Tilaknagar Industries Ltd Management Discussions

Management Discussion and Analysis

ECONOMY OVERVIEW Global

Economy Overview

As per the latest outlook from the International Monetary Fund in its World Economic Outlook, April 2026, the global economy is entering a renewed phase of uncertainty after a period of resilience. The macroeconomic environment is increasingly being shaped by escalating geopolitical tensions, particularly the ongoing Middle East conflict alongside rising commodity prices and tightening financial conditions.

Global growth stood at 3.4% in 2025 and is projected to moderate to 3.1% in 2026, with a marginal recovery to 3.2% in 2027. Despite this gradual stabilization, growth remains below the historical (2000 to 2019) average of 3.7%, indicating a structurally softer expansion. The outlook has been revised downward relative to earlier expectations, reflecting the combined impact of higher energy prices, trade disruptions and elevated policy uncertainty on global demand.

Growth in advanced economies is expected to remain resilient, with the Middle East conflict lowering 2026 growth by ~0.2 percentage points versus pre-conflict forecasts. The impact is partly offset by favourable terms-of-trade in the United States and policy support in Japan, while net energy-importing economies such as the Euro area and the United Kingdom are likely to see more pronounced downside risks. In the United States, growth is expected at 2.3% in 2026, supported by fiscal measures and the lagged impact of monetary policy rate cuts in 2025, although rising trade barriers since April 2025 continue to weigh on activity levels. In the Euro area, growth is projected to moderate from 1.4% in 2025 to 1.1% in 2026, primarily due to the adverse spillover effects of geopolitical tensions.

Emerging markets and developing economies particularly in Asia are also expected to experience a moderation in growth. Emerging and developing Asia is projected to slow from 5.5% in 2025 to 4.9% in 2026, reflecting the broader impact of geopolitical developments including higher energy prices. Economies with greater dependence on energy imports are likely to face more pronounced headwinds alongside pressures from capital flows and currency volatility.

On the inflation front, global headline inflation stood at 4.1% in 2025 and is projected to rise modestly to around 4.4% in 2026, driven by higher energy and food prices, before resuming a gradual downward trajectory. Persistent inflationary pressures particularly in emerging economies are expected to keep monetary policy relatively tight in the near term.

Overall, the global economic outlook remains fragile, with downside risks dominating. Key risks include a prolonged geopolitical conflict, further fragmentation of global trade, elevated public debt levels and financial market volatility. These factors are expected to continue influencing business sentiment, investment activity and consumption patterns worldwide.

Indian Economy Overview

As per the Monetary Policy Report released by the Reserve Bank of India in April 2026, Indias real GDP is estimated to have grown at ~7.6% in FY26, reflecting strong domestic economic momentum. Growth for FY27 is projected at -6.9%, indicating moderation amid an uncertain global environment.

Domestic economic activity remains resilient, supported by private consumption and fixed investment. High-capacity utilization, robust bank credit growth, conducive financial conditions and the governments continued emphasis on infrastructure are expected to further stimulate investment activity. In addition, several measures announced in the Union Budget 2026-27 are expected to provide further impetus to growth. However, spillovers from the ongoing West Asia conflict along with volatility in international financial markets and evolving trade dynamics pose downside risks to the growth outlook.

As per the Monetary Policy Report, headline inflation exhibited signs of moderation during FY26, although it remains sensitive to food and energy price movements. While easing food prices and stable supply conditions have supported the disinflation trend, renewed pressures from global commodity prices, particularly crude oil, have introduced upside risks. Accordingly, CPI inflation for FY27 is projected at -4.6%, remaining within the RBIs tolerance band.

Going forward, Indias macroeconomic outlook remains resilient despite elevated geopolitical tensions and lingering global trade frictions. Strong fundamentals, including sustained growth, relatively contained inflation and continued fiscal consolidation, provide India the wherewithal to withstand the adverse impact of heightened global uncertainties.

INDIAN LIQUOR INDUSTRY OVERVIEW

Indias liquor industry continues to be one of the fastest growing and most dynamic markets globally. The industry is witnessing increasing participation from both international companies and homegrown craft and artisanal brands, reflecting the significant long-term opportunity offered by the Indian market. With 15-20 million people being added to the legal drinking age every year (Source: IWSR), the demographics are also in favour of the industry, especially for innovative alcobev products.

