Shree Bhavya Fabrics Ltd Management Discussions

Your directors have pleasure in presenting the management discussion and analysis report for the year ended on March 31st, 2026.

1. GLOBAL ECONOMIC OUTLOOK:

The world economy has continued to expand despite an unusually turbulent backdrop. According to the IMFs July 2026 World Economic Outlook Update, global growth is projected at 3.0% in 2026, rising to 3.4% in 2027, following estimated growth of 3.5% in both 2024 and 2025. The modest slowdown in 2026 largely reflects the effects of the war in the Middle East, partly offset by accelerated demand-driven momentum in the global technology cycle thanks to advances in artificial intelligence and its adoption. The IMF describes this as a V-shaped recovery ? weaker growth in 2026 relative to its pre-war forecast, followed by a rebound in 2027.

The impact is far from uniform. Energy exporters outside the conflict zone are benefiting from favorable terms of trade, while economies plugged into the technology-led upturn are experiencing stronger activity even as energy importers. Conversely, energy prices remain roughly 25% higher than pre-war levels, though ceasefires and diplomatic developments have cooled prices from the April 2026 peak, and countries with limited exposure to the AI-driven technology cycle are seeing more pronounced drag.

On the inflation front, the picture is less encouraging than growth. The IMF revised its global headline inflation forecast up to 4.7% for 2026 (from 4.1% in 2025), with a decline to 3.9% expected in 2027, as the disinflation trend in place since early 2024 has stalled ? though there is so far limited evidence of broader second-round effects.

Among advanced economies, growth is projected at 1.7% in 2026 and 1.8% in 2027, with U.S. growth held at 2.3% in 2026 and 2.2% in 2027, supported by fiscal policy, accommodative financial conditions, continued technology-related business investment, and productivity strength.

Trade policy uncertainty remains a live risk rather than a resolved one: trade tensions could reignite, especially if trade diversion or unbalanced trade prompts more economies to adopt tariff increases and nontariff restrictions, weighing further on growth. Notably, the Funds July update leans less on tariff risk than earlier editions and more on geopolitical and technology-driven forces, though trade fragmentation remains an acknowledged downside risk.

Looking ahead to 2027, the IMF frames the outlook as cautiously improving but fragile ? contingent on the Middle East conflict not escalating further, the AI investment cycle not overheating or correcting sharply, and inflation resuming its downward path. Businesses are likely to keep prioritizing resilience, supply-chain diversification, and long-term value creation amid this uneven, two-speed global environment.

2. INDIAN ECONOMY OVERVIEW:

India sustained a strong growth momentum through FY 2025-26 and remains one of the fastest-growing major economies, even as global headwinds?including US tariffs and geopolitical volatility?tested its external sector. According to the Ministry of Statistics and Programme Implementations (MoSPI) provisional estimates, Indias GDP growth for FY 2025-26 came in at 7.7%, an upward revision from earlier estimates through the year?first pegged at 6.7%, then revised to 7.4%, and finally to 7.6% before the provisional figure. Growth was corroborated by MoSPI data showing real GDP expansion of 7.8% in Q1 FY26 and 8.2% in Q2 FY26?the sharpest quarterly expansion in recent years. This also coincides with MoSPIs rollout of a new GDP series with base year 2022-23, replacing the earlier 2011-12 base, which will become the reference series going forward.

The stronger-than-expected outturn reflects buoyant private consumption, a pickup in gross fixed capital formation, GST rationalisation, softening inflation, and monetary easing by the RBI. Manufacturing expanded by 7%, while trade, transport, hotels, communication, and related services recorded 11% growth, and Gross Fixed Capital Formation rose 8.2%, pointing to healthy investment activity alongside consumption.

On the external front, exports during April-December 2025 amounted to USD 634.3 billion, marking 4.3% year-on-year growth, with each of the first three quarters of FY26 recording their highest-ever export levels. The Economic Survey 2025-26 also highlighted that medium- and high-technology industries now contribute 46.3% of Indias manufacturing value added, reflecting a gradual shift toward more sophisticated production.

