Kennametal India Ltd

"We continued to execute on our strategic imperatives of both commercial and operational excellence which enabled us to drive profitability.

Bidadi Anjani Kumar

Chairman

Dear Shareholders,

It is my privilege to present the 59^th Annual Report of your Company for the financial year ended June 30, 2024, on behalf of the Board of Directors of Kennametal India Ltd. Your Company achieved sales of Rs10,999 million in FY24. Including Other Income, the Total Income was Rs11,114 million or Rs1,111.4 crores. Our revenue growth was constrained by the decline in exports revenues because of poor demand from international markets, especially Europe and slower than expected recovery in China.

However, the Profit before exceptional items and tax grew by 17.8% from Rs1,176 million to Rs1,386 million in FY24. The final PBT including exceptional items was Rs1,513 million in FY24 showing a growth of 28.7% over FY23. As a result, the PAT was also significantly higher in FY24 at Rs1,105 million as against Rs877 million in the previous year, a growth of 26%. This improvement in the profit is a result of strong domestic demand providing higher manufacturing volumes which led to higher utilisation of capacity and better absorption of fixed costs, apart from our own focused cost control initiatives. We continued to execute on our strategic imperatives of both commercial and operational excellence which enabled us to drive profitability.

Global Economy - an overview

The geopolitical tensions which started in February 2022 continued to affect the global economy in 2023 and the West Asia conflict which started in October 2023 just made it worse for nations around the world. As a result, international trade suffered with increase in both raw material costs and the cost of freight. This affected our export sales in our financial year from July 2023 to June 2024 and could continue to affect us in FY25 also, as both these conflicts continue till date. While these prevailing challenges are likely to infuse volatility in commodity prices, raise inflation and disrupt trade activities, the risks are a little more balanced today with economies recalibrating their outlook to drive a more sustainable growth trajectory. Specific to regions, Europe and China are expected to witness softness in growth. The US economy has displayed resilience with tightening of monetary policies and proved to be an important lever in driving the overall global economic growth, though inflation remains a concern even today. India and Indonesia continue to remain bright spots in this regard, while the Middle East and North Africa are expected to pick up after a subdued performance in the recent past.

Manufacturing Sector in India

According to the Index of Industrial Production (IIP) data, India Rss industrial output grew by 5.8% in FY23-24 (financial year ending March 2024), slightly higher than 5.2% in the previous fiscal. The growth momentum continued across manufacturing, mining, electricity, construction goods and other output. Continuing the positive trend into the April- June quarter of 2024, IIP rose to 5.9% Y-o-Y in May from 5% in April, but dipped to 4.2% in June 2024. In terms of capex spends, the value of new investment projects dropped by ~5% over the previous year, marred by 11-15% lower investment plans by the domestic players, as well as a significant drop in foreign investment outlays. On the contrary, the central and state governments ramped up capex spends to the tune of 8.4% and 27% respectively. This trend is expected to taper in the near term and pick up again in the second half of the fiscal. In the long term, the IIP is projected to trend around 5% in 2025 and 4.3% in 2026.

On the back of a strong uptick across primary, secondary and tertiary sectors, the Indian economy registered a GDP growth of 8.2% for the fiscal FY24 (ending March 31). Reserve Bank of India (RBI) has estimated India Rss GDP growth in 2024-25 at around 7% on account of healthy monsoons, continued momentum in manufacturing, services and infrastructure spends. To ensure economic sustenance, the government has set a target to reduce the fiscal deficit to 4.9% from 5.6% of GDP that can be attained through robust tax collection, sound expenditure management and economic growth, backed by a massive Rs2.1 trillion dividend payout by RBI. Retail inflation trended around 5% in FY24 and is expected to remain unchanged in the coming fiscal, mainly fuelled by the rise in food prices. Overall, India is expected to continue its growth momentum despite some moderation in the coming fiscal, yet leading the way among nations as the fastest growing economy.

Performance of the Indian Auto Sector

As per the Society of Indian Automobile Manufacturers (SIAM), the automobile industry demonstrated a growth of 12.5 per cent in volume during the last financial year (FY24 ending

March 31,2024). The Passenger Vehicle (PV) segment saw a growth of 8.4%, touching almost 4.2 million units, while the two-wheeler segment recovered with an impressive growth of around 13% with volumes touching 18 million units. The Commercial Vehicle (CV) segment remained flat over a strong base, hindered by factors such as shift to higher tonnage trucks resulting in lower number of units and reduced infrastructure spends in the run up to general elections. In the current fiscal, the PV segment is expected to grow moderately by 3-6% and the CV segment is projected to decline by 3-5%. In proportion to the domestic OEM volumes trend, coupled with subdued exports, the auto component segment is likely to grow at 5-7% in the current fiscal, according to a recent report by ICRA, after delivering a strong 10% in FY24. On the other hand, the two-wheeler segment is expected to touch pre-pandemic levels due to improved exports and pickup in rural sentiments owing to favourable monsoons. The domestic tractor industry went down by 7-8% in FY24 mainly on account of rainfall deficit but is expected to revive in the second half of the current fiscal to touch a mid-to-high single digit growth in FY25.

Financial Performance, Dividend Payout and the Balance Sheet

As mentioned earlier your Company Rss Total Income recorded a total of Rs11,114 million in FY24 showing a growth of 2.8% over the prior year, and the Profit After Tax (PAT) was Rs1,105 million for FY24, which was 26% above the prior year. Therefore, the EPS (Earnings per Share) also grew by 26% from Rs39.91 in FY23 to Rs50.28 in FY24.

