174 Integrated Annual Report 2025-26 Risks and Concerns Monsoon India is expected to receive a below-normal southwest monsoon in 2026 due to the potential emergence of El Niño conditions. The India Meteorological Department (‘IMD’) has projected rainfall at around 92% of the Long Period Average (‘LPA’) in its first long range forecast. However, positive Indian Ocean Dipole (‘IOD’) conditions, expected to develop towards the end of the southwest monsoon season, could partially offset the El Niño impact. Over the years, structural shifts have made the Indian farm ecosystem more resilient to monsoons. This is driven by increased penetration of horticulture, an increase in non-farm income, government support for farmers, and improved farm mechanisation. Further, favourable rural cash flows, higher MSPs, and improved access to farm credit, together provide a buffer against weather-related volatility. Based on historical trends, the correlation between monsoon variability and your Company’s performance has been relatively moderate, with a limited impact from uneven rainfall conditions. With a robust operating model, the business has delivered consistent results through cycles. Commodity Pricing Commodity prices in FY26 fluctuated significantly due to global supply-demand imbalances, policy uncertainties, and geopolitical disruptions. Your Company remains focused on cost optimisation through value engineering, supplier negotiations, and long-term price contracts. It continues to actively manage risks through robust hedging practices under Board approved foreign exchange and commodity risk management policies. Regulatory Readiness Your Company remains fully equipped to meet emerging safety and environmental regulations, supported by ongoing investments in compliant product development. Industry leaders continue to emphasise the need for stable EV-related policy frameworks to support long-range vehicle programmes. India will move to TREM Stage V (Tractor and Rural Equipment Manufacturing) emission norms for agricultural tractors from 1st October 2026 for above 75 HP and below 25 HP tractors, while the 25–50 HP segment will migrate to the TREM IIIAA emission norm, effective April 2028. There is no change in emission norms for the 50-75 HP category. The entire 25-75 HP will migrate to TREM V norms effective April 2032. These norms aim to curb particulate matter (‘PM’) and nitrogen oxides (‘NOx’). Your Company is well-prepared for these changes, with ongoing investments in developing products that meet future environmental regulations. Slowdown in International Markets In FY26, international tractor markets broadly witnessed a subdued growth environment. Multiple cost-side factors weighed on farmer profitability and dampened capital expenditure on farm machinery in several regions. These factors led to a cautious purchasing environment, particularly in North America and parts of Europe, where replacement demand softened during the year. In Latin America, structurally strong markets, such as Brazil, continued to benefit from large-scale commercial farming and long-term mechanisation trends. Near-term demand, however was impacted by volatile commodity prices, higher financing costs, and weather-related uncertainties. Currency volatility in select emerging markets further pressured affordability and delayed investment decisions by farmers. Going forward, your Company will continue to strengthen its position in strategically important markets such as the United States, Brazil, and Turkey, where it has built a strong presence and meaningful market share. This will be driven by the launch of new products, and refreshes of existing ones, to add further value for farming in these markets. The long-term outlook for these markets remains positive. Geopolitical Developments Rising geopolitical uncertainties, including the West Asia conflict, pose a near-term risk to the Indian auto sector through volatility in crude oil prices, disruption of critical shipping routes such as the Strait of Hormuz, and supply constraints in oil-linked raw materials. Prolonged uncertainty could also heighten inflationary pressures and currency volatility. Your Company takes several measures to de-risk its supply chain. Localisation is a key driver of supply chain strategy, along with planned buffers for critical components, supplier base diversification, optimising usage of high-risk materials and long-term supply contracts. Tax Regulations India has traditionally seen a tax-rate differential between small and large passenger vehicles. This differential is based on length of the vehicle, engine size and fuel type. While the flagship products of your Company attract higher tax rates, it has strengthened the UV product portfolio attracting lower tax rates with products like XUV3X0, Bolero Neo, Bolero and Thar. XEV 9S, XEV 9e, BE 6, XUV 3XO EV and XUV 400 attract the least GST among all passenger vehicle categories.
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