For the textile sector specifically, Indias textile exports (including handicrafts) rose 2.1% year-on-year to ^3.16 lakh crore in FY26 from ^3.10 lakh crore in FY25, with growth reported across more than 120 destinations, including strong gains in the UAE, UK, Germany, Spain, and Japan. Indias FTA agenda also progressed meaningfully in FY26, with the India-EFTA TEPA entering into force, the India-UK CETA signed, the India-Oman CEPA concluded, and the India-EU FTA finalised in January 2026?developments that should support market access for exporters like Shree Bhavya Fabrics going forward.

Looking to FY 2026-27, momentum is expected to moderate but remain healthy: the RBI currently projects growth of around 6.9%, reflecting the fading of one-off tailwinds, while the IMF sees growth moderating to around 6.4% over the following two fiscal years. Inflation has stayed comfortably within the RBIs tolerance band, and the central bank has room to keep policy accommodative if needed?continuing to anchor macroeconomic stability even as global trade conditions stay uncertain.

At Shree Bhavya Fabrics Limited, we continue to track these shifts closely. With export diversification accelerating, new FTAs coming into force, and steady domestic demand, we remain well-positioned to capture emerging opportunities in FY27.

3. INDIAN TEXTILE INDUSTRY:

> Global Textile Industry Overview

The global textile sector has continued to expand, though sizing the market precisely is difficult?industry estimates for 2025-26 range widely (roughly USD 700 billion to over USD 2 trillion) depending on scope (textiles alone vs. textiles-and-apparel) and methodology. Whats consistent across trackers is the direction: most projections point to a CAGR in the 3.5-7% range through the early 2030s, propelled by fast fashion, e-commerce/digital retail penetration, rising demand for technical and industrial textiles, and, increasingly, sustainability-driven reformulation (recycled fibers, circular-economy regulation such as the EUs Digital Product Passport). Trade-policy volatility?tariffs, forced-labor enforcement actions, and reshuffled sourcing patterns?remains the single biggest swing factor for the sectors near-term trajectory.

> Indias Strategic Position in Textiles

India remains the worlds second-largest cotton producer and the second-largest source of employment after agriculture, directly supporting an estimated 45+ million workers and roughly 60 million more through allied sectors. Indias fully integrated value chain?from raw material cultivation through yarn, fabric, and garment production?continues to underpin its competitiveness, spanning artisanal handloom output to technologically advanced mills.

> Industry Growth Trends

Indias textile exports (including handicrafts) grew 2.1% year-on-year in FY26 to roughly ^3.16 lakh crore (~USD 33 billion), with growth spread across 120+ destinations?notably the UAE, UK, Germany, Spain, and Japan?even as the sector navigated a volatile US tariff environment for most of the fiscal year. ReadyMade Garments led the growth, up 2.9%. Indias textile-and-apparel domestic market is estimated at around USD 225 billion (2025), growing at a brisk 10-12% CAGR, expected to reach USD 350 billion by 2030 on rising incomes and e-commerce penetration.

> Future Outlook

The medium-term growth drivers identified earlier?rising consumer spending, urbanization, online retail, the cotton-to-synthetic shift, fast fashion, and technical textiles?remain intact. Indias FTA agenda has also advanced meaningfully: the India-EFTA TEPA entered into force (October 2025), the India-UK CETA was signed (July 2025), the India-Oman CEPA concluded (December 2025), and the India-EU FTA was finalised (January 2026)?all of which improve market access for Indian exporters.

> Challenges Ahead

This is the area that has changed most dramatically and remains genuinely fluid:

• Aug 2025: The US imposed a combined 50% tariff on Indian goods (25% reciprocal + 25% penalty tied to Indias Russian oil purchases)?among the highest rates applied to any US trading partner, hitting textiles, gems, and engineering goods hard.

• Feb 2026: An interim US-India trade framework cut the reciprocal rate to 18%, with the Russia-linked penalty removed.

