Sobhagya Mercantile Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

GLOBAL ECONOMY

Global growth is projected at 3.3 percent both in 2025 and 2026, below the historical (2000 19) average of 3.7 percent.

The forecast for 2025 is broadly unchanged from that in the October 2024 World Economic Outlook (WEO), primarily on account of an upward revision in the United States offsetting downward revisions in other major economies. Global headline inflation is expected to decline to 4.2 percent in 2025 and to 3.5 percent in 2026, converging back to target earlier in advanced economies than in emerging market and developing economies.

Medium-term risks to the baseline are tilted to the downside, while the near-term outlook is characterized by divergent risks.

Upside risks could lift already-robust growth in the United States in the short run, whereas risks in other countries are on the downside amid elevated policy uncertainty.

Policy-generated disruptions to the ongoing disinflation process could interrupt the pivot to easing monetary policy, with implications for fiscal sustainability and financial stability.

Managing these risks requires a keen policy focus on balancing trade-offs between inflation and real activity, rebuilding buffers, and lifting medium-term growth prospects through stepped-up structural reforms as well as stronger multilateral rules and cooperation.

FORCES SHAPING THE OUTLOOK

The global economy is holding steady, although the degree of grip varies widely across countries. Global GDP growth in the third quarter of 2024 was 0.1 percentage point below that predicted in the October 2024 WEO, after disappointing data releases in some Asian and European economies.

Growth in China, at 4.7 percent in year-over-year terms, was below expectations. Faster-than-expected net export growth only partly offset a faster-than-expected slowdown in consumption amid delayed stabilization in the property market and persistently low consumer confidence.

Growth in India also slowed more than expected, led by a sharper-than-expected deceleration in industrial activity. Growth continued to be subdued in the euro area (with

Germanys performance lagging that of other euro area countries), largely reflecting continued weakness in manufacturing and goods exports even as consumption picked up in line with the recovery in real incomes. In Japan, output contracted mildly owing to temporary supply disruptions. By contrast, momentum in the United States remained robust, with the economy expanding at a rate of 2.7 percent in year-over-year terms in the third quarter, powered by strong consumption.

Where inflation is proving stickier, central banks are moving more cautiously in the easing cycle while keeping a close eye on activity and labor market indicators as well as exchange rate movements. A few central banks are raising rates, marking a point of divergence in monetary policy.

Economic policy uncertainty has increased sharply, especially on the trade and fiscal fronts, with some differentiation across countries. Expectations of policy shifts under newly elected governments in 2024 have shaped financial market pricing in recent months. Bouts of political instability in some Asian and European countries have rattled markets and injected additional uncertainty regarding stalled progress on fiscal and structural policies. Geopolitical tensions, including those in the Middle East, and global trade frictions remain elevated.

RISKS TO THE OUTLOOK

In the medium term, the balance of risks to the outlook is tilted to the downside, with global growth poised to be lower than its 2025 26 average and five-year-ahead forecasts at about 3 percent. Near-term risks, in contrast, could reinforce divergences across countries: they are tilted to the upside in the United States, whereas downside risks prevail in most other economies amid elevated policy uncertainty and headwinds from ongoing adjustments (in particular, energy in Europe and real estate in China).

An intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains. Growth could suffer in both the near and medium term, but at varying degrees across economies.

Looser fiscal policy in the United States, driven by new expansionary measures such as tax cuts, could boost economic activity in the near term, with small positive spillovers onto global growth. Yet in the longer run, this may require a larger fiscal policy adjustment that could become disruptive to markets and the economy, by potentially weakening the role of US Treasuries as the global safe asset, among other things. Furthermore, higher borrowing to fund looser fiscal policy could increase demand for capital globally, leading to an increase in interest rates and possibly depressing economic activity elsewhere.

Inflation dynamics could be shaped in opposite directions by these factors. The magnitude of the inflationary effect from tariffs is especially uncertain. While recent empirical studies find high pass-through to import prices, estimates of pass-through to consumer prices are lower and subject to significant uncertainty. Nevertheless, compared with what took place in earlier episodes of trade disputes, several factors suggest that upside risks to inflation from tariff hikes could be higher this time.

