and the company has responded decisively by limiting fresh intake from OEMs, recalibrating its marketing strategies, and reducing debt levels by the end of the year·moves that have already improved operating leverage.

Looking ahead, PVSL is strategically repositioning itself for a stronger fiscal year 2026. Its increasing focus on the luxury segment, expanding EV partnerships with Ather and geographic diversification into markets such as Karnataka, Maharashtra & recently Punjab, position it well to capture future growth. The divestment of non-

core subsidiaries and the redirection of capital towards core operations signal a leaner and more agile structure. Furthermore, inventory levels have been brought under control, and borrowings have been scaled down from their earlier peaks, setting the stage for a more profitable and stable year ahead.

Thus, while FY2025 was a year of underperformance relative to the industry, it was also one of internal restructuring, strategic reorientation, and investment in high-growth, high-margin verticals. With the worst behind it and operational foundations strengthened, PVSL is well-positioned to realign its performance trajectory in sync with broader market trends and emerge more resilient in the evolving automotive landscape.

Review of Performance

New Vehicles

Populars core segment, new vehicle sales, faced significant headwinds due to a combination of macroeconomic challenges, including general elections, heatwaves, inflation, floods in Tamil Nadu, and a muted festive season. These factors triggered higher discounts and elevated inventory levels, affecting revenue growth & profitability.

Pre-Owned Vehicles

This segment remained relatively flat with a marginal decline in volume, primarily due to broader economic slowdown. Being a price-sensitive category, the mass pre-owned vehicle segment was adversely affected by inflation, increasing the overall cost of ownership.

Services and Repairs

Service volumes marginally declined in FY25, primarily due to multiple challenges in H1. However, H2 witnessed a slight recovery. On a like-to-like basis - adjusting for the DEF volume in the previous year, service volumes would have remained largely flat. Despite volume pressure, the average realisation per unit grew by 4.4%, reflecting pricing power & an improved service mix.

Spare Parts Distribution

The spare parts business showed resilience, with income improving despite the industry slowdown. This vertical continues to be a high-margin contributor (5% of turnover and 8% of EBITDA).

Network and Strategic Moves

Capex: Rs54.6 Cr was spent towards network expansion and maintenance.

Expansion: New Ather facilities in Maharashtra (Nagpur, Chandrapur, and Chhatrapati Sambhaji Nagar) to commence in Q2 FY26.

Ather Space 3.0 launched in Thiruvananthapuram; Indias first Gold Category Ather Service Centre inaugurated. Added MSIL NEXA footprint across Kerala.

Opened two MSIL spare parts outlets in Tamil Nadu

Forayed into Karnataka with a Rs9 Cr investment in a MSIL 3S facility in Bangalore.

Divestments: Initiated sale of Vision Motors (Honda) and Kuttukaran Green (Piaggio) subsidiaries for Rs70 Cr - aimed at refocusing on core businesses.

Historical Trends - Volumes and ASPs

Review of Financial Performance

Risk & Risk Management

Internal Control Systems & Adequacy

The Company has in place adequate internal control systems commensurate with the nature of its business, size, and scale of operations. These controls are designed to ensure orderly and efficient conduct of operations, safeguard of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information. The internal control systems are reviewed periodically by the management and tested by internal auditors to assess their effectiveness. The Audit Committee of the Board regularly monitors the adequacy of internal controls, reviews audit findings, and ensures that corrective actions are implemented promptly.