• Feb 20, 2026: The US Supreme Court struck down the Presidents IEEPA-based tariffs entirely; the Administration responded with a flat 10% global tariff under Section 122 (capped by law at 150 days).

• Jul 24, 2026: The Section 122 tariffs expired and were immediately replaced by new Section 301 "forced- labor" tariffs on 60 economies. India was placed in the lower 10% tier (rather than the 12.5% tier), reflecting Indias existing forced-labor import prohibitions and diplomatic engagement with USTR?with roughly 45% of Indias US-bound exports (including generics and smartphones) exempted, but the remaining ~55%, including most textiles, subject to the 10% duty.

• As of today, textile/apparel imports from India into the US still stack the MFN base rate (cotton apparel ~16.5%) with this 10% duty, putting effective rates in the high-20s percent range for many garment categories?well below the 2025 peak of 50%, but still a live cost pressure. Litigation challenging the new Section 301 tariffs is ongoing, so further changes are possible.

Indias relative position has actually improved through this sequence?competitors like Bangladesh, Vietnam, and China largely face comparable or higher duty stacks?but the tariff regime has shifted materially multiple times within a single year, and businesses should treat the current 10% Section 301 rate as provisional rather than settled, especially given active court challenges and the still-unfinished comprehensive US-India Bilateral Trade Agreement.

4. REVIEW & FUTURE OUTLOOK OF THE COMPANY

> Review of FY 2024-25

FY 2025-26 was a year of top-line contraction rather than the steady growth seen in FY 2024-25. Revenue from operations declined 11.8% to ^162.86 crore, against a backdrop of the volatile US tariff environment and softer export demand for much of the fiscal year. Total income fell in line, to ^163.12 crore.

The more encouraging signal, however, is on the cost side. Cost of materials consumed fell 23.5% ? a steeper decline than the revenue drop ? while other expenses and finance costs also eased (down 7% and 7.4% respectively), reflecting lower borrowing costs and tighter cost control. As a result, profitability held up better than revenue: profit before tax declined only 6.8% to ^2.80 crore, and net profit fell just 4.6% to ^2.28 crore ? meaningfully softer than the ~12% revenue decline. Net margin actually improved slightly, from roughly 1.29% to about 1.40%, and EBITDA margin edged up from ~6.1% to ~6.4%.

> Future Outlook for FY 2026-27

The external environment has turned more favorable since the FY26 low point. The US tariff burden on Indian textile exports has eased substantially from its August 2025 peak, Indias FTA agenda (EFTA, UK, Oman, EU) is opening new markets, and domestic demand alongside GST rationalization continues to support the broader industry. For Shree Bhavya Fabrics specifically, FY26 demonstrated that the company can defend its margins even in a revenue downturn ? a reasonable indicator of underlying cost discipline. The key swing factor for FY27 will be whether the improving trade backdrop translates into a genuine volume/revenue recovery; if it does, the companys demonstrated cost control should allow profitability to scale faster than revenue on the way back up. Continued attention to working- capital and inventory management, and to keeping finance costs on their recent downward trajectory, will remain important given the companys rising net debt position.

> Conclusion

FY 2025-26 tested Shree Bhavya Fabrics with an 11.8% revenue decline, yet the company preserved profitability and even modestly improved its margins through disciplined cost management ? a genuinely resilient performance given the sector-wide tariff disruption during the year. With trade conditions improving into FY 2026-27, the priority now shifts to converting a friendlier external environment into top-line recovery, while sustaining the cost discipline shown this year.

5. OPPORTUNITIES & THREATS:

> STRENGTHS

• Resilient Margins Despite Revenue Decline: Despite an 11.8% drop in revenue in FY 2025-26, net profit fell only 4.6%, and both net margin (~1.29% ^ ~1.40%) and EBITDA margin (~6.1% ^ ~6.4%) actually improved ? evidence of real cost discipline rather than growth masking inefficiency.

• Sharp Reduction in Input Costs: Cost of materials consumed fell 23.5% year-on-year, outpacing the revenue decline and helping protect the bottom line.

