SML Mahindra Ltd Management Discussions

1. INDUSTRY REVIEW

The domestic commercial vehicle (CV) industry witnessed a strong recovery in FY 2025-26, registering a growth of 12.6%, with total volumes reaching 10,79,871 vehicles, compared to 9,58,679 vehicles in FY 2024-25. This growth marks a significant turnaround from the marginal decline observed in the previous year and was driven by improved economic activity, continued high government spending on construction, mining, and road projects, Logistics & E-commerce growth, regulatory changes and stable financing conditions. The GST reduction from 28% to 18% in September 2025 gave a strong boost to Indias commercial vehicle industry. Lower acquisition costs made trucks, buses, and light CVs more affordable, encouraging fleet expansion and new purchases by transporters. The reduction in GST helped to boost demand in the second half of FY 2025-26, where the industry recorded a growth of 20.3% as against 3.9% during first half of fiscal 2026.

The Medium & Heavy Commercial Vehicle (M&HCV) segment recorded robust growth of 12.9% in the domestic market, with volumes increasing to 4,22,998 vehicles from 3,74,798 vehicles in FY 2024-25. Within this segment, truck volumes grew by 15.7%, supported by improved freight availability, higher fleet utilization, and pick-up in core sectors such as construction, mining, and logistics. However, bus volumes remained largely stable, registering a marginal decline of 0.2%, indicating a high base effect despite sustained demand from public and institutional segments.

The Light Commercial Vehicle (LCV) segment also demonstrated strong momentum, growing by 12.5% to 6,56,873 vehicles, against 5,83,881 vehicles in the previous year. Growth in the LCV truck segment stood at 12.5%, driven by recovery in last-mile delivery demand and rural consumption. The LCV bus segment also grew by 12.4%, supported by increased mobility needs, steady demand for school and staff transportation, and replacement demand.

On the export front, the CV industry continued its growth, with total exports rising by 17.4% to 94,793 vehicles from 80,751 vehicles in FY 2024-25. This growth was supported by favorable trade agreements, geopolitical shifts in supply chain and the cost competitiveness of Indian offerings particularly in Africa, the Middle East, and neighboring South Asian countries such as Bangladesh and Nepal. However geopolitical conflicts in Q4 FY26 resulted in shipment cancellations and order deferrals due to logistics uncertainty, higher freight costs, and elevated payment risks.

The Companys sales volume reached 16,632 vehicles in FY 2025-26 (14,221 vehicles in FY 2024-25) - up 17%.

Segment	Domestic	Exports
M&HCVs	2025-26	2024-25	% Change	2025-26	2024-25	% Change
Trucks	3,55,849	3,07,491	15.7	16,829	12,015	40.1
Buses	67,149	67,307	-0.2	16,874	11,241	50.1
Total M&HCVs-A	4,22,998	3,74,798	12.9	33,703	23,256	44.9
LCVs
Trucks	5,95,276	5,29,074	12.5	56,434	52,606	7.3
Buses	61,597	54,807	12.4	4,656	4,889	-4.8
Total LCVs-B	6,56,873	5,83,881	12.5	61,090	57,495	6.3
Total (A+B)	1,079,871	9,58,679	12.6	94,793	80,751	17.4

Source: SIAM Report March 2026

2. INDUSTRY OUTLOOK

According to industry experts, the Indian Commercial Vehicle (CV) industry is expected to witness moderate growth in FY 2026-27. The CV Industry is facing headwinds due to rising input costs caused by West Asia crisis and global uncertainties around fuel and exports.

M&HCV truck category is projected to record moderate growth in FY 2026-27, supported by sustained infrastructure investments, mining activity, better freight availability and replacement demand. Stable freight rates and healthy fleet utilization should aid profitability and encourage purchase decisions. Continued government capital expenditure on roads, railways, and logistics parks will provide a strong foundation for demand.

Light commercial vehicles (LCVs) trucks are also expected to witness moderate growth in FY 2026-27, supported by last-mile delivery demand and the continued expansion of e-commerce. Urbanization, along with the rise of organized retail and logistics, will further sustain momentum. Financing costs remain a critical factor posing potential constraints on demand. The segment has benefited from GST rationalization, which improved affordability and ownership economics. Steady demand from small businesses and rural markets, aided by consumption recovery, will underpin growth.

Growth in the bus segment is likely to continue, supported by steady institutional demand from STUs, along with sustained demand in school, staff, and tourism transport, will support volumes. Government-backed electric bus programs and robust replacement demand will likely accelerate fleet modernization.

3. COMPANY PERFORMANCE

During FY 2025-26, the Company achieved a sales volume of 16,632 vehicles, compared to 14,221 in the previous year - an increase of 17%, with higher sales in both the segments i.e. Passenger and Cargo vehicles. A break up of sales volume is given below:

	2025-26	2024-25
Passenger vehicles (buses)	11,220	10,006
Cargo vehicles (trucks)	5,412	4,215
Total	16,632	14,221

Total Income for FY 2025-26 is Rs. 2,846.2 crores against Rs.2,405.1 crores in the preceding year, as detailed below:

	2025-26	2024-25
Sale of Vehicles	2,661.3	2,244.0
Sale of Spare Parts	157.6	134.7
Other operating income	19.0	20.3
Other income	8.3	6.1
Total Income	2,846.2	2,405.1

Material cost at 76.1% (75.8%) of total income was primarily impacted by product mix, and rising commodity prices during the year.

