Schaeffler India Ltd Management Discussions

Management Discussion and Analysis (MD&A)

Executive Context

1. Executive context

FY2025 unfolded in an environment defined more by divergence than synchronised recovery. While headline macro indicators pointed to stabilisation after years of inflation shocks, supply chain disruptions, and policy tightening, the quality of growth and the allocation of capital remained uneven across geographies and sectors.

For engineering-led industries, this mattered because investment decisions were driven by long-duration themes rather than near-term cyclicality. Electrification, renewable power, industrial automation, and supply chain localisation became structural magnets for capital, policy attention, and technology roadmaps. Motion technologies sit at the intersection of these shifts. They enable efficiency, reliability, energy conversion, and system integration across vehicles, factories, railways, and renewable assets.

Against this backdrop, Indias macro trajectory remained a standout. India portrayed scale and resilience, driven by public investment, strong demand, and better manufacturing policies. This divergence from global growth patterns strengthened Indias relevance not only as an end market, but as a production and engineering hub. For Schaeffler India Limited, the year was therefore less about navigating uncertainty alone and more about translating a structural opportunity into disciplined execution- building capacity, deepening localisation, protecting service levels, and strengthening portfolio balance. The Companys strategic positioning as The Motion Technology Company is reflected in how it invests, how it allocates resources across end- markets, and how it manages risk through portfolio design rather than reactive cost action.

2. Macroeconomic environment

2.1 Global economy

According to the World Bank, global growth in 2025 averaged 2.7%, shaped by offsetting forces like trade policy headwinds on one side and the fading impact of monetary easing, fiscal support, and technology investments on the other. While the post-pandemic recovery was strong, it remained uneven and came at the cost of elevated inflation and debt.

Inflation moderated across most economies, moving closer to central bank targets, with interest rates beginning to decline. Growth in advanced economies proved resilient despite rising trade tensions and policy uncertainty. However, the outlook ahead is expected to be tempered by the lingering effects of tariff hikes and heightened vulnerability to shifts in trade and fiscal policies.

The United States benefited from relative demand resilience and investment in advanced manufacturing and technology, while Europe faced persistent industrial softness amid energy transition costs and external demand constraints.

For industrial supply chains, this environment translated into more selective capital flows and a higher premium on reliability, quality execution, and localisation especially for components and systems tied to electrification and efficiency improvements.

Global economic conditions in 2025 presented a mix of downsides and upsides. Trade tensions, tighter financial conditions, heightened geopolitical stress, and the risks of natural disasters. At the same time, private sector adaptation helped reduce the drag from higher trade barriers, while technology led investments supported productivity gains. Against this backdrop, key global challenges remain - diversifying trade partnerships amid rising frictions and responding effectively to changing climate patterns and extreme weather events.

2.2 Indian economy

The Reserve Bank of India revised its GDP growth forecast for FY2025-26 upward to 7.4% from the earlier estimate of 6.8%, reflecting robust domestic demand, rationalisation of income and goods and services taxes, softer crude oil prices, and the front loading of government capital expenditure. India continues to stand out as one of the worlds fastest growing major economies, well positioned to sustain this momentum. While global growth remained steady but below historical averages, Indias growth profile continued to be supported by infrastructure spending, services strength, and steady manufacturing activity creating a structurally attractive environment for engineering-intensive companies.

A defining feature of Indias policy landscape has been the deliberate use of public capital expenditure as an economic engine. Central government capex has expanded materially over the past five years. Union Budget cycle indicate that capex levels rose from roughly 4.5 lakh crore in FY2021 to ~11.2 lakh crore for FY2025-26 (with revised estimates discussed in the FY2026-27 budget context). This creates demand visibility for railways, roads, energy, defence and manufacturing-linked sectors. Importantly, capex-led growth supports downstream ecosystems such as improvement in logistics efficiency and increased industrial utilisation. This means a broader and more stable set of end-demand drivers beyond vehicle production cycles alone.

