Sharda Motor Industries Ltd Management Discussions

Introduction

The Indian automotive industry is at a critical inflection point, being shaped by growing focus on sustainability, stricter emission norms, and the shi_ towards eco-friendly mobility solutions. SMIL, with its strong competence in R&D & Business focused innovation capabilities, is well-positioned to support this transition and drive cleaner automotive solutions.

FY25 saw renewed optimism, supported particularly by infrastructure development and government-led sustainability initiatives. The auto sector is expected to grow steadily, aided by economic reforms and an emphasis on infrastructure investments. SMIL has remained focused on developing innovative and environmentally responsible solutions, enhancing localization, and improving operational e_iciency to better serve OEMs and contribute to Indias sustainable mobility vision.

This section highlights SMILs strategic roadmap, operational performance, and future outlook within the framework of industry-wide environmental priorities. Staying aligned with our vision "To be among the Top 100 Companies in India," we are committed to creating long-term value through responsible innovation and expanding our global presence. We extend our heartfelt appreciation to our employees, customers, and shareholders for their continued trust and support as we move forward on this path of sustainable growth.

The global automobile ancillary market: A promising Outlook

The global automotive ancillary products market was valued at USD 17.65 billion in 2024 and is projected to grow from USD 18.83 billion in 2025 to around USD 33.79 billion by 2034, with a CAGR of 6.71% during the forecast period. This growth is driven by rapid technological advancements that enhance vehicle safety, performance, and customization, thereby accelerating demand across the sector.

The automotive industry is witnessing the emergence of several transformative trends. Among the key megatrends driving this evolution are the increasing emphasis on lightweighting, stricter emission regulations, and the development of multiple alternative powertrains. The global shi_ towards supply chain diversification, offen referred to as the "China+1" strategy, has opened-up significant opportunities for India. With global manufacturers actively seeking reliable alternatives to China, India is emerging as a preferred destination due to its cost competitiveness, skilled labour, and growing manufacturing capabilities. This trend has led to increased export opportunities and greater interest from international players in forming strategic alliances and sourcing partnerships with Indian players. Furthermore, policy initiatives such as the Production-Linked Incentive (PLI) scheme and the Governments focus on ‘Make in India are reinforcing this momentum by attracting foreign investment and supporting local manufacturing. While the sector must continue to enhance scale, quality, and supply chain reliability, the China+1 dynamic is expected to play a pivotal role in accelerating Indias prominence in the global automotive value chain.

In 2024, the Asia Pacific region led the global automotive ancillary products market, commanding the largest share at 39%, reflecting its strong manufacturing base and rising vehicle demand. North America is expected to register the fastest compounded annual growth rate (CAGR) over the forecast period, driven by increased investment in advanced automotive technologies. In terms of applications, the passenger vehicle segment accounted for a dominant 73% market share, though the commercial vehicle segment is poised for robust growth in the coming years. (Source: precedence research)

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

Artificial Intelligence (AI) is playing a transformative role in the automotive ancillaries market by enhancing innovation, design e_iciency, safety, and overall product performance. Its integration into design and manufacturing processes enables the creation of highly precise and optimized components, streamlining both production and testing phases.

On the manufacturing front, AI contributes towards improved production planning, quality control, and cost optimization by identifying patterns that refine scheduling and resource allocation. Further, AI-powered analytics help forecast demand more accurately, enabling smarter inventory management and ensuring consistent product availability. By accelerating innovation and operational excellence, AI continues to redefine the competitive landscape of the automotive ancillary sector.

Indian Automobile Market Size

The Indian passenger car market, was valued at USD 32.70 billion in 2021, is projected to grow at a CAGR of over 9% to reach USD 54.84 billion by 2027. In FY25, two-wheelers and passenger cars contributed 75.04% and 21.38% of the overall market share, respectively. During FY25, total vehicle production across passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and quadricycles stood at 31.03 million units .

Indian Auto Components Industry: A Driving Force of Growth

The Indian automotive components industry witnessed robust expansion, recording 11% year-on-year growth and reaching _3.32 lakh crore (US$ 38.4 billion) in the first half of FY25 . Indias status as one of the fastest-growing major economies, supported by rising income levels, increased infrastructure investments, and targeted manufacturing incentives, has significantly propelled the broader automobile sector. The two-wheeler segment continues to dominate, reflecting the needs of Indias expanding middle class, with overall automobile sales reaching 23.8 million units in FY25 .