Employee costs at Rs. 227.6 crores (Rs. 206.3 crores) as a percentage to total income was lower at 8.0% (8.6%), mainly due to increase in sales revenue.

Marketing cost (including packing & freight, warranty, loss allowance for trade receivables and sales promotion) at Rs. 100.6 crores (Rs. 79.8 crores) is 3.5% (3.3%) of total income.

Other operating & administrative expenses at Rs. 64.4 crores (Rs. 56.2 crores) made up 2.3% (2.3%) of total income.

Depreciation charge stood at Rs. 52.0 crores (Rs. 48.4 crores).

Operating profit increased to Rs. 286.7 crores, representing 10.1% of total income, up from Rs. 240.6 crores (10.0% of total income) last year, owing to higher sales volumes and effective cost management.

Finance costs were at Rs. 20.7 crores (Rs. 29.9 crores) due to lower utilization and reduction in interest cost. As a result of above, Profit before tax rose to Rs. 214.0 crores (7.5% of total income) against previous years Rs. 162.4 Crores (6.8% of total income). Profit after tax was Rs. 159.8 crores (Rs. 121.7 crores), which translates to an earnings per share of Rs. 110.39 (Rs. 84.08).

Net worth of the Company as on 31st March, 2026 was Rs. 519.3 crores (Rs. 382.7 crores as on 31st March 2025) made up of equity component of Rs. 14.5 crores (Rs. 14.5 crores) and other equity of Rs. 504.8 crores (Rs. 368.2 crores).

Year-end short-term and long-term borrowings (term loans including current maturities) from banks stood at Rs. 216.3 crores (Rs. 225.0 crores) and Rs. 63.9 crores (Rs. 96.7 crores) respectively. Property, Plant & Equipment including Capital Work-in-progress, right of use assets, intangible assets under development and Intangible assets stood at Rs. 384.0 crores (Rs. 380.5 crores).

Inventories at the year-end stood at Rs. 660.7 crores, increased from last years level of Rs. 578.0 crores, on account of higher stock of buses maintained to meet demand during peak school bus season (April-July). Year-end trade receivables were at Rs. 270.2 crores (Rs. 265.3 crores) and trade payables were Rs. 405.5 crores (Rs. 370.1 crores).

Cash & Bank Balances (including Fixed Deposits with Banks) were Rs. 20.7 crores (Rs. 19.8 crores).

KEY FINANCIAL RATIOS

Particulars	Year ended
	31 March 2026	31 March 2025	Change %
(i) Debtors Turnover	10.60	11.05	- 4.1%
(ii) Inventory Turnover	3.50	3.15	11.2%
(iii) Interest Coverage Ratio	13.82	8.05	71.6%
(iv) Current Ratio	1.25	1.17	7.0%
(v) Debt Equity Ratio	0.54	0.84	- 35.8%
(vi) Operating Profit Margin (%)	10.10%	10.03%	0.7%
(vii) Net Profit Margin (%)	5.63%	5.07%	11.0%
(viii) Return on Net worth (%)	36.08%	35.98%	0.3%

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

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

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 Budget 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. 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 Company has also laid down adequate internal controls for financial reporting. During the year, such controls were tested and no material weakness in their operating effectiveness was observed.

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 use of SAP ERP system also helps to strengthen the controls. It also has feature of recording an audit trail of each and every transaction, creating an edit log of each change made in books of accounts along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

5. HUMAN RESOURCES

The Company is committed to attract 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 (on-rolls) as of 31st March, 2026, was 1063 (990).

6. OPPORTUNITIES AND THREATS

The long-term outlook for the Indian commercial vehicle industry remains strong and resilient. Continued government investment in infrastructure across roads, highways, railways, and urban development, additionally increase in mining activities are likely to support volume expansion in the coming years.

Key projects such as Bharatmala Pariyojana, Sagarmala Programme, and the Dedicated Freight Corridor (enhancing freight efficiency), along with the PM Gati Shakti National Master Plan, Smart Cities Mission (driving urban construction activity), and the UDAN Scheme (improving regional connectivity and cargo movement), are already translating into higher freight movement and transport demand, thereby creating new opportunities across both M&HCV and LCV segments.

The government is focusing on commercial vehicle demand through heavy infrastructure investments in roads, railways, and logistics parks. Public transport initiatives, including bulk procurement of buses by state transport undertakings, are driving volumes. Policies supporting electric vehicle adoption, especially e-buses and LCVs, are accelerating fleet modernization. GST rationalization and financing support further enhance affordability, positioning CVs as a key enabler of Indias growth story.

