#MDStart#

MANAGEMENT DISCUSSION & ANALYSIS

Dear Members,

Your Board hereby present the 40th Annual Report and the Audited Financial Statements for the year ended 31st March, 2025.

Financial Highlights

The highlights of financial results of the Company for the year under review are given below:

(Rs. in Million)

Dividend

Your Board recommends a dividend of Rs. 15/- per equity share for the year ended 31st March, 2025. This is subject to the approval of the members at the ensuing Annual General Meeting.

Industry Outlook

In the year gone by, the Indian air conditioning industry has seen a surge in demand due to the intense summer season. The industry continues its efforts to combat climate change responsibly by use of energy efficient technologies with increased controls and investing on new technologies and innovations. More broadly, India's macro-economic factors continue to aid the steady growth of air conditioning Industry. While the penetration level of room air conditioning is still in high single digits, rising disposable incomes, improved quality and reliability of electricity supply and easy financing options continue to drive both urban and rural demand. Consumers seek energy efficient cooling technologies as their awareness and understanding of the benefits of such technologies continues to improve. Their buying pattern is also undergoing a shift towards online-channel for ordering air conditioners. The growth in e-commerce is therefore also expected to give an additional boost to the industry. These factors are expected to drive healthy growth of air conditioning industry in India.

Government of India's push for self-reliance through Production Linked Incentive (PLI) scheme has started to enhance the air conditioning component ecosystem in our country. Over time, as the local availability of core components increases, it is expected to shield the industry from various external factors such as fluctuating foreign exchange rates, supply chain shocks and geopolitical risks. Government of India's Quality Control Orders (QCO) aims to ensure availability of quality products to consumers, improving customer's trust in domestic manufacturing and reduce import dependency. Overall, Indian air conditioning industry is poised for a steady growth of 13-15% year on year, making it one of the most attractive industries in the consumer durables market.

Business Overview

During the financial year 2024-25, the company's revenue grew from 19,187 million to 27,565 million, representing a 43.7% growth. The company reported a profit before tax of 822 million against a loss of 990 million last year. This stellar turnaround in the company's performance has been driven by the focused execution of strategy implemented later last year. The company's turnaround strategy ensured a focused organization with three key pillars of execution: Go-To-Market, Quality Excellence and Cost Excellence. The Go-to-market strategy focused on ground-up channel planning, product positioning and price consistency across channels. The strategy focused on disciplined sales management and targeted spends and it significantly improved channel advocacy, price stability and overall customer satisfaction. The Quality Excellence pillar ensured sustainable processes in place across the value chain including supplier, design, manufacturing and service quality delivering high quality overall experience to our customers. The Cost Excellence pillar focused on bringing cost efficiencies and productivity through cross functional ideation workshops, challenging status-quo, putting best practices across all cost elements. The financial turnaround executed this year has been a result of the synchronized implementation of all the above three pillars of strategy. The company delivered record sales, swung back to profitability, corrected inventory levels and generated cashflows while continue to invest in growth – capex and resources.

Room Air Conditioners

During this year, Indian Room Air Conditioning industry witnessed strong surge in demand due to intense summer. The industry continues to show strong growth prospects and attract significant investments in residential air conditioning and related components. In the year gone by, the Company continued its focus on delivering on its promise to provide its customers with premium, high quality products with high-end features. The Company deepened its reach and strengthened its presence through appointment of new distributors in all key markets while at the same time strengthening its presence in the modern retail stores in urban areas. This channel expansion coupled with careful supply chain management allowed the Company to cater to the surge in demand during the summer season. The Company is well poised to maintain its premium positioning in the residential air conditioning market.

