Shahlon Silk Industries Ltd Management Discussions

Global Economy:

The global economy continued to demonstrate steady progress despite operating within a challenging and uncertain environment. According to the IMF World Economic Outlook, July 2026, global economy growth projected to be 3.0 percent and 3.4 percent in 2026 and 2027, respectively, down from the average of 3.5 percent observed in 2024 25 and broadly unchanged on a cumulative basis compared with the forecasts in the April 2026 World Economic Outlook (WEO). While the outlook indicates continued expansion, the global economy remains exposed to downside risks arising from geopolitical conflicts, trade restrictions, commodity-price volatility and renewed inflationary pressures.

From a sectoral perspective, the global services sector maintained its expansionary momentum, whereas manufacturing exhibited signs of weakness, notably within Europe. Additionally, heightened trade policy uncertainty marked by an increase in protectionist measures by major economies poses a potential risk to global trade and investment flows should such measures persist.

Looking ahead, risks associated with geopolitical tensions and climate-related disruptions remain prevalent. In response to this evolving global landscape, businesses are increasingly prioritizing resilience, operational diversification, and the pursuit of sustainable long-term value creation.

Indian Economy:

The Indian economy continued to demonstrate strong resilience and broad-based growth during FY 2025 26, supported by domestic consumption, investment, infrastructure development and strengthening activity across the manufacturing and services sectors.

According to the Provisional Estimates released by the Ministry of Statistics and Programme Implementation (MoSPI), Indias real GDP is estimated to have grown by 7.7% in FY 2025 26, compared with 7.1% in FY 2024 25. Nominal GDP is estimated to have grown by 8.9%. Real GVA is estimated to have increased by 7.9% during FY 2025 26. The secondary and tertiary sectors were significant contributors to economic growth, recording growth of 8.8% and 9.3%, respectively, at constant prices.

Manufacturing activity remained a key driver of the economy, with manufacturing recording double-digit growth during FY 2025 26. Private consumption and gross fixed capital formation also remained supportive, with both recording growth of more than 7.5% during the year. These trends indicate continued strength in domestic demand as well as investment activity.

Indias external sector also remained resilient. Indias total exports of merchandise and services are estimated at approximately US$ 860.09 billion in FY 2025 26, compared with US$ 825.26 billion in FY 2024 25, representing an estimated growth of 4.22%. This reflects the increasing diversification of Indias export base and the growing integration of Indian businesses with global markets.

The Indian economy continues to benefit from relatively strong domestic fundamentals, a large consumer base, increasing infrastructure investment, improving manufacturing capabilities and the Governments continued focus on strengthening domestic production and exports. At the same time, inflationary pressures, global trade developments, commodity prices, geopolitical uncertainties and currency movements remain important factors to be monitored.

Overall, Indias strong domestic demand, expanding manufacturing ecosystem and increasing integration with global supply chains provide a favourable foundation for sustained economic growth.

Indian Textile Industry:

The Indian textile and apparel industry continued to demonstrate resilience during FY 2025 26 despite subdued global demand, changing trade policies, fluctuations in input costs and geopolitical uncertainties. The sector remains one of Indias important manufacturing and employment-intensive industries and continues to benefit from its large domestic market, availability of raw materials, skilled manpower and established manufacturing capabilities.

Indias textile and apparel exports, including handicrafts, increased to approximately 3,25,339 crore in FY 2025 26, compared with 3,19,573 crore in FY 2024 25, registering growth of approximately 1.8%. Export growth was recorded across more than 100 destinations, demonstrating the continued global demand for Indian textile products and the increasing diversification of Indias export markets.

Within the export basket, ready-made garments remained the largest contributor, with exports of approximately 1,39,350 crore in FY 2025 26. Cotton textiles accounted for approximately 1,02,427 crore, while man-made textiles contributed approximately 46,254 crore. Handicrafts excluding handmade carpets also recorded healthy growth, with exports increasing to approximately 15,855 crore.

