TVS Srichakra Ltd Management Discussions

COMPANY PROFILE

TVS Srichakra Limited (hereinafter referred as "the company" or "your company") is one of Indias largest manufacturers and exporters of two-wheeler, three-wheeler and off highway tyres (OHT). Domestically, the company is a leading supplier of tyres to two and three-wheeler manufacturers (OEMs) as well as the replacement market. Supplies are made through a network of depots, distributors and retailers. The companys growing OHT business is focused on global markets. The company accesses international markets through sales to more than 90 countries across the globe.

The company manufacture tyres at its facilities located in Tamil Nadu and Uttarakhand. Products are precision engineered to provide superior performance in different conditions. Product range includes two & three-wheeler tyres, industrial pneumatic tyres, farm and implement tyres, floatation and other multi-purpose tyres. The companys tyres are designed to global standards with high-quality and advanced technology and are sold under the brand name of "TVS Eurogrip", "TVS Tyres" and "Eurogrip".

Just as it appeared that the global economy was stabilizing, we seem to be running into a fresh bout of turbulence and uncertainty. Two major contributors to this are:

• International discord about trade and the related policy uncertainties

• Escalation rather than easing of conflicts – specifically in Ukraine and in the Middle East.

The Global Economic Prospects Report published by the World Bank in June 2025 expects growth to weaken to 2.3 percent in 2025, with deceleration in most economies as compared to 2024. The forecast even for 2026-27 is of tepid growth. The downside risks posed by escalating trade restrictions, policy uncertainties and tensions arising from growing conflicts is high.

The chart below, taken from the World Bank report, are indicative of the deterioration of the outlook.

Although the World Bank forecasts India to maintain the fastest growth rate amongst the worlds largest economies, the forecast for GDP Growth in FY26 has been lowered by 0.4% to 6.3% (January 2025 forecast vs June 2025 forecast). The World Banks forecast for FY26 is in line with ICRAs outlook which pegs Indias GDP growth at 6.5%.

The chart below shows the macro-outlook as per ICRAs analysis.

Global vehicle sales are forecast to grow by just 2.7%, reaching 98.7 million units in 2025. Globally weak economic conditions are the biggest limiting factor for big ticket purchases such as vehicles. The picture has been made further uncertain by the US tariffs – especially considering the final position is yet to become clear.

The picture related to EVs also seems to have evolved. From earlier thoughts that adoption of EVs would be rapid, at the expense of ICE engines – the position now seems to be that while the transition will happen, there will be an extended period of co-existence. The high initial cost of purchase, concerns of travel range and relatively poor resale values are driving this evolving position.

India is the worlds third-largest automobile market. The Indian automotive industry in its entirety contributes 7% to Indias GDP.

FY24 was a mixed year for Indian vehicle manufacturers. Overall, production rose by 9%, with two wheelers leading the way. While Indian two-wheeler production has not yet reached the pre pandemic levels, the growth of the sector is encouraging. The chart below shows vehicle production in FY25 vs FY24.

*The sales data was calculated as per the Federation of Automobile Dealers Associations (FADA) press release for January, February and March 2025, and retail growth was calculated using average m-o-m growth per cent for the three months (Jan-Mar 2025) as per FADA press releases; **SUV: Sport Utility Vehicle

Looking ahead to FY26, Indias automotive sector is poised for sustained growth, supported by new model launches and increasing consumer interest in EVs. While expansion across two-wheelers, passenger vehicles and commercial segments remains strong, market dynamics continue to be shaped by access to financing, evolving consumer preferences and potential U.S. tariff developments.

Indias Automotive Mission Plan 2047, the final draft of which is anticipated to be completed soon, seeks to establish India as a global hub for automotive manufacturing and research and development (R&D). India is already the largest producer of two-wheelers, the second-largest producer of buses, and the third-largest producer of medium and heavy commercial vehicles in the world.

As Indias automotive industry grows and with increased use of motor transportation – for people as well as goods movement - the nation well on its way to becoming the worlds 3^rd largest market in the next 5 years.

