bharat dynamics ltd Management discussions

2.2 Manufacturing facilities

The Company has three manufacturing facilities located in Hyderabad, Bhanur and Vishakhapatnam. All the manufacturing facilities have been certified with ISO 14001:2015 Environmental Management System (EMS). All production Divisions are certified to AS 9100D Standard for Aerospace Quality Management System. The Corporate Office located at Hyderabad certified with ISO 9001:2015 (Quality Management System). Electronics Labs of MILAN Division and BHANUR Unit have been accredited for ISO / IEC 17025: 2005 (NABL) Certification in the discipline of Electro-Technical calibration of Electronic Measuring Equipment. Material Testing Lab of Bhanur Unit has been accredited for ISO / IEC 17025: 2005 (NABL) Certification in the field of testing.

Information Security Management System (ISMS) of BDL Kanchanbagh & Bhanur units have been 27001:2013 by the certification body M/s AQC Middle East LLC, Noida The Company is in the process of setting up of additional manufacturing in Maharashtra and Jhansi in UP which will be used to manufacture SAMs (including new generation rockets and propellants for various ATGMs.

2.3 Order Book

Our current order book as on 01 April 2023 is about 20054 Crore.

* Figures have been reclassified and regrouped, wherever necessary.

iii) Key financial Ratios:

iv) All the applicableAccounting Standards are followed except IND-AS-108 relating to Segment reporting keeping in view of the nature of businessandthesensitive nature of the disclosure. Further, the Ministry of Corporate Affairs vide their Notification No. SO-802(E) dated 23.02.2018, have exempted Companies engaged in defence production from the applicability of said IND-AS-108. However, such non-disclosure does not have any financial effect on the accounts of the Company.

2.5 Company Objectives

To become self-reliant and competitive in Guided Missiles and Underwater Guided Weapon Technology and Production.

To maximize utilization of existing production capacities.

To become a prime competitor in the world market and export products to friendly countries.

Opportunities

BDL?s multiple years of expertise in manufacturing various defence equipment coupled with its advanced facilities enable the company to expand its market in India and abroad.

BDL has an experienced senior management and staff having vast experience in defence equipment manufacturing.

Increased thrust on defence indigenisation under the "Make in India" policy has thrown up more opportunities for BDL.

BDL has a strong supply chain comprising of technically qualified vendors and suppliers to ensure timely delivery of materials.

BDL?s primary customer is Ministry of Defence, Government of India (GoI). The GoI has been allocating increased budget for acquiring defence equipment.

The opening up of export market and ?ease of doing business? have facilitated the Company to execute export orders successfully in the recent times and receive more enquiries from other countries. threats

Slowdown in the economic activities and lower defence budget by GoI could

Higher dependency on single customer i.e. Ministry of Defence (MoD)

Cancellation of orders can weaken the order book and future revenue.

Opening up of the Defence sector.

2.7 Key Strategies

Key strategies of BDL are aimed at enhancing the company?s market position opportunities in domestic and international markets, and enhance the company?s competitive advantage focusing more on indigenisation. To achieve our strategic goals, the Company would focus on the following: 2.7.1 expanding infrastructure: The Company would continue to invest in infrastructure. The upcoming manufacturing & Amravati will enable the company to cater to the growing demand of its customers.facilities These manufacturing facilitiesshall be utilised to manufacture SAMs including a new generation of SAMs, VSHORAD missiles respectively. BDL established Seeker Facility Centre, Warheads Production Facility, Surface Mount Technology and High Performance Computing Facility at its Hyderabad unit. BDL also established state of the art Environmental Test facility at Vizag unit. 2.7.2 Automation: BDL has been constantly upgrading its manufacturing technologies and processes to state-of-the-art including industry 4.0, Robotics operated workshops, latest Surface Mounted Devices assembly lines and maintains highest quality standards in its products by adopting to best QA practices like AS 9100, Zero defect, etc. The pursuit results into reduction in production cost, benchmarking of productivity norms and modernization of management system and less dependence on imported technology. The Company intends to automate its production systems where feasible productivity toincreasethe 2.7.3 focus on Research & Development: The Company believes that the recent changes to the government policies allowing private sector companies to participate in defence contracts will provide significant competition. In order to address these challenges, BDL intend to increase its R&D activities to develop innovative products to its R&D expenses have also grown up significantly over the past few years. The Company believe that development of new products will enable it to diversify its offerings and mitigate product dependencies. In this direction, BDL, adding to its existing range of products, has launched three new products during Bandhan Ceremony at DefExpo-2022. Further during the Aero India 2023 at Bengaluru another three new products were launched The Company has also established the missile development group with the objective to design and develop missiles. BDL is striving to develop Artificial Intelligence based products. Thrust is also being given to efforts house developed products. Synergy is being maintained between the industry and academia to sustain balance between experience and knowledge industry.

