Shree Refrigerations Ltd Management Discussions

1. Industry Overview

Indias defence manufacturing sector is undergoing a significant transformation driven by rising indigenous production, increasing defence exports, and the Governments continued focus on selfreliance under the Atmanirbhar Bharat initiative. Growing geopolitical focus on maritime security, border preparedness, and defence modernisation is accelerating investments across defence infrastructure and indigenous manufacturing programs, creating long-term opportunities for defence OEMs operating within the defence ecosystem.

India recorded its highest-ever defence production of approx. representing an 18% year-on-year growth

Defence exports also reached a record reflecting Indias growing position in the global defence manufacturing landscape

Since FY14, defence exports have increased nearly 34-fold, highlighting the rapid expansion of indigenous defence manufacturing capabilities.

The sector continues to benefit from strong policy support through Positive Indigenisation Lists, higher domestic procurement allocations, the expansion of defence industrial corridors, and increased participation by private-sector companies in strategic defence programs. More than 4,600 defence items are currently covered under indigenisation initiatives aimed at reducing import dependence and strengthening domestic manufacturing capabilities.

Indias naval modernisation strategy is emerging as a key long-term growth driver for specialised defence engineering companies. The Indian Navy plans to induct approximately new warships and support vessels over the next 3-4 years and is targeting growth in indigenous shipbuilding initiatives. Increasing indigenous content across modern naval platforms is further expected to drive sustained demand for specialised marine engineering, environmental control, refrigeration, and naval HVAC&R systems.

2. Global Defence HVAC Systems Overview

Modern defence platforms rely heavily on advanced HVAC&R and environmental control systems to ensure operational reliability in extreme climatic and combat conditions. These systems play an important role in maintaining optimal temperatures across sensitive electronics, radar systems, weapons infrastructure, control rooms, submarines, naval vessels, and mobile military platforms, where even minor thermal fluctuations can impact operational performance and readiness.

Unlike conventional HVAC applications, defence- grade cooling systems require highly specialised engineering capabilities, stringent quality compliance, rugged operating performance, and adherence to complex defence specifications. The sector, therefore, operates with high technological entry barriers and long qualification cycles.

Increasing investments in defence modernisation, indigenous naval programs, and next-generation military infrastructure are driving demand for rugged, energy-efficient, and highly specialised cooling systems globally. Reflecting this growing demand, the global defence HVAC systems market was valued at approximately USD 747.6 million

in 2025 and is projected to reach nearly USD 1.06 billion by 2033, growing at a CAGR of 4.8% during the forecast period. Rising investments in naval fleet expansion, submarine infrastructure, mission-critical electronics, and advanced onboard environmental systems are expected to remain key growth drivers for the industry over the coming years.

Naval Modernisation & Indigenous Shipbuilding

The Indian Navy remains one of the key pillars of Indias defence modernisation strategy. Indias ongoing naval expansion plans are expected to create significant long-term opportunities for specialised defence engineering and marine HVAC&R companies.

As modern naval platforms require advanced environmental control, refrigeration, and HVAC&R systems for operational reliability, this expansion is expected to drive rising demand for specialised marine cooling solutions and defence-grade engineering capabilities. Source: Marine Insight

SIAIUIORY REPORIS

The commissioning of indigenous naval platforms such as stealth frigates and anti-submarine warfare vessels further reflects the increasing localisation of critical defence systems and onboard engineering solutions. Recent naval platforms commissioned by the Indian Navy contain indigenous content exceeding 75%, reinforcing the Governments commitment toward domestic defence manufacturing. Source: The Times of India

This expanding naval ecosystem is expected to drive sustained demand for:

- High priority HVAC&R systems,

- Marine refrigeration systems,

- Environmental control systems,

- Electrical control panels,

- And specialised cooling solutions designed for warships and submarine platforms.

Unlike conventional HVAC applications, naval and submarine cooling systems require highly specialised engineering capabilities, stringent quality compliance, operational reliability, and adherence to defence-grade specifications. The sector, therefore, operates with high technological entry barriers and long qualification cycles.

Defence Sector Growth Drivers

The Indian Navy remains one of the key pillars of Indias defence modernisation strategy. Indias ongoing naval expansion plans are expected to create significant long-term opportunities for specialised defence engineering and marine HVAC&R companies.

Atmanirbhar Bharat & Indigenisation Push

The Government of India continues to strengthen domestic defence manufacturing capabilities through localisation initiatives and procurement reforms. More than 4,600 defence items are currently covered under indigenisation programs aimed at reducing import dependence and encouraging domestic manufacturing capabilities. Source: Financial Express

Rising Defence Exports

Indias emergence as a global defence manufacturing hub is reflected in the strong growth of defence exports.

Defence exports rose to supported by increasing international acceptance of Indian defence systems, components, and engineering solutions.

Maritime Security Focus

Growing geopolitical focus on the Indian Ocean Region and maritime preparedness continues to accelerate investments in naval modernisation, fleet expansion, and indigenous shipbuilding programs. This creates long-term demand visibility for specialised marine engineering and onboard environmental control systems.

Increased Private Sector Participation

The defence manufacturing ecosystem is witnessing rising participation from private sector companies with specialised engineering capabilities. Policy reforms, simplified procurement procedures, and higher localisation targets are enabling private players to become an integral part of Indias defence supply chain. Source: India Brand Equity Foundation

Business Overview

Shree Refrigerations Limited is a specialised defence-focused engineering company engaged in the manufacturing of advanced HVAC&R and refrigeration systems for naval and defence applications. The Company possesses over three decades of experience in designing and delivering mission-critical cooling and environmental control systems for the Indian defence sector.

