Sundram Fasteners Ltd Management Discussions

Management Discussion and Analysis - 2025-26

Industry structure and developments

India remains a stable economic anchor amid global geopolitical volatility. While global growth is projected at 2.7% due to trade tensions and energy risks, Indias GDP is expected to grow by 7.4% in 2025-26, according to the Government of Indias First Advance Estimates. This resilience is supported by ongoing government capital expenditure, a recovering rural economy, and a focus on manufacturing self-reliance.

The Union Budget 2025-26 provided targeted support for the automotive and Electric Vehicle (EV) sectors:

- Basic Customs Duty (BCD) exemption on thirty-five capital goods for EV battery manufacturing and on critical minerals (cobalt, lithium-ion battery scrap, lead, zinc, and 12 others).

- National Manufacturing Mission announced with emphasis on clean tech EV batteries, motors, controllers, and high- voltage equipment.

- PLI Auto allocation increased eight-fold, from Rs. 347 crore to Rs. 2,819 crore; Export Promotion Mission Rs. 2,250 crore announced.

- Raising the income tax exemption threshold to Rs. 12 lakh ( Rs.12.75 lakh with standard deduction) has increased disposable income for the middle-income group, boosting demand for two-wheelers and supporting the recovery of small car sales.

A key domestic policy was the GST rate rationalisation for the automotive sector in September 2025, reducing rates to 18% for major segments. This measure revived demand in the second half of the fiscal, especially for entry-level two-wheelers and passenger vehicles. The GST 2.0 reform, part of the Viksit Bharat @2047 agenda, aims to lower costs, boost domestic demand, and enhance export competitiveness through a simplified structure of 5% and 18%.

The Reserve Bank of India maintained a stable monetary policy as retail inflation fell to record lows of 0.25% in October 2025 and 0.71% in November 2025.

The global trade environment underwent a fundamental shift on February 20, 2026 , when the Supreme Court of a major trading partner struck down all tariffs imposed under its International Emergency Economic Powers Act of 1977 (IEEPA), invalidating the entire reciprocal tariff regime, including the 18% rate India had negotiated under the bilateral Interim Agreement of February 6, 2026. For Indian auto component exporters, Section 232 of the Trade Expansion Act of 1962, continues to be applicable. The Bilateral Trade Agreement (BTA) negotiations continue, with India having committed to USD500 billion in purchases of energy, aircraft, technology, and other goods over five years.

The most significant external shock late in the 2025-26 fiscal year was the West Asia conflict, which escalated in late February 2026. Key impacts on the automotive sector included:

- The closure of the Strait of Hormuz disrupted 20% of global oil and LNG supplies. Brent crude rose from USD 66 to over USD 120 per barrel.

- A domestic LPG and natural gas shortage led the government to invoke the Essential Commodities Act, diverting feedstock from petrochemicals to cooking gas. This resulted in force majeure declarations by major chemical producers.

- Indias Manufacturing PMI fell to 53.9 in March 2026, a 45-month low, as input costs rose sharply. S&P Global Mobility lowered its 2026 light vehicle production growth forecast from 7.4% to 6.3%.

- Freight costs increased as vessels avoided Red Sea and Hormuz chokepoints. The Society of Indian Automobile Manufacturers (SIAM) formally requested the restoration of industrial gas allocations to the automotive sector.

Auto Industry Performance (Financial Year 2025-26 Review)

Passenger Vehicles (PV) segment

- The Indian Passenger Vehicles (PV) segment ended the 2026 financial year at a historic high, with March 2026 among the sectors strongest months. PV sales grew by 9.4%, driven by festive demand, rural recovery, and better financing options.

- The structural shift towards SUVs continued, now accounting for over 64% of the sales mix.

- Indias Electric Vehicle (EV) market grew strongly in 2025-26, led by robust two-wheeler and four-wheeler sales and a strong year-end push. Growth was supported by expanded charging infrastructure, a broader range of feature-rich models, improved supply chains, and higher fuel prices due to global uncertainties, especially in West Asia.

Commercial Vehicles (CV) segment

- The Commercial Vehicles (CV) segment exceeded 1 million units, growing by 13.1%. Growth was driven by infrastructure- related freight demand, with the Medium Commercial Vehicle (MCV) sub-segment rising 16.1%, supported by infrastructure projects and increased school bus demand.

- The Light Commercial Vehicle (LCV) segment grew by 11.2% in 2026, benefiting from the ongoing e-commerce boom and last-mile connectivity demand.

Tractors and Two-wheeler segment

- The two-wheeler (2W) segment surpassed its pre-COVID peak, producing over 26 million units and achieving 11.8% growth in 2026. This was driven by improved rural cash flows, GST-led affordability, and a broader product portfolio for both entry-level and aspirational buyers.