Light Commercial Air Conditioners

India is expected to see a significant boom in residential and commercial infrastructure as the country marches towards becoming a $5 trillion economy. Demand for light commercial air conditioners has been driven by increasing Government spending into strengthening the country's healthcare, educational institutes, metro and railway networks, as well as private sector investments into hospitals, commercial and residential real estate, hospitality and data centers. In addition, VRF technology continues to see higher adoption in premium housing and condominiums due to its flexibility, high efficiency and space saving features. Considering this immense growth potential, the Company has made significant investments in local manufacturing of the Hitachi's latest generation of VRF technology, the air365Max. Hitachi air365Max VRF brings to Indian customers worldclass Hitachi VRF technology with best-in-class efficiency and latest features. With efficiencies of up to 40% above the leading Japanese products, Hitachi's air365Max VRF sets a new performance benchmark in the Indian market. This series offers Indian customers the single largest outdoor unit of 30 HP in cooling-only models which enables significant space saving. The NFC feature enables easy on-site con guration, monitoring and troubleshooting. Overall, this latest addition of VRF air365Max series positions Hitachi very favorably to take advantage of the immense growth opportunity. The Company retained its strong position in Packaged Air Conditioners (PAC). The company's energy efficient inverter PAC lineup has seen keen interest from the key customers in sectors ranging from banking, retail and government. In the year gone by, the company focused on further strengthening this inverter PAC by offering AHU connectivity, which allows the use of this technology to critical applications such as clean rooms, operation theaters and pharmaceuticals. The Company has also strengthened its range of inverter cassettes which has seen strong demand from corporate customers, high-end apartments, villas and small offices and shops. Such product enhancements with a clear focus on driving energy efficiency are expected to support the company in maintaining its strong market position. The Company has continued its focus on nurturing its established channel network in all major cities and in improving the ease of doing business for its channel partners through digitization. Overall, the light commercial business is expected to continue to see strong demand and growth.

International Sales

In the past year, International business unit has made significant strides in expanding its footprint in the South Asia market. Focus countries like Bangladesh, Maldives, Sri Lanka, Nepal, and Bhutan have demonstrated promising growth potential. Through strategic initiatives, Company has successfully added new customers across various sectors including commercial, healthcare, hospitality, manufacturing, residential and government segments and established strong partnerships with key channel partners in each of these markets.

Company has partnered with 9 new channel partners, enhancing our sales network and ensuring better market penetration. These new partners have significantly contributed to our sales increase.

Advancements in Technology

The impacts of globalization and post-pandemic trends have greatly influenced consumer preferences, driving a growing demand for products with smart and futuristic technologies. As a company committed to meeting consumer needs, we actively track technological advancements and consistently refresh our offerings. To stay ahead of the curve, we have established a strong product development framework, featuring a multi-year roadmap for new products and upgrades that integrates customer feedback, smart innovations, and regulatory compliance

Risk Associated with Seasonal Variations

As a company specializing in air conditioning products, our operations are naturally influenced by seasonal demand. Unpredictable factors like intermittent rainfall, extreme temperature variations, and supply chain disruptions can affect our operations. To minimize the risk of missed opportunities or surplus inventory, we have enhanced our demand and supply planning process, ensuring agility and responsiveness to seasonal fluctuations.

Variability in Raw Material Costs

Variations in raw material costs can cause substantial shifts in component pricing, disrupting the supply chain and potentially impacting the Company's profitability. To address this challenge, the company has strategically established a network of local suppliers and adopted a dual-sourcing approach for critical components.

Regulatory Framework and Government Policies

The Company's core product business is significantly influenced by government regulations, including energy efficiency standards, quality control orders, environmental laws, manufacturing guidelines, non-tari barriers, incentive schemes, anti-dumping duties, EXIM policy, Trade Agreements with other countries and taxation policies. These regulations can have a direct or indirect impact on product pricing and overall operations. To manage this risk effectively, the company remains proactive, continuously monitoring policy changes and taking appropriate actions when necessary.

Simultaneously, the company actively engages with industry associations to foster constructive discussions with government authorities on policy frameworks that influence our business and the broader industry. These efforts align with governmental objectives, particularly in areas such as sustainability and regulatory advancements.

Human Capital

As on March 31, 2025, the total strength of employees (Staff and Operators) of the Company was 1180. Our employees are pivotal to our success and we intend to make them future-ready. To do this we have introduced programs that reward, recognize, engage and develop employees thereby creating a high-performance culture based on empathy, meritocracy and professional improvement. We strongly believe that this will ultimately lead to creation of a conducive environment, for our employees to deliver their best to achieve our short-term and long-term business objectives.