First, the global economy is coming out of the most significant inflation surge in recent memory. Inflation expectations, especially in many advanced economies, are farther above the central bank target today than in 2017 21.

The risk of renewed inflationary pressures could prompt central banks to raise policy rates and intensify monetary policy divergence. Higher-for-even-longer interest rates could worsen fiscal, financial, and external risks. A stronger US dollar, arising from interest rate differentials and tariffs, among other factors, could alter capital flow patterns and global imbalances and complicate macroeconomic trade-offs.

In addition to risks from economic policy shifts, geopolitical tensions could intensify, leading to renewed spikes in commodity prices. The conflicts in the Middle East and Ukraine could worsen, directly affecting trade routes as well as food and energy prices. Commodity-importing countries may be particularly affected, with the stagflationary impact of higher commodity prices compounded by an appreciating dollar.

(Source: IMF World Economic Outlook, Jan 2025)

INDIAN ECONOMY

Real GDP is projected to grow by 6.3% in fiscal year 2025-26 and 6.4% in 2026-27. Private consumption will gradually strengthen, driven by rising real incomes that are helped by moderate inflation, recent tax cuts and a strengthening of the labour market. Investment will be supported by declining interest rates and substantial public capital spending, but higher US tariffs will weigh on exports. Inflation will remain contained at around 4% as economic activity grows around trend. A less benign monsoon season or higher global commodity prices could drive up food prices and inflation.

The Union Budget for the fiscal year 2025 26 foresees a moderate fiscal consolidation, aiming to reduce the headline budget deficit from 4.8% of GDP in fiscal year 2024-25 to 4.4% in 2025-26. With inflation firmly within the target range, monetary policy is gradually expected to become more accommodative. Better targeting of energy and fertiliser subsidies, and an overhaul of tax expenditures, could enhance spending efficiency and free resources for other policy priorities. Improving logistics efficiency, upgrading digital infrastructure, and enhancing policy predictability, particularly in tax administration, could bolster private investment.

Domestic demand support activity

Real GDP expanded by 6.2% year-on-year in the third quarter of FY2024-25, supported by robust domestic demand and strong investment. High-frequency indicators suggest that economic activity remained solid in the fourth quarter. Industrial production rose by 3.7% year-on-year in the first four months of 2025, with the manufacturing sector regaining strength. Indias current account deficit widened in the first three quarters of FY2024-25, due to a persistent merchandise trade deficit that was only partially offset by strong services exports. More recent data suggest a slight improvement in the trade balance. The labour market was resilient in 2024 with the labour force participation rate increasing to 45.1% and employment continuing to rise. Survey data from early 2025 show optimism in the labour market, especially in sectors such as information technology, retail, and finance.

(Source: OECD)

Infrastructure industry overview

In the Union Budget 2025-26, capital investment outlay for infrastructure has been increased to Rs. 11.21 lakh crore (US$ 128.64 billion), which would be 3.1% of GDP. The Infrastructure Finance Secretariat is established to enhance opportunities for private investment in infrastructure that will assist all stakeholders in more private investment in infrastructure.

The Indian government has introduced various formats to attract private investments, especially in roads and highways, airports, industrial parks and higher education and skill development sectors. The Second Asset Monetization Plan aims to reinvest Rs. 10 lakh crore (US$ 115.34 billion) in capital for new projects over the period 2025-30 to recycle capital and attract private sector participation.

High budgetary allocation for infrastructure

In the Union Budget 2025-26, capital investment outlay for infrastructure has been increased to Rs. 11.21 lakh crore (US$ 128.64 billion), which would be 3.1% of GDP.

