Sharda Motor Industries Ltd Management Discussions

introduction

FY26 was characterised by resilient domestic automotive demand alongside continued geopolitical, trade and supply-chain uncertainty globally. The operating environment was influenced by crude oil price volatility, currency movements, intermittent supply-chain disruptions and workforce availability constraints. Despite these challenges, the automotive industry remained resilient, and SMIL did not experience any material disruption in customer production schedules during the year.

SMIL remained resilient through FY26, supported by its predominantly India-centric manufacturing footprint and backward integration across tubes, stampings, fabrication and assemblies. Raw-material sourcing remained largely aligned with customer-managed supply chains, while operations continued to be synchronised with OEM production schedules.

The evolving global environment also continued to create structural opportunities for India. Increasing emphasis by customers in Europe and the United States on supply-chain diversification, localisation and resilient sourcing strengthened India?s relevance as a manufacturing base. SMIL is positioned to participate in these opportunities through its capabilities across emission control systems, thermal-management components, lightweighting solutions, temperature-controlled tubes and related adjacencies.

Regulatory developments remained an important long-term growth driver during FY26. The Company continued to benchmark global emission and fuel-efficiency regulations and engage with OEMs on future system requirements. Evolving requirements, including WLTP and future BS7 norms, are expected to increase the focus on catalyst efficiency, calibration, thermal management and system durability. The evolving tractor- emission roadmap also moved towards power-category-specific norms and timelines, with the near-term opportunity expected to be concentrated in mufflers and integrated mufflers.

The proposed CAFE III framework for Ml passenger vehicles reinforces a multi-technology approach to fleet- level fuel-efficiency and CO2 compliance. OEMs are expected to use a combination of EVs, hybrids, CNG, flex-fuel, powertrain-efficiency measures and lightweighting. Except for pure EVs, these pathways continue to support the relevance of engineered emission systems, while lightweighting remains applicable across powertrains. This transition aligns with SMIL?s emission and lightweighting strategy.

Lightweighting remained a critical growth lever for the Company during FY26. Increasing OEM focus on fuel efficiency, CO2 reduction, EV range, safety and platform optimisation continued to support demand for lightweight structural products. SMIL expanded its powertrain-agnostic portfolio across ICE and EV platforms, led by control arms and links and supported by the technology licensing agreement with Donghee for subframes and torsion beams.

SMIL?s control arms and links business has been built through organic manufacturing, local R&D and customer capabilities. The Company continued to strengthen this platform through technology partnerships and by developing capabilities in more engineering-intensive structural products.

Donghee technology licensing agreement expands SMIL?s lightweighting portfolio beyond control arms and links into subframes and torsion beams, increasing the Company?s addressable content per vehicle over time.

During FY26, the initial focus under the partnership remained on technology transfer, localisation, capability building and customer engagement, while the existing control arms and links business continued to scale.

Over time, the Company aims to build a broader and stronger position across the relevant lightweighting portfolio through organic growth, customer additions and product expansion.

Execution during FY26 remained on track, with key programs progressing in line with customer timelines. SOPs for previously announced control arms and links programs commenced as scheduled, the CEV temperature-controlled tube program entered SOP and began ramping up, and Chakan III lightweighting facility commenced SOP with modular capacity deployment aligned to customer requirements. Based on the Company?s internal annual value market-share workings, SMIL?s market share in control arms and links increased to approximately 14% in FY26 from around 12% in FY25. During FY26, the Company filed nine additional patent applications and was granted one more patent, taking cumulative patent filings to 22 and patents awarded to 4.

SMIL remains focused on strengthening technology capabilities, expanding its global footprint and improving operational excellence. The Company?s long-term objective is to create sustainable value through disciplined growth, innovation, diversification and resilient execution.

The Indian Automobile Ancillary Market: A Promising Outlook

The Indian automotive component industry recorded strong growth in FY26, supported by domestic vehicle demand, higher production volumes, increasing localisation and greater value addition. According to ACMA?s Industry Performance Review FY26, industry turnover reached Rs.7.6 lakh crore, growing 12.7% year-on-year and nearly doubling from Rs.3.4 lakh crore in FY21.

Growth was broad-based. Supplies to OEMs grew by 16.3% to Rs.6.63 lakh crore, the aftermarket expanded by 9.0% to Rs.1.08 lakh crore, exports increased by 10.3% in rupee terms to Rs.2.12 lakh crore and imports grew by 19.0% to Rs.2.24 lakh crore.

Structural growth drivers included sustained domestic demand, increasing technology content, vehicle premiumization, localisation and greater adoption of advanced components. Passenger vehicles remained the largest end-user segment, accounting for 45% of component supplies to OEMs.