The overall domestic IMFL industry size in India was around 424 mn cases in 2025, growing at 3.6% over last year and is expected to grow at a CAGR of 3.3% by 2030. From a region perspective, South India continues to be the largest IMFL consuming region, with an almost 60% share, followed by the North, West and East regions. Within IMFL, Whisky is the largest category with 63% share, followed by Brandy as the second largest category at 20% and then followed by Rum at 12%. Vodka and Gin enjoy a market share of low single digits.

A key structural trend shaping the industry is the ongoing shift towards premium and higher-value products. Consumers, particularly in urban areas, are increasingly moving up from lower-priced offerings to branded and premium segments. This trend is reflected in the stronger growth trajectory of the Prestige & Above (P&A) segment compared to the Popular & Below (P&B) segment.

Concentrated Discretionary Spending: Immense Potential to be Tapped

Category	Population (%)	Discretionary Spend(%)	Cum. Population (%)	Cum. Discretionary Spends(%)
Top 2	4	14	4	14
Next 6	5	16	9	30
Next 16	3	8	12	38
Next 50	4	9	16	47
Rol	84	53	100	100

The regulatory environment remains a critical factor influencing industry dynamics, with alcohol being a state subject and policies varying across states in terms of taxation, pricing and route-to-market.

In recent years, several changes have been constructive for the sector, including the introduction of a new route-to- market framework in Andhra Pradesh and progressive policy frameworks in states such as Uttar Pradesh and Jharkhand. Recently, Karnataka implemented an Alcohol-in-Beverage (AIB) based taxation framework, which marks a significant regulatory development for the alcobev industry. The move towards alcohol-content linked taxation is expected to create a more rational and globally aligned framework for the sector.

Additionally, in H1 FY26, there was a change in policy in the state of Maharashtra, wherein the state introduced the Maharashtra Made Liquor ("MML") category, which led to price increases in the IMFL brands.

Overall, while policies continue to evolve across states, most recent regulatory changes across key markets have been progressive and growth-oriented, supporting industry formalization and improving long-term visibility.

The anticipated India-UK Free Trade Agreement is another development that could have a meaningful impact on the Indian alcoholic beverages industry. The proposed agreement is expected to progressively reduce customs duties on imported Scotch whisky, potentially making the category more accessible and supporting greater innovation and premiumisation across the market. For Indian spirits companies, we believe this could further accelerate the evolution of the premium whisky segment and create new opportunities for product development and value creation.

Looking ahead, the Indian alcobev industry is well-positioned for sustained growth, underpinned by strong macroeconomic fundamentals and favorable consumer trends. Premiumization, growth in cocktail culture and innovation in product offerings are expected to remain key growth drivers. However, the industry remains exposed to risks arising from regulatory changes, input cost volatility and shifts in consumer sentiment.

COMPANY OVERVIEW

Tilaknagar Industries Limited ( "Tl" or "the Company") was founded in 1933 as The Maharashtra Sugar Mills Limited by Shri Mahadev L. Dahanukar. In the 1970s, the Company diversified into the alcoholic beverages business and has since evolved into one of Indias well-recognized manufacturers of ndian Made Foreign Liquor (IMFL) brands.

Over the past few years, Tl has emerged as one of the fastest- growing IMFL companies in India, supported by a strong brandy portfolio and focused execution. With its brandy portfolio comprising two millionaire brands, the Company is one of the largest players in the Indian brandy segment. Mansion House Brandy, its flagship brand, is the largest-selling premium brandy in India having sold more than 10 million cases in FY26.

During FY26, the Company strengthened its portfolio with the strategic acquisition of Imperial Blue Whisky from Pernod Ricard India, marking its entry into the large and fast-growing whisky segment. This acquisition significantly enhances Tls presence in the IMFL category, expands its addressable market and enables a truly pan-India play, strengthening the Companys presence beyond its traditional strongholds.

