Studds Accessories Ltd Management Discussions

Economic Overview

Global Economy

In calendar year 2024, the global economy demonstrated steady, albeit cautious, resilience and continued growth with some sectors performing strongly. Due to persistent geopolitical tensions and prolonged tight monetary conditions, 2024 experienced a slowdown, with growth estimated at 3.3% in 2024 to 2.9% in both 2025 and 2026. Easing in ation and recovering trade have supported modest improvements in demand. Emerging markets such as India and Mexico continue to drive global growth. Key risks include debt vulnerabilities, geopolitical instability, and slower recovery in China. Geopolitical tensions and trade disruptions remain a significant downside risk to the global economy.

(Source: OECD)

The US and Japan saw strong recoveries, with the US benefiting from real wage gains and the latter rebounding from supply chain issues.

The Eurozone is gradually recovering from previous energy and in ation shocks. GDP growth rose from 0.4% in 2023 to 1.0% in 2024 and is projected to grow by 1.1% in 2025, driven by rising consumption.

(Sources: Eurostat, European Commission)

Emerging Asia remains the global growth engine. India leads the pack, while Chinas economy experienced a 5.0% year-on-year growth.

(Source: Merics)

The GDP for the Latin America and the Caribbean countries grew at 2.4% in 2024 and is anticipated to grow to 2.0% in 2025. Brazil and Mexico face constraints but benefit from lower in ation and moderate recovery.

(Source: IMF)

The GDP growth for Middle East and Central Asia improved to 2.4% in 2024 and is expected to grow in 2025, driven by higher oil output and diversi cation efforts in countries like Saudi Arabia.

(Source: IMF)

India remains the fastest-growing major economy and a significant uptick in economic activity in the fourth quarter of FY 2024-25 pushed GDP growth for the full year to 6.5%

(Sources: PIB). Growth is fueled by strong domestic demand, particularly in investment, including public infrastructure and private real estate development. A rebound in the manufacturing sector, supported by the construction industry and low input costs, also contributes to the positive trend. Indias digital economy is a significant contributor to the national income, with the country ranking third globally in terms of economy-wide digitalization. Retail in ation at 4.6% in FY25 stood at its lowest since 2018-19 (Sources: PIB). Besides, India is projected to become the worlds third-largest economy by 2027.

(Source: EY)

In FY25, the Indian two-wheeler industry sustained the healthy growth trajectory observed over the past two scal years. Over the last three years, industry wholesale volumes registered year-on-year growth of 8%, 10%, and 11%, respectively. During FY25, the rural India accounted for 58.30% of total retail registrations, a marginal increase from 57.90% in FY24. While the wholesale volumes in FY25 stood at 23.81 million units remain slightly below the FY19 peak, the industry continues to make steady progress toward a full recovery. Entry-level motorcycles, despite the ongoing post-COVID challenges and price sensitivity, have shown consistent improvement since FY23. Moreover, a gradual shift in consumer preference toward scooters and executive motorcycles has begun to reshape the market, indicating evolving demand dynamics. (Source: CareEdge)

The Indian two-wheeler helmet market is anticipated to grow from 26 million units in CY24 to 35 million units in CY29, rising at a CAGR of 6.1%. Helmet demand continues rising due to safety norms and increasing two-wheeler usage. Certi ed helmets significantly reduce injury risks. Smart helmets are gaining popularity. The market is expected to continue its growth trajectory, fueled by factors like increasing urbanization, growing adoption of bicycles, and the rise of Electric Vehicles (EV).

(Source: Draft Red Herring Prospectus)

Premium gear adoption is growing in India due to rising adventure biking and safety awareness. Demand for lightweight and innovative gear continues to grow.

Studds Accessories Limited remains one of the world largest two-wheeler helmet manufacturer by volume in Calendar Year 2024 with 7M+ helmets and boxes produced annually. The Company holds market share of 27.3% in terms of volume and 25.5% in terms of value, in the domestic market in Fiscal 2024 with continuous exports to 70+ countries.

