Sundaram Brake Linings Ltd Management Discussions

Global Economy

The FY 2025–26 saw significant turbulence and slow global growth of only 2.7%. Geopolitical shocks of magnitudes unprecedented since the end of the Cold War and the upending of established systems of global trade and capital flows have further restricted growth in a number of countries. The World Banks expected global growth slowing to 2.5% in the year ahead is largely driven by the availability of appropriately priced energy.

The Chinese slowdown - driven by its lack of domestic consumption, over-dependence a single personal investment instrument (real estate), and centralisation of decision making- further strains the global outlook and boosts the likelihood of armed conflict to distract its population. The European and US response has been a long overdue- but still slow -development of alternatives to Chinese manufacturing ("China +1" strategy). Global dependence on Chinese processed rare earths and batteries, prevents abrupt termination of reliance on Chinese owned production facilities (now outside the mainland) - a dependence created by bureaucratic, short sighted, environmental regulatory short-sightedness.

Fortunately, economic reality always triumphs and the universal scaling back of Governmental EV subsidies has slowed adoption and reduced the criticality of Chinese supply. The EUs CBAM (Carbon Based Adjustment Mechanism), however, is likely to end up as a tariff that raises the cost to Europeans much like the US tariffs did for their citizens.

The exponential adoption of AI has raised questions of economic energy prioritization between the politically desired electric fleet, low carbon grids, and deployment of required AI compute. AIs ability to quickly boost corporate Total Factor Productivity without substantial capital or labour outlay has driven accelerated adoption. On a State level, however issues of data ownership, centralization of capability and control over model use remain to be resolved.

The Indian economy remained the fastest growing large economy, expanding 7.7% in FY 2025-26 according to the Ministry of Statistics and Programme Implementation (MoSPI). The adroit handling of macro-economic policy coupled fiscal policy moves by the Government- rationalizing GST rates, raising income tax exemptions, increased infrastructural spending, and reducing the deficit target- and monetary policy actions by the RBI – reducing the repo rate by 125 bps and CRR by 100 bps- and managed to deliver this growth with an average CPI inflation of 2.0%.

These actions largely buffered the domestic market from an onerous 50% tariff imposed on India by its largest trading partner. However, the pre-announcement of the GST rationalization had impacts on domestic demand for large ticket items whose GST rates would change significantly (e.g Medium and Heavy Commercial Vehicles) creating an unnecessary sector specific slowdowns. The strong domestic demand and low interest rate (permitted by low inflation) and reduction of export income due to the tariff regimen caused the rupee to adjust gradually downwards against the dollar. On 20^th of February 2026, the US Supreme Court intervened and struck down the tariffs and enabled trade with the US to return to the pre-tariff levels.

The inexplicable tariffing of the Indian trade for processing the Russian fuels they had asked us (to stabilize global oil prices) had forced India to increase its dependency on the Middle East for its fossil fuel energy needs. The USs "Epic Fury" on the 28^th of February 2026 and Irans response of closing the straits of Hormuz spiked the global price of energy and created shortages of fuel. The increased energy import bill maintained pressure on the Indian foreign exchange rate through the rest of the year. The shortages led the Government to invoke the Essential Commodities Act and diverted gas to domestic rather than industrial purposes. Some of the price increase has been buffered by the OMCs and shortages mitigated by source diversification, a non-resolution of the conflict will almost certainly drive unsustainable shortages and price increases in energy and crude and gas derived raw materials.

The bill for insufficient base load build out and Indian environmental standards piggy-backing on EU regulations - favouring gas (almost all imported) for its lower carbon dioxide impacts- was a steep one when it came due.

The global automotive industry during FY 2025–26 continued to experience structural changes influenced by policy changes on electrification, increasing digitalisation, realignment of production capacities, and evolving emissions regulatory requirements. Electric vehicles (EVs) remained an area of focus across key markets, with substantial changes in government incentives, ongoing advancements in battery technologies, and regulations on imported vehicles and components.including improvements in charging efficiency and vehicle rangeAutomotive manufacturers significantly re-evaluated EVs prominence in their overall product portfolio and have pivoted to hybrids as the logical solution to emissions and fuel consumption challenges.

The industry also faced several external challenges, including inflationary pressures, changes in trade policies, and geopolitical developments, which, in certain instances, impacted supply chains and production schedules. Variations in export-import activity were observed across regions due to tariff adjustments and logistics-related constraints. These developments underscore the importance of supply chain resilience and diversified sourcing strategies.