In line with its long-term growth and premiumization strategy, the Company has established "House of Tl". Under this initiative, Tl is building a curated portfolio of emerging and premium brands through strategic investments, partnerships and in-house innovations. This includes investments in Spaceman Spirits Lab Pvt. Ltd., the makers of Samsara Gin, Sitara Rum and Amara Vodka, as well as Round The Cocktails Pvt. Ltd., the makers of Bartisans premium Ready-to-Pour cocktail mixers. The platform also includes the Companys own luxury and super premium offerings such as Monarch Legacy Edition Brandy and Seven Islands Pure Malt Whisky, further strengthening its presence in the premium and craft segments. These initiatives are aligned with the broader premiumization trend in the industry and position the Company to capture evolving consumer preferences.

Post Imperial Blue acquisition, Tls manufacturing operations are carried out in 40+ units, including 6 owned units, with its mother plant located in Shrirampur, Ahilyanagar district, Maharashtra.

Tl sold ~20 million cases in FY26, representing a growth of 67.6%, with non-IB volumes growing 14.0% YoY, outperforming overall industry growth of approximately 3.5% during the same period. The Companys portfolio remains well-diversified across categories, with a strong presence in key segments of the IMFL market. While certain categories continue to have higher regional salience, the Company is increasingly building a more balanced, pan-India portfolio mix. In line with this. Southern India continues to be an important market, while the Company is steadily expanding its presence across northern, western and eastern regions.

Tl has a well-established pan-India distribution network, operating through a mix of state corporations, direct sales, wholesalers, distributors and Canteen Store Department (CSD). In addition to its domestic presence, the Company exports its products to multiple international markets, including Africa, the Middle East, East and South-East Asia, North America and Europe.

Product Portfolio

Tls product portfolio is predominantly positioned in the Prestige & Above segment and spans across key IMFL categories, including brandy, whisky, rum and gin. The Company continues to strengthen its portfolio through a combination of strong legacy brands, strategic acquisitions and premium innovations.

Brandy

Brandy continues to be a key contributor to the Companys IMFL sales, with a strong portfolio anchored by leading brands:

Mansion House Brandy (MHB) - The Companys flagship brand and the largest-selling premium brandy in India, with sales exceeding 10 million cases in FY26. As per The Millionaires Club 2025 by Drinks International, it continues to be the largest selling brandy in India and 2nd largest globally in 2024.

Mansion House Flavoured Brandy (Flandy) - Indias first premium flavored brandy, available in multiple variants including Orange and Lemon.

Courrier Napoleon Brandy (CNB) - The Companys second Millionaire brand, Variants of CNB stride across Deluxe to Super Premium segment. As per The Millionaires Club 2025 by Drinks International, it continues to be 3rd fastest growing brandy globally in 2024.

Monarch Legacy Edition Brandy - Tls first luxury foray, Monarch Legacy Edition, is a 100% pure grape brandy, establishing the Companys presence in the luxury segment.

Whisky

The Company has significantly strengthened its presence in the whisky category during FY26:

Imperial Blue Whisky-Acquired during FY26, Imperial Blue is Indias 3rd largest whisky brand and marks a strategic entry into the large and fast-growing whisky category, enabling a broader consumer reach and a pan-India presence.

Seven Islands Pure Malt Whisky-Seven Islands is an Indo- Scottish blend of four single malts from India and Scotland, aged up to eight years in ex-bourbon American oak and exwine French oak casks. Launched in FY26, it marked Tls entry into the luxury whisky segment with a globally inspired offering.

Mansion House Whisky-This brand enables the Company to participate in the fast-growing Semi-Premium Whisky segment.

Rum

Madiraa, the Companys rum brand, is well-known in India for the unique flavor it offers in the niche rum market. The Company also has White House Rum, a rum in the Prestige & Above (P&A) segment.

Gin

While currently a smaller contributor, Blue Lagoon Gin is a key regional brand within the Companys portfolio.

Spaceman Spirits Lab portfolio

Tl has started selling Spaceman Spirits Lab portfolio under the usership arrangement in FY26 and is currently selling it in Puducherry, Odisha, Kerala, Meghalaya & select international markets with plans to soon launch it across India. This premium portfolio includes Samsara Gin, Sitara Rum & Amara Vodka.