India continues to enjoy significant competitive advantages in the textile sector, including the availability of cotton and other natural fibres, a large skilled and semi-skilled workforce, an established textile manufacturing ecosystem and comparatively competitive manufacturing costs. The country also has capabilities across the complete textile value chain, from fibre and yarn to fabrics, processing, garments, home textiles and technical textiles.

The Government continues to undertake various initiatives aimed at strengthening the competitiveness of the textile industry and enhancing Indias position in global textile and apparel markets. Key initiatives include the PM Mega Integrated Textile Regions and Apparel (PM MITRA) Parks Scheme, Production Linked Incentive (PLI) Scheme for Textiles, National Technical Textiles Mission, SAMARTH, National Handloom Development Programme, National Handicrafts Development Programme and export-promotion measures including RoSCTL and RoDTEP.

The Governments continued focus on export competitiveness, integrated manufacturing infrastructure, technical textiles, skill development and value-added production is expected to support the long-term growth of the industry. The extension of RoSCTL and RoDTEP during FY 2026 27 also provides continued policy support to textile exporters.

Indias expanding network of trade agreements is also expected to improve market access and provide opportunities for greater integration with global textile supply chains. During FY 2025 26, significant progress was made in Indias trade engagements, including the India EFTA TEPA coming into force, the signing of the India UK CETA, and developments relating to trade agreements with Oman, New Zealand and the European Union. These developments have the potential to improve preferential market access and create opportunities for Indian textile and apparel exporters.

The Indian textile industry is therefore well positioned to benefit from global supply-chain diversification and the increasing preference among international buyers for diversified sourcing destinations. The industrys future growth is expected to be supported by increasing value addition, technological advancement, sustainability initiatives, technical textiles, organised retail and rising domestic consumption.

Opportunities, Threats, Risk and concerns:

The Indian textile industry continues to represent a significant opportunity for long-term growth, supported by Indias strong manufacturing base, availability of raw materials, skilled workforce, large domestic market and established export ecosystem. The sector is undergoing structural transformation driven by technological advancement, changing consumer preferences, increasing demand for value-added products and growing emphasis on sustainability.

One of the key opportunities for Indian textile manufacturers is the ongoing diversification of global supply chains. International buyers are increasingly seeking to reduce dependence on individual sourcing destinations and develop multiple manufacturing bases. This creates an opportunity for India to increase its share in global textile and apparel supply chains through competitive manufacturing, reliable delivery capabilities, quality improvement and product diversification.

The increasing demand for man-made fibre products, technical textiles, functional fabrics and sustainable textiles is also creating new avenues for growth. Technical textiles have applications across healthcare, infrastructure, automotive, agriculture, defence and other specialised industries and offer significant opportunities for higher value-added manufacturing.

The growth of Indias domestic middle class, increasing disposable incomes, urbanisation, organised retail and e-commerce is expected to support domestic demand for apparel, home textiles and lifestyle products. Consumers are also becoming increasingly conscious of quality, traceability, sustainability and environmentally responsible products, creating opportunities for manufacturers that can adapt their product offerings and production processes accordingly.

Government initiatives such as PM MITRA Parks, PLI for textiles, the National Technical Textiles Mission, SAMARTH, RoSCTL and RoDTEP are expected to strengthen the industrys manufacturing and export competitiveness. The Ministry of Textiles has also continued to receive substantial budgetary support, with the Budget Estimate for FY 2026 27 providing approximately 5,279 crore for the Ministry of Textiles.

However, the industry continues to face several risks and challenges. Volatility in the prices of key raw materials, particularly cotton and other fibres, can have a direct impact on manufacturing costs and operating margins.

Changes in global commodity prices, weather conditions and supply-demand dynamics may further increase input-cost volatility.

Global trade-policy uncertainty, tariff changes, geopolitical tensions and disruptions in international logistics may affect export demand, delivery schedules and the competitiveness of Indian products in overseas markets. The textile industry is particularly sensitive to changes in consumer spending and economic conditions in major export markets.

The industry also faces increasing competition from other major textile-producing countries. Maintaining competitiveness will require continuous improvement in productivity, quality, manufacturing efficiency, product development and technology adoption.