- The tractor segment was the years standout performer, exceeding 1.05 million units for the first time and growing by 18.95%. This was driven by a strong monsoon, robust rabi sowing, and improved farm economics.

Export Markets

- Exports faced challenges due to slowdowns in major developed markets. However, North Americas heavy-duty truck market began recovering in Q1, driven by fleet replacements, higher freight rates, and pre-buying before new emission regulations. This recovery helps mitigate broader trade protectionism risks.

- US Policy Shift on EVs : The earlier target of 50% EV sales by 2030 was revoked in January 2025, and

- The USD 7,500 consumer tax credit under the Inflation Reduction Act was terminated. The Freedom Means Affordable Cars initiative, launched on December 3, 2025, replaced strict EPA tailpipe standards with less demanding requirements, signalling a shift back to internal combustion engines and hybrids. As a result, major US OEMs have reduced EV production targets and capital investment, with one major company recording a USD 19.5 billion EV write-down in December 2025.

Segment-wise or Product Wise Performance

The following table depicts the production trend of various segments in the automotive industry.

Category	Production
Segment/Sub-segment	April-March
	2025-26	2024-25	% Change
I Passenger Vehicles (PVs)
Passenger Cars	1,826,441	1,749,506	4.4%
Sports Utility Vehicles (SUVs)	3,540,772	3,155,312	12.2%
Vans	171,902	156,346	9.9%
Total Passenger Vehicles (PVs)	5,539,115	5,061,164	9.4%
II Commercial Vehicles (CVs)
M&HCVs
Passenger Carrier	84,860	71,380	18.9%
Goods Carrier	373,646	323,441	15.5%
Category	Production
Segment/Sub-segment	April-March
	2025-26	2024-25	% Change
Total M & HCVs	458,506	394,821	16.1%
LCVs
Passenger Carrier	65,084	65,550	(0.7%)
Goods Carrier	646,560	574,576	12.5%
Total LCVs	711,644	640,126	11.2%
Total Commercial Vehicles (CVs)	1,170,150	1,034,947	13.1%
III Three Wheelers
Passenger Carrier	1,146,571	905,821	26.6%
Goods Carrier	134,955	121,195	11.4%
E-Rickshaw	13,905	18,715	(25.7%)
E-Cart	5,374	4,289	25.3%
Total Three Wheelers	1,300,805	1,050,020	23.9%
IV Two Wheelers
Scooter	8,719,739	7,437,681	17.2%
Motorcycles	17,444,978	15,922,027	9.6%
Mopeds	527,199	524,149	0.6%
Total Two Wheelers	26,691,916	23,883,857	11.8%
Grand Total of All Categories	34,701,986	31,029,988	11.8%

Source: Society of Indian Automobile Manufacturers

Revenues

Domestic Sales:

Domestic sales of the Company grew at 13.11% from Rs. 3,457.95 Crores in the previous year to Rs. 3,911.39 Crores for the year ended March 31,2026.

Export Sales:

The Company has registered exports of Rs. 1,457.88 Crores in comparison to Rs. 1,584.09 Crores in the previous year. Operating Revenues:

The operating revenue of the Company was at Rs. 5,542.06 Crores (PY: Rs. 5,209.74 Crores).

Financial Performance:

Steel is one of the principal raw materials used by the Company. During the year under review, steel prices have softened in the domestic market. The Company mitigates its raw material price risks through identification of alternate sources of suppliers, alternate usage of materials, and price negotiations. Further, the yield improvement projects have helped to reduce raw material consumption. Inflationary pressures on indirect materials continue to be an area of concern due to the ongoing West Asia conflict.

The Company continues to procure cost effective renewable sources of power under the group captive scheme. Further, the Company has installed roof-top solar panels in its factories to optimise the power cost. The renewable power constitutes 64.20% of the power consumed in the current financial year.

During the financial year 2025-26, PBIDT (Profit before interest, foreign exchange fluctuation, depreciation, exceptional income and tax) was at Rs.967.67 crores as against Rs.863.59 Crores in the previous year.

Finance costs amounted to Rs.29.34 Crores (PY: Rs.19.70 Crores).

Profit before tax was higher at Rs.767.41 Crores (PY: Rs.680.59 Crores). After providing for taxes, the Profit after Tax amounted to Rs.580.38 Crores (PY: Rs.517.01 Crores).

