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Earnings Update

Dear Partners,

  • For the quarter-to-date period, the fund delivered +90 bps relative to the NIFTY500. The key driver has been earnings delivery on change factors—precisely the kinds of structural shifts and strategic pivots that are central to Vaikarya’s investment philosophy.

As of 19th August 2025

Table of fund vs Nifty 500 returns as of 19 Aug 2025 across QTD, 3M, and since inception.

MARKET CONTEXT – Q1 FY26 EARNINGS SEASON

  • On a normalized view of NIFTY large-to-small cap aggregates delivered top-line growth of +6% YoY (Financials +10%) and core adjusted profit growth of +11% YoY (Financials +5%). The quarter revealed several divergences:

    1. Domestic Capex Flywheel: Infra, construction, and PEB clusters reported strong backlog visibility. While weather delayed execution in some cases, disciplined bidding protected margins.

    2. Retail Credit Compounding: Retail lenders saw healthy disbursements and improving collections, translating into stable-to-improving margins and steady growth.

    3. Domestic Pharma, hospitals, and diagnostics continue to report good growth.

    4. Cyclical Soft Spots: Autos and housing reflected a mid-cycle slowdown.

    5. Discretionary Split: Fashion, advertising, and premium auto were softer; meanwhile, value/utility-linked categories (FMCG packaging, pumps) held up better.

    6. Export Headwinds: US generics, IT services, and export-heavy textiles cited customer pricing pressure, weak discretionary spends, destocking, and program delays.

PORTFOLIO EARNINGS REVIEW

  • On aggregate, 61% of the Vaikarya portfolio delivered better or in-line earnings in Q1-FY26, while 39% of the portfolio delivered weaker earnings. The following stocks contributed positively:

    1. Fedbank Financials delivered a classic Vaikarya change thesis – a management change a few quarters ago, and a business mix shift towards lower risk while protecting profitability this quarter. Stock has given 41% returns for us, including 7% around results.

    2. Pennar Industries delivered good growth, strong order books and improving margins against low expectations. The impact of the tariff is a low single-digit percentage of revenues only. Stock returned 20% on results.

    3. Windlas Biotech delivered strong 20% revenue and 30+% profit growth in Q1. Strong performance in exports and trade generics validated the thesis of a positive industry cycle. Stock returned 14% around the results.

  • The following stocks dragged down the returns:

    1. Axis Bank: Technical slippages in Q1 shook sentiment, with -6% returns. We view this as a classic value play—credit costs likely peaked, margins should recover in 2H FY26, with regulators supportive of growth.

    2. Capacite Infraprojects: Seasonal execution slowdown limited top-line growth to 3%. Resulted in -5% / -15% returns (around results / QTD).

    3. Tariff-impacted positions: August’s US tariff hikes impacted ~4.9% of portfolio positions, generating -6% return drag. These holdings have 10–15% revenue exposure to new tariffs. Exposure had already been reduced from 6.4% (June-end), given that tariff negotiations were getting delayed and harder.

PORTFOLIO ACTIONS

  • On checks and research review of portfolio holdings, we find the thesis intact or improving for most of the stocks. We increased weights in four holdings where business mix, strategic pivots, or industry cycles are improving. We trimmed positions where industry or regulatory evidence weakened the thesis.

This quarter again highlights that earnings anchored in change factors—management upgrades, strategy pivots, or cycle shifts—drive outsized stock returns. We thank you for your continued trust and partnership.

Disclaimer

This document (the “Letter”) is being furnished to you by Vaikarya Change LLP (“Vaikarya”) and its authorized agents on a confidential basis solely for the purpose of providing information regarding Vaikarya and an investment in Vaikarya Change India Fund (“Fund”), which is a scheme of Vaikarya Change India Trust (“AIF”). Vaikarya Change India Trust is registered with SEBI as a Category III Alternative Investment Fund having registration number IN/AIF3/24-25/1536.

The information contained in this Letter is confidential to the person, company, partnership, or other entity to whom it is given (the “Recipient”) and, without the prior written consent of Vaikarya, should neither be disclosed to any other person, company, partnership, or other entity (except to the Recipient’s legal counsel and/or other professional advisers), nor copied nor reproduced in whole or in part. This Letter must be returned, along with any supplemental information provided to the Recipient, and any copies destroyed, immediately upon the request of Vaikarya. By accepting delivery of this Letter, each Recipient agrees to the foregoing and the terms and conditions below. This Letter is prepared by Vaikarya strictly for the specified audience and is not intended for distribution to the public and is not to be disseminated or circulated to any other party outside of the intended purpose. This Letter is not directed to, nor intended for distribution or use by, any person or entity in any jurisdiction or country where the publication or availability of this Letter or such distribution or use would be contrary to local law or regulation.

This Letter is made for informational purposes only and should not be regarded as an official opinion of any kind or a recommendation. This Letter is not, and under no circumstances is it to be construed as, an offering document or an advertisement, and the furnishing of this Letter to the Recipient is not, and under no circumstances is it to be construed as, an offering (public or otherwise) of interests in the Fund. The contents of this document should not be treated as advice relating to investment, legal, or taxation matters. It is recommended that the Recipient consult their stockbroker, banker, legal adviser, and other professional advisers to understand the contents of this Letter. Vaikarya does not provide legal or tax advice, and if necessary, you should approach independent professional tax or legal advisors to obtain the same. This document is confidential, and any unauthorized use or reproduction of any information contained in this document is strictly prohibited. The views in this document are generally those of Vaikarya and are subject to change without notice, and Vaikarya is not under any obligation to update its views or the information in this document. Neither Vaikarya, nor its promoters, directors, officers, employees, or representatives shall accept any responsibility for any direct, indirect, or consequential loss suffered by you or any other person as a result of you acting, or deciding not to act, in reliance upon such information, opinions, and analysis. The contents of this document have not been reviewed by any regulatory authority in India or in any other jurisdiction. If you have any doubt about any of the contents of this document, you should obtain independent professional advice.

The portfolio of the Fund is subject to changes within the provisions of the Private Placement Memorandum of the Fund. Investments are subject to market risks. Past performance is not an indicator of future performance, and there can be no assurance or guarantee that any investment will achieve any particular return. The performance of the Fund may be adversely affected by the performance of individual companies, changes in the market conditions, micro and macro factors, and forces affecting capital markets, including interest rate risk, credit risk, liquidity risk, and reinvestment risk. Fund will be exposed to various risks depending on the investment objective, investment strategy, and the asset allocation. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any research report/recommendation of the same, and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). Any projections, forecasts, and estimates contained in this Letter are necessarily speculative in nature and are based upon certain assumptions. It can be expected that some or all of such assumptions will not materialize or will vary significantly from actual results. All projections, forecasts, or “forward-looking statements” relating to expectations regarding future events or the possible future performance of the Fund contained in this Letter are those of Vaikarya only and represent Vaikarya’s own assessment and interpretation of information available to it as at the date of this Letter and are subject to change without notice as a result of known and unknown risks, uncertainties, and other factors which may cause actual results or eventualities to be materially different from those contemplated in such statements.

The Recipient should not treat the contents of this Letter or any prior, or subsequent, communications from Vaikarya, any of its affiliates or any of their respective directors, officers, employees, partners, members, agents, professional advisers, representatives, and/or consultants as advice relating to legal, taxation, or investment matters and are advised to consult their own professional advisers concerning the acquisition, holding, or disposal of interests in the Fund.

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