Swan Defence and Heavy Industries Ltd Management Discussions

a. INDIAN MARKET OUTLOOK:

Indias economy continued to demonstrate strong resilience during FY 2025-26, reinforcing its position as one of the fastest-growing major economies globally despite ongoing geopolitical and global trade uncertainties. Supported by robust domestic demand, infrastructure investments, manufacturing growth, and policy-led reforms, the country maintained healthy economic momentum throughout the year, registering a robust GDP growth rate of 7.5%.

This exceptional domestic performance was further driven by a structural push via sustained public capital expenditure exceeding 5% of GDP. The domestic monetary environment provided additional stability, with headline CPI inflation softening to a record low of 2.2% during the year, which enhanced purchasing power and significantly boosted investment momentum across heavy industries and manufacturing.

Against this favourable macroeconomic backdrop, the environment directly catalysed growth in the infrastructure, defence, and maritime logistics sectors. Strategic government initiatives, including Aatmanirbhar Bharat, Maritime India Vision 2030, and the Maritime Amrit Kaal Vision 2047, continue to strengthen Indias indigenous shipbuilding and defence ecosystem, providing a robust foundation for the Company to scale its operations and capture high-value orders. b. SHIPBUILDING INDUSTRY OUTLOOK: GLOBAL TRENDS AND INDIAS GROWING ROLE:

The global shipbuilding sector is navigating a robust expansion phase, driven by a fleet replacement cycle due to ageing vessels and strict environmental mandates. Industry projections indicate that the global market is set to expand from USD 175.71 billion in 2026 to USD 274.19 billion by 2034, reflecting a compound annual growth rate (CAGR) of 5.72%. This momentum is fundamentally underpinned by the International Maritime Organizations (IMO) stringent decarbonisation targets, which are compelling global fleet operators to execute a massive transition toward green vessels to replace the ageing fleet over the coming decade.

Domestically, the Indian shipbuilding ecosystem is undergoing a historic structural transformation aimed at capturing a larger share of this global demand. In September 2025, the Government of India approved a shipbuilding package of _ 69,725 Crore, comprising the Shipbuilding Financial Assistance Scheme (SBFAS), the Maritime Development Fund (MDF), and the Shipbuilding Development Scheme (SbDS), to enhance Indias global competitiveness in the shipbuilding and maritime sectors. A key component of this package is the upgraded Shipbuilding Financial Assistance Scheme (SBFAS 2.0), supported by a dedicated allocation of _ 24,736 Crore through 2036. The scheme is expected to strengthen the global competitiveness of Indian shipyards by improving their ability to bid for international shipbuilding contracts. The Government has undertaken several policy reforms to strengthen the domestic shipbuilding industry. These include granting infrastructure status to large vessels and implementing demand aggregation measures. On 19th September, 2025, the Government notified the infrastructure status for Indian-flagged commercial vessels with a Gross Tonnage (GT) of 10,000 or above. For vessels constructed in India, infrastructure status has been extended to vessels with a Gross Tonnage (GT) of 1,500 or above. In addition, under the demand aggregation initiative, a fleet acquisition plan for more than 400 vessels has been prepared, providing long-term order visibility for Indian shipyards.

While traditional East Asian hubs historically dominated global production volumes, these sweeping domestic policy transformations, combined with favourable labour economics and expanding port infrastructure, are repositioning India as a premier alternative. The domestic sector is rapidly moving up the value chain, shifting capabilities toward complex, high-value international commercial vessel architectures and specialised defence exports. Backed by institutional support and enhanced execution frameworks, Indian shipyards are uniquely positioned to drive sustainable growth and establish long-term structural resilience throughout this positive global industry cycle. c. SDHIS STRATEGIC POSITIONING AND OPERATIONAL READINESS:

Swan Defence and Heavy Industries Limited continued to strengthen its market positioning during FY 2025-26 through operational readiness, strategic collaborations, and expansion of its shipbuilding order pipeline across commercial and defence segments.

The Companys confirmed shipbuilding order book currently comprises multiple active orders across commercial and defence categories. The USD 227 million contract with Rederiet Stenersen AS, Norway, for construction of 6 (six) 18,000 DWT IMO Type II chemical tankers forms part of the Companys existing commercial order book. The Company also secured an order for 4 (four) 92,500 DWT dual-fuel ammonia bulk carriers from Energy ONE Limited, further strengthening its commercial shipbuilding pipeline and expanding its presence in next-generation green vessel segments.