The Company primarily operates in the niche segment of naval HVAC&R systems and has established capabilities across:

- Naval HVAC&R systems

- Marine refrigeration systems

- Chillers & refrigeration plants

- Electrical control panels

- Turnkey HVAC&R solutions for defence applications

- The Company is among the few Indian players

with registrations across key naval segments, including:

- Chillers & Refrigeration Plants

- Turnkey HVAC&R Solutions

- Electrical Control Panels

Its capabilities are supported by multiple defence-related certifications and approvals from authorities, including:

- Directorate of Quality Assurance (Warship Projects)

- Ministry of Defence

- Directorate of Electrical Engineering

- Ministry of Defence (Navy) for HVAC systems

- ISO 9001:2015

- ZED Gold Certification

With increasing localisation in defence procurement and continued naval expansion, the Company remains strategically positioned to support Indias indigenous defence manufacturing ecosystem.

Order Book Performance

The Company reported a healthy order book position during FY26, reflecting continued demand across its core defence-focused business segments.

Financial Performance & Ratio Analysis

Key Financial Ratios Disclosur e

SN	Ratios	FY26	FY25
1.	Current Ratio	3.28	2.74
2.	Debt-Equity Ratio	0.18	0.40
3.	Debt Service Coverage Ratio	2.44	3.47
4.	Return on Equity Ratio	12.67	14.21
5.	Trade Receivables Turnover	1.53	1.24
6.	Net Capital Turnover Ratio	1.13	1.27
7.	Return on Capital Employed	12.23	17.43

Companys turnover grew 56% during the financial year, which contributed to enhanced operating performance. This increase is reflected across various financial metrics, including higher sales, purchase and profit, along with corresponding growth in trade receivables, trade payables, working capital, current assets, current liabilities and capital employed.

Risks & Concerns

Volatile Refrigerant Pricing and Supply Chain Pressures

The industry continues to experience volatility in refrigerant prices, driven by global supply-and- demand imbalances. Supply chain disruptions and component shortages can directly impact procurement timelines and project deliveries.

Mitigation: SRL focuses on diversified sourcing, strategic vendor partnerships, and calibrated inventory planning to manage cost volatility and ensure supply continuity.

Dependence on Defence Procurement Cycles

The Companys operations are closely linked to defence procurement timelines, naval project execution schedules, and government spending priorities. Delays in approvals, project execution, or procurement cycles may impact order inflows and revenue recognition.

Mitigation: The Company continues to strengthen long-term relationships within the defence ecosystem while expanding execution capabilities across specialised naval applications.

Skilled Technical Workforce Availability

Defence-grade cooling systems for defence, marine, and data centre applications involve high-order technical complexity. Therefore, highly specialised and skilled engineers and technicians are in demand. However, the availability of specialised talent in areas such as system design, advanced controls, and precision installation remains limited. This talent gap can impact project timelines, service quality, and the scalability of operations.

In response, industry players are investing in structured training programs, certification initiatives, and collaborations with technical institutions to build a sustainable talent pipeline. Continuous upskilling is becoming essential to keep pace with evolving technologies and stringent performance requirements.

Mitigation: SRL invests in continuous training, inhouse capability building, and knowledge retention to strengthen its specialised talent pool.

Internal Control Systems & Their Adequacy

SRL has a robust internal control framework designed for thorough financial reporting, operational efficiency, and regulatory compliance. These systems are integrated into the companys daily workflows to protect assets and ensure all transactions are duly authorized.

Key Pillars of the Internal Control Framework

- Process-Led Methodology: Every financial transaction follows a transparent, documented trail with detailed Standard Operating Procedures (SOPs).

- Segregation of Duties: A strategic and planned division of responsibilities is maintained to ensure financial integrity and prevent unauthorized use of company assets.

- Asset Protection: Stringent controls are in place to secure both physical assets and intellectual property, which is critical given the companys specialized work in defence and marine sectors.

- Independent Oversight: The internal audit team periodically evaluates the effectiveness of these controls. Findings and recommendations are reported directly to the Audit Committee of the Board for structured corrective actions.

Human Resources & Industrial Relations

Workforce Overview

SRLs competitive advantage lies in a specialized workforce of approximately 328+ professionals, including design engineers, project managers, and certified technicians. Unlike generic HVAC teams, our people possess the unique domain expertise required to build specialised defence systems as per industry demands. This technical depth allows the SRL to translate complex client requirements into high-performance hardware for essential applications.

Capability Building

As the industry moves toward AI-driven infrastructure, SRL is proactively upskilling its engineering teams. Current training initiatives focus on mastering new technologies to improve cooling solutions. Our expansion initiatives are scaling to meet the growing demands of our customers.

Culture & Values

Our culture is centred on technical excellence, execution capability, and continuous learning. Through the SPACE framework and initiatives such as Great Learning Tuesdays, the Company focuses on continuous upskilling, compliance readiness, and workforce development to strengthen capabilities in specialised naval and defence applications. Combined with employee wellness and engagement initiatives, these efforts help maintain an agile, skilled workforce.

Cautionary Statement

This Management Discussion and Analysis contains forward-looking statements regarding the Companys objectives, expectations, projections, and industry outlook. Actual results may differ materially due to economic conditions, government policies, defence procurement cycles, regulatory changes, competition, and other external factors. The Company undertakes no obligation to update these statements except as required by applicable law.