CSM Technologies Ltd Management Discussions

CSM Technologies Limited (CSM or the Company), incorporated in 1998 and headquartered in Bhubaneswar, Odisha, is a GovTech and enterprise IT solutions company with operations across India, Africa and North America. The Company designs, develops and implements customised digital solutions across seven core verticals - Mining & Allied Services, Government & Public Services, Agriculture & Allied Services, Industry & Trade Facilitation, Education, Healthcare and Tourism while leveraging Artificial Intelligence, IoT, cloud and data analytics. With over 28 years of experience in the IT/ITeS industry, the Company is rated at CMMI Maturity Level 5 v3.0 by the CMMI Institute and is SOC 2 Type II certified. This section should be read together with the Companys audited financial statements for FY 2025-26 and the risk factors set out elsewhere in this Annual Report.

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

The global IT-ITeS industry grew at a CAGR of 6.1% between CY2020 and CY2025 to reach approximately USD 5,285 billion in CY2025, and is projected to grow further at a CAGR of 4.7% between CY2026E and CY2030P. Global spending on IT and digital initiatives is estimated to grow at a CAGR of 6.8% over CY2026E-CY2030P, driven by continued enterprise adoption of Artificial Intelligence, cloud computing and cybersecurity solutions.

In India, government spending on IT and digital initiatives is projected to grow at a CAGR of 7.2% between FY2026E and FY2031P, reflecting sustained public investment in digital infrastructure, cybersecurity and AI-driven governance. E-governance and public sector digitalisation continue to be a key growth segment for the industry, supported by Digital India initiatives, state-level IT policies and incentive schemes (including in Odisha, Telangana, Karnataka and Maharashtra), and the increasing adoption of Government-to- Government (G2G), Government-to-Citizen (G2C), Government-to-Business (G2B) and Government-to-Employee (G2E) service delivery models.

The IT-ITeS industry, particularly the e-governance and public sector segment in which the Company primarily operates, is characterised by high entry barriers — long procurement and qualification cycles, requirement of a proven execution track record, deep domain expertise, and empanelment with government ministries, departments and PSUs (including on the Government e-Marketplace). These structural features favour established players with sustained investment in technology, compliance and talent, a category in which the Company has built a long-standing position across mining, agriculture, education, healthcare, tourism and industry & trade facilitation verticals in India, and select markets in Africa (Ethiopia, Gambia, Gabon, Kenya, Rwanda and others) and North America (the United States and Canada).

B. OPPORTUNITIES AND THREATS

Opportunities

Sustained growth in global and Indian government spending on digital transformation, e-governance and AI-led public service delivery.

Deep, diversified sectoral expertise across seven verticals - Mining & Allied Services, Government & Public Services, Agriculture & Allied Services, Industry & Trade Facilitation, Education, Healthcare and Tourism, supporting cross-sell and revenue diversification.

Proprietary and patented technology platforms, including the in-house Low Code No Code (LCNC) framework, AI Model Orchestration Platform, a proprietary Document Management System, and a patented ore-sampling technology deployed in the mining sector, which strengthen competitive differentiation.

Positioning within a high-entry-barrier industry, underpinned by CMMI and SOC 2 Type II certifications and empanelment with multiple state and central government departments and PSUs, which supports continued participation in tender-based public sector opportunities.

Expanding geographic footprint, with an established presence across several Indian states and select African markets, and a recent expansion into North America (the United States and Canada), reducing revenue concentration in any single market.

Selective pursuit of acquisitions, mergers and strategic partnerships to accelerate capability-building, deepen vertical expertise and expand into new geographies and technology segments.

Threats

Intense competition from local and global IT services providers, with an increasing number of entrants in AI, cybersecurity and cloud services exerting pressure on pricing and margins.

Evolving data localisation and cross-border data regulations, and the need to safeguard intellectual property in AI-led service offerings, particularly given the Companys operations across multiple geographies.

Continuous innovation and customisation demands from clients, requiring sustained investment in research and development that can strain resources.

Macroeconomic and geopolitical uncertainty, including tariffs and trade policy shifts, which may affect the Companys ability to serve or expand into international markets.

High dependence on government contracts, which exposes the Company to reduced IT budgets during periods of fiscal tightening or economic downturns.

A tender-based revenue model dependent on the Companys bid-winning ratio, which declined to 0.47 in Fiscal 2025 and stood at 0.51 for the nine months ended December 31, 2025, impacting new customer acquisition.

Sector-specific execution challenges, including limited rural digitisation in agri-tech, the digital divide in ed-tech, harsh operating conditions in mining & industrial IT, and varying digital literacy levels in the tourism sector.

Foreign exchange fluctuation risk on revenue and costs denominated in currencies other than the Indian Rupee.

Talent retention in a competitive IT labour market, with attrition of permanent employees at 16.6% in Fiscal 2026 (23.20% in Fiscal 2025).