Bartisans - Ready to Pour cocktail mixers

As part of its premium and innovation-led expansion, the Company has also entered the cocktail mixers segment through a strategic investment in Round The Cocktails Pvt. Ltd., makers of Bartisans, Bartisans catering to the growing at-home consumption and cocktail culture trend, and complementing the Companys premium spirits portfolio

FINANCIAL PERFORMANCE Consolidated results

The sales volume increased by 67.6% from 11.9 million cases to 20 million cases in FY26. Revenue from Operations (net of excise duties) increased by 69.9% from Rs. 1,381 crore to Rs. 2,346 crore. The growth in volumes and net revenues was driven by the growth in the existing brandy business, integration of the Imperial Blue business, improved distribution reach and continued premiumization.

EBITDA increased by 64.5% from Rs. 255 crore to Rs. 419 crore in FY26 with EBITDA margin of 17.9%. Adjusted for subsidy, EBITDA has grown 55.9% to Rs. 352 crore, at a margin of 15.5%.

Profit after tax (excluding exceptional items and acquisition related amortization) increased 30.3% in FY26, from Rs. 230 crore to Rs. 299. Adjusted for subsidy, PAT has grown 15.7%.

Debt

Debt increased from Rs. 42 crore in Mar-25 to Rs. 2,295 crore in Mar-26 primarily on account of funding the acquisition of the imperial Blue business during the year. Net debt increased from a net cash position of Rs. 107 crore as of March 31, 2025 to Rs. 1,911 crore as of March 31, 2026. The net debt is expected to be brought down below 1x by Mar-29.

Ratio analysis

The key financial ratios of the Company are as under:

^,r Particulars No	2025-26 1	% of change
(i) Debtors turnover	6 24 7.53	(17 15%)
(n) Inventory turnover	4 43 5.47	(19.05%)
(in) Interest coverage ratio	1 87 22.24	(91.59%)
(iv) Current ratio	2 57 2.86	(10 18%)
(v) Debt equity ratio	0 77 0.05	1,507%
(vi) Operating profit margin (%)	46 50% 47.32%	(1.73%)
(vii) Net profit margin (%) (excluding exceptional items)	10 77% 16.62%	(35.20%)

Explanation for variation of 25% or more in Key Financial Ratios

a) Interest Coverage Ratio: The Company had to incur non-recurring items towards acquisition and integration related expenses towards acquisition of Imperial Brands resulting in higher finance costs and lower Profit After Tax

b) Debt Equity Ratio: During FY 2025-26 Company has raised Equity and Debt Funds for Acquisition of Imperia Brands and increased working capital

c) Net Profit Margin (%): The Company had to incur non-recurring items towards acquisition and integration related expenses towards acquisition of Imperial Brands and also higher depreciation and finance costs resulting in lower Profit After Tax

OUTLOOK

The acquisition of Imperial Blue in FY26 has transformed the Company into a leading player in the Indian P&A IMFL industry with a pan-India presence and leading brands across whisky and brandy, the two largest categories within IMFL. Going forward, the Company will focus on strengthening its leadership in brandy, scaling Imperial Blue Whisky and leveraging its expanded pan-India distribution footprint to launch new brands in P&A segment across categories. Continued focus on operational efficiencies, cost optimisation and disciplined capital allocation is expected to support sustainable growth and profitability.

OPPORTUNITIES

Brandy and its nascent premiumization journey - Despite being the second largest category within IMFL, Brandy as a category has significant headroom for premiumization. We believe that there is tremendous opportunity to gain market share in the category through product launches across premium price points as well as communicating an aspirational and more inclusive narrative around brandy.

Expanding whisky portfolio - The acquisition of Imperial Blue has significantly strengthened the Companys presence in the whisky category and provides a platform to build a broader whisky portfolio across price points. The Company will focus on further scaling Imperial Blue Whisky while expanding its whisky portfolio through brands such as Seven Islands Pure Malt Whisky and Mansion House Whisky, alongside ntroducing new offerings to address identified consumer and market opportunities.