Policy continuity has also supported manufacturing competitiveness through Production Linked Incentive (PLI) schemes and localisation incentives. Manufacturing

PMI readings remained in expansionary territory for much of 2025, signalling stable production conditions. For companies with deep engineering capability, localisation is no longer only a cost advantage; it is a resilience advantage.

It reduces exposure to cross-border logistics volatility, shortens response time for customers, and improves the ability to scale programs with tighter timelines. Beyond domestic growth drivers, Indias external trade architecture is also evolving. The conclusion of negotiations for the India—EU Free Trade Agreement marks a defining milestone in deepening market integration between India and European Union. For engineering-intensive companies, this partnership is expected to expand access to advanced markets, align standards, and create new opportunities in automotive, industrial, and energy value chains. As India strengthens its role in global supply networks, Schaeffler Indias localisation and capacity investments are positioned not only as resilience enablers but to open access to global opportunities.

For Schaeffler India, the strategic relevance of the automotive cycle lies in the engineering roadmap. As customers pivot to hybrid, electrified, and efficiency-optimised platforms, the Companys positioning is strengthened by its ability to bring global platform expertise into India and localise manufacturing. This is particularly critical as OEMs demand tighter localisation, faster program launches, and predictable quality performance. The Companys investments and capacity actions during the year are consistent with this shift - engineering and industrialisation capability becomes a prerequisite to win and execute programs, not merely a differentiator in the sales cycle.

3. Industry overview

3.1 Automotive industry

Indias automotive industry in FY2025 reflected a normalisation pattern - certain segments moderated after strong growth in the earlier recovery phase, while structural drivers continued to reshape platform requirements. Passenger vehicles remained supported by a GST moderation, SUV-led mix, urban consumption resilience, and expanding model portfolios. Two-wheelers showed gradual recovery, with rural demand sensitivity influenced by income cycles and financing conditions. Commercial vehicles moderated in line with freight cycle normalisation.

Electrification added another layer of complexity. While internal combustion engine platforms remain dominant in absolute volumes, electrification penetration continues to increase in specific pockets particularly in two-wheelers and certain passenger vehicle categories. In Electric Passenger Vehicles, while battery electric vehicles (BEVs) are seeing adoption, hybrid electric vehicles (HEVs) and plug-in hybrids (PHEVs) have seen a resurgence due to their ability to offer immediate emission reductions without relying on extensive, yet-to-be-developed charging infrastructure. For Schaeffler India, the strategic relevance of the automotive cycle lies in the engineering roadmap. As customers pivot to hybrid, electrified, and efficiency-optimised platforms, the Companys positioning is strengthened by its ability to bring global platform expertise into India and localise manufacturing. This is particularly critical as OEMs demand tighter localisation, faster program launches, and predictable quality performance. The Companys investments and capacity actions during the year are consistent with this shift - engineering and industrialisation capability becomes a prerequisite to win and execute programs, not merely a differentiator in the sales cycle.

Emerging trends

The automotive industry is undergoing a transformative shift, led by the rapid adoption of electric vehicles. Rising consumer demand for sustainable mobility, regulatory pressures to reduce carbon emissions, and advancements in battery technology are accelerating this transition. New opportunities for collaboration are emerging as battery manufacturing hubs take shape in regions such as Europe and the U.S., reshaping traditional supply chains and spurring investments in critical resources like lithium and cobalt. At the same time, Industry 4.0 technologies including Artificial Intelligence, Machine Learning, IoT, and robotics are redefining manufacturing processes, enhancing productivity, reducing costs, and enabling new business models centered on smart factories and connected vehicles.

Challenges

Despite these opportunities, Indias automotive sector faces structural challenges. Although the country is the fourth largest automobile producer globally, its share in the $20 billion global automotive component trade remains modest at around 3%, with particularly low representation in high precision segments such as engine components, drive transmission, and steering systems. Operational costs, infrastructural gaps, moderate integration into global value chains, and limited R&D expenditure continue to constrain competitiveness. Addressing these challenges will be critical for India to strengthen its position in the global automotive ecosystem and fully leverage the opportunities presented by electrification and digital transformation.