11.21 Lakh Crore

	2021 (Current prices, INR trillion)	2021 (Percentage changes, volume)	2022	2023	2024	2025	2026
GDP at market prices	236	9.7	7.6	6.5	6.2	6.3	6.4
Private consumption	143.5	7	6.2	5.7	6.2	6.3	6.4
Government consumption	24.7	3.4	1.2	2.1	3.1	4.6	4.7
Gross fixed capital formation	63.8	15.7	8.4	8.4	6.8	6.5	6.5
Final domestic demand	233.4	10.2	6.9	6.2	6.5	6.3	6.4
Stockbuilding? ?	2.3	0.3	0.3	-0.2	0	0	0
Total domestic demand	242.2	10.1	7	6	6.4	6.2	6.3
Exports of goods and services	56.7	14.3	13.1	6.4	5.7	6.4	6.5
Imports of goods and services	65	29.3	8.8	7.8	6	6.5	6.6
Net exports?	-	-	-0.7	-0.8	-0.1	-0.1	-0.1
GDP deflator	-	5.9	6.2	2.6	2.6	3.7	2.7
Consumer price index	-	5.1	6.7	5.4	4.8	4.6	4
General government financial balance (% of GDP)	-	-8.2	-8.9	-8.7	-7.5	-4.1	-1.1
Current account balance (% of GDP)	-	-0.9	-1	-1	-1	-0.1	-0.1

Allocation in Budget ‘25-26

As of March 2022, the Ministry-wise progress of projects is as follows:

Ministry of Road Transport and Highways has completed 1,41,190 km of National Highways out of the set target of 2,00,000 km for 2024-25.

Department of Telecommunication has created the OFC (Optical Fibre Cable) network of 33,00,997 km against the set target of 50,00,000 km for 2024-25.

Ministry of Petroleum has completed the laying of a gas pipeline of 20,000 km out of 34,500 km targeted for the same period.

Ministry of Power has surpassed its target for laying the transmission network of 4,54,200 km.

India has the second largest road network in the world and its National Highways expanded from 65,569 km in 2004 to a total length of 1,46,145 km in 2024, forming the primary arterial network of the country. The Government of India has undertaken several initiatives to enhance and strengthen the National Highways network through flagship programmes such as the Bharatmala Pariyojana which includes the subsumed National Highway Development Project (NHDP), the Special Accelerated Road Development Programme for the North-East Region (SARDP-NE), and many more ongoing projects.

Steel industry overview

The India Steel Market size is estimated at 148.28 million tons in 2025, and is expected to reach 230.03 million tons by 2030, at a CAGR of 9.18% during the forecast period (2025-2030).

India has established itself as a global steel manufacturing powerhouse, currently holding the position of the worlds second-largest producer of crude steel after surpassing Japan. The countrys steel sector demonstrated robust production capabilities in FY23, achieving an annual output of 125.32 million tons of crude steel and 121.29 million tons of finished steel. The industry has also maintained a strong trade position, with net exports reaching 6.72 million tons against imports of 6.02 million tons in FY 2022-23, highlighting Indias growing self-sufficiency and export capabilities in steel production

The Indian government has implemented comprehensive long-term support policies to strengthen the domestic steel sector, with the National Steel Policy 2017 serving as a cornerstone initiative. Through this policy, the government aims to develop India into a technologically advanced steel manufacturing hub, focusing on achieving a total crude steel capacity of 300 MTPA by 2030-31. The policy framework specifically targets the expansion of state-owned entities, with plans to increase SAILs operational capacity from the existing 19.51 MTPA to approximately 35.65 MTPA by 2030-31. Additionally, the governments Production Linked Incentive (PLI) Scheme, approved with an outlay of INR 6,322 crore, is scheduled to commence from FY 2023-24, demonstrating the governments commitment to boosting domestic production.

Infrastructure construction industry overview

The Indian infrastructure market, valued at $204.06 million in 2025, is poised for robust growth, exhibiting a Compound Annual Growth Rate (CAGR) of 9.57% from 2025 to 2033. This expansion is fueled by several key drivers. Government initiatives focused on enhancing social infrastructure (e.g., affordable housing, healthcare facilities), substantial investments in transportation infrastructure (roads, railways, airports), and the burgeoning need for improved utilities infrastructure (electricity, water management) are primary catalysts.