Talent Attraction and Retention

Our employees are critical to our success and our human capital strategy is outlined to improve organizational capability, hire and retain the best talent and create a culture that delivers long-term value and sustain competitiveness in the global marketplace. We strive to be the employer of choice within all our business lines and to do that we are focusing on strong employer branding, employee development and retention.

Talent Management

Our talent management process focuses on building succession strength, creating development paths and learning interventions to attract, retain and develop top talent across the Company. This is anchored through the "Organization Talent Review" (OTR) process that provides an overview of talent across the company and enables talent movements across teams based on individual strengths and aspirations. With a strong focus on providing Distributed Leadership opportunities to young and upcoming talent, we have processes in place to identify and nurture top talent within the organization and put them on fast track growth.

Talent Development

To augment the Talent Management and Retention processes, this year we have also focused on skill improvement and managerial development for our workers and staff respectively. Across our manufacturing operations, all our workers went through a skill assessment survey that was followed by dedicated technical skill development interventions. For our staff we have introduced Performance Enhancement and Advancement through Knowledge

(PEAK) program that focuses on developing the managerial skills of our middle managers. Beyond PEAK, we have plans in place to ensure seamless transition of our new team leaders through our Step Up program. The program will help high potential individual contributors, who have been recently promoted to lead a team (first-time managers), to gain the tools required to optimally lead their team

Employee Engagement

As part of our culture transformation journey, we have introduced the "Pulse Connect" program, a bi-monthly, dedicated program where the HR team connects with each team across each geographic location within India, to check the pulse of the organization, get first hand feedback from the employee on their expectations and aspirations. The data generated out of Pulse Connect, is utilized for improving HR processes, policies and facilitation for our employees. Beyond this, our Long Service Recognition program ensures that loyalty and commitment to the organization, never go unnoticed. To promote a health oriented culture, regular health check up camps are organized for our staff and workers. Our employee engagement team is ensuring that at periodic intervals, employees can recharge and refresh themselves.

Diversity, Equity Inclusion

The Company promotes Diversity, Equity and Inclusion at all locations, for all departments and stakeholders. On a time-to-time basis Company reviews the existing policies and practices to make the workplace inclusive. We prioritise Diversity, Equity and Inclusion (DE&I) at our workplace and strive to provide equal opportunities to all individuals. Our policies ensure that no discrimination occurs based on gender or disability regarding employment, promotion, termination or other related issues.

Our Prevention of Sexual Harassment at Workplace (POSH) Policy is in line with our commitment towards gender inclusion and diversity and helps create a safe and secure workplace for all. All women employees (permanent, temporary, contractual and trainees), woman service providers, as well as any woman visiting our Company are covered under this policy. Any breach of this policy is subject to strict disciplinary actions. FINANCIAL STATEMENTS

Internal Control and Systems

The Company has a well-defined and adequate internal control system commensurate to the size of its business and the nature of industry it operates in. The Internal Control system ensures safeguarding and protecting the assets of the Company. Internal Audit was conducted by external professional auditing firms at plant as well as for kadi manufacturing unit, head office and branch operations as per the detailed scope defined and approved by the Audit Committee. The Internal Audit is planned to substantiate and STATUTORY REPORTS review the adequacy of internal controls and laid down procedures & systems. Observations of Internal Auditors and the detailed plan of action are reviewed and discussed at the meetings of the Audit Committee on a periodic basis.

Auditors

Pursuant to the provisions of Section 139 of the Companies Act, 2013, Members of the Company, at the Annual General Meeting held on 15th September 2021, appointed M/s. Price Waterhouse & Co, Chartered Accountants LLP (Firm Registration No. 304026E E300009) as Auditors of the Company to hold office from the conclusion of Annual General Meeting held on 15th September, 2021 till the conclusion of the sixth consecutive Annual General Meeting.