(Source: CARE Report – Draft Red Herring Prospectus)

From above gures, this can be seen that, in FY25, revenue saw a growth of approximately 10% compared to FY24 and a growth of around 17% compared to FY23.

An increase of this revenue growth has been increased in exports. Export revenues surged from Rs. 531.98 million in FY24 to Rs. 958.09 million in FY25, representing growth of about 80%. This increase was complemented by an approx. 70% rise in the quantity of helmets exported, growing from 3,41,843 units in FY24 to 5,80,984 units in FY25. The synergy between value and volume growth in exports has helped in increasing the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), contributing positively to overall pro tability.

We have implemented strategies to control costs, resulting in significant improvements in key financial metrics. These initiatives have led to a more favorable cost structure, enhancing overall pro tability.

We were able to control cost of material consumed as a percentage of Revenue from operations from approximately 52% in 2023 to approximately 45% in 2025. This reduction of 8% indicates a stronger procurement process, better negotiation with suppliers, and the adoption of more cost-e ective materials and methods.

The reduced costs and growth in exports contributed increased gross margins, allowing for increased pro tability alongside revenue growth.

We were also able to control our employee cost marginally by 2% of Revenue from Operations to less than 11% in FY25 as compared to the previous year. In short, FY2025 gives us believe to our ability to scale earlier efficiency gains into ongoing growth and value creation.

Studds employs over 3,000 professionals. FY25 saw investments in leadership development, internal mobility, and digital learning. Focus remained on integrity, diversity, and performance culture. The company focuses on creating a dynamic, diversi ed and engaged workforce. The focus is always on onboarding talent from varied experience and backgrounds. The Company believes that employees are its most important investment and also continues to foster a culture that drives consistent improvement.

To support growth, the Company is building leadership strength through a mix of internal development and external hiring. The main ingredients for employee career growth are learning and development programs and other avenues like internal job rotations and mentorship initiatives. An open culture of feedback mechanisms further intends to reinforce Studds commitment to foster a supportive and collaborative work environment. The company also has introduced leadership development programs to groom future leaders who will help the company to achieve its next phase of exponential growth. Employees well-being is believed to be a top priority with health check-ups, medical camps, and mandatory safety training. These initiatives are intended to give the right impetus to the employees and cultivate a high-performing, future-ready workforce across levels capable of driving sustainable growth and innovation across its business verticals.

Studds aims to expand domestic and export markets, leverage EV growth, and invest in product innovation and R&D.

The Indian two-wheeler market is expected to experience continued growth from FY26 to FY29, with the CAGR estimated at 4-5%. This growth is fueled by positive factors such as new model launches, festive season, rise in the number of weddings, and ease in supply of chips and semiconductors. Further, we are focused on capturing the opportunity for two-wheeler helmets globally which is estimated to grow at a CAGR of 5.1% in value terms between Calendar Year 2024 to Calendar Year 2029 primarily fuelled by increasing urbanization, rising disposable incomes, heightened safety awareness, and government regulations mandating helmet use.

(Source: CARE Report)

According to the CARE Report, the mandatory requirement for all motorcycle helmets to carry Indian Standards certi cation from the Bureau of Indian Standards is expected to drive further consolidation of the helmet market towards the organized segment. This shift is anticipated to boost the demand for ISI-certi ed helmets and contribute to the growth of market share for organized helmet manufacturers. This growth expansion will be supported by improved rural and urban demand, an increase in electric two-wheeler adoption, and continued momentum in the premium and scooter segments. However, high in ation, rising costs due to regulatory changes, and uneven monsoons could dampen rural sentiment.

A consistently high-interest rate environment also remains a key factor that may impact consumer spending. The ongoing shift from internal combustion engine (ICE) two-wheelers to electric vehicles is expected to partially o set the slowdown in traditional segments. We believe that we are well placed to benefit from the growth in the two-wheeler helmet industry by leveraging our existing market position in India, particularly the recognition of our brands, Studds and SMK, our quality standards and certi cations and geographical spread of our distributor network.