The sector continued to adapt to emerging mobility trends. Supplies to electric vehicles represented approximately 4.6% of total OEM supplies in FY26. While ICE platforms remained dominant, increasing adoption of alternative powertrains continued to drive investment in electronics, precision engineering and advanced manufacturing capabilities.

Exports remained an important growth driver. North America and Europe together accounted for more than USD 14.6 billion of exports, while the United States remained India?s largest export destination at approximately 26% of total exports. India?s growing engineering capability, manufacturing scale and integration into global supply chains continue to support long-term export potential.

Looking ahead, the industry remains supported by domestic vehicle demand, infrastructure-led growth, localisation, technology transition and expanding global sourcing opportunities. Key risks include geopolitical uncertainty, raw-material volatility, critical-material availability and logistics costs.

(Source:https://electronicsera.in/wp-content/uploads/2026/07/ACMA-Industry-performance-2025-26-1.pdf)

Artificial Intelligence (AI) Integration in the Automotive Ancillaries? Products Market

Artificial Intelligence is increasingly being applied across automotive design, product development, quality and manufacturing. Its use can improve design optimisation, validation, production planning, quality control and data-led process improvement.

AI-enabled analytics can also support demand forecasting, inventory management and operating efficiency. These applications are expected to contribute to higher engineering productivity and manufacturing effectiveness across the automotive component industry.

Indian Automobile Market Size

The Indian passenger vehicle industry recorded its highest-ever annual domestic sales of 46.43 lakh units in FY26, growing 7.9% year-on-year. Passenger vehicle production stood at 55.39 lakh units, while exports reached 9.05 lakh units during the year. (source: SIAM)

During FY26, total vehicle production across passenger vehicles, commercial vehicles, three-wheelers, two- wheelers and quadricycles stood at 34.7 million units. Two-wheelers and passenger cars accounted for approximately 77% and 16% of overall vehicle volumes, respectively. (SIAM)

Indian Auto Components Industry: A Driving Force of Growth

The Indian auto components industry reached a turnover of Rs.7.6 lakh crore in FY26, growing 12.7% year-on- year. The growth reflected strong vehicle demand, higher production, localisation and increasing technology content across the value chain. (Source: ACMA Report)

The sector?s expanding scale, engineering capability and manufacturing competitiveness continue to strengthen India?s position as a global automotive sourcing base.

India?s mobility transition broadened further in FY26. Total EV retail volumes reached 24.5 lakh units, growing 24.6% year-on-year. EV penetration stood at 6.5% in two-wheelers, 4.3% in passenger vehicles and 1.8% in commercial vehicles. Within passenger vehicles, CNG/LPG accounted for 22% of retail volumes and hybrids for 8.2%, while petrol/ethanol remained the largest category at 47.5%. This mix indicates that India continues to evolve as a multi-powertrain market. (Source: FADA)

Green Shoots for Auto Components Industry

Robust Demand:

India?s automotive demand outlook remains structurally supported by rising incomes, urbanisation, infrastructure activity and replacement demand. Total domestic automobile sales reached approximately 2.83 crore units in FY26, reflecting healthy demand across vehicle segments. (source: SIAM)

The industry also benefited from improving consumer sentiment and macroeconomic stability during the year.

In parallel, global supply-chain realignment continued to support the domestic auto component sector, with OEMs diversifying sourcing towards India. Increasing localisation is expected to further strengthen demand for domestically manufactured components.

Export Opportunities:

Automotive component exports reached approximately USD 24.0 billion in FY26, demonstrating resilience despite global uncertainty.

(Source: ACMA FY26 Industry Presentation)

Export potential remains significant, supported by global OEM sourcing, increasing value addition and India?s competitive position in engine components, drive-transmission systems, suspension and braking systems and other engineered products.

The Indian automotive sector is expected to witness investment of nearly Rs.58,000 crore by FY28 towards localisation of advanced components, supporting reduced import dependence and greater participation in global supply chains.

Source: IBEF Auto Components Industry

Competitive Advantage:

India?s expanding localisation ecosystem, engineering capabilities and scalable manufacturing base continue to improve its competitiveness in global automotive sourcing.

India?s large engineering and manufacturing talent pool supports complex product development, localisation of global designs and rapid industrialisation. The country?s significant domestic steel base also supports manufacturing scale and raw-material availability.

India?s geographic access to major automotive markets, improving technology parity with global safety and emission benchmarks, competitive cost structure and manufacturing scale are strengthening its position as an attractive sourcing base for global OEMs.

Government Initiatives

The Government of India continued to support automotive-sector growth through targeted policy measures. The Production Linked Incentive (PLI) scheme for automobiles and auto components, with an outlay of Rs.25,938 crore, is intended to encourage investment in advanced automotive technologies and localisation.

