Subros Ltd Management Discussions

1. Industry Outlook

1.1 As the Company look at the broader environment in FY 2025-26, the global economy has remained stable, though the pace of growth has moderated to around 3%. Ongoing geopolitical developments and energy price volatility have kept inflation and cost structures somewhat unpredictable, while tighter monetary conditions in developed markets have tempered investment sentiment. Despite this, long-term shifts such as supply chain diversification, electrification, and digital adoption continue to shape the next phase of industrial growth.

1.2 The automotive and auto component sector reflects a similar balance of resilience and transition. Electrification is clearly accelerating, with EV adoption steadily rising. This transition is not just about propulsion, it is fundamentally changing vehicle design and increasing the importance of advanced thermal management. For the Company at Subros, this is a meaningful structural opportunity, as efficient thermal systems become central to vehicle performance, safety, and comfort.

1.3 At the same time, global supply chains are being rebalanced. OEMs are actively diversifying sourcing and increasing localisation to build resilience. India is well positioned in this shift, supported by its cost competitiveness, policy direction, and growing domestic demand. This creates a favourable backdrop for companies like Subros to deepen its role in the global value chain.

1.4 India continues to be one of the fastest growing economy, with expected growth in the range of 6 to 6.5%. Strong domestic consumption, sustained infrastructure investments, and a continued push on manufacturing are driving this momentum. While external factors such as crude price movements and global uncertainties remain, the overall outlook stays positive.

1.5 Consumer preferences are also evolving towards SUVs and feature rich vehicles, with a higher focus on comfort and premiumization. This trend is increasing the value contribution of thermal systems per vehicle, further strengthening the Companys relevance in the ecosystem.

1.6 Indian Industry recorded an overall growth of approximately 12% year-on-year, reflecting expansion across key segments including exports taking total production figure from 31 Mn units to 35 Mn units in FY 2025-26. Export Volumes grew by 24% signaling towards India transforming into global hub for automotive manufacturing. Passenger Vehicle segment grew by 9.4% (production) out of which exports sales grew by 17.5%. Growing Domestic sale is experiencing shift in customer preference towards more sustainable and tech embedded vehicles.

1.7 The commercial vehicle segment (truck and bus) registered production volume growth of 13%, influenced by financing conditions and infrastructure led demand cycles. The Government has made mandatory AC effective from June, 2025 in N2 and N3 categories resulting in increase in demands in truck AC segment.

1.8 In summary, while the operating environment continues to present its share of challenges, the underlying direction of the industry aligns well with our core strengths. The Companys focus will remain on staying agile, strengthening partnerships, and investing in capabilities that position us well for this evolving landscape.

2. Financial and Operational Performance

2.1 The Company has delivered a strong financial performance in FY26, with revenue up 11.52% to 3755.52 Crores, driven by solid demand for thermal solutions, particularly in emerging markets.

2.2 Profitability improved steadily, net profit rose 10.22% to Rs.165.78 Crores supported by cost discipline and better efficiencies, despite commodity, currency, and wage-related pressures. Operating margins stood at Rs. 362.93 Crores, representing 9.66% of the Revenue from Operations, while profit before tax increased to Rs. 220.29 Crores after absorbing the new wage code impact for Rs. 8.08 Crores on account of gratuity and leave encashment, and also absorption of cost increase due to middle east conflicts.

2.3 Operations became sharper with continued focus on lean manufacturing and supply chain optimisation, helping improved margins.

2.4 All business segments contributed positively to revenue growth. The passenger vehicle segment, particularly, thermal components, registered a growth of 8%. The commercial vehicle segment also saw healthy growth of 69%, supported by strong performance in truck AC products 111% and bus AC products 14%.

2.5 The Company has consistently invested in expanding its geographic footprint, developing advanced product technologies, and entering new market segments. The Company has also earmarked adequate funds for capacity expansions across its manufacturing plants, while continuing to implement cost reduction measures and drive operational efficiency to maximise profitability.

2.6 As of March 31, 2026, the Company is having long term borrowings of Rs. 29.67 Crores (out of sanctioned amount of Rs. 112.5 Crores) for its new project at Kharkhoda, under construction.