The forecast period (2025-2033) promises substantial expansion across various infrastructure segments. The transportation infrastructure segment is projected to experience particularly strong growth due to planned expansions in national highway networks, metro rail systems, and airport infrastructure.

Manufacturing infrastructure will benefit from the "Make in India" initiative, attracting investments in industrial parks and manufacturing facilities.

The forecast period (2025-2033) promises substantial expansion across various infrastructure segments. The transportation infrastructure segment is projected to experience particularly strong growth due to planned expansions in national highway networks, metro rail systems, and airport infrastructure. Manufacturing infrastructure will benefit from the "Make in India" initiative, attracting investments in industrial parks and manufacturing facilities. The forecast period (2025-2033) promises substantial expansion across various infrastructure segments. The transportation infrastructure segment is projected to experience particularly strong growth due to planned expansions in national highway networks, metro rail systems, and airport infrastructure.

Manufacturing infrastructure will benefit from the "Make in India" initiative, attracting investments in industrial parks and manufacturing facilities.

Infrastructure engineering Industry overview

Infrastructure engineering is undergoing a revolutionary shift, from being a supporting foundation to a genuine strategic enabler for companies worldwide. We are seeing an accelerating demand for cloud-native models, automation through Infrastructure as Code (IaC), and a strong emphasis on reliability. One of the key drivers of this change is Site Reliability Engineering (SRE), which employs a software engineering discipline to introduce operations, so that our digital infrastructure is not operational but always up, responsive, and scalable. No longer does it take server management alone; its about developing fault-tolerant, auto-repair systems that underlie all cutting-edge apps and services, keeping them running smoothly and reliably, so businesses can thrive in a world going digital at breakneck speeds.

Stone crushing industry overview

The India crushed stone mining market import shipments witnessed a robust CAGR from 2020-2024. The growth rate between 2023 and 2024 accelerated significantly, indicating a period of rapid expansion. The market displayed strong momentum and a clear upward trend during the specified period.

The India crushed stone mining market is witnessing significant growth as the construction and infrastructure industries utilize crushed stones as essential materials. This markets outlook is driven by factors such as the increasing demand for crushed stones in road construction, building foundations, and concrete aggregates, the growth of the construction sector, and the adoption of crushed stones for their strength and durability. Additionally, the development of advanced crushing and mining technologies and the rising focus on sustainable construction materials are further contributing to market growth. The market overview suggests a positive outlook for the India crushed stone mining market, with opportunities for mining companies to cater to the construction and infrastructure sectors.

Mining Industry overview

In the Union Budget 2025-26 presented by the Union Minister of Finance and Corporate Affairs Smt Nirmala Sitharaman today, Mining has been identified along with five other domain areas, namely Taxation; Power Sector; Urban Development; Financial Sector; and Regulatory Reforms, for transformative reforms, which will augment Indias growth potential and global competitiveness during the next five years.

The budget has also announced the elimination of customs duty on several scrap items, which will promote the recycling industry in the country. The elimination of copper, brass, lead and zinc scraps will benefit the domestic secondary producers by reducing their costs. This will also provide a level playing field vis-?-vis international secondary producers, and enable Indian players to compete globally and increase exports of secondary/downstream products. Duty elimination on scraps of 12 critical minerals (including copper), cobalt powder and lithium ion battery scrap will provide feedstock to the critical mineral recycling industry at a lesser cost, making this industry more competitive, and also promote investments in newer capacity.

Equipment leasing industry overview

The India Construction Equipment Rental Market is expected to register a CAGR of 5.10% during the forecast period. Infrastructure development and automation in construction and manufacturing have significantly fueled market growth. Recent road development programs by central and state governments have driven notable expansion in the road construction machinery market. Due to high equipment and maintenance costs, theres been a surge in renting or leasing construction equipment. Beyond cost savings, renting offers additional advantages: rental companies not only provide the machinery but also include professional operators and drivers in the rental agreement. Construction contractors prefer renting machinery for short-term applications over purchasing, as it ensures optimal machinery utilization. India is currently home to approximately 1,263 ongoing construction projects spanning sectors like power, roads, railways, telecom, and shipping. Furthermore, with rising demand for office spaces in tier 1 and 2 cities, the appetite for rental construction equipment in India is set to grow during the forecast period.