This surge in demand has catalysed the emergence of numerous OEMs and auto component manufacturers, enhancing Indias capabilities in both vehicle production and component manufacturing. As a result, Indian-made auto components have gained strong traction in global markets. While the electric vehicle segment has grown—with Electric PV registrations crossing 1 Lakh units in FY25 and registration of e-Two Wheelers grew by 21.2% in the same period —internal combustion engine (ICE) vehicles remain dominant, with over 23 million two-wheelers and over 5 million passenger cars produced.

The auto components sector is a vital contributor to Indias macroeconomic growth and employment landscape. It spans a wide range of players, from large enterprises to micro-units, operating in specialized clusters nationwide. Currently contributing around 2.3% to Indias GDP and employing over 1.5 million people directly, the sector is expected to contribute 5–7% to GDP by 2026. The Automotive Mission Plan (2016–2026) envisions the creation of 3.2 million incremental direct jobs in this period.

Indias auto components industry is also a strong export engine, providing livelihoods to over 3.7 crore people. In the first half of FY25 (April-September 2024), Indias auto component exports reached $11.1 billion, North America accounted for 33% of total exports (up 5%), while Europe and Asia represented 32% and 24%,respectively with European exports rising 12% and Asian growth remaining stable. Key export categories included drive transmission systems, engine components, body and chassis parts, as well as suspension and braking systems. (Source: IBEF) There has been a notable increase in emphasis on lightweighting, driven by stringent emission norms, growing demand for fuel-e_icient vehicles, safety requirements & EV range enhancement. Lightweight materials such as high-strength steel, aluminum, and advanced technologies are increasingly being adopted by OEMs to enhance vehicle e_iciency and performance. This trend presents a significant opportunity for the Company to expand its product offering, increase content and strengthen its position. The companys strong capabilities in stamping technology and rich experience of supplying suspension components will pave the way towards becoming a key player in the new era. As part of our long-term strategic roadmap, SMIL is also increasing its emphasis on exploring Joint ventures, and Technical Alliances particularly in areas that align with our focus on increasing revenues in powertrain agnostic products. With the evolving automotive landscape and growing demand for sustainable and e_icient mobility solutions, the Company is consistently working on opportunities that enhance product portfolio, strengthen technology capabilities, and improve market access across all areas.

Supporting OEMs to localise key products is another key pillar of our strategy, both in response to preferences and to build supply chain resilience.

Green shoots for Auto Components Industry

Robust Demand:

The growing working population and an expanding middle class are anticipated to remain strong drivers of automotive demand.

India is experiencing strong momentum in the auto components sector, supported by a global realignment of supply chains.

As the country moves to reduce its reliance on imported components, domestic manufacturers are well-positioned to benefit from increased demand.

Export Opportunities:

India is rapidly establishing itself as a global sourcing hub for auto components, with over 25% of its production exported annually.

Auto component exports from India are projected to reach US$ 80 billion by 2026, reflecting strong global demand.

By FY28, the Indian automotive sector plans to invest _58,000 crore (US$ 7 billion) for localization of components for reducing import dependence and capitalizing on the global ‘China Plus One strategy.

Competitive Advantage:

Indias cost-e_icient manufacturing ecosystem enables production at 10–25% lower costs compared to operations in regions like Europe and Latin America.

As the worlds second-largest steel producer, India enjoys a significant cost advantage in raw material sourcing.

The countrys strategic geographic location—close to major automotive markets such as ASEAN, Europe, Japan, and Korea—is further cementing its position as a global hub for auto components sourcing.

Government Initiatives

The Government of India continues to drive a future-ready automotive ecosystem through targeted policy initiatives. The enforcement of BS-VI emission norms and the upcoming Bharat NCAP safety regulations are further catalyzing demand for high-performance a_er-treatment systems and light weighting positioning SMIL to play a critical role in helping OEMs meet stringent compliance requirements.

In addition, rising Corporate Average Fuel E_iciency (CAFE) targets have made lightweighting a strategic priority for automakers, driving demand for components that reduce vehicle weight without compromising durability. SMILs focus on lightweighting segment aligns well with this industry direction.

Infrastructure and testing capabilities have also seen a significant upgrade through programs like NATRIP (National Automotive Testing and R&D Infrastructure Project), which enhances validation opportunities for emission control systems. Alongside the broader shi_ towards clean mobility—evident in schemes like PM E-DRIVE and the Electric Mobility Promotion Scheme 2024—these policies reflect a cohesive national agenda to support localized, sustainable innovation. For SMIL, this presents a clear opportunity to scale its R&D-driven growth in emission control and lightweighting.

SWOT Analysis for Indian Auto Components Industry

A SWOT analysis for the Indian auto component industry would look at the internal and external factors that can impact the industrys growth and competitiveness. Heres an outline based on the current landscape:

Strengths

1. Large Domestic Market: India has one of the largest automobile markets globally, providing significant demand for auto components.