C. SEGMENT-WISE / VERTICAL-WISE PERFORMANCE

The Company reports its business across seven verticals. Revenue contribution by vertical (as a percentage of revenue from operations) for the last two completed Fiscals, together with the corresponding figures for FY 2025-26, is set out below:

Vertical	FY 2025-26	FY 2024-25
Government & Public Services	18.41%	25.75%
Mining & Allied Services	29.83%	24.74%
Agriculture & Allied Services	23.69%	16.10%
Education	6.29%	14.82%
Industry & Trade Facilitation	16.49%	11.13%
Healthcare	5.16%	7.32%
Tourism	0.13%	0.14%

Government & Public Services and Mining & Allied Services together continue to be the Companys largest revenue-contributing verticals, together with a growing share from Industry & Trade Facilitation. Revenue mix by geography and by customer type for the last three completed Fiscals is set out below:

Revenue Mix by Geography

Particulars	FY 2025-26	FY 2024-25
Within India	92.21%	87.42%
Outside India	7.79%	12.58%

Revenue Mix by Clientele

Particulars	FY 2025-26	FY 2024-25
Government	61.33%	74.15%
Enterprise	23.98%	16.64%
Public Sector Undertakings	14.23%	7.21%
Development Agencies	0.46%	1.86%
Others		0.14%

D. OUTLOOK

The Company intends to continue growing its business by prioritising infrastructure improvements, advancing AI/ML-led innovation, and embracing sustainability, while ensuring efficient scalability and maximising customer value. Key elements of this strategy include continued investment in building advanced AI capabilities, both for client-facing solutions (automation, predictive analytics, data-driven insights) and for internal operations, alongside targeted talent acquisition and continuous skill development. The Company also intends to selectively pursue mergers, acquisitions and strategic partnerships to accelerate capability-building, strengthen vertical depth, and expand into new geographies and technology segments, while preserving its entrepreneurial culture and managing growth sustainably.

This strategy is set against an industry backdrop of continued growth in IT and digital spending globally and in India, sustained government focus on e-governance and AI- enabled public service delivery, and Indias emergence as a hub for AI and data-driven services. The Company believes its established execution track record, sectoral depth, proprietary technology platforms and empanelments position it to participate in this growth, subject to the risks and concerns set out below.

E. RISKS AND CONCERNS

The principal risks and concerns identified by the Company, together with the steps taken or available context, are summarised below:

Risk	Context / Mitigating Factors
Customer concentration \u2014 the Companys top 10 customers contributed 70.54% of revenue from operations in Fiscal 2026.	The Company has long-standing relationships with several government agencies and enterprise clients across multiple verticals, and has seen the share of revenue from its top 3, 5 and 10 customers decline in recent Fiscals.
Working capital / receivables risk \u2014 Trade receivables turnover ratio declined to 2.98x in Fiscal 2026 from 4.09x in Fiscal 2025, reflecting an increase in average receivable period on account of large-scale government projects with longer credit terms.	Increase attributable to the composition of large government project contracts executed during the year.
Foreign exchange risk on revenue and costs from operations outside India (Africa, USA and Canada).	A large majority of revenue and costs remain Rupee-denominated, limiting the extent of net exposure.
Talent attrition \u2014 16.6% in Fiscal 2026 (23.20% in Fiscal 2025).	The Company has instituted career development, referral, technical and leadership training, and rewards & recognition programmes; attrition moderated further to 16.6% for Fiscal 2026.
Contingent liability \u2014 outstanding bank guarantees (Consolidated) of 73,305.09 lakhs as at March 31, 2026 (73,012.23 lakhs as at March 31, 2025), issued by banks in favour of various government and other authorities in the ordinary course of the Companys tender-based business.	These guarantees, largely performance and earnest money deposit guarantees, are issued in the ordinary course of the Companys tender-based business; fixed deposits of 7679.55 lakhs (Consolidated) were held as security against such guarantees as at March 31, 2026 (7676.07 lakhs as at March 31, 2025), and no default has been reported in respect of these guarantees. Outstanding guarantees are monitored as part of the Companys capital management framework, under which the Net Debt to Equity ratio stood at 0.60x (Consolidated) as at March 31, 2026 (0.38x as at March 31, 2025).
Risk	Context / Mitigating Factors
Increase in finance costs (up 73.69% in Fiscal 2026 over Fiscal 2025) on account of higher utilisation of working capital and term loans.	Debt service coverage ratio moderated to 2.86x in Fiscal 2026 (3.16x in Fiscal 2025), reflecting higher finance costs and long-term borrowing repayments, while continuing to reflect adequate debt servicing capacity.