Material Handling Segment Emerges as the Largest Segment Material handling equipment, especially cranes, plays a pivotal role in Indias construction and infrastructure projects, making it the dominant segment in the countrys construction equipment rental market. Indias ambitious mega infrastructure projects, including the Bullet Train, Central Vista, and dedicated freight corridors, are set to reshape the nation by 2030. These initiatives, requiring extensive crane and heavy machinery use for construction and logistics, will drive a surge in demand for material handling equipment.

Given the scale and extended timelines of these projects, theres not only a need for high-capacity cranes but also a consistent demand for rental material handling equipment. As these mega projects roll out across sectors like transportation and urban development, they promise to keep the equipment rental market thriving. With rising investments in both residential and commercial sectors, coupled with proactive measures from the Indian government, the countrys construction sector is poised for significant growth.

OPPORTUNITY AND THREATS

Opportunities:

Policy Support and Public Investments: Government initiatives such as the PM Gati Shakti National Master Plan, increased CAPEX allocation, and the public-private partnership (PPP) model are creating robust opportunities in the infrastructure sector.

Coal Mining Reforms: Reforms aimed at increasing domestic coal production and allowing commercial mining present new business opportunities in the mining segment.

Growing Demand for Infrastructure Services: Rapid urbanization and industrialization are driving demand for infrastructure engineering consultancy and construction services.

Equipment Leasing Demand: Increasing project sizes and capital intensity of infrastructure development projects is fueling demand for modern equipment leasing.

Threats:

Commodity Price Volatility: Fluctuations in prices of steel, cement, and fuel driven by global geopolitical tensions and supply chain disruptions pose a risk to cost management.

Regulatory Compliance: The Company is subject to stringent regulatory and environmental norms, which may affect project timelines and increase operational costs.

Project Delays and Execution Risk: Delays due to land acquisition, permit approvals, or labor shortages continue to be a challenge in large infrastructure projects.

COMPANY OVERVIEW

Sobhagya Mercantile Limited ("SML"), incorporated in

1983 and listed on the BSE, is a diversified infrastructure and resources Company with operations spanning infrastructure construction, engineering consultancy, mining, equipment leasing, material production, and steel manufacturing. The Company has established a strong presence across both public and private sector projects, supported by modern equipment, advanced technology, and a skilled workforce.

Its Infrastructure Construction division focuses on executing large-scale road and highway projects, particularly under the Hybrid Annuity Model, while the Infrastructure Engineering segment delivers end-to-end consultancy services, including Detailed Project Reports and Project Management Consultancy, for sustainable and high-impact developments. In Material Production and Supply, SML operates a fully functional stone-crushing unit supplying high-quality aggregates for infrastructure projects.

The Company is preparing to commence operations at the Marki Mangli-IV coal block, further diversifying into energy-linked mining services. Through its Equipment Leasing business, SML offers a fleet of globally compliant construction and mining machinery, enabling clients to meet project needs without heavy capital outlay. In steel manufacturing, SML is developing an integrated steel plant in Gadchiroli, Maharashtra, granted Mega Project status by the Government of Maharashtra, aimed at producing high-grade construction and industrial steel to strengthen its value chain and capture growth in Indias expanding steel market.

With a track record of timely execution, financial resilience, and sectoral diversification, SML is strategically positioned to leverage Indias infrastructure growth momentum, driven by sustained government capital expenditure, rising private participation in mining, increasing demand for leasing solutions, and strong prospects in the steel sector.

Strengths:

Established Industry Presence: With a legacy since 1983, Sobhagya Mercantile Limited (SML) is a recognized player in the infrastructure and allied engineering sectors, offering end-to-end services across construction, mining, and equipment leasing. Diverse Service Portfolio: The Company offers integrated solutions through infrastructure engineering, project execution, and equipment leasing, giving it a competitive edge in addressing complex client needs.