2.7.4 improving Processes: The Company also intends to carry out process improvements, with the aim of improve our productivity and efficiency of its operations and thereby lower costs.

2.7.5 New Generation Weapons:BDL intends to leverage its experience to develop weapons such as new generation SAMs, ATGMs, Air to Air Missile System, heavyweight torpedoes and Drone Delivered Bombs which will enable the Company to further increase its revenues. BDL is also the joint development partner-cum production agency with the DRDO for the next generation of ATGMs, Air to Air Missile and SAMs. BDL has also entered into several MoUs and non-disclosure agreements with various companies for developing new products and transfer of technologies.

2.7.6 exports: BDL primarily caters to the requirements of the Indian armed forces. With encouragement from Government of India, BDL is actively exploring export markets. Further, with the Cabinet Committee on Security (CCS) clearing regarding clearance of Akash Weapon System for Export to nine countries, BDL is geared up to take up the export orders. BDL has already received export orders from few friendly countries and the export order book position is 2586 Crore as on 1 April 2023. BDL is therefore set to expand its customer base in the international market. BDL has adequate production facilities to cater to the domestic as well as export demand for its products. BDL is consistently pursing with potential overseas customers for export of its products.

3. RiSKS AND CONCeRNS: mitiga includes risks related to industry, increased market competition, time to market, Variousrisksidentifiedwith decline or recession in market segments and product and product inputs prices, cost control and change demand risks. Also risks related to environment, health and safety, IT, R&D, intellectual property and new technical demands such as digitalization/smart industry are high on the agenda and proactively mitigated, managed with identified improvement activities and followed up on regularly.

3.1 Business Risk: The company primarily dependent on a single customer, the Indian armed forces through the Ministry of Defence, Government of India (MoD). A decline or reprioritization of the Indian defence budget, the reduction in their orders, termination of contracts or failure to succeed in tendering projects and deviations in the short term and long term policies of the MoD or the Indian armed forces in the future will have a material adverse impact on our business, financial condition, and results of operations, growth prospects and cash flows. BDL also operates in evolving markets where a level playing opportunity is given to private sector which makes it difficult to evaluate its business and future prospects. Having rich expertise in this business and a well-established infrastructure, Company has ability to handle adverse situations and also geared up to face competition from private sector. Further in order to expand the customer base, BDL is actively exploring export markets with the encouragement from the Government of India.

3.2 Policy Risk: The company is subject to a number of procurement rules and regulations of the MoD, Government regulations and other rules and regulations. The Company?s business could be adversely affected in case of any sudden and unforeseen changes in the applicable rules. Restrictions on current and future export of the products and adversely affect BDL?s business, results of operations and financial conditions Company is complying with all rules and regulations as per the policies of Government of India and is also taking necessary precautions in advance where possible in anticipation of any changes in the rules. 3.3 Operational & Labour Risk: The company?s operations are based out of three units in Telangana and Andhra Pradesh. The loss of, or shutdown of, BDL?s operations at any of its units in Telangana and Andhra Pradesh will have a material adverse effect on Company?s business, financial condition and results of operations.Some of BDL?s workforce is represented by labour unions so the Company?s business could be harmed in the event of a prolonged stoppage of work The Company always continues to maintain cordial relations with all the employees and as such does not foresee material adverse effects in this regard.

3.4 Supplier/Service Provider Risk: Company is dependent on multiple key Original Equipment Manufacturers ("OEM") for subassemblies / components, single source suppliers and sub-contractors. Any failure on the performance of any of them could have a material impact on Company?s operations BDL iscontinuouslystrivingtoexpanditsvendorbaseandsufficiently safeguarded with liquated damage clause in case of any failure on the performance. BDL is also developing multiple vendors where single source suppliers are currently existing continuity in the programme. acrossitsprogrammestoreduceitsdependenceand

3.5 technology Risk: BDL manufactures products that incorporate advanced technologies. The introduction of new products and technologies involves risksandtheCompanymaynotrealizethedegreeortimings of benefits initially anticipated.

The Company has further activated its own Research & Development department and started increasing its investment in R&D to encounter technology risks. In addition to this, the Company is also concurrently works with DRDO in development of several projects.

4. iNteRNAL CONtROL SYSteMS AND theiR ADeQUACY:

The company has implemented comprehensive internal controls and systems that are appropriate for its size and the nature of its business, in order to uphold financial propriety. It has established documented policies and procedures for various functions including Purchase, Sub-contract, Works contract, Accounting, HR, IT, and Security, as well as Sub-delegation of Powers. These policies and procedures are regularly reviewed and updated to align with the evolving business environment.

To ensure the effectiveness of internal controls, the company maintains an in-house Internal Audit Department comprising qualified professionals. The Internal Audit Department is responsible for monitoring and assessing the adequacy and effectiveness of the organization?s risk management, control, and governance processes. The scope of the Internal Auditor?s work is approved by the Audit Committee of the Board. Additionally, external audit firms are appointed to provide independent assurance and to report on the company?s financial statements. The reports from both the Internal Audit Department and the external audit firms are carefully analysed and reviewed by the Audit Committee for their recommendations and guidance.

The company remains committed to adopting global best practices in its processes and controls, aiming to achieve the highest level of Corporate Governance. Continuous efforts are made to standards, ensuring transparency, accountability, and effective risk management.

5. MAteRiAL DeVeLOPMeNtS iN hUMAN ReSOURCeS, iNDUStRiAL ReLAtiONS fRONt, iNCLUDiNG NUMBeR Of people employed

During the year, the Company conducted various training programs for both Executives and Non-Executives, totalling approximately 1419 participants and 6063 training Mandays. These programs aimed to provide knowledge-based, development-oriented, and need-based training to meet the present and future requirements of the Company. The training sessions were conducted in-house as well as at external agencies? premises.

In addition toregulartrainingprograms,theCompanyorganizedspecialactivities and training programs, including: a) Mid-Career Development Programme (MCDP): A two-week MCDP with the theme "Abhyudaya" was launched on 26.10.2021. This program targeted mid-level executives, specifically Managers, Senior Managers, and Deputy General Managers, who had completed 15 years of service in the Company and had more than a year of remaining service. The MCDP focused on capability building, managerial excellence, workplace ethics, and the transition from an operational role to a managerial role. The programme also incorporated a module on Preventive Vigilance in line with CVC guidelines. The Preventive Vigilance sessions aimed to brainstorm and ideate on ethical dilemmas, conflict of interest, reducing discretion, technology as an enabler, e-governance, and transparency. Group presentations were made before an Expert Panel, which provided feedback to the groups. A total of 81 mid-level executives were trained in two batches during FY 22-23. b) In-house Workshop on International Day of Disabled Persons: A one-day workshop with the theme "UDAAN Unleashing the power within" was organized on 02.12.2022 for all Persons with Benchmark Disabilities of BDL. The workshop featured guest speakers who were specially-abled achievers in their respective fields. The workshop aimed to motivate and inspire PwBDs to excel in their duties.

c) Online Training Programme on Workplace Communication Skills: A 40-hour online training programme on workplace communication skills was initiated on November 01, 2022, specifically for Executives in Grade II to IV who had more than 10 years of remaining service. The training programme was conducted in collaboration with "The Hindu Group" as the knowledge partner. Each participant was provided with a user license and login ID/password, which remained valid for 90 days. A total of 286 Executives in Grade II to IV benefited from this training initiative.

These initiatives and special training programmes aimed to enhance the knowledge, skills, and capabilities of employees, enabling them to perform their roles effectively and contribute to the Company?s success.

5.2 industrial Relations

The Company places great importance on maintaining positive working relations between management and trade unions, striving to create a congenial environment within the organization. In line with this commitment, the Central Labour Department conducted a Verification of membership of Trade Union through Secret Ballot Elections during the year. As a result, Bharat Dynamics Employees Trade Union Congress (BDETUC) was awarded recognition for a period of 2 years starting from 24.06.2022.

The management, in collaboration with the recognized trade union, establishes and maintains effective procedures for negotiation, consultation, and communication regarding the terms and conditions of employment. These procedures aim to ensure the speedy settlement of disputes and foster a harmonious work environment. The recognized trade union acts as the representative of the employees in consultations and negotiations with the management, specifically in matters related to industrial relations and employment.

Through these collaborative efforts, the Company strives to create a framework for open dialogue, mutual understanding, and the resolution of issues in a fair and transparent manner. By promoting strong working relations with the trade unions, the Company aims to foster a conducive and productive work atmosphere for its employees.

6. eNViRONMeNtAL MeASUReS:

The company is committed to contributing to a clean and green environment by integrating best practices that promote sustainability and environmental responsibility. A systematic approach is followed, focusing on implementing cleaner technologies reduce. andadoptingthe principles To ensure environmental protection, the company operates effluent treatment plants and sewage treatment plants. These facilities play a vital role in treating and managing wastewater and sewage generated by the company?s operations. Additionally, the company actively engages in various environmental conservation activities such as water conservation, tree plantation, proper disposal of hazardous waste and metal scrap, and landscaping. These initiatives contribute to preserving natural resources and reducing the environmental impact of the company?s activities.

The company emphasizes the efficient utilization of resources by utilizing treated effluent water and domestic water in its operations. This approach helps in conserving water and reducing the strain on freshwater sources. Regular assessments of pollution levels and environmental performance are conducted through ISO 14001 core team meetings, internal audits, and management review meetings. These activities ensure ongoing monitoring and improvement of the company?s Management System.

Furthermore, annual surveillance audits are conducted at all three units of the company to evaluate the effectiveness of the Environmental Management System. This systematic review process helps identify areas for improvement and ensures compliance standar withenvironmentalregulations Through these concerted efforts, the company aims to minimize its environmental footprint, promote sustainable practices, and contribute to a cleaner and greener environment for the benefit of present and future generations.

7. fOReiGN eXChANGe CONSeRVAtiON

The Company is striving constantly to conserve foreign exchange by reducing import of components and subsystems from OEMs by increasing indigenous content in the assembly of final products.

8. fUtURe OUtLOOK

BDL is experiencing significant growth, as evidenced by the impressive order book position of 20054 Crore as on 01 April 2023. In the coming years, the order book position is expected to grow further, as several orders are under various stages of finalization. The thrust on exports continues to remain an area of focus for the Company. Efforts are being made to convert received from friendly foreign countries into firm orders. It is expected that the continuous efforts of BDL in realising new orders will see the company record additional order of 25000 crore in next 2 to 3 years.

The Government of India?s emphasis on Atmanirbharta (self-reliance) has significantly boosted the company?s efforts towards achieving self-sufficiency. In the current fiscal year, BDL has taken several steps in this direction. The establishment of a Warhead Manufacturing facility and a Seeker manufacturing facility at Units positions BDL as a comprehensive provider of missiles and their subsystems

Furthermore, the company is actively pursuing indigenization efforts to reduce reliance on foreign sources for critical items. The construction work for the upcoming Unit at Jhansi in the UP-Defence Corridor is progressing rapidly. will manufacture 122 mm GRAD Rockets and propellants for various types of next-generation ATGMs.

BDL is also prepared to manufacture state-of-the-art VSHORADS (Very Short Range Air Defence System) and Laser Beam Riding Missiles under a Transfer of Technology (ToT) agreement with M/s Thales, UK, as part of the ‘Make in India? program. The company has signed Memorandums of Understanding (MoUs) with several foreign Original Equipment Manufacturers (OEMs), which will usher new opportunities for growth and bring new technologies into the country. Some notable companies include MBDA, France M/s Dassault Aviation Pvt Ltd, France M/s Thales Belgium and Barij Dynamics LLC ("Al Tariq"), Abu Dhabi, United Arab Emirates for potential projects of Al Tariq PGM Kits in India. Additionally, BDL has entered into an agreement with M/s Bultexpro Ltd, Bulgaria for the production of 122 mm GRAD BM ER and NON ER rockets in India.

BDL is actively collaborating with DRDO for various technology transfer programs and has signed a Licensing Agreement for Transfer of Technology (LAToT) with DRDO for the manufacturing of Ceramic Radomes.

In terms of quality assurance, BDL aims to obtain Green Channel certification from customer inspection authorities for its programs in a phased manner. The company has already received certification for one of its products and will work towards obtaining similar certifications for other products across the company.

With a strong order book, growing demand in the international market, and the assimilation of new technologies, BDL is poised to become a global leader in missile and weapon system manufacturing in the years ahead.