Increasing environmental, social and governance requirements are another important consideration. Compliance with evolving environmental regulations, sustainability standards, waste - management requirements, energy - efficiency norms and customer-specific sustainability requirements may require additional investments in technology and processes.

Foreign exchange fluctuations, interest-rate movements, labour availability, logistics costs and potential supply-chain disruptions may also affect the Companys financial performance. Continuous investment in technology, automation, energy efficiency, product innovation and employee capabilities will therefore remain important for maintaining long-term competitiveness.

The Company has an established marketing network, a diversified customer base, a good market reputation and a focus on product quality. These strengths provide the Company with the ability to respond to changing market conditions and, where commercially feasible, pass on increases in input costs to customers. The Company will continue to focus on operational efficiency, customer relationships, product quality and prudent cost management to mitigate the risks associated with the operating environment.

Segment-wise Performance:

During the financial year 2025-26, the Company operated through two reportable business segments, namely

1. Textile Business and

2. Real Estate & Construction Services.

The performance of the respective segments during the year under review, as compared with the previous financial year, is summarised below: (Rs. in Lakhs)

Particulars	FY2025-26	FY2024-25
Segment Revenue Textile Business	23,793.27	25,193.83
Segment Revenue Real Estate & Construction Services	2,225.70	Nil
Total Revenue from Operations	26,018.97	25,193.83
Segment Result Textile Business	1,197.13	2,271.98
Segment Result Real Estate & Construction Services	942.91	Nil
Total Segment Result	2,140.04	2,271.98

The Company continues to monitor the performance of each business segment and evaluate opportunities for sustainable growth, operational efficiency and optimum utilisation of its resources.

Internal Control System and their adequacy:

The Company believes that Internal Control is one of the key pillars of governance, which provides freedom to the management within a framework of appropriate checks and balances. The Company has a robust internal control framework, which has been developed considering the nature, size and risks in the business.

The Company has adequate internal control systems in place and also has reasonable assurance on authorizing, recording and reporting transactions of its operations. The Company has well-placed, proper and adequate internal controls environment, commensurate with its size, scale and complexities of its operations. The Company had already developed and implemented a framework for ensuring internal controls over financial reporting. This framework includes entity level policies, processes and operating level standard operating procedures (SOP). Internal control systems are an integral part of your Companys Corporate Governance structure. Information

Technology (IT) policies and processes also ensure that they mitigate the current business risks. The Company is successfully running ERP software system equipped with an audit trail (edit log) feature, supported by BI tools. The systems and processes are continuously improved by adopting best in class processes and automation and implementing the latest IT tools which help further for maintaining financial and commercial discipline. These have been designed to provide reasonable assurance with regard to credibility of data and compliances, inter-alia:

a) Recording and providing reliable financial and operational information;

b) Complying with the applicable statutes;

c) Safeguarding assets from unauthorized use;

d) Executing transactions with proper authorization, and ensuring compliance with corporate policies;

e) Prevention and detection of Frauds / errors;

f) Continuous updating of IT systems.

These are aimed at giving the Audit Committee a reasonable assurance on the reliability of financial reporting and statutory & regulatory compliances, effectiveness and efficiency of your Companys operations. The Internal Financial Control Systems are reviewed periodically and revised to keep in tune with the changing business environment.

Statutory Auditors of the company has conducted audit of internal financial control system over financial reporting and operating effectiveness of such controls. Separate audit report on internal financial control is annexed to Auditors Report and forming part of this report.