Technological Capabilities: SML leverages advanced machinery, robust distribution networks, and skilled human capital to deliver high-quality, timely project execution.

Proven Execution Capability: The Companys successful completion of multiple road infrastructure projects underscores its competence in delivering on large-scale contracts across India.

Projects:

1. NAG 182 Road Project Chandrapur District, Maharashtra

Executed under the Hybrid Annuity Model, this project covers 73.545 km, connecting key locations such as Chimur, Talodhi, Neri, Madanapur, Ukkudapar, Parwa, Warora, and Armori. The project aims to improve regional road infrastructure and enhance last-mile connectivity.

2. NAG 167 Road Project Chandrapur District, Maharashtra

Comprising multiple sub-projects, including Surbodi Paharani Brahman Road (29.08 km), Govindpur Mangrul Kitadi Chindhichak (9.46 km), and Neri Jambhulghat Bhisi Road (18.22 km), this package totals 56.76 km and strengthens intra-district connectivity.

3. NAG 176 Road Project Chandrapur District, Maharashtra

Spanning approximately 95 km, this package includes stretches such as Bahmni Adegaon, Khatkheda Malewada, Navtala Dongargaon, Shivra Doma, Satgaon Bhiwapur, Chaklohara Chikhala, and Wadhona Girgaon. The project supports efficient transportation and economic development in the region

FINANCIAL ANALYSIS

Particulars	FY23	FY24	FY25
Revenue from Operations	10880.5	11523.75	15728.42
Other Income	327.51	486.86	312.3
Total Revenue	11208.01	12010.6	16040.7
EBITDA	1577.24	1316.03	2240.27
Profit Before Tax	1439.46	1572.85	2384.12
Tax Expenses	366.7	414.59	831.04
Profit After Tax	1072.77	1158.26	1553.08

RATIOS

Profitability Ratios	FY23	FY24	FY25
EBITDA Margins	13.68%	11.42%	14.24%
Net Profit Margins	9.86%	10.05%	9.87%
Growth Ratios
Revenue from Operation	63.48%	5.91%	36.49%
EBITDA	9.65%	9.26%	70.23%
EBT	10.28%	9.27%	51.58%
Net Profit	-2.11%	7.97%	34.09%
Return Ratios
Return on Equity	35.50%	27.98%	24.44%
Return on Capital Employed	40.05%	32.71%	28.76%
Efficiency Ratios
Fixed Asset Turnover Ratio	90.61	76.83	128.32
Debtors Turnover Ratio	3.48	3.28	2.12

Note: Refer to Standalone Financial Statements in this Integrated Annual Report for detailed schedules and notes.

EBITDA Margins

The increase in EBITDA margins is primarily due to improved operational efficiency, better cost control measures, and a higher proportion of revenue from projects with favourable margin

Net Profit Margins

The decrease in Net Profit margin is primarily due to higher interest and Tax expenses, as well as an increase in indirect costs during the period.

Revenue from Operation

The increase in the revenue growth rate is primarily driven by a higher volume of project execution, timely billing, and on boarding of new contracts during the period.

EBITDA

The increase in the EBITDA growth ratio is primarily attributed to higher revenue from project execution, improved operational efficiency, and effective cost management.

EBT

The increase in the EBT growth ratio is primarily due to improved operating performance, driven by higher revenue and better cost efficiency.

Net Profit

The increase in the net profit growth ratio is largely due to better project mix yielding higher margins, disciplined expense management, and enhanced productivity across operations

Return on Equity

The decrease in ROE is primarily due to an increase in shareholders equity. Return on Capital Employed The decrease in ROCE is primarily due to an increase in shareholders equity. Fixed Asset Turnover Ratio

The increase in the fixed asset turnover ratio is primarily driven by higher sales revenue generated from better utilization of existing fixed assets.

Debtors Turnover Ratio

The decrease in debtor turnover ratio is due to slower collections combined with an increase in sales.