F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has implemented internal control systems commensurate with the size and nature of its operations. Books of account are maintained using accounting software that has a feature of recording an audit trail (edit log) of all transactions, in compliance with Rule 3(1) of the Companies (Accounts) Rules, 2014, and this audit-trail feature operated throughout Fiscal 2026 for all relevant transactions. Internal project and financial workflows, including opportunity approval, estimation and quotation, and financial sanction which are managed through an in-house Enterprise Resource Planning (ERP) system, integrated with the Companys CRM and contract-management systems, to support disciplined decision-making across delivery, infrastructure, HR, finance and partner-management functions.

The Company holds a Capability Maturity Model Integration (CMMI) rating from the CMMI Institute and is System and Organization Controls (SOC) 2 Type II certified, involving independent audit of the design and operating effectiveness of controls relating to security, availability, confidentiality, processing integrity and privacy. The Audit Committee of the Board reviews, inter alia, the Management Discussion and Analysis of financial condition and results of operations, management letters/internal control observations issued by the statutory auditors, internal audit reports, and the adequacy of the Companys internal financial controls and risk management systems, in line with the requirements of the Companies Act, 2013 and the SEBI Listing Regulations. Following the isolated cyber incident referred to under Risks and Concerns above, the Company has taken further steps to strengthen its internal controls, IT security protocols and employee awareness programmes.

G. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial statements have been prepared in accordance with the Companies Act,

2013 and Indian Accounting Standards (Ind AS). The table below sets out the Companys consolidated financial performance, together with each line item as a percentage of total income, for the last two completed Fiscals

(Rs. in lakhs)

Particulars	FY 202526	% of Total Income	FY 202425	% of Total Income
Revenue from Operations	22,595.58	98.79%	19,924.42	99.31%
Other Income	276.25	1.21%	138.31	0.69%
Total Income	22,871.83	100.00%	20,062.74	100.00%
Cost of Materials Consumed	1,255.28	5.49%	1,495.42	7.45%
Cost of Service Rendered	4,451.21	19.46%	4,842.96	24.14%
Employee Benefits Expense	10,456.26	45.72%	9,345.08	46.58%
Finance Costs	713.08	3.12%	410.55	2.05%
Depreciation and Amortisation Expense	609.19	2.66%	608.80	3.03%
Other Expenses	1,909.11	8.35%	1,313.96	6.55%
Total Expenses	19,394.13	84.79%	18,016.77	89.80%
Profit Before Exceptional Items and Tax	3,477.70	15.21%	2,045.97	10.19%
Exceptional Items:
Statutory Impact of New Labour Codes	273.24	1.19%	-	0.00%
Profit Before Tax	3,204.46	14.01%	2,045.97	10.20%
Total Tax Expense	803.76	3.51%	635.60	3.17%
Profit for the Year (PAT)	2,400.70	10.50%	1,410.37	7.03%

Revenue and Other Income

Revenue from operations for Fiscal 2026 increased by 13.41% to 322,595.58 lakhs from 319,924.42 lakhs in Fiscal 2025, primarily attributable to a 137.54% increase in sales of products within India (to 33,494.01 lakhs) and an 8.75% increase in sales of services within India (to 317,341.58 lakhs), partly offset by a 29.80% decline in sales of services outside India (to 31,759.99 lakhs). Other income increased by 99.72% to 3276.25 lakhs, primarily due to higher foreign exchange fluctuation gains and higher interest income, partly offset by lower write-back of liabilities no longer required and lower profit on sale of property, plant and equipment.

Expenses

Employee benefits expense, the largest expense line, increased by 11.89% to 310,456.26 lakhs in Fiscal 2026, driven by higher salaries and bonus expenses in line with business growth and hiring, and a one-off 3273.24 lakhs statutory impact of new labour codes recognised during the year. Cost of materials consumed decreased by 16.06% to 31,255.28 lakhs, and cost of services rendered decreased by 8.09% to 34,451.21 lakhs, both reflecting a lower manpower cost component within cost of services rendered. Finance costs increased by 73.69% to 3713.08 lakhs, primarily due to higher utilisation of working capital and term loans. Depreciation and amortisation expense was broadly stable at 3609.19 lakhs (3608.80 lakhs in Fiscal 2025). Other expenses increased by 45.29% to 31,909.11 lakhs, mainly on account of higher legal and professional charges (reflecting listing-related costs), higher incentives, and higher rent, rates & taxes and travel and conveyance costs.

Profitability

EBITDA for Fiscal 2026 was 34,523.72 lakhs, with an EBITDA margin of 20.02% (14.69% in Fiscal 2025). Profit before exceptional items and tax was 33,477.70 lakhs; after recognising a one-off 3273.24 lakhs exceptional item relating to the statutory impact of new labour codes, profit before tax was 33,204.46 lakhs (32,045.97 lakhs in Fiscal 2025), an increase of 56.60%. Profit after tax increased by 70.19% to 32,400.70 lakhs (31,410.37 lakhs in Fiscal 2025), representing a PAT margin of 10.50% (7.03% in Fiscal 2025). Of the Fiscal 2026 profit after tax, 32,358.53 lakhs was attributable to shareholders of the Company and 342.17 lakhs to non-controlling interests, following the acquisition of Kwantify Solutions Private Limited as a subsidiary during the year.