Summary of Operating Results:

Rs.in Crores

Particulars	2025-26	2024-25
Net Revenue from Operations	5,542.06	5,209.74
Other Income	70.09	21.59
Total Income	5,612.15	5,231.33
Total Expenditure	4,644.48	4,367.74
Profit Before Interest, Depreciation and Tax (PBIDT)	967.67	863.59
Less: Finance Cost	29.34	19.70
Depreciation/Amortization	188.70	175.80
Add: Exceptional Items	17.78	12.50
Profit Before Tax (PBT)	767.41	680.59
Less: Provision for Tax	187.03	163.58
Profit After Tax (PAT)	580.38	517.01

Details of significant changes in key financial ratios:

S. No.	Key Ratios	Unit of measurement	Current year 2025-26	Previous year 2024-25	Significant change compared with previous year i.e. 25% or more	Detailed explanation for significant change
1	Debtors Turnover	Days	86	81	-	-
2	Inventory Turnover	Days	66	61	-	-
3	Interest Coverage Ratio	Times	26.55	34.91	-	-
4	Current Ratio	Times	2.24	1.98	-	-
5	Debt Equity Ratio	Times	0.11	0.16	31.25%	*
6	Operating Profit Margin (%) (PBT / Revenue from operations)	%	13.8%	13.1%		\u25a0
7	Operating Profit Margin (%) (EBITDA / Revenue from operations)	%	17.5%	16.6%	-	-
8	Net Profit Margin (%)	%	10.5%	9.9%	-	-

*Due to efficient working capital management and financing of capex through internal accruals, there was a reduction in borrowings.

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof:

Particulars	2025-26	2024-25
Return on Net worth	15.1%	14.9%

Due to higher net worth compared to the previous year, the return on net worth was lower.

Consolidated Performance

The total revenue of the Company and its subsidiaries on a consolidated basis during the year under review was at Rs. 6,368.25 Crores as against Rs. 5,983.74 Crores.

Capacities and Capital Expenditure:

To drive long-term growth, the Company has incurred Rs. 404.27 crores towards capital expenditure as part of capacity expansion of existing lines of business and new projects. These investments will significantly enhance the Companys capability to meet customer demand in the auto and non-auto segments.

Awards:

During the year under review, the Company received Awards for its various units as given hereunder:-

S.No.	Units	Awards
1	Radiator Cap Assembly Unit, Chennai	Received Supplier Quality Excellence Award from General Motors.
2	Corporate, Chennai	Received Prithvi Award from ESG Research Foundation for the second consecutive year.
3	Fasteners Division, Krishnapuram Unit	Received Platinum award from ACMA (Automotive Component Manufacturers Association) for excellence in Environment, Social and Governance (ESG).
4	Fasteners Division, Uttarakhand	Received award from ACMA (Automotive Component Manufacturers Association) for their Kaizen project titled Reducing Heavy Metals in Effluent Discharge for Environmental Safety.
5	Metal Forms Division, Hosur	Received Best Localization and Best Practices Award from BorgWarner Morse Systems during the Annual Supplier meet.
		Received Green Champion Award 2024 from the Government of Tamil Nadu.
		Received Silver Award in best case study on Breakdown Time Reduction (Large) during the 7 th CII National Maintenance Circle Competition 2026 conducted by the Confederation of Indian Industry (CII).
		Received Silver award for excellence in Safety from ACMA (Automotive Component Manufacturers Association).
		Received Best Supplier Partner Award from Astemo India.
		Received A+ Supplier Performance Rating from Gabriel India.
		Received Zero PPM Award from Mahle Electric Drives.
		Received Supplier Quality Excellence Award 2024 from General Motors.

Total Quality Management, Human Resources, Learning and Development, Industrial Relations:

The Company continues to uphold the principles of Total Quality Management (TQM). During the Financial Year 2025-26, in addition to its established TQM practices, the Company has prioritized maintaining robust manufacturing processes, enhancing final quality to achieve the no defect escapes concept, and implementing preventive Poka-Yoke measures for the defect-free manufacturing approach. These initiatives ensure robust process control and 100% adherence to SOPs, thereby improving internal quality. The Company has also extended TQM activities to sub-contract suppliers, contributing to a reduction in customer complaints and a decline in internal rejections.

The Companys Human Resources Development framework includes Workforce planning, Employee engagement, Performance and Rewards, Learning and Development, Career and Succession Planning and Organization Development, which have a structured approach, policies and standard operating procedures that are reviewed and updated periodically.

Recognising the importance of continuous learning and development, the Company invests substantially in educational programs to enhance employees Rs.skills and expertise. By leveraging internal subject-matter experts as trainers, the Company prioritises upskilling employees to prepare them for greater responsibilities. Through a strategic approach, key competencies critical to organisational growth are identified, and individual development plans are created for high-potential employees. These initiatives groom future leaders through targeted leadership development programs.

The Company is dedicated to fostering an environment conducive to attracting, nurturing and retaining talent while cultivating a positive workplace environment. Employees are involved and contribute towards continuous improvements.

