SML ISUZU Ltd Management Discussions

1. INDUSTRY REVIEW

The domestic commercial vehicle (CV) industry registered a marginal decline of 1.2% in FY 2024 25 with a volume of 956,671 vehicles (previous year: 968,770) against flat growth of 0.6 percent in FY 2023-24. This marginal contraction was primarily due to the high base effect, adverse impact of General Elections on infrastructure projects and elevated interest rates for most of the year. Notably, the bus segment remains a bright spot, and robust export growth emerged as a key pillar supporting overall industry performance.

The Medium & Heavy Commercial Vehicle (M&HCV) truck segment declined by 4.0%, with sales at 307,491 vehicles (previous year: 320,244), primarily attributed to a high base effect, slowdown in infrastructure activities in first half of the year due to General Elections, and subdued freight rates coupled with moderated fleet utilization.

The Light Commercial Vehicle (LCV) truck segment witnessed a contraction of 2.8%, with volumes at 528,045 vehicles (previous year: 543,008), impacted by the high base effect, sustained slowdown in e-commerce-led last-mile delivery demand and competition from electric three-wheelers (e3Ws).

In contrast, the bus segment registered significant growth of 14.8% with volumes reaching 121,135 vehicles against 105,518 in FY 2023-24, driven by increased passenger mobility, steady demand for school and staff transportation, and replacement demand from State Road Transport Undertakings supported by scrappage of old vehicles.

On the export front, CV volumes surged by 23.0%, reaching 80,986 vehicles, up from 65,818 vehicles in the previous year. This growth was driven by improved demand in key overseas markets, supported by strong government initiatives and enhanced market access through trade agreements, and the cost competitiveness of Indian offerings particularly in Africa, the Middle East, and neighboring South Asian countries such as Bangladesh and Nepal.

The Companys sales volume reached 14,221 vehicles in FY 2024-25 (13,797 vehicles in FY 2023-24) up 3.1%.

Segment	Domestic			Exports
M&HCVs	2024-25	2023-24	% Change	2024-25	2023-24	% Change
Trucks	3,07,491	3,20,244	-4.0	12,015	8,211	46.3
Buses	66,328	53,768	23.4	11,236	10,014	12.2
Total M&HCVs-A	3,73,819	3,74,012	-0.1	23,251	18,225	27.6
LCVs
Trucks	5,28,045	5,43,008	-2.8	52,846	43,962	20.2
Buses	54,807	51,750	5.9	4,889	3,631	34.6
Total LCVs-B	5,82,852	5,94,758	-2.0	57,735	47,593	21.3
Total (A+B)	9,56,671	9,68,770	-1.2	80,986	65,818	23.0

Source: SIAM Report March 2025

2. INDUSTRY OUTLOOK

During Q1 FY 2025 26, the CV industry witnessed a marginal decline of 0.6%, with total volumes at 223,215 vehicles compared to 224,575 in the same period last year. The passenger carrier segment recorded a growth of 7.7%, driven by sustained demand from schools and staff segment, increased intercity travel, and fresh government bus tenders. In contrast, the M&HCV truck segment registered a decline of 4.5%, primarily due to moderating freight movement, delayed infrastructure execution, and the impact of a high base effect. The LCV truck segment remained largely stable, posting a slight de-growth of 0.6%, reflecting stabilized replacement demand and softer rural freight activity. Export delivered a notable performance with 23.4% increase.

According to industry experts, the Indian commercial vehicle (CV) industry is expected to see a moderate recovery in FY2025-26. The growth in FY 2025-26 is expected to be driven by a combination of factors such as improvements in construction and infrastructure activities, favourable monsoon predictions, better financing conditions, sustained rural demand, and replacement demand prompted by aging fleets and incentives under the Governments scrappage policy. Further, the reduction in interest rates is likely to lower financing costs thereby enhancing affordability for buyers and supporting overall demand. Ongoing government initiatives in infrastructure development, increased budgetary allocations, and enhanced highway connectivity are expected to drive growth in the coming years.