On the defence side, the Company is executing a state-of-the-art training ship for the Royal Navy of Oman, reinforcing SDHIs growing participation in specialised and defence-oriented shipbuilding opportunities. In addition to shipbuilding, the Company successfully completed multiple ship repair and refit assignments during the year, demonstrating operational readiness and strengthening its capabilities in the repair and marine services segment.

To further strengthen its technical expertise and market reach, the Company has established strategic collaborations with leading domestic and international organisations, including Mazagon Dock Shipbuilders Ltd., Garden Reach Shipbuilders & Engineers Ltd., Royal IHC, Samsung Heavy Industries and Fincantieri. These partnerships are expected to enhance design capabilities, technology integration, digital transformation, sustainability standards, and execution capabilities across commercial shipbuilding, defence, offshore fabrication, ship repair, and green vessel segments. d. KEY OPERATIONAL STRENGTHS

Indias Largest Dry Dock Facility: SDHI operates the largest dry dock in India, measuring 662 meters in length and 65 meters in width, enabling the simultaneous construction of large vessels. Unmatched Fabrication Capacity: The shipyard has an annual fabrication capacity of 1,64,000 metric tonnes, with fabrication sheds capable of producing modular blocks weighing up to 300 tonnes. State-of-the-Art Automation: The facility is equipped with advanced machinery, including a large-scale semi-automated TTS panel production line, supporting high-precision and efficient manufacturing. Efficient Block Assembly: Dedicated spaces are available for pre-outfitting and mega block assembly, allowing for streamlined integration of large structural blocks using a 600 MT Goliath crane. Experienced Leadership and Technical Talent: Led by CEO Rear Admiral Vipin Kumar Saxena (Retd), SDHI is backed by a highly skilled management team and a specialised workforce comprising seasoned naval architects, marine engineers, and defence production experts. This leadership framework ensures seamless execution across both complex commercial builds and specialised naval mandates.

Diversified Order Book Across Commercial and Defence Segments: SDHI has established a growing order pipeline comprising chemical tankers, dual-fuel ammonia bulk carriers, naval training vessels, and ship repair assignments, providing diversified business opportunities across commercial and defence categories. Strategic Global and Domestic Collaborations: SDHI has entered into strategic collaborations with leading domestic and international shipbuilding companies, enhancing technical expertise, design capabilities, and execution readiness across complex vessel categories. e. KEY THREATS AND INDUSTRY RISKS:

Global Competition from Subsidized Shipyards: International shipyards, particularly in China, South

Korea, and Japan, are benefiting from significant government subsidies, making it challenging for Indian yards to compete on pricing and delivery timelines. Execution and Project Delivery Risks: Large and technically complex shipbuilding projects involve stringent delivery schedules, multi-vendor coordination, and engineering integration challenges, which may impact execution timelines and project profitability. Dependence on Imported Equipment and Components: Certain critical marine equipment, propulsion systems, navigation systems, and specialised components continue to have import dependency, exposing the industry to currency fluctuations, supply disruptions, and procurement delays. Changing International Regulatory Frameworks: Evolving global maritime regulations relating to emissions, vessel efficiency, environmental standards, and safety compliance may require continuous operational and technological upgrades. Volatility in Raw Material Prices: Fluctuations in the prices of steel, specialty alloys, and marine equipment can adversely impact project margins, particularly for fixed-price contracts. Natural Disasters and Climate Risks: Operations near coastal areas are exposed to weather-related disruptions such as cyclones, flooding, or heavy monsoons, affecting project schedules. f. KEY OPPORTUNITIES FOR THE SHIPBUILDING INDUSTRY IN INDIA: Global Fleet Replacement Supercycle and Capacity Constraints: Over 40% of the global merchant fleet is now over 20 years of age, driving a multi-year replacement cycle where ageing tonnage reaching 25 years of age is projected to accelerate from nearly 28 million GT to almost 100 million GT by 2035. With major tier-1 Asian shipyards facing an average order backlog of 4.4 years and pushing next dry-dock availability beyond 4 years, Indian shipyards are exceptionally well positioned to capture shifting international demand for fleet modernisation and new vessel construction. Domestic PSU Order Pipeline: The Government procurement programme for 437 vessels is estimated at 2.2 lakh crore over the next decade. The Shipping Corporation of India has been designated the nodal agency to aggregate this large-scale requirement, and the programme provides long-term commercial order visibility and a stable demand baseline for domestic shipyards.

Robust Domestic Defence Procurement Program: Driven by rising defence capex and indigenous mandates, the Indian Navys frontline combat fleet is projected to expand by 80% by FY 2029-30. This build-out translates to a multi-year domestic procurement pipeline across frigates, destroyers, submarines, and specialised auxiliary vessels, offering high-visibility growth for defence-grade domestic shipyards.