Directors' Responsibility Statement

Your Directors confirm that: a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures; b) Such accounting policies selected and applied consistently and judgments and estimates made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for that period; c) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of Companies Act, 2023 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d) Annual accounts have been prepared on a going concern basis; e) Internal financial controls which are to be followed by the Company have been laid down and that such internal financial controls are adequate and are operating effectively; and f ) Proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Sad Demise of Mr. Arpit Patel, Independent Director

With profound sorrow, the Board deeply mourns the untimely demise of Mr. Arpit Patel, who served as an Independent Director of the Company since 1st October, 2023. His passing on 21st May, 2024, is an irreparable loss to the Company and to all those who had the privilege of knowing him. The Board wishes to express its deepest gratitude for his invaluable contributions, wise counsel, and unwavering dedication.

Change in Board of Directors

During the year under review, there were following changes in the Board of Directors of the Company:

1. Appointment of Mr. Raman Madhok as an Independent Director of the Company with effect from 1st April, 2024.

2. Cessation of Mr. Arpit Patel as an Independent Director with effect from 21st May, 2024 due to death.

3. Appointment of Mr. Anil Shankar as an Independent Director with effect from 30th July, 2024.

Performance Evaluation

The Board has carried out an annual evaluation of the performance of the Board, Audit Committee, Risk Management Committee, Stakeholder Relationship Committee, Nomination and Remuneration Committee, Executive Committee, ESG Committee, Vigil Mechanism Committee and CSR Committee.

The Board has also carried out an annual evaluation of the performance of individual Directors, who were evaluated considering levels of their engagement and contribution, safeguarding the interests of the Company and its minority shareholders, etc. The performance evaluation of the Chairman and the Non-Independent Directors were carried out by the Independent Directors at their separate meeting.

Details of Establishment of Vigil Mechanism

The Company has established a Vigil Mechanism process as an extension of the Company's Code of Conduct whereby any employee, director, customer, vendor or associate of the Company can lodge his genuine concern in good faith in Integrity Helpline or disclose to any member of Vigil Mechanism Committee about unethical behavior, actual or suspected fraud or violation of the Company's Code of Conduct or ethics policy, so that appropriate action can be taken to safeguard the interest of the Company. In exceptional cases, a complaint can be made by a complainant to a Chairperson of Audit Committee.

This mechanism is overseen by the Audit Committee.

Disclosure under section 197(12) of the Companies Act, 2013 read with Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:

*Worked only for a part of the previous year.

Comparison of remuneration against Company's performance*

We hereby afirm that the remuneration given to all the employees, Directors and KMP is as per the Remuneration policy of the Company.

Risk Management System

Company has implemented Enterprise Risk Management (ERM) system to identify, assess, monitor and mitigate the various risks associated with the Company.

Risks are identified and then classified into different categories such as Strategic, Operational and Business risks. Then score based on level and significance of risk is given and subsequently risk mitigation steps are taken. ERM covers various functional risks including Cyber securities related risks.

As required under SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015, Board has formed a Risk Management Committee to discuss critical and vital risks.

Internal Financial Controls

The Company has in place adequate internal financial controls with reference to its financial statements. These controls ensure the accuracy and completeness of the accounting records and the preparation of reliable financial statements.

Other Disclosures

• Number of meetings of the Board: Five meetings of the Board of Directors of the Company were held during the year under review on 23rd May, 2024, 30th July, 2024, 23rd October, 2024, 12th December, 2024 and 11th February, 2025.

• Robert Bosch GmbH (Acquirer) has made Public Announcement on 26th July, 2024, that pursuant to the Purchase Agreements, the Acquirer has, inter alia, agreed to acquire 100% (one hundred per cent) of the issued and paid-up share capital of Johnson Controls-Hitachi Air Conditioning Holding (UK) Ltd. ("JCH") ("Underlying Transaction").