The bus segment in India is expected to witness sustained growth supported by urbanization and rising public transport needs. Government investments in smart cities and urban mobility programs will expand city bus fleets. Intercity travel demand will also rise. Government policies on emission norms and the scrappage scheme are encouraging replacement of older buses with cleaner, more efficient models. Rising awareness of safety and environmental concerns is pushing institutions to adopt modern buses with advanced features. Overall, this segment will see steady growth, driven by fleet modernization, regulatory compliance, and full scale educational activity.

The Company sees good opportunities in special application vehicles such as GS ambulances, dual-cabin trucks designed for specialized applications for state departments (including electricity boards and municipal corporations), and riot control vehicles, along with four-wheel-drive transport vehicles (troop carriers and trucks) for defence and paramilitary forces, including state police.

Exports to the neighboring countries like Bangladesh, Nepal, Ghana and Bhutan is expected to improve the Companys export business. Expanding trade ties with regions like Africa, ASEAN, and the Middle East are enhancing market accessibility. In line with this, the Company has started exports to African countries including Angola, Gabon, Senegal, Guinea, and Ivory Coast. Further, efforts are underway to tap additional high potential markets with rising demand for commercial vehicles.

The Company is gearing up to seize the electric mobility opportunities through focused product development and strategic readiness. Its Electric Bus, showcased at Auto Expo 2025, set for rollout in the coming months. The ongoing conflict in West Asia presents challenges for the Indian commercial vehicle industry. Volatility in commodity prices, particularly crude oil, is likely to increase operating costs. Additionally, geopolitical tensions may disrupt supply chains, leading to delays and material shortages, thereby impacting production schedules and driving up costs. The resulting inflationary pressures could further dampen demand for commercial vehicles, affecting overall industry growth.

7. BUSINESS RISKS AND CONCERNS

Demand for commercial vehicles remains highly cyclical and closely aligned with the overall macroeconomic environment, including GDP growth, infrastructure spending, freight movement, interest rates, fuel and commodity prices, and evolving tax and emission regulations.

In recent years, the CV industry has undergone multiple regulatory changes, leading to significant capital expenditure and product redesign. The implementation of BS6 IOBD2 norms India and Electronic Stability Control (ESC) in FY 2023, followed by Fire Alarm and Protection System FAPS in FY 2024 for school buses, has substantially increased production costs due to design modifications, additional components, and technology upgrades. Further, the recent mandate for factory-fitted air-conditioning (AC) units in truck cabins has added to cost pressures, while aiming to improve driver comfort, safety, and overall operational efficiency. In addition, introduction of Advanced Driver Assistance Systems (ADAS) requirements in near future has further raised compliance costs, as manufacturers must integrate sensors, cameras, and software to enhance road safety and align with global standards. Collectively, these reforms are reshaping the CV sector, balancing higher costs with long-term gains in safety, sustainability, and driver welfare.

Further, frequent regulatory changes in the CV industry have required ongoing product redesign, structural modifications, and upgrades to manufacturing processes, significantly increasing cost pressures for OEMs. Compliance with evolving emission norms, enhanced safety requirements, and clean mobility mandates has further driven up input cost, which are challenging to pass on in highly price-sensitive markets. This may lead to deferred purchase decisions and extended replacement cycles, impacting demand momentum. While these regulations are critical for advancing sustainability, safety, and efficiency, their cumulative impact poses near-to medium-term challenges to demand stability, margins, and overall industry growth.

An emerging challenge for the CV industry is the shift toward electric mobility and sustainability practices. While this transition offers significant long-term opportunities, it also brings hurdles such as heavy R&D requirements, advancements in battery technology, high upfront costs, limited charging infrastructure, and skill shortages in EV servicing and maintenance.

Ongoing geopolitical tensions in West Asia have triggered volatility in global fuel prices, significantly raising logistics and transportation costs for the Indian commercial vehicle sector since late February 2026. Concurrent supply chain disruptions-such as shipping delays, route diversions, and shortages of key inputs including crude oil, LNG, aluminium, and semiconductors-have further increased freight rates, extended timelines, and elevated manufacturing costs, thereby pressuring fleet profitability.

In response, the Company has taken targeted measures to mitigate these challenges. To ensure immediate production stability, it has directed suppliers to build inventories of key raw materials and has realigned its supply chain based on the availability of fuel and electric-powered facilities. To protect margins, it has implemented calibrated price increases, tightened cost controls, and optimized product mix. Additionally, the Company is conserving liquidity through disciplined cash flow management, reduction in dealer credit cycles, and rationalization of non-essential capital expenditure.

Further, the Company will continue to focus on product development and upgradation, while driving innovative and cost-effective technological solutions across its operations. It is placing emphasis on low-cost automation to improve efficiency, strengthening after-sales service to enhance customer satisfaction, and engaging customers through targeted initiatives. At the same time, the Company is reforming its distribution network to improve market reach and implementing rigorous cost optimization measures. These efforts are designed to ensure competitiveness, resilience, and sustainable growth in a dynamic industry environment.

The Risk Management Committee of the Board actively monitors these evolving risks and 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.