• Lower Finance Costs: Finance costs declined 7.4% YoY, easing the debt-servicing burden even as revenue softened.

• Experienced Management: Led by seasoned professionals with deep industry knowledge, evident in the ability to defend profitability through a difficult trading year.

• Diversified Product Portfolio: Offers a range of woven and home textiles, catering to both domestic and export markets.

> WEAKNESSES

• Revenue Contraction: FY26 revenue fell 11.8% to ^162.86 crore from ^184.68 crore, reversing the prior years growth trend and pointing to demand or order-flow pressure ? likely tied to the volatile US tariff environment through most of 2025.

• Thin Absolute Margins: Even with improvement, net margins remain under 1.5%, leaving limited buffer against further cost or revenue shocks.

• Largely Fixed Cost Base: Employee benefit expenses rose slightly even as revenue fell, indicating limited operating leverage when volumes decline.

• Rising Net Debt: Reported net debt has continued to climb (around ^59 crore in recent quarters), and continued reliance on borrowings remains a structural constraint.

> OPPORTUNITIES

• Easing US Tariff Burden: The effective US tariff on Indian textile exports has fallen sharply from the August 2025 peak of 50% to a current Section 301 rate of 10% (plus MFN base duty) ? placing India in a comparatively favorable tier relative to many competing sourcing countries, and materially improving the export outlook for FY27.

• New FTA Market Access: The India-EFTA TEPA, India-UK CETA, India-Oman CEPA, and India-EU FTA have all been concluded or entered into force over the past year, opening tariff-favorable channels beyond the US.

• China/ Bangladesh Diversification: Global buyers continue diversifying sourcing away from China, and Bangladeshs continued instability keeps redirecting orders toward Indian manufacturers.

• Domestic Market Growth: Rising fashion awareness, e-commerce penetration, and urbanization continue to support Indias roughly USD 225 billion domestic textile market, growing at a 10-12% CAGR.

• Government Support: PLI incentives, Mega Textile Parks, and the integrated textile programme (Samarth 2.0) continue to enhance sector competitiveness.

• Technical Textiles: Emerging demand for performance fabrics and industrial textiles remains a largely untapped growth avenue.

> THREATS

• Tariff Policy Instability: The US tariff regime on India has changed materially four times within the past 12 months (50% ^ 18% ^ 10% Section 122 ^ 10% Section 301) and remains subject to active litigation ? meaning the current favorable rate is not guaranteed to hold, and businesses should plan for further shifts.

• Raw Material Volatility: Cotton price fluctuations remain a persistent risk to cost structures and margins, particularly given the companys reliance on materials for over 40% of expenses.

• Intense Domestic Competition: The textile sector remains highly fragmented, with continued pressure on pricing.

• Global Growth Slowdown: IMF forecasts show global growth moderating to 3.0% in 2026 before recovering to 3.4% in 2027, with elevated inflation and lingering geopolitical risk (including the Middle East conflict) weighing on trade-dependent sectors.

• Regulatory & Compliance Risk: Evolving forced-labor enforcement rules, EU sustainability regulations (e.g., Digital Product Passport), and any renewed trade friction could add compliance costs or disrupt operations.

• Revenue Recovery Uncertainty: With FY26 revenue down double digits, theres no guarantee that easing external conditions will translate into a near-term volume rebound ? execution risk on the recovery itself remains a key threat.

6. SEGMENT-WISE PERFORMANCE:

The Companys main business activity is textile and its related activities which fall under single reportable segment

i.e. Textiles. The Company has majorly focused on quality and production.

7. OUTLOOK:

The Company continues to explore the possibilities of expansion and will make the necessary investments when attractive opportunities arise.

8. RISK & CONCERNS:

Operating in the textiles sector, your Company is subject to a wide range of influences stemming from both domestic and international economic developments. Global events?whether financial, political, or environmental?can have a direct or ripple effect on business performance and capital movement. To navigate this complex landscape, the Company has broadened its revenue base across diverse business segments. This strategic diversification helps reduce dependency on any single market or product line, enhancing stability and unlocking new growth avenues.