2.7 Key Financial Ratios

Particulars	FY 2026	FY 2025	Change (%)	Remarks
Debtors Turnover Ratio (Times)	7.31	9.17	-20.28%	-
Inventory Turnover Ratio (Times)	6.63	6.50	2.00%	-
Interest Coverage Ratio	36.62	29.88	22.56%	-
Debt Equity Ratio	0.06	0.04	50.00%	Term loan availed for Kharkhoda Plant
Current Ratio	1.61	1.45	11.03%	-
Operating Profit Margin (in %)	9.39%	10.19%	-7.85%	-
Net Profit Margin (in %)	4.41%	4.47%	-0.06%	-
Return on Net Worth (in %)	17.31%	18.94%	-8.61%	-
Net worth (Rs. in Crores)	1,244.00	1,093.93	13.72%	-

3. Research and Development

3.1 The Indian automotive sector continues to evolve rapidly under the influence of progressive regulatory reforms and policy initiatives aligned with global standards. Key developments such as tighter Corporate Average Fuel Efficiency (CAFE 3) norms, Real Driving Emissions (RDE) Phase II implementation, accelerated electrification, transition to low Global Warming Potential (GWP) refrigerants, Vehicle Scrappage Policy, Production Linked Incentive (PLI) schemes, Quality Control Orders (QCOs) and increasing focus on circular economy principles are reshaping the industry landscape.

3.2 In response to these developments, the industry is witnessing a strong transition towards sustainable and energy-efficient mobility solutions. The Company continues to align its technology roadmap with these emerging requirements. The R&D function remains focused on developing next-generation thermal management solutions that enhance system efficiency, reduce environmental impact and cater to the evolving needs of electric, hybrid and alternative fuel vehicles.

3.3 The Company has further strengthened its in-house R&D capabilities, enabling accelerated localization and indigenous product development. During the year, significant progress has been made in the development and validation of thermal management systems for truck AC mandate, electric car, bus, commercial vehicles, off-highway applications and Rail AC. The continued advancements have also been achieved in hydrogen fuel cell thermal systems and railway air-conditioning solutions, reinforcing the Companys diversification into emerging mobility segments.

3.4 Innovation remains a key pillar of the Companys growth strategy. The Company has continued to expand its intellectual property portfolio through new design registrations across key technology domain (Controllers for thermal systems). Its engineering teams have consistently demonstrated strong technical capabilities, earning recognition from customers for innovation, responsiveness and collaborative development. The Company also continues to actively contribute to industry forums such as SAEINDIA, ACMA Automechanika, ACMA Bharat Mobility Show, CII Innovation & Intellectual Property Mission, and International Automotive Design Conclave strengthening its presence in the technical ecosystem.

3.5 The Company has also continued to strengthen its presence in the railway segment by enhancing product reliability, testing capabilities and manufacturing readiness aligned with Indian Railways modernization initiatives.

3.6 The Company remains committed to strengthening its engineering excellence through continuous skill development, adoption of advanced design tools and digital engineering practices. Increased focus on simulation-driven design, validation and system optimization has enabled faster development cycles and improved product performance, ensuring alignment with both domestic and global requirements.

3.7 With the regulatory landscape becoming increasingly stringent across emissions, safety and sustainability, the Company continues to invest in future-ready capabilities. Focus areas include localization of critical technology-based products & components, development of eco-friendly materials, enhancement of recyclability and collaboration with start-ups and academic institutions for advanced research. These initiatives are aimed at building a resilient innovation ecosystem and delivering technologically advanced, cost-effective and sustainable mobility solutions.

4. Information Technology

4.1 At Subros, IT continues to quietly power both its day-to-day operations and long-term strategy. As the automotive industry becomes more complex and fast moving, technology is no longer just support, it is a key driver of efficiency, agility, and growth. The Company is steadily strengthening its digital backbone to stay aligned with evolving customer needs and market expectations.

4.2 The Companys core systems continue to run on SAP, integrating everything from manufacturing to finance and supply chain. During the year, the Company took a significant step forward by launching its transformation journey Project AAROHAN towards RISE with SAP S/4HANA. This move is aimed at simplifying processes and building a more agile, cloud-based digital core. The transition is underway and is expected to be completed in FY27.

4.3 On the shop floor and across functions, the Company is deepening its focus on digitisation. From better real-time production tracking to the use of AI in areas like planning and quality checks, these initiatives are helping reduce manual effort, improve accuracy, and

4.4 The Company is also seeing stronger integration across its ecosystem. Better connectivity with suppliers, dealers, and internal teams is improving visibility across the value chain helping the Company plan better, manage inventory more efficiently, and respond faster to changing requirements.

4.5 In product development, digital tools and upgraded PLM systems are enabling closer collaboration between teams. This is helping the Company to shorten development cycles and improve consistency and quality across the product lifecycle.

4.6 With increased digital reliance, cyber security remains a clear priority. The Company have strengthened its systems with better controls, network security, and awareness initiatives to safeguard critical data and systems against evolving risks.