Domestic tyre demand is expected to grow by 6-8% in FY26. ICRAs outlook is shown in the illustration below:

At the same time, ICRA suggests that profitability (in the form of Operating Margins) are likely to remain at the FY25 levels in FY26. This comes on the back of the substantial raw material cost increase that the industry was faced with in FY25. While these costs have abated to an extent, they remain at elevated levels. Tyre exports from India are expected to continue to show healthy growth – notwithstanding the global challenges currently being witnessed.

Your company remains a leading supplier to domestic OEMs – including to manufacturers of both Internal Combustion Engine (ICE) vehicles as well as the growing Electric Vehicle (EV) segment. Your company sustained market share in the replacement market in the face of intense competition. Your Company also achieved significant share in the growing E-rickshaw segment.

Your Company continues to grow its presence in the global markets. FY25 saw healthy growth of your companys global business – in both the 2 & 3 wheeler space as well as the Off Highway Tyres (OHT) space.

An area of strength for your company is its focus on Technology and Research & Development (R&D). This focus covers not just new product development to meet market requirements but also fundamental research on material science.

FY25 saw a dedicated focus on the introduction of new products, especially in the OHT segment, where your company executed an aggressive product development plan including, radial tyres, flotation tyres, row crop tyres, harvester radial tyres etc. The internal processes put in place saw your Company developing products at the rate of 20 new products and variants per month. This goes to significantly enhance your companys ability to reach a wider global customer base. The companys products have received excellent review in global markets and provide a major growth pathway in the period ahead.

In the domestic market, your company has the infrastructure in place to supply its OEM customers on Just in Time (JIT) basis across the length and breadth of the country.

The domestic Aftermarket (AM) is addressed through a network of depots and distributors throughout the country – reaching out to the retail network from whom individual vehicle owners have the ability to purchase tyres. Growing this network is an area of focus, with the target being that a customer in the remotest part of the country should have access to outlets from whom your companys tyres could be purchased.

Globally, while your company addresses markets through a network of channel partners, the focus is on establishing a presence closer to the customer. This is being done by establishing a presence of the companys own sales force based out of key international locations.

Your companys acquisition of Super Grip in USA is a step in this direction. The Super Grip brand is well recognized in the segments in which it plays in the OHT space and will help your company grow its business in the North and Latin American markets.

Raw materials, including natural rubber, carbon black, nylon tyre cord fabric and synthetic rubber account for almost 60% of your companys sales turnover. Changes in raw material cost, styrene butadiene rubber (SBR) and polybutadiene rubber (PBR) are among the main raw materials used to manufacture tyres.

The year gone by (FY25) saw a sharp increase in raw material prices, starting from the second quarter. This sudden and sharp increase was the principal reason for lower profitability margins in FY25.

Multiple initiatives have been taken to mitigate against the impact of rising raw material prices. Amongst others, these include a drive to expand the supplier base – including global sourcing actions, selective long term contracts to protect price volatility, and inventory optimization as required.

Internally – the focus has been on reducing in plant wastages, as well as use of alternate materials wherever possible.

While your company did not further enhance capacity in FY25, the focus has been on increasing capacity utilization of its manufacturing facilities – including the recently established OHT factory at Madurai.

The tyre industry offers not just domestic but global growth opportunities. Reports indicate that tyre exports from India grew 12% in FY25, standing at a little over 26,000 Crores. This is in spite of the global headwinds of economic slowdown as well as geopolitical conflicts and uncertainties.

The two and three-wheeler as well as off highway tyre segment in which your company operates are at the forefront of tyre exports from India. Your companys operating plans focus on accessing opportunities in global markets in both segments. Both present exciting growth opportunities.

Domestic markets also present opportunities. As shown in this report earlier, Indias two and three-wheeler vehicle production is showing signs of resurgence. Your company is a leading supplier into this space. In addition to supplies to OEMs, the domestic aftermarket presents growth opportunities. Your company has continued to focus on this segment, including through actions to enhance its brand position.

While your company works to access the growth opportunities it sees, it is cognizant of the challenges it faces especially in the near term.

Domestic demand pick up is still fragile and volatile.

Global markets are probably at their most uncertain phase driven by economic uncertainties and growing conflicts.

The most challenging issue for your company remains that of raw material costs which, after a short period of stability, have seen increased volatility at historic levels.