Regulatory developments are also increasing technology content across the automotive value chain. BS6.3 incorporating WLTP has been notified for implementation from 1 April 2027 for vehicles below 3.5 tonne GVW, increasing the focus on catalyst efficiency, calibration, thermal management and durability. India is also progressing towards future BS7 requirements, with final timing and specifications subject to official notification.

The proposed CAFE III framework for M1 passenger vehicles is expected to encourage OEMs to meet fleet-level fuel-efficiency and CO2 targets through a combination of EVs, hybrids, CNG, flex-fuel, powertrain efficiency and lightweighting. These developments support demand for advanced emission control, thermal management and lightweighting solutions.

The Government has also continued to strengthen testing and R&D infrastructure through initiatives such as NATRIP, while programs such as PM E-DRIVE and the Electric Mobility Promotion Scheme support cleaner mobility and technology development across the automotive value chain.

SWOT Analysis for Indian Auto Components Industry

Strengths

• Large and growing domestic automobile market, supporting sustained demand for auto components

• Strong availability of skilled engineering and manufacturing workforce

• Cost-efficient manufacturing ecosystem, enhancing global competitiveness

• Well-established supplier base across multiple manufacturing clusters

• Increasing integration into global supply chains and export markets

• Rising investments in R&D and alignment with global quality standards

Weaknesses

• Continued dependence on imports for advanced and high-technology components

• Fragmented industry structure with a significant MSME presence

• Limited product diversification among smaller players

• Infrastructure and logistics bottlenecks in certain regions

• Increasing regulatory and compliance complexities

Opportunities

• Expanding export potential driven by global supply-chain diversification, localisation and resilient sourcing strategies

• Strong policy support through initiatives such as PLI and Atmanirbhar Bharat

• Growing demand for lightweighting, advanced emission control and higher-content components across multiple powertrains

• Increasing localisation, technology content and value addition across the automotive supply chain

• Opportunity to increase participation in global sourcing programs as India strengthens engineering capability, manufacturing scale and technology content

Threats

• Volatility in raw-material prices and logistics costs impacting profitability

• Intensifying competition from other cost-competitive manufacturing countries

• Technology-transition uncertainty due to varying adoption rates across ICE, hybrid, CNG, flex-fuel and electric powertrains, requiring sustained R&D and capital investment

• Increasing regulatory and compliance requirements

• Potential impact of geopolitical developments, trade and tariff actions, shipping-route disruptions, currency movements and volatility in crude oil, freight and insurance costs, which may affect supply chains, customer planning and end-consumer demand

Risks and Concerns

SMIL follows a structured and proactive risk-management approach. Key risks are regularly identified, evaluated and monitored, with mitigation actions reviewed by management, the Risk Management Committee and the Board of Directors.

Some of the major risks identified by the Risk Management Committee of the Company are set out below:

Risks	Analysis	Approach to mitigate the risk
Customer Concentration	Dependence on a limited number of large customers may affect volume stability and commercial bargaining position.	The Company continues to broaden its customer and product base, increase wallet share with existing customers and develop opportunities across lightweighting, emission adjacencies and exports.
Market Concentration	A predominantly domestic revenue base can increase exposure to changes in the Indian automotive cycle.	SMIL established a dedicated global business team in FY25 and continues to engage with customers across North America and Europe, supported by RFQ activity across emission components, temperature-controlled tubes, heat shields and other adjacencies.
Legal Compliance Risk	As a listed company operating plants across multiple states, SMIL is subject to corporate, securities, labour, environmental and state- specific laws and regulations.	The Company has strengthened internal compliance capabilities, obtains external legal and specialist advice where required and uses a portal-based compliancemonitoring platform.
Risk of costs associated with Eventualities	Events such as fire, theft, natural hazards, transit damage, employee injury, product recall, litigation and third-party claims may result in financial or operational loss.	The Company maintains appropriate insurance coverage and operating policies and procedures to mitigate such risks.
Human Resource Risk	Business performance may be affected by attrition, availability of critical skills, capability development and industrial- relations issues.	SMIL follows structured recruitment, compensation, training, engagement and employee-welfare practices to attract, develop and retain talent and maintain workforce stability.
Cyber Security Risk	Technology obsolescence and cyber threats such as malware, phishing and ransomware may affect information security and business continuity.	The Company conducts VAPT and infrastructure security audits, addresses identified gaps and maintains data-backup and business-continuity measures.
Regulatory / Technology Transition Risk	Changes, delays or revisions in emission, fuel-efficiency and powertrain regulations may affect product demand, program timing, technology requirements and investment cycles.	SMIL benchmarks evolving regulations, engages with OEMs on future requirements, strengthens R&D and validation capabilities and diversifies across emission systems, thermal management and powertrain- agnostic lightweighting products.
Geopolitical / Supply Chain Risk	Geopolitical developments, trade actions, shipping-route disruptions and volatility in raw-material, freight, insurance and currency costs may affect supply continuity, customer schedules and operating costs.	SMIL?s India-centric manufacturing footprint, backward integration, customer- aligned sourcing, localisation initiatives and flexible operating approach support supply- chain resilience. The Company continues to monitor developments and align production with customer requirements.