4.7 At the same time, the Company continue to reinforce its disaster recovery and business continuity frameworks. More critical applications are now covered, and regular testing ensures the Company is prepared for any disruptions.

4.8 Looking ahead, the Companys focus remains on successfully delivering the SAP transformation, expanding digital initiatives, and building stronger inhouse capabilities. The intent is simple, to stay agile, resilient, and competitive as the industry continues to evolve.

5. Internal Controls and their Adequacy

5.1 The Companys approach to internal controls is guided by its core values, which lay the foundation of how it work. These values include: Respect, Passion & Commitment, Trust and Teamwork. These values not only shape its culture but also strengthen the way the Company manage internal controls.

5.2 Internal controls are an essential part of how the Company run its business responsibly. The Company has clear and well documented policies and procedures in place, supported by defined roles, responsibilities, and a structured delegation of authority. This ensures accountability at all levels and clarity in decision-making.

5.3 The Companys internal control system also ensures it stay fully compliant with all applicable laws, regulations, and internal policies. The Company continuously monitor the evolving regulatory environment and update its frameworks as needed, so it is always aligned with the latest legal and industry standards.

5.4 The effectiveness of the Companys internal controls is reviewed regularly through internal checks and independent audits. It works with external auditors who provide an unbiased view of how well its systems are functioning. Their insights help it strengthen its processes and make continuous improvements to stay ahead of potential risks. Their observations are also being presented and reviewed by the audit committee.

5.5 Business risks are regularly reviewed across different parts of the organization due to volatile and dynamic business environment, global factors, and implement proactive measures to minimize /control and their impact. This helps it keep potential issues within manageable limits while supporting its long-term business goals.

6. Risks, Concerns, Opportunities and Threats

6.1 The Companys Enterprise Risk Management (ERM) framework is aligned with ISO 31000:2018 risk standards across all functions. The risk management process focuses on identifying risks in categories such as: strategic, operational, financial, and regulatory.

6.2 In FY 2025-26, the following risks and mitigation actions were identified to ensure business continuity and growth:

a. Geo-Political Risk: Trade / Tariff war was key challenge leading to supply concern and impact on commodity rates. The Company has implemented De-Risking strategy for China/ Single source suppliers. Actions are also taken for recovery of cost increases from customers.

b. Information & Cyber Security Risk: Cyber Security Risk is most critical for business continuity and may have significant impact on IT processes. The Company has taken various measures by implementing tools and technology to strengthen the IT infrastructure, data management and backup systems, and insurance coverage is continuing to mitigate the financial implications.

c. Retention and Development of Talent Risk: The market has become very competitive and retention of highly skilled talent in dynamic market is big challenge. The Company has implemented individual skill development programs, ensured continuous leadership intervention and also implementing automation of the processes to reduce dependence on people with increased productivity.

d. Regulatory and Compliance Risk: The Company has implemented a Risk Governance system which is helping in timely capture and execution of Regulatory and compliance aspects. The Company has a Risk Management Committee that periodically reviews the risks and opportunities with the action plan. The Committee advice their suggestions to the management team for further improvement and provides guidance on new emerging risks.

7. Human Resource and People Practices

7.1 Building a future ready organization starts with having the right people and the right mindset. At Subros, the Company see its people as the real differentiator, and a lot of its effort goes into creating an environment where they can do their best work. From hiring to role alignment and career progression, the focus is on bringing in strong talent, giving them meaningful opportunities, and ensuring they are placed where they can truly add value.

7.2 Learning continues to be a big area of focus for the Company. The nature of work is changing, and so are the skills required. Over the year, the Company has strengthened its learning ecosystem through a mix of on-the-job exposure, structured programs, and leadership interventions. Whether its building technical depth, strengthening functional capabilities, or preparing future leaders, the idea is to keep its teams ready for whats next not just whats needed today.

7.3 The Company has also been working on making its performance culture more transparent and outcome-driven. There is clear alignment on goals, regular check-ins, and a stronger focus on accountability. At the same time, the Company is consciously creating more avenues for employees to share feedback through surveys, open forums, and direct interactions. Some of the most practical ideas come from within, and the Company wish to ensure those voices are heard.

7.4 Health, safety, and overall well-being remain non-negotiable. Beyond compliance, the effort is to build a culture where people genuinely look out for each other. Regular safety interventions, along with wellness initiatives, are helping create a workplace where employees feel secure both physically and mentally.

7.5 The Company is also taking steady steps towards building a more inclusive workplace. Diversity is not just about representation; its about ensuring people feel respected, heard, and able to contribute fully. Through focused hiring, sensitisation programs, and evolving policies, the Company is working toward creating that environment.