In compliance with Regulation 21 of the SEBI (LODR) Regulations, the Board of Directors of your Company has established a Risk Management Committee. This Committee is tasked with addressing the evolving and dynamic risks present in todays business environment.

In an effort to proactively manage and mitigate risks, your company has implemented a risk management framework. This framework aids in the identification, prioritization, and mitigation of risks.

By establishing the Risk Management Committee and implementing a risk management policy that combines strategic and operational risks, your company demonstrates its commitment to proactive risk management and ensuring the resilience of its operations in the face of evolving threats.

Details of the potential risks the company faces are in the BRSR section of this report. A summary is shown in the table below.

Your companys use of renewable energy sources has continued to grow over the years, reaching levels of approximately 80% in FY25. The chart below shows the increased use of green electricity sources over the last five years.

The company is workings towards a scenario where close to 100% of its electricity will be supplied by "green" sources.

The company has also put in place and is pursuing a Sustainable Road map, covering greenhouse gas emissions, overall carbon foot printing, decarbonization and finally extending to the companys Corporate Social Responsibility (CSR) initiatives.

The company also makes efforts at environment conservation including through actions such as tree plantation drives, as well as reduction of its use of scarce resources such as water.

Your Company continues to be a preferred supplier for OEMs manufacturing traditional internal combustion engine (ICE) driven two and three wheelers. In addition to this, your Company has been assessed and cleared for supplies by a vast majority of the new clutch of OEMs manufacturing electric (EV) two wheelers.

Quality is assured at every stage of the process by enforcing a documented quality standard through the entire chain of receiving materials, manufacturing, and logistics.

The Total Employment Involvement (TEI) initiative started at the company a few years back continues to be used as a tool to motivate employees towards a culture of quality consciousness and continuous improvement.

Your company views employee health and safe working conditions to be an integral part of its day-to-day operations. Safety metrics take priority over all others when the company measures its performance. The company has built strong internal processes and a governance mechanism to ensure:

Constant review of failure modes that may result in accidents. Action plans to mitigate against possible unsafe conditions. Reviews to ensure action plans are being implemented.

Some of the noteworthy awards and recognitions achieved during FY25 are mentioned below:

Your Company maintains risk management processes and protocols. The company also maintains adequate internal controls to safeguard stakeholders interest and the Companys assets. Processes exist to identify, evaluate and manage risks that impede the realization of the Companys objectives. The Company has also established an Internal Financial Control Framework which addresses internal controls over financial reporting and operating controls. This framework is duly supported by well-defined policies, processes, and procedures. This control framework is reviewed periodically by the management, audited by an Independent Internal Audit team, and placed before the Audit Committee and the Board. The CEO and CFO Certification provided in the Annual Report also discusses in detail the adequacy of Internal control systems and procedures.

In accordance with SEBI (LODR) Regulations, 2015, the Company is required to give details of significant changes in key financial ratios. The Company has identified the following as key financial ratios:

previous year, an Increase of 9.8% over the previous year. However, Your Company has decreased its profit before tax to 48.61 crores from 138.95 crores, a decrease of 65.0% year on year. EPS has decreased to 48.28 in March 2025 from 135.25 in March 2024, a 64.3% decrease year on year. There has been a decrease in the borrowings of the Company from 817.53 Crores in the previous year end to 812.20 crores during the current year. Finance costs have increased from 42.53 Crores to 49.17 Crores on the back of increased averaged working capital utilization during the year as compared to the previous year in addition to an increase in average interest rates as compared to the previous year.

At TVS Srichakra, people are central to our business. We continued to focus on people related priority and undertook several initiatives through the year. These initiatives spanned multiple dimensions such as leadership, employee training & skill enhancement, employee welfare, building high performance culture etc. Our total permanent employee headcount as of 31^st March 2025 was 2785.

Statements in the Management Discussion and Analysis describing the Companys views, projections and expectations may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions, geopolitical uncertainties, macro-economic conditions, global and domestic supply and demand situations, input prices and their availability, changes in government regulations, tax laws and other factors such as industrial relations, economic developments among others. This may influence the Companys operations or performance in the final analysis.