2. Skilled Workforce: India boasts a large, skilled labor force, particularly in engineering, which is a key advantage for the production and innovation of auto components.

3. Cost-Effective Manufacturing: Labor and raw material costs in India are relatively lower, making the country an attractive destination for manufacturing auto components.

4. Established Supplier Base: A well-developed network of suppliers for raw materials, machinery, and other essential goods supports the auto component sector.

5. Global Export Hub: India has become a key exporter of auto components, particularly to markets like the U.S., Europe, and ASEAN countries.

6. Strong R&D Capabilities: Many Indian auto component manufacturers are investing in R&D to improve product quality, develop new technologies and meet global standards.

Weaknesses

1. Dependence on Imports for High-End Technology: India still imports advanced technologies and components for high-end vehicles, which impacts the competitiveness of domestic manufacturers.

2. Fragmented Industry: The industry is highly fragmented, with many small and medium-sized enterprises (SMEs), which can face challenges in scaling up operations and maintaining quality.

3. Limited Product Diversity: Many Indian auto component manufacturers focus on a narrow range of products, limiting growth opportunities.

4. Underdeveloped Infrastructure: While there have been improvements, logistics and transportation infrastructure in some regions are still underdeveloped, affecting supply chain e_iciency.

5. Regulatory Hurdles: Regulatory challenges such as compliance with international quality standards, environmental laws, and labor laws can be burdensome.

Opportunities

1. Export Potential: As global automotive companies increasingly look for cost-e_ective manufacturing solutions, India can further strengthen its role as a global auto component supplier.

2. Government Incentives: The Indian governments "Atmanirbhar Bharat" (self-reliant India) initiative and support for the automotive sector through schemes like PLI (Production-Linked Incentive) can incentivize growth and innovation.

3. Technological Advancements: The growing need for lightweight, fuel-e_icient, and smart components presents an opportunity for manufacturers to invest in R&D and modernize their production facilities.

4. Supply Chain Resilience: Post-pandemic, theres an opportunity for India to strengthen its role in global supply chains by providing cost-e_ective solutions and tapping into the demand for diversified sourcing.

Threats

1. Competition from Low-Cost Countries: India faces competition from countries like China, which offen have cheaper labor costs and more advanced manufacturing technologies.

2. Changing Consumer Preferences: As consumer preferences shi_ towards electric vehicles, auto component manufacturers need to adapt quickly or risk becoming obsolete.

3. Regulatory and Compliance Pressures: Increased environmental regulations and compliance with global safety standards require significant investment in upgrading technologies and processes.

4. Economic Slowdown: Economic downturns, both domestically and globally, can negatively affect the automotive industry, reducing demand for both OEMs (Original Equipment Manufacturers) and replacement components.

Risks and Concerns

SMIL has a comprehensive and proactive approach to risk management. By regularly identifying, evaluating, and mitigating risks, the company ensures the protection of stakeholders interests and the achievement of business objectives. The involvement of the Risk Management Committee and the Board of Directors in this process highlights the importance placed on continuous monitoring and adaptation to emerging risks. Some of the major risks identified by the Risk Management Committee of the Company are given below: -

Risks	Analysis	Approach to mitigate the risk
Customer Concentration	Significant dependence on specific customers may impact the Companys Negotiation Power with the Customers.	The company has added multiple new customers in diversified market segments in the past few years & working proactively to increase wallet size with all customers.
Market Concentration	The Companys market is majorly Domestic Geography.	SMIL has established new vertical and onboarded new team to focus on increasing business from exports.
Legal Compliance Risk	The company is a Listed Public Company and attracts lots of compliances of various Regulators. The company is having plants in multiple States having	The Company has built a robust team of competent professionals supplemented by robust compliance processes.
	exposure to State specific Laws, Rules and Regulations. This also exposes top management to various litigations.	It has also put in place a portal- based platform for monitoring of the compliances.
Risk of costs associated with Eventualities	The Company is exposed to various risks like Asset the_, fire, earthquake, Transit Damage, Workmen Compensation cost, Litigation Cost, Risk to Senior Personnel, Product Recall, Third Party Costs etc.	To mitigate these types of eventualities, the Company has taken various Insurance covers and has policies / procedures in place to mitigate these risks.
Human Resource Risk	Every Organization is exposed to Human Resources risk which includes among others:	The Company has ‘Recruitment Policy and laid down the ‘Process for hiring, to ensure the Right Peg to the Right Hole. Further, the "Compensation Packages" are inclusive of Incentives and are in line with Industry Standards. Employees
	• High Employee Attrition	"Training and Engagement" activities are conducted. Various "Welfare Measures" for employees and their Family are also in place.
	• Skill Development
	• Employee Unrest (like Strikes and Lock-outs)
Cyber Security Risk	The company may face technical obsolescence on account of outdated Operating System Software, Tools such as MS-O_ice, Hardware like Old	The Company carries out VAPT (Vulnerability Assessment and Penetration Testing) on regular basis.
	Storage Servers & Switches, Laptops and Desktops. This may result in vulnerability to Virus, Malware, Fishing, Ransomware attack and also delays and under performance.	It has already in place the Data Back Up Plan in case of any unforeseen disaster resulting in loss of data.