7.6 Looking ahead, leadership development is a key priority. As the organisation grows and evolves, so does the need for leaders who can think ahead, adapt quickly, and inspire teams. The Company is investing in building this next line of leadership people who can take ownership, drive change, and shape the future of the organisation.

8. Marketing & Business Development

8.1 Marketing at Subros goes beyond communication, it is about staying close to customers and understanding what truly matters to them. It plays a central role in shaping how the Company position itself in the market, build relationships, and create long-term value. The focus is not just on visibility, but on relevance ensuring that what the Company offer aligns closely with evolving customer expectations across segments.

8.2 The Company continue to invest in product innovation and technology to stay ahead in a competitive environment. The Companys thermal solutions are designed to meet changing mobility needs, while ongoing improvements in quality, efficiency, and supply chain reliability remain key priorities. Decisions are increasingly guided by market insights, customer feedback, and performance data, supported by a balanced use of both traditional and digital engagement channels.

8.3 The shift toward electrification is opening up new opportunities. As the industry moves from conventional engines to EVs and hybrid platforms, we are actively aligning with this transition. Our work on localising e-compressors, in close collaboration with OEMs, is a step in this direction helping reduce dependency on imports while improving cost competitiveness and flexibility.

8.4 At the same time, the Company is seeing encouraging traction in newer segments such as railways, where we have established ourselves as a reliable partner. Regulatory developments, such as mandatory AC cabins in goods carriers, are also creating new growth avenues, and we have been able to respond quickly to these requirements strengthening customer confidence and expanding our presence.

8.5 Clean energy mobility continues to gain momentum, and we are working closely with OEMs to support this shift. Today, products aligned with alternate fuels, including CNG, hybrid, and electric contribute a meaningful share of our revenue, and we expect this to grow steadily going forward.

9. Social Responsibility & Community Initiatives

9.1 The Company believe that long-term business success goes hand in hand with contributing to society. The Companys CSR efforts are focused on creating meaningful impact in communities around its operations, with emphasis on education, inclusivity, skill development, and empowerment.

9.2 A key area of focus has been women empowerment through skill development centres in nearby villages. These initiatives are helping individuals build

9.3 The Company also partner with NGOs to address deeper social needs, including supporting vulnerable and underprivileged sections of society. Alongside this, sustainability remains integral to how it operate, with continued focus on energy efficiency, responsible resource use, and environmentally conscious practices.

9.4 The Company is also investing in youth development through sports, with a focus on nurturing talent and encouraging wider participation. Special emphasis is being placed on supporting athletes from underrepresented and specially-abled communities, including those participating in para sports and events for visually impaired athletes. Through these initiatives, the Company aims to create opportunities for young talent to develop their skills, build confidence, and pursue excellence at national and international platforms.

10. Roadmap for the Future

10.1 Over the years, the Company has built a strong foundation, and its now positioning itself for the next phase of growth. A key focus area is strengthening its presence in emerging technologies, particularly in electrification. The recent business award for electric compressors from customer, reflects the Companys direction and commitment to localisation and innovation, for which the dedicated facility is planned to set up at Karsanpura, Gujarat.

10.2 The Company is also seeing increasing momentum in exports, with direct engagement with global OEMs. This reinforces our capability to meet international standards and strengthens position in the global value chain. At the same time, the Companys presence across segments from passenger vehicles to railways continues to expand, reaffirming its position as a diversified thermal solutions provider.

10.3 Capacity expansion, supported by automation, digital integration, and sustainability initiatives, remains a key priority. Planned investments in both electric and ICE compressor capacities are aimed at meeting future demand while improving efficiency and reducing environmental impact.

11.0 Mid-to Long-Term Direction

11.1 As the Company look ahead, its focus remains aligned with its long-term ambition of being a leading global player in automotive thermal solutions. The Companys roadmap is anchored in innovation, agility, and a strong customer focus.

11.2 The Company is continuing to invest in next-generation technologies, digital transformation, and sustainable practices. At the same time, the Company is working to diversify markets, strengthen customer relationships, and build resilience across the business.

11.3 People remain at the core of this journey. Building capabilities, encouraging innovation, and maintaining high levels of engagement will be critical as the Company move forward. Overall, the direction is clear, grow responsibly, stay technology-driven, and remain closely aligned with evolving industry needs while creating long-term value.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing Companys projections, estimates and expectations may be interpreted as forward-looking statements within the meaning of applicable laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply, price conditions in the domestic and international markets in which the Company operates, changes in Government regulations, tax laws, and other statutes. The Company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements based on any subsequent development, information, or events.

Source :1. SIAM cumulative production, domestic sales & exports

Source :2. ACMA data