Capital Subsidy for Capacity Expansion: Under the governments Shipbuilding Development Scheme (SbDS), existing shipyards are eligible for a 25% capital subsidy for brownfield expansion and infrastructure modernisation. This direct assistance drastically lowers the financial burden of scaling operations, enabling domestic yards to efficiently upgrade facilities and capture larger commercial and defence orders.

Transition Towards Green Shipping: Increasing global focus on decarbonisation, alternative fuels, and compliance with evolving IMO regulations is expected to drive demand for LNG-powered, dual-fuel, hybrid, ammonia-ready, and energy-e_cient vessels. Emerging Opportunities in Specialised Vessels: Growing demand for chemical tankers, offshore support vessels, dredgers, research vessels, and specialised cargo vessels is expected to create niche opportunities for technologically capable shipyards. Government Policy Support and Maritime Infrastructure Push: Policy initiatives such as Sagarmala, Maritime Amrit Kaal Vision 2047, the Shipbuilding Development Scheme (SbDS), and continued support under SBFAS are expected to strengthen Indias shipbuilding ecosystem and improve competitiveness of domestic shipyards.

Development of Maritime Clusters and Vendor Ecosystems: Expansion of maritime clusters, ancillary industries, and vendor ecosystems is expected to improve supply chain integration, localisation, execution efficiency, and long-term scalability for the Indian shipbuilding industry. g. SEGMENT WISE PERFORMANCE

The Company is a single segment Company as mentioned in Note 34 of the Standalone Financial Statments. h. OUTLOOK:

Indias renewed focus on maritime infrastructure, defence indigenisation, coastal development, and domestic manufacturing is expected to provide a strong foundation for the long-term growth of the shipbuilding and maritime industry. Government initiatives such as Maritime Amrit Kaal Vision 2047, Sagarmala, the revised Shipbuilding Financial Assistance Scheme (SBFAS 2.0), and the Shipbuilding Development Scheme (SbDS) are expected to strengthen the competitiveness of Indian shipyards and support demand across commercial, defence, and green vessel segments.

Your Company is well-positioned to capitalise on these opportunities, supported by its integrated shipyard infrastructure, available capacity, growing order book, strategic technology partnerships, and expanding execution capabilities. The Company remains focused on timely project execution and expanding its presence across commercial shipbuilding, defence, ship repair, and offshore fabrication. Your Company remains committed to creating sustainable long-term value while contributing to Indias emergence as a globally competitive maritime and shipbuilding hub. i. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

During the Fiscal Year 2025–26, the Company made significant progress in strengthening its internal financial control framework. This effort was aligned with the Companys expanding operational scale and increasing regulatory obligations and included a comprehensive review and formalisation of existing processes. The management has proactively implemented targeted process improvements, introduced system automation, and enhanced documentation practices across key functions to drive greater transparency, accountability, and risk mitigation. While further improvements are ongoing, the Internal Financial Controls in place are considered adequate and commensurate with the Companys operational activities during the year. The Company remains committed to continuously evolving its internal control systems in line with best-in-class governance standards. j. HUMAN RESOURCES AND SKILL DEVELOPMENT:

A skilled and well-structured workforce continues to be a cornerstone of SDHIs operational readiness and long-term growth. In FY 2025–26, the Company significantly strengthened its human capital base, with over 400 in-house personnel and an additional 600+ vendor workforce deployed across critical functions such as project management, production, civil & plant maintenance, safety, quality, and support services. The leadership team at SDHI, composed of senior professionals with over three decades of experience in shipbuilding, offshore operations, and defence readiness, has played a pivotal role in shaping the organisations HR and talent strategy. The Company has successfully retained key technical personnel from the erstwhile shipyard while simultaneously pursuing focused hiring to fill 85+ mid-management roles, ensuring that the right expertise is available for complex project execution. To support this growth, SDHI has initiated skill development programs in key areas such as welding, erection, profiling, and specialised shipbuilding disciplines for bulkers, passenger vessels, and chemical tankers. Additionally, over 100 Standard Operating Procedures (SOPs) are being formalised in areas like commercial operations, procurement, planning, and design to standardise workflows and enhance quality control.

Your Company remains committed to investing in workforce development and compliance, with all quality and regulatory certifications in place, ensuring that SDHIs talent ecosystem remains aligned with industry best practices and future operational demands. k. KEY FINANCIAL RATIOS:

This Report contains forward looking statements that address expectations and projections about the future, based on certain assumptions of future events. The Companys actual results, performance or achievements may, thus, differ materially from those projected in any such forward looking statements.