Financial Performance:

The brief summary of financial statement is reproduced hereunder:

(Rs. in Lakhs)

Particulars	FY2025-26	FY2024-25
Revenue from operation	25,954.69	25,126.53
Other Income	64.29	67.30
Total Revenue	26,018.97	25,193.83
EBITDA	2,640.42	2,950.24
Profit (loss) on sale of Assets/Investment	15.63	38.27
Operational EBITDA	2,624.79	2911.97
PBT	609.88	592.38
PAT	444.56	349.86

During the year under review, your Company has achieved turnover of Rs. 26,018.97 lakh as against Rs. 25,193.83 lakh in the previous year, with marginal increase of 3.28% as compared to previous financial year. Earnings Before Interest, Depreciation, and Tax (EBITDA) for the financial year under review was Rs. 2,624.79 lakh, as compared to Rs. 2,911.98 lakh in the previous year. During the year under review, Profit before tax was Rs. 609.88 lakh as compared to profit of Rs. 592.38 lakh in the previous year. Profit after tax for the financial year under review remained robust at Rs. 444.56 lakh as against Rs. 349.86 lakh in the previous year reflecting an improvement in the net profit by 27.07% mainly on account of reduction in interest and tax outgo.

Outlook:

The Companys outlook for the coming year remains cautiously optimistic. The operating environment is expected to benefit from improving manufacturing activity, continued diversification of global supply chains, increasing opportunities in international markets and the Governments continued focus on promoting domestic manufacturing and exports.

The Company expects to sustain the improvement in its operations by enhancing manufacturing capacity utilisation, maintaining strict control over fixed and operating costs, conserving cash and evaluating opportunities for monetisation of non-core assets. Continued focus on working-capital management and operational efficiency is expected to support the Companys efforts towards strengthening profitability and financial sustainability.

The Company continues to closely monitor developments relating to inflation, raw-material prices, foreign exchange movements, geopolitical tensions, international trade policies and logistics costs, all of which may influence demand and margins. The Company will continue to adopt appropriate measures to mitigate these risks while remaining focused on sustainable growth.

Human Resource Development/Industrial Relations:

The industrial relations scenario continued to be largely positive across the manufacturing locations. Significant emphasis was also laid towards raising awareness on health and wellness of employees through annual medical check-ups and health awareness activities.

Shahlon recognizes that its people are most valuable resources and therefore as a policy of nurturing talent and ensuring that there is growth and their capabilities grow in relation to the growth of the company. The human resources function takes into account the capability, commitment and sincerity while evaluating talent within the company and suitable reward structure is in place to ensure maximum employee satisfaction. Regular training programs have been in place to improve the work capability at various levels in order to improve the competencies and skills.

Key Financial Ratios:

Particulars	FY 2025-26	FY 2024-25	% Change
Debtors (Trade Receivables) Turnover*	2.72	1.90	43.03%
Inventory Turnover	2.12	2.48	-14.78%
Interest Coverage Ratio	1.42	1.39	2.69 %
Current Ratio**	3.00	2.02	48.13%
Debt Equity Ratio	1.12	1.26	-11.30%
Operating Profit Margin (%)	8.22%	9.02%	-8.79%
Net Profit Margin (%)***	1.85%	1.52%	21.73%
Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof (%) ****	4.05%	3.31%	22.27%

* Trade Receivable Turnover Ratio has increased from 1.90 times in 2025 to 2.72 times in 2026 due to changes in trade receivable balances following the improved realization of receivables and higher revenue.

** Current ratio is improved on account of increase in inventory and reduction in short term borrowing.

*** Net profit margin has been improved on account of reduction in interest and tax outgo during the year.

**** Return on Networth has increase due to improvement in profitability on account of reduction in interest and tax outgo during the year.

Forward Looking Statement Cautionary Statement:

Certain matters discussed in this report may contain statements regarding the Companys market opportunity and business prospects that are individually and collectively forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and assumptions that are difficult to predict.

These risks and uncertainties include, but are not limited to, the performance of the Indian economy and of the economies of various international markets, the performance of the industry in India and world-wide, competition, the companys ability to successfully implement its strategy, the Companys future levels of growth and expansion, technological implementation, changes and advancements, changes in revenue, income or cash flows, the Companys market preferences and its exposure to market risks, as well as other risks. The Companys actual results, levels of activity, performance or achievements could differ materially and adversely from results expressed in or implied by this Management Discussion and Analysis. The Company assumes no obligation to update any forward-looking information contained in this Management Discussion and Analysis. Any forward-looking statements and projections made by third parties included in this Management Discussion and Analysis are not adopted by the Company and the Company is not responsible for such third party statements and projections.