House of Tl driving premiumisation - House of Tl provides a platform for the Company to build a differentiated portfolio of super-premium and luxury spirits across categories. Through brands such as Seven Islands Pure Malt Whisky & Monarch Legacy Edition Brandy, along with its investment in Spaceman Spirits Lab, the Company will continue to focus on innovation, craftsmanship and distinctive propositions to participate in the growing super-premium & luxury segments of the Indian spirits market.

Expansion beyond the core categories - The Companys expanded distribution footprint provides an opportunity to launch brands in identified whitespaces beyond core Brandy & Whisky categories. The Company will continue to pursue organic opportunities while remaining open to investments, partnerships and acquisitions in craft and emerging segments that can complement its portfolio.

CHALLENGES

Regulatory challenges - The Indian alcohol business is highly regulated, and each state has its own rules with respect to indirect taxes and duties, which can impact business operations. In addition, there are multiple regulatory considerations with respect to pricing, licensing, plant set-up, marketing & advertising and distribution. All these rules and regulations serve to create barriers to entry for both new and existing players.

Inflation - Geopolitical developments, including the ongoing conflict in the Middle East, have increased volatility in global crude oil prices and could exert pressure on energy, freight, packaging and other input costs impacting the profitability of the industry.

Dependence on some state governments to get price increases - In some states, pricing decisions are decided by the respective state government, which could lead to a lag between increase in costs, owing to inflation, and increase in price for the manufacturers or brand owners.

RISKS & CONCERNS

Risk management is a crucial function that can have critical and severe effects on the business if it is not addressed in a timely manner. As a pan-India organisation with a global presence, the Company faces a number of risks. Listed below are some of the most significant risks and proposed mitigation strategies.

Risk Category	Risk Name	Risk Nature	Risk Impact	Mitigation
Regulatory, Legal & Compliance Risks	Regulatory Changes & Compliance Risk	The Indian alcohol industry is highly regulated at the state level, with each state having its own excise laws imposing strict regulatory conditions on Licensing, Quota, Alcohol Strength, Labelling, Tracking requirements, Duty & Pricing structure, Route-to-Market, Export-Import.	Sudden changes in Regulatory Requirements may lead to:	• Dedicated Regulatory Affairs & Compliance Team
			• Business Disruption	• Active participation in industry bodies
			• Revenue loss & Margin erosion in wake of unfavourable policy changes (e.g. higher duties, benefit to particular segment/category, market restrictions, RTM change etc.)	• Strong liaisoning with regulatory authorities- Compliance management & Tracking systems
		Sudden changes can severely disrupt operations and may also lead to Non Compliance.	Inventory write-offs Non -Compliance may lead to:-	• Regular audits & training
			• License suspension
			• Heavy penalties
EHS Risks	Environmental, Health & Safety Risks	• High water consumption and waste generation.	• Regulatory penalties	• Dedicated EHS Team
			• Shutdown	• Effluent treatment plants
		• Effluent discharge violations PCB non compliances • Work Place Accidents	• Community backlash • Injuries	• Water recycling
				• PPE Enforcement
		• Exposure to Hazardous Chemicals	• Legal Liabilities	• Safety Training Programmes
		• Fire Hazard		• Emergency Response Systems
				• Sustainability initiatives
				• Regular Audits
External Risks	Market Competition	Competition from domestic players, multinational brands. and unorganized/local liquor manufacturers can lead to price wars, reduced margins. and loss of market share	• Reduced profitability	• Focus on premiumization
			• Increased marketing costs	• Dedicated R&D Team
				• Strong branding and marketing campaigns
				• Expansion into niche categories (craft, flavoured spirits)
				• Strengthening distributor relationships
External Risks	Inflation	• Geopolitical Risk like Trade barriers, tariffs, sanctions, War Situations	• Non Availability of Material leading to production loss and hence Revenue	• Capacity Tie-up/Supply Security arrangement with Vendors.
		• Due to rising inflation, the purchasing power of people has reduced	• Inflation	• Development of local supply sources
			• Reduced demand
				• Variant/Brand at strategic price points.
				• Process/procurement /manufacturing efficiencies to reduce cost
Operational Risks	Dependency on 3rd Party Manufacturing Units	Significant share of total volume is manufactured at 3rd Party units	• Sudden disruption will impact supplies and hence the market share	• Strategic agreements with Termination clause/notice period
			• Revenue Loss/Lost ground	• Registration of alternate supply sources
			• Import from other states or secondary sources may lead to margin erosion (Import-Export duties, Transportation & related risks etc.)	• Buffer capacity at other units to handle crisis
				• Multiple partners to avoid concentration risk
Technology Risks	Cybersecurity, Data Integrity & Downtime Risk	• Threats to SAP, financial, and supply chain systems.	• Data breaches & Leakages • Business/Operational disruption	• Cybersecurity systems ncluding firewal
		• Inaccurate or manipulated business data		• Vulnerability Assessment and
		• Failure of IT infrastructure.	• Poor decision-making	Penetration Testing through externa agency
				• Data governance frameworks
				• Disaster recovery plans
				• Cloud backups