The M&HCV truck category is expected to witness a marginal growth in FY 2025-26. The Governments renewed focus on infrastructure development is expected to stimulate demand for commercial vehicles. The rollout of stalled projects and increased capital outlay in roads, logistics, and urban mobility should support medium and heavy commercial vehicle (M&HCV) demand.

Light commercial vehicles (LCVs) trucks are expected to witness a moderate recovery in FY 2025-26, driven by an improving economic environment and ongoing recovery in the e-commerce segment, which are likely to remain the key drivers for the segment.

Bus segment is expected to continue its growth trajectory in FY 2025-26 supported by strong replacement demand expected from State Road Transport Undertakings with phasing out of older government vehicles and steady demand anticipations from schools and offices.

However, timely execution of infrastructure projects, an uncertain global environment, commodity price fluctuations, and interest rate movements remain critical factors to be monitored for the industry.

While the near-term outlook for the domestic CV industry remains cautious due to regulatory cost pressures, demand moderation in select segments, and evolving freight economics, the long-term fundamentals remain intact.

3. COMPANY PERFORMANCE

During FY 2024-25, the Company achieved a sales volume of 14,221 vehicles, compared to 13,797 in the previous year an increase of 3.1%, primarily due to higher sales of Passenger vehicles. A break up of sales volume is given below: (Nos.)

	2024-25	2023-24
Passenger vehicles (buses)	10,006	9,472
Cargo vehicles (trucks)	4,215	4,325
Total	14,221	13,797

To enhance truck sales, the Company continues to focus on retail-based BTL (Below-the-Line) activities, expand its distribution network, strengthen review mechanisms, and provide comprehensive training to field teams to equip them with extensive market and competitive knowledge.

Total Income for FY 2024-25 was Rs. 2,405.1 crores against Rs. 2,201.3 crores in the previous year, as detailed below:

(Rs. in Crores)

	2024-25	2023-24
Sale of Vehicles	2,244.0	2,058.7
Sale of Spare Parts	134.7	121.0
Other operating income	20.3	16.2
Other income	6.1	5.4
Total Income	2,405.1	2,201.3

Material cost at 75.8% (77.1%) of total income was lower, primarily due to the product mix, higher per-vehicle realization and softening of commodity prices during the year.

Employee costs at Rs. 206.3 crores (Rs. 195.7 crores) as a percentage to total income was lower at 8.6% (8.9%), mainly due to increase in sales revenue.

Marketing cost (including allowance for doubtful trade receivables, bad debts / advances written off, packing & freight, warranty and sales promotion) at Rs. 79.8 crores (Rs. 73.4 crores) remained at last year level of 3.3% of total income.

Other operating & administrative expenses at Rs. 56.2 crores (Rs. 50.6 crores) made up 2.3% (2.3%) of total income, same as last year.

Depreciation charge stood at Rs. 48.4 crores (Rs. 47.5 crores).

Operating profit increased to Rs. 240.6 crores, representing 10.0% of total income, up from Rs. 184.3 crores (8.4% of total income) last year, owing to higher sales volumes and effective cost management.

Finance costs were at Rs. 29.9 crores (Rs. 30.4 crores).

As a result of above, Profit before tax rose to Rs. 162.4 crores (6.8% of total income) compared to the previous years Rs. 106.5 Crores (4.8% of total income). Profit after tax was Rs. 121.7 crores (Rs. 107.9 crores), which translates to an earnings per share of Rs. 84.08 (Rs. 74.54).

Net worth of the Company as of 31st March, 2025 was Rs. 382.7 crores (Rs. 285.6 crores as on 31st March 2024) made up of equity component of Rs. 14.5 crores (Rs. 14.5 crores) and other equity of Rs. 368.2 crores (Rs. 271.1 crores).

Year-end short-term and long-term borrowings (term loans including current maturities) from banks stood at Rs. 225.0 crores (Rs. 350.0 crores) and Rs. 96.7 crores (Rs. 65.6 crores) respectively. Property, Plant & Equipment including Capital Work-in-progress, right of use assets, intangible assets under development and Intangible assets stood at Rs. 380.5 crores (Rs. 351.1 crores).