• Consequently, on completion of the Underlying Transaction, the Acquirer will indirectly acquire and control shares and voting rights in Johnson Controls-Hitachi Air Conditioning Holding (Uk) Ltd and JCHAC India Holdco Limited, which hold 635 Equity Shares and 2,01,89,894 Equity Shares respectively in the Company, constituting an aggregate of 74.25% of the Share Capital of the Company.

• Members of the Audit Committee as on 31st March, 2025 are

• The Company has received necessary declaration from each Independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets the criteria of independence laid down in Section 149(6) of the Companies Act, 2013.

• Details of the CSR amount spent for the year 2024-25 is attached as Annexure A. Details about the Policy on Corporate Social Responsibility (CSR) as required under Section 134(3)(o), 135(2) read with Companies (Corporate Social Responsibility Policy) Rules, 2014 has been placed on the website of the Company and weblink is as under: https://buy.hitachiaircon.in/cms/materials/ebd1a947b5.pdf The projects to be implemented by the Company for the year 2025-26 have been placed on the website of the Company and weblink is as under: https://buy.hitachiaircon.in/cms/materials/ e4ed8fb7.pdf

• Formal Appointment and Evaluation Policy of the Board of Directors and Senior Management of the Company which has been formulated and recommended by Nomination and Remuneration Committee and adopted by Board of Directors covering appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Section 178(3) has been placed on the website of the Company and weblink is as under: https://buy.hitachiaircon.in/cms/materials/858c85c293.pdf

• No commission was paid to Directors of the Company, so no disclosure is required to be made under Section 197(14).

• The Draft Annual Return in form MGT-7 as provided under sub-Section (3) of section 92 has been placed on the website of the Company and weblink is as under: https://buy.hitachiaircon.in/cms/materials/7ad7db7a14.pdf

• No loan was granted by the Company to any person to purchase or subscribe to fully paid-up shares of the Company.

• Details of the significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof, including:

Sr. Ratio Numerator Denominator Refer As at As at % Reason for Variance* No. foot- March March Variance note 31, 2025 31, 2024

1 Current Ratio Current Current 1.3 1.2 8.3% NA

Assets Liabilities

2 Debt-Equity Ratio Total Debt Total Equity I 0.1 0.1 0.0% NA

3 Debt Service Earnings Total Debt II 9.0 -0.7 1385.7% Refer Explanation 1 Coverage Ratio available for Service debt service Costs

4 Return on Net Net Profits Average 9.6% -12.2% 178.8% Refer Explanation 1 Worth (Return on after taxes total Equity Equity) (ROE)(%)

5 Inventory Cost of Average III 3.6 2.3 57.7% The variation is due to Turnover Ratio goods sold Inventory optimization of inventory during the year as compared to previous year.

6 Trade receivables Net Credit Average IV 9.0 6.6 36.6% The variation is on account turnover ratio Sales Accounts of timely collection from the Receivable debtors of the Company.

7 Trade payables Net Credit Average V 4.2 3.7 12.7% NA turnover ratio Purchases Trade Payables

8 Net capital Net Sales Working 9.3 9.9 -6.5% NA turnover ratio Capital

9 Net profit ratio(%) Net Profits Total Income 2.1% -3.9% 154.7% Refer Explanation 1 below after taxes

10 Return on capital Earning Capital VI 13.8% -14.6% 194.7% Refer Explanation 1 below employed (ROCE) before Employed (%) interest and taxes

11 Operating EBITDA Revenue 5.7% 0.5% 1040% Operational efficiency has Profit Margin from resulted into better operating (%) (before operations margin exceptional items)

Explanation:

The variance is primarily on account of profit during the year ended March 31, 2025 as compared to the loss during the year ended March 31, 2024.

Note:

I Total Debt = Borrowings + Lease liabilities

II Earnings available for debt service = (Loss)/Profit for the year adjusted by Deferred tax charge/(credit), Depreciation and amortisation expense, Finance costs and Loss on sale of property, plant and equipment (net) II Total Debt Service Costs = Principal Payment of lease liabilities + Interest paid on lease liabilities + Payment of finance cost

III Average Inventory = Average of closing inventory at end of each quarter.