Our experienced promoters and management team, supported by a capital efficient and vertically integrated model, enable us to become the largest two-wheeler helmets player in India in terms of revenue in FY23 and the worlds largest two-wheeler helmet player by volume in Calendar Year 2024 (Source: CARE Report) with a wide product catalogue across price points and an expansive pan India and global sales network, backed by quality accreditations. As the largest player, a short replacement cycle combined with growing consumer safety awareness and premiumization trends supports recurring demand and margin expansion.

However, limitations in consumer awareness, particularly among pillion riders, along with the widespread proliferation of substandard helmets pose significant challenges. The BIS seized over 3,000 fake helmets in FY25 alone and is further investigating illegal sales (Source: PIB). Additionally, increasing regulatory stringency and compliance costs, coupled with intense competition from both domestic and international brands and rapidly evolving consumer preferences put pressure on market share, innovation pace, and pricing strategies.

Through our quality control systems, certi cations, and proactive engagement with regulators and industry bodies, we believe we are positioned to mitigate these threats and harness our strengths in innovation, scale, and distribution to create strategic synergies and reinforce our leadership.

The company assesses the following risks thoroughly on a regular basis and has put up mitigation strategies accordingly

Studds, the Company has an adequate Internal FinancialControl (IFC) system which ensures that the transactions are authorized, recorded, and reported correctly. The Companys IFC system has been designed to provide reasonable assurance, regarding the following:

Effectiveness and efficiency of Operations; Adequacy of safeguards for assets; Prevention and detection of frauds and errors;

• Accuracy and completeness of the accounting standards.(Ind AS); and Timely preparation of financial statements.

The controlled environment comprises a mix of preventive and detective controls which are manual, semi-automated and automated in nature. The Company has followed principles such as segregated duties, authorisation, reconciliation, physical inventory, periodic review, etc. while designing the internal control framework. The Company has also an effective internal control and risk- mitigation system, which are constantly assessed and strengthened with new/revised standard operating procedures, on required basis. The Companys internal control system is commensurate with its size, scale, and complexities of its operations.

The objective is to give senior management and the Audit Committee, an independent and reasonable assurance on the adequacy and effectiveness of the Companys risk management, control and governance processes. This is achieved through an outsourced internal audit model wherein audit reviews are performed through independent Audit Deloitte. The main thrust of internal audit is to test and review controls, appraisal of risks and business processes, besides benchmarking controls with best practices in the industry.

An audit scope was decided and rolled out with approval of the Companys Audit Committee and Board. The scope is aimed at evaluation of the e cacy and adequacy of internal control systems and compliance thereof, robustness of internal processes, policies and accounting procedures and compliance.

The Audit Committee reviews the annual internal audit report and ensures adherence to the same. This helps to facilitate timely detection of any irregularities and early remediation. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the Internal Control systems and suggests improvement(s) to strengthen the same. The Company has a robust Management information System which is an integral part of the control mechanism.

Based on the reports of internal audit, process owners undertake corrective action in their respective areas.

Thereby, significant audit observations and corrective actions taken by the management are presented to the Audit Committee of the Board. The Audit Committee was apprised with the internal audit findings and corrective actions taken.

Certain statements in this section concerning future prospects may be forward-looking statements which involve a number of underlying identified and unidenti ed risks and uncertainties that could cause actual results to differ materially. In addition to the foregoing changes in the macro-environment, unforeseen adverse events like the global pandemic may pose an unprecedented, unascertainable, risk(s), inter-alia, to the Company and the environment in which it operates. The results of these assumptions made, relying on available internal and external information, are the basis for determining certain facts and gures stated in the report. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based are also subject to change accordingly.

These forward-looking statements represent only the Companys current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise.