AXISCADES Technologies Ltd Management Discussions.

MACRO-ECONOMIC REVIEW

Global

CY2020 was another year where the global economy faced another blow of COVID-19 pandemic which impacted both advanced and developing economies. Due to pandemic all the countries were forced to go for lockdowns and restrict travel and trade. As a result, the world output declined by 3.2% in Calendar Year (CY) 2020. Advanced economies Japan, EU and USA declined by 4.7%, 6.6% and 3.5% respectively. The Emerging Market and Developing Economies saw a 2.1% de growth mainly due to growth of 2.3% in China. The global economy may witness a V shaped recovery and grow by 6.0%. This will be driven by faster scale vaccination ongoing across the globe. However any delay in vaccination may pose challenge to the recovery. (Source: World Economic Outlook, International Monetary Fund, IMF updated In July)

INDUSTRY REVIEW

As per industry reports, due to pandemic, the Global ER&D spends in 2020 dropped by 4% Y o Y. This reflected the drop in ER&D budget across verticals like Aerospace, Automotive, Energy, Industrial products and Transportation.

Digital engineering continues to drive ER&D spend, with enterprises across verticals increasingly prioritizing their R&D efforts towards building new age digital products and service. Industry reports suggest that the ER&D spend will touch ~$2.2 trillion by 2025, digital engineering being the key driver of the spend. Digital ER&D likely to grow by at a CAGR of 19%.

The growth in business ER&D spend will be supported by digital engineering led by increasing convergence of technology and business, technology led transformation and new business models, data engineering and monetization opportunities, and growth of start ups and technology vendors.

1.2 COVID-19 IMPACT

1.2.1 Aerospace

We expect Aerospace vertical to recover slowly during the year.

The recovery in commercial aerospace will be slow during the year; however, pandemic has opened other areas of growth ,activities such as MRO refurbishments of older aircrafts and cargo conversions as opposed to new product development activities. Demand for smaller aircrafts and private jets are seeing an uptick.

1.2.2 Automotive

We saw growth coming from Automotive vertical in Q4FY21 and adoption of new technology will drive the growth. The economy around the world is being opened slowly and we expect Automotive to gain momentum.

1.2.3 Industrial

Covid-19 has impacted companies manufacturing and supply chain operations. This has resulted in production stoppages and reduced factory activity which is causing a domino effect through the ecosystem that is surrounding the industry. In FY22, on account of opening up of the economies we expect Industrial sector to do well compared to FY21.

1.2.4 Defence

Positive traction in this vertical is expected on the back of an increase in defence related budgets by the various countries.

Government of India opening up the defence industry for private sector coupled with recent Make in India initiative, push for defence modernisation, is expected to benefit domestic private players, including your Company. Recent announcement of 108 Military items (plus earlier 101 items, totalling 209 items) to be made under Atmanirbhar Bharat is a huge opportunity for domestic player including your Company.

Indias defense export market which is currently Rs 11,000 crores is expected to be Rs 35,000 crores by 2025. Over the last couple of months, your Company has participated in multiple bids and is hopeful of some wins.

1.2.5 Energy

Global energy demand in 2020 fell by 4%, the largest decline since World War II and the largest ever absolute decline. The outlook for 2021 is, however, subject to major uncertainty. It depends on vaccine rollouts, the extent to which the Covid 19 induced lockdowns scarred economies, and the size and effectiveness of stimulus packages. Current economic outlooks assume global GDP will surpass 2019 levels, lifting demand for goods, services and energy. However, transport activity and, particularly, international travel remain severely supressed. If transport demand returns to pre Covid levels across 2021, global energy demand will rise even higher, to almost 2% above 2019 levels, an increase broadly in line with the rebound in global economic activity.

1.2.6 Medical Devices

COVID 19 has put the medical device industry front of mind, with unparalleled demand for some products like diagnostic tests, ventilators, and personal protective equipment (PPE). However, not all medical devices are essential in the management of patients during the pandemic. Because of the dramatic drop in elective medical procedures, many of which are being postponed or cancelled so that hospitals can focus resources on treating COVID 19 patients, results in a drop in use of other products. When growth restarts, field forces, for both sales and support, will continue to encounter a challenging environment. Providers are likely to face significant ongoing challenges as they try to deal with deferred essential care and building capacity for new patients moving forward. Access to customers may continue to be partially restricted as healthcare systems will be recovering financially and likely be cautious with expenditures.

1.2.7 AXISCADES Response to COVID-19

With Health and Safety of its employees and continuity of services to customer being at the core of AXISCADES priorities, AXISCADES responded swiftly and proactively to address the COVID 19 challenges. Your Company took protection measures even before the lockdown decisions were announced by the government. AXISCADES deployed work from home facility worldwide and immediately activated its business continuity plans which were prepared well in advance. The Company has demonstrated its agility and efficiency, by being able to continue delivery to its customers without any delay or disruption. AXISCADES intends to take advantage of new opportunities that will emerge.

The key strengths that underline the Companys resilience include:

• Design lead product life cycle partner to customers

• Proven ability to acquire-engage-scale large (100+ people) long term customers.

• Leverage Make in India & Defense Offsets

• Emerging outsourcing space

• Deep domain expertise in all verticals that we operate in

• Enviable track record of delivering high-quality services & solutions on time

2. COMPANY OVERVIEW

AXISCADES is a leading technology solutions provider, catering to companies in diverse industries, such as aerospace, defence & homeland security, automotive, heavy engineering, industrial products, energy, semiconductor and medical & healthcare.

AXISCADES is a preferred engineering partner for global OEMs with complex supply chains, mission critical applications and highly advanced technologies. The Company supports customers across their entire value chain, from concept design to manufacturing to after market solutions.

AXISCADES comprehensive engineering capabilities and offerings include:

• Mechanical & electrical engineering solutions: Product design & definition, 3D CAD modeling, simulation & analysis, value engineering, harness design & routing, optimization, etc.

• Electronics and embedded systems: Hardware & software engineering, application S/W & Mobile apps development, avionics, control systems, telematics, autonomous mobility, test solutions, system integration, simulators etc.

• Manufacturing engineering solutions: Virtual Manufacturing, 3D Facility Layout Design & Transformation, Assembly Process & Capacity Planning, Prototyping & Production support, Quality and Supply Chain Support, Manufacturing execution systems, Shop floor automation, Industrial Internet of Things (IIoT), Non Conformance Engineering, Tool & Mold Design, etc.

• Digital solutions: Enterprise Systems Integration, Artificial Intelligence (AI), Machine Learning (ML), Augmented / Virtual Reality (AR/VR), IoT, Advanced Analytics, etc.

• Business consulting: Product throughput & productivity, business process design, etc.

• After market solutions: Repair, Modifications / Upgradation & Life Extension, Obsolescence Management, Technical publications, Platform migration, Reverse engineering, etc.

AXISCADES ability to deliver end to end engineering solutions and products across the globe is amply illustrated by the eight

Offshore Development Centre (ODC) operations managed by the Company. It has a pool of 1,750+ highly skilled engineers spread across 15 Global Engineering Centres (GECs) in North

America, Europe, and Asia Pacific, including proximity GECs based in Toulouse, Hamburg, Augsburg, Donauworth, and Copenhagen. The average experience of its engineers is more than seven years with the best mix of engineering, domain and digital capabilities. Besides, the Company also has a sizeable network of relationship managers and consultants based out of its sales offices and client locations. AXISCADES is trusted by its clients to always work in perfect collaboration, stay committed to quality processes and industry best practices, and achieve the desired technical and business objectives. The Companys license for defence manufacturing and position as a preferred India offset partner further enable it to collaborate with global OEMs for manufacturing or sourcing from India, either in defence or other verticals. The Company is headquartered in Bengaluru and is publicly listed on the BSE (532395) and

National Stock Exchange (AXISCADES).

3. STRATEGY

AXISCADES is committed towards delivering value to its customers in the current changing environment. In this regards we have consistently strengthened our capabilities through strategic collaborations. This has helped us offer wider range of offerings to our customers. We work very closely with our customers and offer them unparalleled support to deliver unconventional solutions that meet their diverse and evolving needs. Our footprints in digital technologies have helped us diversify our capabilities and has allowed us to become an end to end service provider. We partnered our customers, right from conceptualisation to the final product delivery. We have been investing on enhancing the competency of our teams, retaining the key employees and attracting the best available talent.

3.1 Business

• Expand digital services offering to existing clients

• Focus on addition of new clients in digital offerings

• Explore the growth potential in Energy and Automotive vertical

• Expand and strengthen industry 4.0 and digital offerings

• Advance healthcare, life science and energy, and environment verticals.

3.2 Technology

• Investment in Integrate digital technologies such as AI and ML along with core engineering services to address the digital engineering paradigm, which is the most strategic need of the customers; similarly, leverage digital competencies to strengthen IIoT and Industry 4.0 offerings

• Focus on innovation and technology to address requirement changes of customers

• Focus on automation of the delivery process and utilise machine learning solutions for internal use to improve efficiency

• Maintain the Balance between the revenue portfolio with higher growth in Embedded and PLM offerings vis a vis core product engineering solutions

• Develop and advance technology in radar, electronic warfare, drones, cyber security and other niche areas for defence and homeland security

• Focus on making products and solutions digital ready for a smart and connected future

• To create cleaner and sustainable future, enable green technologies and processes in our offerings

3.3 Industry

• Specialise and concentrate on digital offerings across the verticals

• Build the partnership with OEMS by capitalising the offset expertise

• Focus on in house innovation to develop products in new age technology areas for industry specific solutions

• Develop ‘Engineering Stack for offering targeted digital engineering solutions for each of the above verticals.

• Collaborate extensively and consolidate the partner ecosystem for robust industrial organisations.

3.4 Talent Pool & Reach

• Expand the sales team to approach new customers and expand offerings to existing clients

• Expand footprint in key growth geos specially in North

America and Europe, along with focus on APAC region

• Form R&D partnership with key academic institutions across the world to make company ready for future

• Form alliances with specialist companies in digital technologies which is key growth area

4. BUSINESS MODEL

AXISCADES customer centric business model creates value through best in industry skills and global delivery management approach. It helps the Company offer distinct and high impact solutions leading to greater trust and higher wallet share from each client. Its GECs help offer a balanced value proposition of optimized costs, lower programme risks, shorter product development lifecycle, and sustainable innovation to its customers.

5. STRENGTHS

• More than three decades of experience in delivering value to partners

• AXISCADES has several top tier, Fortune 500 companies in its customer portfolio that are leaders in their respective verticals.

• AXISCADES has proven itself as a reliable, long term partner as seen in its repeated business rate.

• AXISCADES has expertise in the ER&D space across six different domains and can offer end to end offerings to qualify as a strategic partner.

• Flexible business model (onshore, nearshore and offshore)

• Experienced team of 1750+ professionals

AXISCADES is committed to deliver quality to its customers. Various certifications acquired by AXISCADES and its subsidiaries are ISO9001:2015, ISO27001:2013, AS9100D, ISO13485, CMMI and DO 178B certifications. Besides, it has accomplished compliance with global industry standards and secured authorisations/licenses, such as AUTOSAR, A1020, and India Offset Partner.

6. OPERATIONAL HIGHLIGHTS

6.1 Business highlights

• 7 new customers added

• Launched three new products – Elevated Skin Temperature

Sensor, Social Distancing Application and Remote Operations

Desk

• Received additional orders from a defence OEM

• Forged partnerships with niche companies to address upcoming opportunities in Strategic technologies.

6.2 y region b Operations

• North America (46% of Group revenues) compared to 42% in FY20

• Europe (33% of Group revenues) compared to 41.4% in FY20, mainly due softness in Aerospace vertical due to

Covid-19 Pandemic

• Asia Pacific (21% of Group revenues) compared to 17.3% in FY20,

6.3 Operations by business

• Aerospace: Due to Covid 19 pandemic, Aerospace vertical de grew by 44% Y o Y.

• Heavy engineering: Heavy Engineering contributes 42% of group revenue in FY21. Due to softness in demand due to Covid 19, Heavy Engineering vertical de grew by 14% Y o y.

• Strategic technology solutions: Contributed ~30% of group revenue in FY21. It declined by 8.4% Y o Y due to lockdown announced by countries on account of Covid 19.

7. FINANCIAL PERFORMANCE

Despite the pandemic and challenging environment, the Company maintained EBITDA margin of 14.6%, same as last year. Adjusted Profit after Tax (PAT) stands at 3.6% in FY21 compared to 4.5% in FY20, despite the decline in top line by 22% due to Covid 19 pandemic. During the year the company took various cost rationalization measures and prioritized This stellar performance is a testament to the Companys approach from the start of the year to be agile, focus on execution and strengthen customer connects in the segments it operates in.

7.1 Financial Highlights

• Operating revenue de grew 25% in US$ terms and 22% in INR terms, mainly on account of decline in revenue in Aerospace vertical due to Covid 19 pandemic

• EBITDA Margin stands at Rs 785 million at 14.6%

• Healthy cash generated from operations stands at Rs 1,221 million compared to Rs 649 million in FY20.

• Adjusted PAT stands at Rs 196 million

• Cash & Cash equivalents and bank balance stands at

Rs 848 million compared to Rs 702 million in FY20

• Reduction in Debt by 49% Y o Y, debt on the books stand at

Rs 728 million compared to Rs 1,442 million in FY20.

8. KEY RISKS

Based on its nature of business, the company is exposed to specific set of risks, which have been proactively identified and . the detailed risk management plan has been developed. The management team of AXISCADES is committed to effectively manage and mitigate the risk to achieve the goal and create value for shareholders.

After the assessment and estimation of these risks, they have been separated into transactional, strategic and external categories to develop an appropriate management and mitigation approach. Typically, transactional risks are managed through well defined processes and internal controls. On the other hand, strategic and external risks need to be mitigated with approaches that involve enhancements to and through business strategy, operations and financial management, and human resource initiatives.

Key Risks Risk Description Mitigation Strategy
Covid-19 Pandemic Covid-19 pandemic may severally impact companys revenue growth and profitability. Mainly for its key vertical. Implementation of health advisory
• Encourage and enable employees to work from home Diversification of revenue across different segments and Geographies Continued interaction and ongoing engagement with Customers
Technology Changes The fast pace of change in the industry, disruptive technologies, evolving customer needs in changing the operating environment, etc. may lead to a mismatch in terms of the solutions needed by the customers and those ered off by AXISCADES, which causes slippage in performance. Continued interaction by Dedicated client relationship teams that can develop a significantly better understanding of clients needs and operating environment. Focus on innovation and development of solutions
• Market research to keep abreast of emerging client needs and new technologies that can affect clients, and Companys, operating environment by reducing costs or increasing productivity or fundamentally disrupting business models
Partnerships with technology partners, internal R&D, institutionalised knowledge building and skill development to develop capabilities in line with technological changes and strengthen the value proposition to keep ahead of the competition.
Cyber Security Risk In todays world cyber security risk could lead to cyber attack on business. This could lead to loss of data and reputation • Strict enforcement of a comprehensive IT Security Management framework
covering systems, processes, manpower and overall infrastructure
• Campaign on Cyber Security awareness for all employees
• Regular audit and reviews of security managment
Currency Valuation risk Company earns major of its revenue in other than Indian rupees. Fluctuation in currency may adversely impact result of operation Apart from the natural hedges through costs and liabilities in the currencies which
AXISCADES has exposure to, the FOREX valuation risk can be managed and mitigated through:
Diversification in regional markets by increasing the exposure to a wider basket of currencies.
Development of a risk management policy that involves proactive hedging of incremental exposures through available financial instruments
Human resource risk Increase in attrition rate Increased employee engagement activities and interaction to curb the attrition
• Focus on Hiring
Changes in Travel rules and policy Competition risk Any changes in immigration law can impact our project delivery Focus on local hiring
We may see lot of competition from other players which may impact the performance of the company Expanding our offerings in newer space to provide end to end services to our clients.