This enabled your company to declare a significant increase in the dividend from 200% in FY23 to 300% in FY24. Despite this increased dividend payout in May 2024, your company managed to maintain good cash & cash equivalents at the end of the financial year on 30^th June 2024 amounting to Rs1,128 million. Your Company also continues to have a strong Balance Sheet with zero debt apart from the healthy cash and cash equivalents. This will enable your company to proceed well with its capital expenditure programme in FY25 for catering to future growth.

Apart from the above, if I look at your Company Rss track record since FY14, I note that your company Rss sales have more than doubled despite the set back caused by the COVID pandemic for almost three years in between. The PAT has grown more than six times in this period (from Rs171 million to Rs1,105 million) and so has the EPS. The dividend payout has in fact been increased fifteen fold from those days from 20% levels to 300% in FY24. Dear Shareholders, I am sure you will appreciate this sterling performance and continue to support your Company in the years to come.

Changes to Constitution of the Board of Directors

During FY24, your Company witnessed the following changes to the constitution of the Board:

Ms. Kelly Marie Boyer, who acted as Non-Executive Director of the Company since May 11,2022 resigned from the Office of Director of the Company effective closing of business hours of September 30, 2023. The Board places its sincere appreciation on record for the commendable contribution to the Board during her tenure as a Director of the Company.

Effective August 11, 2023, Ms. Kelly Golden Lynch was inducted as an Additional Director (Non-Executive Non-Independent) on the Board of the Company. Her appointment was approved by the Shareholders at the 58^th Annual General Meeting held on November 10, 2023.

Mr. Keith Alan Mudge was inducted as an Additional Director (Non-Executive Non-Independent) on the Board of the Company effective February 9, 2024. His appointment was approved by the shareholders through Postal Ballot on April 17, 2024.

Effective March 11, 2024, Mr. Amit Laroya was inducted as an Additional Independent Director on the Board of the Company, with his appointment being approved by the shareholders through Postal Ballot on April 17, 2024.

Lastly, Mr. Narumanchi Venkata Sivakumar was also inducted as an Additional Independent Director on the Board of the Company effective May 9, 2024. His appointment was approved by the shareholders through Postal Ballot on June 19, 2024.

These additions to the Board of Kennametal India Limited have been made as Mr. Vinayak Deshpande and myself are stepping down from the Board of your Company effective November 4^th, 2024 as statutorily required, since both of us are completing ten years on the Board of your company as Independent Directors on that date.

In view of the above, in the meeting of the Board of Directors held on August 9^th, 2024, the Board of your Company appointed Mr. Amit Laroya as the Chairman of the Board effective November 4^th, 2024. The Board also appointed Mr. N. V. Sivakumar as the Chairman of the Audit Committee of the Board effective November 4^th, 2024.

The Board of your company therefore remains well constituted with optimal representation of experts from various realms that adheres to all norms of corporate governance. I would like to take this opportunity to wish Mr. Amit Laroya and Mr. N. V. Sivakumar all the very best in carrying out their responsibilities as the Chairman of the Board and the Chairman of the Audit Committee respectively. They are both highly qualified and experienced and I can confidently assure all of you dear Shareholders that they will fully justify the confidence placed in them by the Board.

Corporate Governance

Corporate governance is the guiding light for decision-making and conducting business at Kennametal. Your company Rss Corporate Governance Framework provides a comprehensive direction to foster accountability and transparency for our Board of Directors and management team. Further, your Company is always committed to safety, environment, ethics and the wellbeing of all its stakeholders as part of its Environmental, Social, and Governance (ESG) initiatives. I am proud to state that during the year, your company undertook various ESG programs that have helped in strengthening stakeholder engagement and create long-term value.

Corporate Social Responsibility

During FY24, your Company Rss CSR initiatives have been centred around the three long standing focus areas of (i) Protecting our Planet (ii) Tech Education as part of Promotion of Education and (iii) Kennametal in the Community. The Company has spent Rs 24.66 Million towards projects aligned with these three pillars as part of its CSR initiatives in FY24 and met the statutory requirements for CSR expenditure during the financial year. The Director Rss report will provide you with more details on the well-planned actions taken under your Company Rss CSR programme.

Summary and The Way Ahead

Despite the difficult situation in the international market, your company managed to leverage the strong growth in the domestic market to drive volumes while demonstrating prudence in financial management and excellence in operational efficiency. The Kennametal India team continued to partner with customers across transportation, aerospace, energy, engineering, and earthworks to create value through a solutions- based approach and long-term partnership. We intensified our focus on people initiatives by strengthening our safety practices, driving employee engagement, supporting Diversity & Inclusion initiatives and building a robust talent pipeline. I am confident that your company will continue to steer profitable growth as we progress into FY25 by delivering on strategic initiatives and staying the course on values, ethics and responsible business conduct with the support of our dedicated management team.

On behalf of the Board of Directors, I would like to sincerely thank all our employees once again, for their dedication and focus on the Company Rss goals and priorities. I would be failing in my duty if I did not acknowledge the significant contributions of our loyal customers, distribution partners, vendors and bankers in our growth and success. I would also like to take this opportunity to thank all the regulatory authorities and our loyal shareholders for their continued support and encouragement.

Before I conclude, I would also like to sincerely thank my fellow Board Members for their encouragement and guidance to the management led by Mr. Vijaykrishnan Venkatesan, our Managing Director, who along with the Senior Leadership Team has ensured that your company continues its focus on both business performance and business ethics.

I wish the Kennametal team continued success in all its endeavours in the years to come.

Thank you,