IV Average Accounts Receivable = Average of accounts receivable at end of each quarter.

V Average Trade Payables = Average of trade payables at end of each quarter.

VI Capital Employed = Total Equity + Total debt + Lease liabilities - Deferred Tax Assets

• Secretarial Audit Report: Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Report of the Secretarial Auditors is annexed as Annexure B.

• There is no material fraud reported by Auditors under Section 143(12) of the Companies Act, 2013 during the year under review.

• Particulars of loans, investments or guarantees under section 186: Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered under Section 186.

• There is no subsidiary and/or joint venture of the Company. Further, there is no associate Company in which Company has a significant influence. Therefore, no disclosure in this regard is required in Form AOC 1.

• There is no Company which has become or ceased to be its subsidiary, joint venture or associate Company during the year.

• During the year, Company has not accepted deposits covered under Chapter V.

• There is no qualification, reservation or adverse remark or disclaimer made by the Auditors in their report.

• There is no qualification, reservation or adverse remark or disclaimer made by the Secretarial Auditors in their report except noting of gap between two risk management committee meetings beyond the prescribed time limit in SEBI LODR. It occurred due to inadvertent scheduling to have Risk Management Committee meeting alongwith the meetings of Board, Audit Committee, Executive Committee and Stakeholder Relationship Committee which were scheduled to happen physically on 23-Oct-2024 with an objective to have a more holistic discussion on various confidential matters. NSE had sought clarification on the same and the company has submitted their reply.

• There is no significant and material order passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future.

• Details of complaints relating to sexual harassment during the year under review: Number of complaints pending as on 31st March, 2024 : Nil Number of complaints received during the year : 2 Number of complaints disposed of during the financial year : 2 Number of complaints pending as on 31st March, 2025 : Nil

• The information as per Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (‘Rules'), forms part of this Report. However, as per second proviso to Section 136(1) of the Act and second proviso of Rule 5(3) of the Rules, the Report and Financial Statements are being sent to the Members of the Company excluding the statement of particulars of employees under Rule 5(2) of the Rules. Any Member interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office of the Company.

• Related party transactions under Section 188(1): All transactions entered by the Company with related parties during the year under review were in ordinary course of business and at arm's length basis. During the year, no Related Party Transactions (RPTs) requiring shareholders' approval under Section 188 of the Act were undertaken by the company, whether material or otherwise. Therefore, disclosure in Form AOC-2 under Section 134(3)(h) of the Companies Act, 2013 is not applicable.

Policy on dealing with Related Party Transactions has been disclosed on Company's website and weblink is as under: https://buy.hitachiaircon.in/cms/materials/3f846d49e9.pdf

• Revision in Accounts or Board‘s Report: No revisions have been made in the Accounts or Board‘s Report

• Issue of Equity Shares with differential rights: No Equity Share were issued with differential voting rights during the year under review

• Issue of Sweat Equity Shares: No issue of Sweat Equity Shares were made during the year under review.

• Employee Stock Option and Employee Stock Purchase Schemes: No Employee Stock Option and Employee Stock Purchase Schemes were launched by the Company during the year under review.

• Disclosure under Regulation 34(3) read with Schedule V of the SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015: a. The Equity Shares of the Company were not delisted or suspended during the year under review. b. Equity Shares of the Company are listed on the BSE Limited and the National Stock Exchange of India Limited. c. Annual listing fees have been paid to both the stock exchanges mentioned above.

• Dividend Distribution Policy has been disclosed on Company's website and weblink is as under: https://buy.hitachiaircon.in/cms/materials/9de980b488.pdf

• Company has complied with Secretarial Standards applicable to Company.

• Information pursuant to Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014, relating to conservation of energy, Technology absorption and Foreign exchange earnings and outgo are attached in Annexure C.

ACKNOWLEDGEMENT

Your Directors thank all Customers, Suppliers, Investors, Bankers and other stakeholders of the Company for their co-operation and continued support during the year. We look forward to their continued support in the future also.

We wish to place on record our sincere appreciation for the excellent work put in by the employees of the Company at all levels.