Internal Control system and their adequacy

The Company has an internal control system appropriate to the size, scale and complexity of its operations. Policies and procedures govern financial and operational activities and are designed to provide reasonable assurance over accounting records, financial reporting, operating effectiveness, safeguarding of assets and regulatory compliance. The internal financial-control framework is further supported by periodic internal audits and regular management reviews.

Discussion on Financial Performance with respect to Operational Performance

The financial statements of SMIL and its subsidiaries have been prepared in accordance with the Indian Accounting Standards (‘Ind AS?) prescribed under Section 133 of the Companies Act, 2013 and the applicable rules, as amended from time to time. Significant accounting policies are detailed in the notes to the consolidated financial statements.

Key Standalone financial highlights

• Revenue from operations grew by 20% in FY26 compared with FY25.

• EBITDA margin for FY26 stood at 12.3% compared with 14.0% in FY25. Gross Profit, which the Company considers as relevant indicator of underlying operating performance, grew by 8% to Rs.802.8 crore, broadly in line with industry growth during FY26.

• PBT margin for FY26 stood at 13.4%. Profit after tax for FY26 stood at Rs.341.6 crore.

Detailed financial highlights are provided in the Board Report forming part of the Annual Report.

Segment-wise / product-wise performance

The Company operates under a single reportable segment, as its primary business involves manufacturing, assembling and trading automobile components.

Significant changes in Key Financial Ratios

Sr. No Ratios	Unit of Measurement	As of March 31, 2026	As of March 31, 2025	Change in percentage	Reason for change
1 Debtors Turnover	Times	10.50	11.08	-5%	Not applicable
2 Inventory Turnover	Times	13.87	14.04	-1%	Not applicable
3 Current Ratio	Times	1.98	2.23	-11%	Not applicable
4 Net Profit Margin	Percent	10.06	11.02	-8%	Not applicable
5 Debt Equity Ratio*	Times	0.04	0.05	-23%	Not applicable
6 Operating Profit Margin	Percent	12.99	14.86	-13%	Not applicable
7 Return on Net Worth	Percent	25.76	28.97	-11%	Not applicable
8 Interest Coverage Ratio*	Times	59.07	93.22	-37%	Increase in debt as per IND AS

*Note: Pursuant to the Guidance Note issued by the ICAI in January 2022, the Company has considered lease liabilities as debt for the purpose of calculating the relevant ratios.

Material developments in Human Resources

The Company?s Employee Value Proposition (EVP) is focused on attracting, developing, engaging and retaining talent while building an agile workforce aligned with strategic priorities and core values.

With operations across five states and nine manufacturing units, employees have access to learning, development and career opportunities across functions and locations. The Company continues to invest in capability building through domain knowledge, technical expertise and structured development interventions.

SMIL places emphasis on employee communication, recognition and engagement, with initiatives designed to strengthen collaboration and a sense of belonging.

In addition to competitive compensation and benefits, the Company undertook a range of employee- engagement initiatives during FY26, including:

• Monthly reward and recognition programs

• Celebrations of International Women?s Day, Diwali and other regional festivals

• Employee communication forums, including Plant Head communication platforms

The Company remains committed to building a respectful, inclusive and collaborative workplace that supports sustainable performance.

A detailed demographic breakdown of number of people employed by the company as on March 31, 2026 is provided in the Business Responsibility and Sustainability Report forming part of this Annual Report.

Industrial Relations

The Company?s relationship with employees and labour unions remained constructive during FY26. SMIL continued to focus on safety, quality and productivity improvements and followed a disciplined approach to wage settlements based on the context of each location.

Cautionary Statement

Certain statements in this Management Discussion and Analysis section relating to the Company?s outlook, industry trends, objectives and expectations are forward-looking in nature and subject to applicable laws and regulations. Actual results may vary materially due to factors including changes in supply-demand dynamics, raw-material availability and prices, government regulations, tax laws, judicial outcomes, labour relations, geopolitical developments and broader economic conditions. Readers are advised to consider these factors while evaluating the Company?s performance and future prospects.