Vision 2030

NITI Aayog has outlined an ambitious yet achievable vision for Indias automotive sector by 2030. The roadmap projects automotive component production expanding to $145 billion, with exports tripling from $20 billion to $60 billion. This trajectory would generate a trade surplus of nearly $25 billion and significantly increase Indias share in the global automotive value chain from 3% to 8%. Beyond economic gains, this growth is expected to create 2.5 million new jobs, raising total direct employment in the sector to between 3-4 million, thereby reinforcing the sectors role as a driver of industrial growth and social progress.

Vehicle Lifetime Solutions

The Indian automotive aftermarket remains structurally attractive and comparatively resilient across economic cycles. Industry research has estimated long-term growth in the mid-to-high single digits, supported by an expanding vehicle parc, increasing average vehicle age, rising utilisation in multiple segments, and a growing preference for cost- efficient maintenance.

Over time, the market is also formalising, with organised distribution channels increasing penetration. Consumers are showing a greater willingness to adopt branded, quality- assured components, and digital integration is becoming more common in parts procurement and service workflows.

Lifecycle businesses carry strategic importance beyond revenue contribution. They provide stability when original equipment cycles moderate, they can support stronger and more stable margins due to value-added services and brand premium, and they deepen customer proximity. A meaningful lifecycle share of revenue improves predictability of cash flows and reduces concentration risk.

3.2 Industrial sector

Industrial demand during FY2025 remained supported by policy-backed investments and long-term structural trends. Automation adoption continued across manufacturing, reshaping industrial operations through advanced robotics,

AI driven analytics, and IoT enabled systems. Industries leveraged these technologies to streamline production, enhance precision, reduce costs, and improve flexibility. The integration of smart automation not only boosted productivity but also strengthened resilience against supply chain disruptions, while enabling new business models centered on connected factories and data-driven decision making.

Export momentum remained strong in 2025, led by robust growth in engineering goods, pharmaceuticals, and chemicals, which collectively boosted overall export performance. Core industries displayed mixed but generally positive trends, with coal and refinery products contributing meaningfully to industrial output. Together, these factors underscored the resilience of Indias industrial base while highlighting the importance of sectoral diversification in sustaining growth.

3.2.1 Railways

Indian Railways continued its transformation journey in becoming a world class network, which was guided by innovation and focused efforts. With a strong focus on modern infrastructure and enhanced connectivity, Indian Railways is fuelling national growth by offering better passenger experience and efficient transport solution.

Infrastructure expansion remained robust, with over 900 kilometers of new track commissioned between April and November 2025. Sectional speeds were raised to 130 kmph across 599 track kilometers and to 110 kmph across 4,069 kilometers, supported by advanced track machinery and upgrades across the Golden Quadrilateral, Golden Diagonal, and other key routes.

Electrification efforts advanced in mission mode, with 99.2% of the Broad-Gauge network now electrified well ahead of global peers such as the UK (39%), Russia (52%), and China (82%). 14 Railway Zones and 25 States/Union Territories have achieved 100% electrification, underscoring Indias leadership in sustainable rail operations. Complementing these achievements, increasing capacity of locos & coaches, quadruple tracking across high density lines, station redevelopment, enhanced safety systems, wider adoption of digital technologies, and expansion of freight corridors have reinforced Indian Railways as a key driver of national growth. Collectively, these initiatives are laying the foundation for a future-ready rail network that is faster, safer, greener, and more inclusive.

3.2.3 Two-wheelers

Indias two-wheeler sector witnessed a broad-based recovery in 2025, with total registrations crossing 2.02 crore units, about 7% higher than in 2024. This marks a sustained up- cycle and brings the sector close to pre-pandemic volumes. The GST 2.0 restructuring significantly improved affordability and has been a key driver of economic growth.

Electric two-wheelers emerged as structural driver, with volumes crossing 1.2 million units in 2025, registering ~21% year-on-year growth and accounting for nearly 58% of Indias total EV market. The industry now operates on a dual track model - ICE are generating profits which are used as an investment in EVs whereas EV focused OEMs are using software to drive revenue.