The Company has established a well-defined and integrated risk management framework that supports informed decision-making and long-term resilience. Key components include:

• Systematic Risk Monitoring: Early detection and reporting of potential threats.

• Rigorous Control Systems: Ensuring compliance and operational integrity.

• Balanced Decision-Making: Evaluating both risks and opportunities to drive sustainable value.

Every decision within the organization is made with careful consideration of its potential impact, guided by a culture of accountability and strategic foresight.

9. INTERNAL CONTROL SYSTEMS & THEIR ADEQUEACY:

Internal Control comprises of the plan of organization and all the coordinate methods and measures adopted within a business to safeguard its assets; check the accuracy and reliability of its accounting data and completeness of accounting records; promote operational efficiency; to encourage adherence to the prescribed managerial policies, to assist in achieving the orderly and efficient conduct of business; prevention and detection of fraud and errors and timely preparation of financial statements.

Our Internal Control System is fully equipped with necessary checks and balances ensuring that the transactions are adequately authorized and reported correctly. The Directors have appointed M/s. Kamal M. Shah & Co, Chartered Accountants as the Internal Auditors of the Company for the Financial Year 2025-26.

The Internal Auditor conducts regular Audits of various departments and Units to ensure that necessary controls are in place. The Audit Committee while reviewing the system and the Internal Audit Report, call for comments of Auditors on internal control systems and discuss any related issues with the Auditors and the Management of the company before submission to the Board. The Independent Directors also satisfy themselves on the integrity of financial information and ensure that financial controls including Signature controls. Budget Controls, Data control and systems of risk management are in place. The systems and procedures are documented by way of Manual.

10. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

In FY 2025-26, Shree Bhavya Fabrics Limited recorded revenue from operations of ^162.86 crore, a decline of 11.8% over the previous years ^184.68 crore, largely reflecting subdued export demand amid a volatile US tariff environment through much of the fiscal year. Despite the topline contraction, net profit declined by a much smaller 4.6% to ^2.28 crore (from ^2.39 crore), as the company offset softer revenue with a sharper 23.5% reduction in cost of materials consumed and a 7.4% reduction in finance costs. As a result, profitability actually held up better than revenue, with net margin improving slightly from approximately 1.29% to 1.40% and operating (EBITDA) margin rising from around 6.1% to 6.4% ? pointing to improved cost efficiency and operational discipline even in a challenging demand environment.

11. HUMAN RESOURCE DEVELOPMENT:

In Shree Bhavya Fabrics Limited we are really proud of our “HUMAN RESOURCES”. We believe that our employees make a key difference to our business success. Employees are one of our five key stakeholders and needless to mention that managing our human capital has been our key strength and pride. It is our firm belief that nurturing and strengthening the human resource capital is of utmost importance to run the organization effectively and smoothly. This contributes to our unique corporate identity in our journey towards high-performance Coaching & Mentoring culture. Good human resource management is vital for the success of any business; therefore, Shree Bhavya Fabrics Limited continues to run an in-house training program held at regular intervals and aimed at updating their knowledge about issues.

Company considers its Human Resources as a very important asset and a key in achieving operational performance. Company continues to provide them with a safe and comfortable working environment. During the difficult pandemic times, the company has taken numerous precautions to protect its staff and workers. The company regularly complies with all stipulated environmental and safety norms.

12. CAUTIONERY STATEMENT:

Statements in the Boards Report and the management discussion and analysis containing the objectives, expectations or predictions of the company may be forward-looking within the meaning of securities laws and regulations. Actual results may differ materially from those expressed in the statement. The operations of the Company could be influenced by various factors such as domestic and global demand and supply conditions affecting sales volumes and selling prices of finished goods, input availability and cost, government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

PLACE: AHMEDABAD	FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
DATE: 03.09.2026	OF SHREE BHAVYA FABRICS LIMITED
	SD/-
	[PURUSHOTTAM R. AGARWAL]
	CHAIRMAN & MANAGING DIRECTOR
	DIN: 00396869