Internal Control system and their adequacy

We have a robust internal control system that is appropriate for the size, scale, and complexity of our operations. Comprehensive policies and procedures are in place to govern all financial and operational activities. These controls are designed to offer reasonable assurance with respect to the maintenance of accurate accounting records, the reliability of financial reporting, effective monitoring of operations, safeguarding of assets against unauthorized use or loss, and adherence to regulatory requirements. The internal financial control framework is further strengthened through 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) as prescribed under Section 133 of the Companies Act, 2013, and the Companies (Indian Accounting Standards) Rules, as amended from time to time. The significant accounting policies applied in the preparation of these financial statements are detailed in the notes to the consolidated financial statements.

Key standalone financial highlights are as follows:

Revenue from operations grew by 1% in FY25 compared to FY24.

EBITDA margin for FY25 stood at 14%, up from 12.9% in FY24.

PBT margin for FY25 was 14.7%, as compared to 14.0% in FY24.

PAT for FY25 was _312.5 crore.

Detailed Financial highlights are given in Board Report forming part of Annual Report.

Segment-wise / product-wise performance

The Company is operating under a single segment since its primary business segment involves manufacturing, assembling and trading of automobile components.

Significant changes in Key Financial Ratios and Return on Net Worth

S. No.	Ratios	Unit of Measure- ment	As of March 31, 2025	As of March 31, 2024	Change	Remarks
1	Debtors Turnover	Times	11.08	10.06	10%	Improvement in overall debtor days
2	Inventory Turnover	Times	14.04	14.01	-	Not Applicable
3	Current Ratio	Times	2.23	1.77	26%	Increase in Current assets
4	Net Profit Margin	Percent	11.02	10.50	5%	Not Applicable
5	Debt Equity Ratio*	Times	0.05	0.02	107%	Change in reserves and equity due to buyback programme
6	Operating Profit Margin	Percent	14.86	14.10	0.76%	Not Applicable
7	Return on Net Worth	Percent	28.97	28.77	-	Not Applicable
8	Interest Coverage Ratio*	Times	93.22	111.81	(17)%	Not Applicable

*Note: Pursuant to the Guidance Note issued by the ICAI in January 2022, company had considered lease liability as debt and the ratio has beencalculated accordingly

Material developments in Human Resources

The Company offers a comprehensive Employee Value Proposition (EVP) aimed at attracting, retaining, and engaging talent, while fostering an agile workforce aligned with our strategic objectives and core values. Our EVP embraces the evolving paradigm of the ‘Future of Work, Workplace, and Workforce, ensuring that employees are well-prepared for success in a dynamic business environment.

With operations spread across 4 states and 8 manufacturing units, we provide our employees with ample opportunities for learning, development, and career growth. We are committed to cultivating a culture of continuous learning, supported by access to rich resources, domain knowledge, and technical expertise. We place a strong emphasis on employee voice and recognition, ensuring their ideas and contributions are valued. Various initiatives are designed to enhance collaboration and foster a sense of belonging.

In addition to competitive compensation, we offer flexible work arrangements that support work-life balance. Employee engagement is the cornerstone of our culture, with numerous events and programs held throughout the year, such as:

Monthly reward and recognition ceremonies

Celebrations for International Womens Day, Diwali, and other regional festivals

Engagement platforms such as Plant Head Communication forums

We are equally committed to nurturing a workplace grounded in respect, inclusivity, and diversity, which we believe are essential for sustainable, long-term success.

A detailed demographic breakdown of number of people employed by the company as on March 31, 2025 is available in the Business Responsibility and Sustainability Report, which forms part of this Annual Report.

Industrial Relations

Our relationship with employees and labor unions remains strong and collaborative. This constructive engagement is vital for maintaining a healthy and productive work environment. We continue to implement reforms aimed at improving safety, quality, and productivity, and follow a disciplined approach to wage settlements, tailored to the context of each location. These initiatives have led to higher employee satisfaction, lower attrition, and enhanced overall performance.

Cautionary Statement

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