Regulatory emphasis on sustainability and safety has increased globally, with progressively stringent emission standards and wider adoption of advanced driver assistance systems (ADAS). As vehicles incorporate higher levels of connectivity and technological integration, component manufacturers, including those in braking systems, are required to adhere to evolving emissions, safety, and performance standards.

The Auto-industry Production & Sales Volume data (in Lakhs / No.s)

Indian automotive demand was highly asymmetric during FY2025–26. The first half was subdued reflecting the drag from pre-announced GST changes and customer uncertainty about economic growth in the face of tariffs. Demand accelerated sharply in the second half as the actualised GST reduction, income tax relief, lower interest rates, and easing inflation drove surging demand. A favourable monsoon and resultant record high food grain production drove significant farm sector and 2W sales and helped significantly tamp down inflation.

EV adoption rose in both 4W and 2W segment driven by improved charging infrastructure, concerns of fuel price increases and a broader product offering from manufacturers chasing Production Linked (PLI) and EV incentives (FAME II).

Passenger vehicle sales reached record numbers buoyed by lower interest rates and increased consumer financing availability.

Low interest rates, tightening regulatory standards, and increased infrastructure construction drove strong second half M&HCV sales. LCV sales were boosted by growing e-commerce demand.

Your Companys 2024-25 net sales of 342.28 crores remained nearly unchanged from the previous years

349.16 crores with the value of decrease in exports of 17% matched by the 9% domestic turnover increase.

The global economys capacity to weather seismic economic shocks has been drawn down by pandemics, tariffs, and conflicts to such an extent in the last five years that the year ahead is likely to be extremely volatile. Energy availability is again central with the, yet unresolved, US-Iran conflict and the status of the Straits of Hormuz. The ability of Gulf countries to bypass the straits is developing but will take some years to deploy fully as will the resumption of production in mothballed or damaged facilities. Global growth and inflation numbers will hinge on this and the Ukraine-Russia conflicts outcome. Both European and Asian manufacturing depend on supply from these regions and food and fertilizer availability might face significant challenges in the year ahead affecting a number of lower and middle income economies.

The impact of petrochemicals cannot be overstated as the impact on inflation from energy related primary prices, logistics impact, and availability are matched by the downstream product supply shortages and resultant inflation.

The likelihood of a re-emergence of US tariffs and inconsistent decision making from the leadership of the largest global economy as well as Europes increased protectionism in the year ahead raise significant headwinds to global trade. The slow down in economic growth, the sidelining of all challenges to centralized authority, and increasing isolation of China increases the risk of elevated belligerence and potential conflict in East Asia in the years ahead.

The ubuiquity of AI in corporate communications is a reflection of potential of this technology to transform some back-office processes faster than the computer and internet "revolutions" increased productivity in earlier decades. However, the increased energy demands from AI arrive at a challenging time for the energy landscape. We believe the World Bank estimated growth could unfortunately be an over-estimate of actual growth in the year ahed.

India has remained a rare bright spot in global economic scenario, with the IMF projecting 6.5 % growth in the year ahead.While deft handling of the macroeconomic levers, an abundant monsoon, and apparent judicial removal of tariff concerns empowered economic growth in the prior year, the external environment is significantly more challenging in the year ahead.

The significant El Nino driven weak monsoon and rising consumer debt removes much of the inflation buffer that provided policy flexibility. Indias retention of relatively free capital movement- while vital for long term growth- will mean (the Mundell-Fleming Trilemma) our exchange rate will face continued pressure and is likely to drive further domestic inflation. Any tariff pressures on our exports will present additional challenges to these rates.

In continuing negotiations with the US, India has tentatively pledged a half a trillion of additional energy, aircraft, technology, and other purchases in the succeeding years but the threat of the reimposition of tariffs under Section 301 as early as the end of July 2026 remains until a final deal is inked. European tariffs- in the form of CBAM- remain a continuing challenge that must be addressed in any free-trade deal that India negotiates. The greatest risk that the economy faces however, is bureaucratic and political shortsighteness- regulatory and economic nudges to Ethanol based fuels to reduce international energy dependence and conserve foreign exchange must consider downstream impact on consumer prices of essential commodities and indirect and higher-order impacts associated with the procurement of inputs for ethanol feedstock production. Locking in infrastructural and regulatory changes may have significant impacts on the economy in the succeeding years and cost the Indian automotive industry dearly.

While the economic outlook for the year ahead is significantly more challenging that for the preceding year, the Indian automotive industry continues to benefit from tailwinds of the year that was. The increased vehicle movement, improving highways and infrastructure, contribute to higher speeds and loads in commercial vehicles which benefit your Company. The Indian automotive industry is expected to maintain steady growth in FY 2026–27, led by sustained demand in SUVs, light commercial vehicles, and improving rural consumption. These trends align well with the companys strengths in high-load, intense duty-cycle, and low-noise braking solutions.