HUMAN RESOURCES

The Companys human resource management is dedicated to empowering employees to reach their full potential and align their growth with organizational objectives. Emphasizing individual strengths, the Company recognizes that each employee possesses unique skills and talents that are vital to its success. This is fostered through an inclusive culture, offering flexibility and a challenging work environment that promotes personal development and job satisfaction. The Company invests in employee development through training, structured learning pathways, and skill enhancement. Additionally, the integration of technology in business processes allows employees to focus on value-adding tasks and innovation. This comprehensive and forward-thinking approach prioritizes both individual and collective growth to drive the Companys success

INFORMATION TECHNOLOGY

The Company views technology as a key pillar for organisationa growth and business continuity. Innovations in technology enable processes and operational effectiveness. Tls data driven platform with trusted software and hardware drives seamless processes across the Company.

During the year, the following measures were taken:

1. Information Security Enhancement

The Company is undertaking initiatives to further strengthen its information technology and network security framework, including the implementation of a Unified Threat Management (UTM) solution in a High Availability (HA) configuration.

The initiative is aimed at enhancing protection against evolving cybersecurity threats, improving network resilience, and ensuring high availability and business continuity of critical IT and network infrastructure.

2. SAP ECC to HANA Migration

The Company has initiated the migration of its existing SAP ECC environment to SAP HANA as part of its ongoing technology modernization and digital transformation initiatives.

The migration is expected to:

• Improve system performance and processing efficiency;

• Enable faster reporting and support real-time data analytics;

• Enhance system scalability and future readiness;

• Optimize the overall SAP infrastructure and database environment; and

• Support the Companys evolving business and operational requirements.

The project encompasses technical readiness assessment, system sizing, infrastructure preparation, application and database migration, comprehensive testing, and post-migration validation to facilitate a smooth and controlled transition.

3. Digital Transformation

As part of its broader digital transformation agenda, the Company is implementing various technology- enabled solutions aimed at improving business visibility, operational efficiency, process automation, data accessibility, and decision-making capabilities.

These initiatives are focused on strengthening digital integration across key business functions, improving access to timely and actionable information, and creating a more scalable and technology-enabled operating environment.

Overall, the Company continues to invest in technology and digital capabilities with a focus on enhancing operational resilience, strengthening governance and controls, improving productivity, and supporting sustainable long-term growth.

INTERNAL CONTROL

The Company has designed a reliable internal financial reporting and control system to record financial and operational information in accordance with all applicable internal controls and other regulatory compliance requirements. The Companys Internal and Statutory Auditors periodically review the internal control systems to ensure that day-to-day operations are conducted with minimal risk of fraud or other discrepancies. The Audit Committee reviews the findings of the Internal and Statutory Auditors. This ensures the sustained adequacy and efficiency of internal controls. Additionally, the Board oversees the Audit Committees examination and ensures that prompt and adequate measures are taken to limit the risk and rectify the situation.

CAUTIONARY STATEMENT

A statement in the Management Discussion & Analysis Report describing the Companys objectives, projections, estimates and expectations may be "forward-looking" within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include raw and packing material availability and prices, changes in Government regulations, tax regimes and other incidental factors.