Balance Sheet

Net worth (equity attributable to owners of the Company) stood at 310,267.00 lakhs as at March 31, 2026 (37,697.90 lakhs as at March 31, 2025), with a total debt-to-equity ratio of 0.70x (0.45x as at March 31, 2025). Return on Equity (annualised) was 26.66% for Fiscal 2026 (20.63% for Fiscal 2025) and Return on Capital Employed was 22.35% (21.95% for Fiscal 2025).

Cash Flow

Net cash used in operating activities was 3554.76 lakhs in Fiscal 2026, as against net cash generated from operating activities of 3871.60 lakhs in Fiscal 2025, primarily reflecting a 32,685.27 lakhs increase in trade receivables and a 31,418.77 lakhs increase in other assets on account of growth in large government project execution, partly offset by higher operating profit before working capital changes. Net cash used in investing activities increased to 31,838.95 lakhs (3895.53 lakhs in Fiscal 2025), reflecting higher capital expenditure on property, plant and equipment and intangible assets under development, and the acquisition of Kwantify Solutions Private Limited during the year. Net cash from financing activities increased to 32,950.03 lakhs (331.22 lakhs in Fiscal 2025), driven by higher long-term borrowings raised to fund working capital and capital expenditure requirements. As a result, cash and cash equivalents increased to 3543.19 lakhs as at March 31, 2026 (3105.45 lakhs as at March 31, 2025).

H. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS, INCLUDING NUMBER OF PEOPLE EMPLOYED

As at March 31, 2026, the Company had 1,327 employees. The attrition rate of the Companys permanent employees was 16.6% for Fiscal 2026, compared to the attrition rate of 23.20% for Fiscal 2025.

The Company considers its employees a key factor in its success and has designed a strategic career development programme to encourage employees to enhance their skills, including referral programmes, technical training, leadership development, rewards and recognition, management development, and soft-skills development.

I. SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (25% OR MORE, AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR)

Key Financial Ratio	FY 2025-26	FY 2024-25	% Change	Reason for Variance (*25%)
Debtors Turnover Ratio	2.98	4.09	-27.13%	Decline driven by growth in trade receivables (up from 36,193.39 lakhs to 38,975.48 lakhs) on a higher proportion of large government project billings with longer credit cycles, outpacing revenue growth during Fiscal 2026.

Key Financial Ratio	FY 2025-26	FY 2024-25	% Change	Reason for Variance (*25%)
Interest Coverage Ratio	5.49x	5.98x	-8.19%	Derived from disclosed EBIT and Finance Cost; not separately disclosed as a distinct line item in the audited financial statements. Variance is below the 25% disclosure threshold; no explanation is required.
Current Ratio	1.66	1.90	-12.48%	Variance is below the 25% disclosure threshold; no explanation is required.
Debt Equity Ratio	0.70	0.45	54.12%	Increase driven by higher utilisation of working capital and term borrowings (total debt up from 33,493.44 lakhs to 37,214.09 lakhs) to fund growth in trade receivables and capital expenditure during Fiscal 2026.
Operating Profit Margin (%)	20.02%	14.69%	36.28%	Improvement driven by operating leverage on higher revenue and a richer revenue mix, together with lower cost of materials and cost of services as a proportion of revenue.

Key Financial Ratio	FY 2025-26	FY 2024-25	% Change	Reason for Variance (*25%)
Net Profit Margin (%)	10.50%	7.03%	49.36%	Improvement driven by higher revenue and operating margins and higher other income (led by foreign exchange gains), partly offset by a one-off 7273.24 lakh statutory impact of new labour codes recognised during Fiscal 2026.

J. CHANGE IN RETURN ON NET WORTH

Particulars	FY 2025-26	FY 2024-25	% Change
Return on Net Worth (%)4	22.97%	18.32%	25.37%

4 Return on Net Worth (%) = Net Profit after tax attributable to owners of the Company /Net worth (equity attributable to owners of the Company, excluding non-controlling interests) at the end of the year, as per the Companys audited consolidated financial statements.

Return on Net Worth for Fiscal 2026 was 22.97%, as compared to 18.32% for Fiscal 2025 - an increase of 25.37%. This variance is at the 25% disclosure threshold; the increase was primarily driven by a 67.24% growth in profit after tax attributable to owners of the Company, which outpaced the growth in net worth. Net worth increased following the issuance of bonus shares aggregating 73,225.21 lakhs (capitalised from reserves) during Fiscal 2026 as part of the Companys pre-listing capital restructuring, together with profits retained during the year.