Seasonal factors also played a role, with November 2025 witnessing exceptional wholesale growth as OEMs stocked dealerships ahead of Diwali and allied festivals, followed by a natural moderation in December as dealers focused on retail sell-through and inventory correction. Looking ahead, the industry expects positive momentum to continue well into 2026, supported by stable macroeconomic conditions, moderated GST improving affordability, and sustained policy support. At the same time, close monitoring of geopolitical developments will remain critical to ensuring resilience in supply chains and export performance.

4. Business & financial overview

4.1 Automotive Technologies

The Automotive Technologies segment, which encompasses E-Mobility, Powertrain and Chassis divisions, continued to demonstrate robust growth during CY2025. The segment recorded a 24.6% year-on-year increase, driven by significant business wins in Passenger Vehicle Clutches and Dual Mass Flywheels. This segment contributed 33.4% of Schaeffler Indias total revenue in CY2025, underscoring its pivotal role in the Companys overall performance and growth trajectory.

Localisation has remained a cornerstone of our strategy, enabling us to enhance competitiveness, strengthen supply chain resilience, and deliver greater value to customers. By leveraging local manufacturing capabilities and engineering expertise, we have been able to respond more effectively to evolving market demands. During the year, Schaeffler India inaugurated its e-axle production line at Talegaon Plant. This marked a structural shift from component manufacturing to system-level EV drive solutions.

Looking ahead, the Automotive Technologies segment is well-positioned to capitalise on opportunities in electrification and advanced mobility solutions. With a strong pipeline of innovative products and continued focus on localisation, we aim to reinforce our leadership in the automotive space.

4.2 Vehicle Lifetime Solutions

The Vehicle Lifetime Solutions segment contributed 12.1% of Schaeffler Indias revenue in CY2025. The division saw year-on-year growth of 12.2%, supported by continued volume wins from new product launches such as wipers, and steering & suspension components which remained strong contributors, reinforcing customer confidence in our aftermarket offerings.

A key highlight during the year was the launch of the automotive lube vending machine at the Maneja facility, which underscores our commitment to innovation. This initiative not only enhances accessibility but also strengthens our aftermarket service ecosystem. The segment maintained a strategic focus on portfolio expansion and deeper market penetration through range extensions, ensuring that customers have access to a wider variety of solutions tailored to evolving needs.

An important enabler has been our wholly-owned subsidiary Koovers, which has provided a significant advantage by expanding reach and improving distribution efficiency. Koovers digital platform has allowed us to connect more effectively with workshops and mechanics, thereby strengthening customer engagement and ensuring faster delivery of parts and solutions.

Looking ahead, Vehicle Lifetime Solutions will continue to build on these foundations, leveraging innovation, partnerships, and range expansion to drive sustainable growth and reinforce Schaefflers position in the aftermarket space.

4.3 Bearings & Industrial Solutions

The Bearings & Industrial Solutions segment contributed 39.2% of Schaeffler Indias revenue in CY2025, reaffirming its position as a strong business pillar. The segment delivered a 6.4% year-on-year growth, supported by new business wins in Deep Groove Ball Bearings and Needle Roller Bearings within the two-wheeler segment.

Further momentum was achieved through business nominations for needle bearings and lift mast rollers in the off-road segment, strengthening our presence in specialised applications and expanding our customer base.

During the year, we inaugurated the Robotic Process Automation & Benchmarking Lab at the Maneja facility in Vadodara, a milestone that enhances our capability in process efficiency, product benchmarking, and innovation. This initiative underscores our commitment to leveraging technology for operational excellence.

Engagement with channel partners remained a priority, highlighted by the Distributor Meet held in Goa, which provided a platform to reinforce relationships, share strategic updates, and align on future growth opportunities.

Looking ahead, Bearings & Industrial Solutions will continue to focus on expanding its product portfolio, deepening customer partnerships, deepening localisation, and driving innovation to sustain its leadership position in the industrial solutions space.

Cautionary statement: The Management Discussion and Analysis contain forward-looking statements based on managements current expectations and assumptions.

Actual results may differ due to economic conditions, industry dynamics, regulatory developments, competitive pressures, and other factors beyond the Companys control.