The expanding vehicle parc, growing freight activity, and increasingly sophisticated customers continue to support growth in the aftermarket segment. The Company remains well positioned to capitalize on this through its focus on premium, long-life friction materials that enhance safety and comfort.

The increased global focus on full-vehicle (versus tail-pipe only) emissions presents strong opportunities for reusable and zero-emission products that your company has developed and is pioneering The company is well placed to help the global concerns on fuel prices and EV battery weight through its composite business addressing renewed automotive lightweighting demands. Similarly, we will help the nation address the increasing threat of cross-border conflict through our emerging composite supply to the defense and drone segments.

The expanding demands for localization in a high volatility, fragile supply chain world and increased urgency for China+1 strategies continue to present both domestic and international growth opportunities.

While your company has proved resilient to global shocks despite an unprecented 50% tariff regimen onits largest export customers, the business remains exposed to the novel emerging global trade landscape with developed countries imposing new tariff and non-tariff barriers. The company will seek to actively re-diversify its customer base and de-risk any concentration concerns With petroleum derived key raw materials, significant international raw material supply, and a substantial export revenue, the business remains exposed to volatility in raw material prices and supply chain disruptions. The risk is amplified by our significant position in homologated vehicle manufacturer supply- with long lead times to price increase realizations. The Company attempts to mitigatessome risks through diversified sourcing, strategic supplier partnerships, localization, and inventory management.

Geopolitical uncertainties continue to affect logistics costs and supply chain stability. Mitigation measures include multi-modal logistics planning, alternate shipping routes, and close coordination with customers and suppliers.

Increasing regulatory requirements on emissions, noise, and sustainability add to compliance complexity. Instead of seeing this as a threat, your Company has proactively, invested in and developed advanced materials and capabilities and patented novel products to pioneer the evolving standards.

Technological shifts, particularly the adoption of regenerative braking and ADAS, may reduce reliance on traditional friction materials. The Company addresses this through sustained R&D in next-generation braking solutions.

Operational risks arise from geographic concentration of manufacturing in Tamil Nadu, including climate-related disruptions, power costs, Governmental policy, and labor availability. These remain a challenge and are being addressed through business continuity planning, alternate energy sourcing, and workforce engagement initiatives.

Competitive pressures persist from low-cost and non-compliant players, unethical market participants, (particularly in the aftermarket), and abusive monopolists. The Company continues to differentiate through quality, safety, and advocacy for asbestos-free products, supported by strong technical capabilities and proprietary validation systems.

The Companys system of internal controls for business processes, operations, financial reporting, fraud prevention, and compliance with applicable laws and regulations is sufficient. The audit function of the Company provides reasonable assurance on the effectiveness and efficiency of operations, protection of assets, accuracy of financial records and reports, and the observance of applicable laws and regulations. Regular internal audits and inspections guarantee that responsibilities are carried out successfully. The Audit Committee, conducts periodic reviews of the performance of statutory/internal auditors, the adequacy and effectiveness of internal control systems, and suggests improvements for strengthening the existing control system in the light of changing business requirements.

Your Company is continuing its focus on improvements to sustain quality management systems through Total Employee Involvement at all levels with a view to achieve enhanced level of customer satisfaction in Domestic as well as Overseas markets. Your company continues to closely monitor and focus on various cost reduction activities and cost control initiatives to achieve planned targets during the year.

The Industrial Relations in all four plants of the Company continued to be cordial. Talent acquisition and retention amongst apprentices has grown increasingly challenging as Governmental incentives reduce the pool of hireable labour seeking legitimate employment our company is taking various HR initiatives in this area. The total number of employees on roll as on 31st March 2026 in all the Plants was 976.

The company has spent significant resources to ensure the health, safety, and wellbeing of our employees- at home, at work, and in between the two.

We have rolled out grade elevation and salary enhancement letters to Managerial and Executive category employees during the Financial Year 2025 – 26 to further motivate your companys employees to ensure the enterprises success.

The Company has followed all the applicable Indian Accounting Standards (Ind AS) issued by the Ministry of Corporate Affairs (MCA) in the preparation of financial statements.

(Rs.in Lakhs)

Note: Previous year figures have been regrouped wherever necessary to conform to this years Classification.

Certain statements in the "Management Discussion and Analysis Report" may be forward looking and are as required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of the future performance and outlook.