Inventories at the year-end stood at Rs. 578.0 crores, marginally decreasing from last years level of Rs. 579.7 crores.

Year-end trade receivables were at Rs. 265.3 crores (Rs. 169.0 crores) and trade payables were Rs. 370.1 crores (Rs. 331.9 crores).

Cash & Bank Balances (including Fixed Deposits with Banks) were Rs. 19.8 crores (Rs. 48.7 crores).

KEY FINANCIAL RATIOS

	Year ended
Particulars	31 March 2025	31 March 2024	Change %
(i) Debtors Turnover	11.05	17.95	- 38.4%
(ii) Inventory Turnover	3.15	3.39	- 7.1%
(iii) Interest Coverage Ratio	8.05	6.07	32.6%
(iv) Current Ratio	1.17	1.01	16.3%
(v) Debt Equity Ratio	0.84	1.46	- 42.2%
(vi) Operating Profit Margin (%)	10.03%	8.39%	19.5%
(vii) Net Profit Margin (%)	5.07%	4.91%	3.2%
(viii) Return on Net worth (%)	35.98%	46.44%	- 22.5%

Reason for variation of 25% or more in Key Financial Ratio:

Debtors turnover ratio declined mainly due to a higher level of trade receivables as at 31 March 2025, resulting from increased sales in the last quarter.

Due to higher earnings before depreciation, finance costs and tax, the interest coverage ratio is high.

With the reduction in short term debt and an increase in total equity on account of profit during the year, the Debt Equity ratio has improved compared to previous year.

4. INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company conducts its affairs within the framework of well-defined business plans, which provide appropriate guidance and direction to its employees. The Annual Business Plan for each fiscal year is formulated based on well-defined processes and is approved by the Board of Directors. Finance & Accounts function is adequately staffed by professionally qualified and experienced personnel.

The Company has an effective reporting and monitoring system, which is regularly reviewed at the meetings of the Audit Committee and the Board while considering quarterly business performance. Business projections are revised in relation to market expectations, and appropriate actions are taken by the Management to offset adverse changes to the extent possible. Policies and procedures have been laid down to provide reasonable assurance that assets are safeguarded from risks of unauthorized use or disposition and that transactions are recorded and reported with propriety, accuracy and speed. These aspects of operations are regularly reviewed and verified by the Internal Auditors and the Statutory Auditors.

The Internal Auditor has carried out an audit based on the Internal Audit Plan, as approved by the Audit Committee which also covers testing of established internal controls and standard operating procedures. Significant observations of the Auditors are presented to the Audit Committee for its consideration and guidance. The Audit Committee also reviews the adequacy and effectiveness of the Companys internal financial controls.

5. HUMAN RESOURCES

The Company is committed to attracting top talent, fostering an engaging workplace, retaining high performers, and strengthening organizational commitment among employees. Raising employees involvement in the decision-making process and grooming them for leadership positions has been an ongoing process. Industrial relations and the work atmosphere remained cordial throughout the year, with sustained communication and engagement with the workforce through various forums. Employee strength as of 31st March, 2025, was 990 (957).

6. OPPORTUNITIES AND THREATS

The long-term outlook for the Indian commercial vehicle industry remains intact. The sustained push in infrastructure development with higher infrastructure capital outlay in the recent budgetary allocation, a steady increase in mining activities and the improvement in roads/highway connectivity are expected to support volumes going forward.

Key projects such as Bharatmala Pariyojana, Gati Shakti Master Plan, dedicated freight corridors, and smart city developments are already translating into higher freight movement and transport demand. Moreover, rising rural and semi-urban consumption, and the shift towards organized fleet operations are creating new opportunities in both M&HCV and LCV segments.

The Governments ongoing focus on scrappage of old vehicles, cleaner mobility, and emission regulations is also expected to generate strong replacement demand, particularly from aging fleet segments. Expanding mining & construction activities, along with multi-modal logistics park development, are likely to support volumes in the truck segment.