Various programs are in place to bolster overall employee well-being, encompassing mental, physical, and financial health wellness. Each employee participates in giving back to the community by actively participating in both monetary contributions and volunteering activities, enriching not only the community but also nurturing strong engagement among employees. The Company places great value on its workforce, recognizing them as invaluable assets essential to its success.

Across all manufacturing units, industrial relations remain harmonious, fostering a work environment conducive to productivity and growth.

Health, Safety and Environment:

Ensuring the safety and well-being of the employees remains paramount for the Company, with various measures in place to uphold this commitment. The business processes are meticulously designed with full regard and adherence to health and safety protocols. Comprehensive safety training is provided to all employees, underscoring the Companys dedication to maintaining a secure work environment.

Furthermore, all the manufacturing facilities are equipped with round-the-clock medical facilities.

Recognizing the importance of mental health, the Company offers robust support through an Employee Assistance Program, providing access to counsellors to ensure the well-being of the workforce. Mental wellness programs are regularly conducted.

All the Companys manufacturing facilities comply with occupational health and safety management systems. All units are ISO 45001 certified except one unit, which is expected to achieve the certification in the ensuing year.

Internal Control Systems:

The Company has established a comprehensive internal control framework to ensure the integrity, reliability, and transparency of its operations. All transactions relating to key business processes including sourcing, procurement, production, subcontracting, sales and dispatch, costing, and finance are executed through the SAP S/4 HANA system. These transactions originate directly from defined business workflows, thereby ensuring standardisation, traceability, and process discipline across functions.

A maker-checker mechanism is embedded within the system, ensuring that all transactions undergo appropriate levels of review and authorisation prior to final posting. This dual-control approach mitigates the risk of errors and unauthorised activities, thereby strengthening financial and operational governance. The Company has also implemented structured frameworks for risk management and internal financial controls. These frameworks are subject to periodic evaluation to ensure their effectiveness and alignment with evolving business requirements and regulatory expectations.

Internal controls pertaining to critical areas such as record maintenance, financial and operational reporting, and compliance with applicable statutory requirements are reviewed at regular intervals. The Audit Committee plays an active role in overseeing the adequacy and effectiveness of these controls, ensuring adherence to established policies and regulatory standards.

Prospects. Risks and Concerns:

The outlook for the next fiscal year is cautiously optimistic, balancing strong domestic fundamentals with a fragile global environment.

- India GDP : The IMF projects 6.5% GDP growth for 2027, with some moderation expected as early momentum slows.

Near-term growth will depend on crude price stability and progress on the Bilateral Trade Agreement.

- EV Transition: The Internationa! Energy Agency forecasts that EV sales in India will exceed 65% by 2035. In the medium term, ICE vehicles will remain dominant, but EV sales are expected to outpace ICE vehicle sales growth.

The expected shift toward EVs offers the automotive component sector an opportunity to strengthen the domestic supply chain. A robust supply chain ensures stable prices and reliable access to critical components, reducing risks from imports such as currency volatility and tariffs.

- The favourable GST rate of 5% for EVs, compared to 28% plus compensation cess for ICE vehicles, offers a strong consumer incentive. Indian auto component suppliers with advanced manufacturing capabilities are well-positioned to benefit from this trend.

Key Risks

- West Asia Conflict - Supply Chain Disruption : The petrochemical feedstock crisis, higher freight costs from Hormuz and Red Sea rerouting, and direct disruption to West Asia-bound exports present near-term production and delivery risks. The duration of the conflict and speed of Strait reopening remain key variables.

- Regulatory Compliance : Full implementation of TREM V norms for tractors and the requirement for six airbags to achieve 4-5-star Bharat NCAP safety ratings for passenger vehicles may cause short-term price increases and temporarily affect demand. Although six airbags are not legally required, they have become the industry standard for safety ratings.

Key Growth Drivers

- India-UK FTA Advantage : Zero-tariff access to the UK market enhances competitiveness for Indian auto component exporters.

- Domestic OEM Growth : Leading domestic OEMs are driving Indias EV transition, and the Made-in-India electric vehicle platform has positioned the country as an export hub. The PLI schemes focus on Domestic Value Addition creates opportunities for component suppliers with advanced manufacturing capabilities.

- The Union Budget 2026-27 maintained 12.2 lakh crore in capital expenditure, expanded electronics manufacturing incentives, and further rationalized customs duties.

Cautionary Statement

Statements in this management discussion and analysis describing the Companys objectives, projections, estimates, and expectations may be forward-looking statements Rs.within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Significant developments that could affect the Companys operations include global or domestic or both fronts, substantial changes in the political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, foreign currency fluctuations and interest costs.