Bus demand is expected to grow further, driven by continued investments in public transport, steady demand from schools, staff segment and tourism. Government initiatives promoting cleaner, safer, and more efficient buses especially through various schemes will further accelerate the adoption of electric and CNG buses, strengthening the segments medium to long-term outlook.

The Company sees good opportunities in special application vehicles such as 4-wheel-drive transport vehicles for defence and paramilitary forces (including state police), water tankers for rural areas and municipal corporations, dual-cabin trucks for specialized applications, and GS ambulances, which are expected to drive volumes.

Exports to neighboring countries is improving, supported by the Government of Indias initiatives and revival of demand in these countries. Expanding trade ties with regions like Africa, ASEAN, and the Middle East is enhancing market accessibility. In line with this, the Company has started exports to African countries including Angola, Gabon, Senegal, Guinea, and Algeria. Further, efforts are underway to tap additional high potential markets with rising demand for commercial vehicles. The favorable export environment in Bangladesh, Nepal, Sri Lanka, Ghana and Bhutan is expected to improve the Companys export business.

The growing shift towards electric vehicles, driven by rising fuel costs, environmental regulations, and government support, is creating strong opportunities. The Company is preparing to tap this opportunity through focused product development and strategic readiness. Recently, the Company has also displayed its Electric Bus at Auto Expo 2025.

Uncertain global environment, volatile commodity prices, supply chain disruptions, the availability of skilled manpower especially in emerging technologies, etc. will remain a challenge for the CV industry.

Key challenges, during the current fiscal and going forward, for the Company would be to expand its product portfolio, capacity utilization, enhance operational efficiencies, and comply with the new regulatory requirements announced by the government.

7. BUSINESS RISKS AND CONCERNS

The demand for commercial vehicles is highly sensitive to macroeconomic conditions, including GDP growth, infrastructure spending, freight movement, interest rates, fuel and commodity prices, tax and emission regulations, etc. Unfavourable trends in any of these factors pose a risk of demand contraction for commercial vehicles.

In recent years, the CV Industry has seen a series of regulatory changes, requiring substantial capital expenditure and product redesign. In FY 2022-23, CV Industry implemented BS6-IOBD2 (Integrated On-board Diagnostics for both CNG and Diesel vehicles) and Electronic Stability Control (ESC) which had significantly impacted the cost of production due to changes in product designs, additional/modified components, and an increase in other costs. During FY 2023-24, the CV Industry implemented the Fire Alarm & Protection System (FAPS) in school buses, which has significantly increased the production cost due to modifications in designs and additional investment in new technologies, components, and manufacturing processes up-gradations.

The Government has now mandated the inclusion of factory-fitted air-conditioning (AC) units in truck cabins. This required significant structural modifications to cabin design, upgradation of manufacturing processes, and the sourcing of additional components. It will increase production costs and, consequently, impact vehicle prices.

Frequent regulatory changes have heightened cost pressures on OEMs, posing significant challenges to demand sustainability, especially in price-sensitive market segments.

Another emerging concern is the transition towards electric mobility and sustainability practices. While this transition presents long-term opportunities, it also poses significant challenges in terms of substantial investments in R&D, battery technology, high upfront costs for electric vehicles, limited charging infrastructure, and skill gaps in electric vehicle service and maintenance ecosystems.

Moreover, ongoing global geopolitical issues, volatility in input costs, supply chain disruptions, high base effect and the availability of skilled manpower continue to be operational risks for the industry.

To address the above challenges, the Company continues to focus on product development & up-gradation, innovative and cost-effective technological solutions, low-cost automation, better after-sales service, customer engagement through various activities, reforming the distribution network, and cost optimization across its operations to remain competitive in the market.

The Risk Management Committee of the Board actively monitors these evolving risks and therefore, regularly evaluates the companys risk mitigation framework to ensure readiness for current and emerging challenges in the business environment.

8. CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.