DCX Systems Ltd Management Discussions

Forward-Looking Statement

This Management Discussion and Analysis of Financial Condition and Results of Operations contains statements that describe the Companys objectives, expectations, or predictions, which may be considered forward-looking within the context of applicable securities laws and regulations. These forward-looking statements are founded on certain assumptions and expectations regarding future events. The Company does not guarantee the accuracy or realisation of these assumptions and expectations. Furthermore, the Company undertakes no obligation to publicly update or revise any forward-looking statements based on subsequent developments, information, or events. Actual results may significantly differ from those expressed or implied in these statements. Key factors that could affect the Companys operations include changes in government regulations, tax laws, economic conditions within the country, and various global factors.

The financial statements are prepared in accordance with IND AS guidelines and comply with the Accounting Standards notified under Section 211(3C) of the Act, in conjunction with the Companies (Accounting Standards) Rules, 2015. The management of DCX Systems Limited has exercised prudent and reasonable judgment and estimation in preparing these financial statements to ensure they accurately and fairly represent the Companys financial condition and profit for the year.

This discussion of our financial condition and results of operations should be read in conjunction with our audited standalone financial statements and the accompanying notes included in the annual report. Unless otherwise specified or the context requires otherwise, references to "we," "us," "our," "the Company," and "DCX Systems" refer to DCX Systems Ltd.

1. About DCX Systems Limited

DCX Systems Limited is a prominent player in the defence and aerospace sectors. It is renowned for its comprehensive end-to-end solutions encompassing cable and wire harnesses, electronic systems and sub-systems, high-end system integration, and PCB assembly. With a strategic focus on indigenisation, integration, and manufacturing, DCX Systems has established itself as a preferred Indian Offset Partner (IOP) for Israeli Defence Company, IAI, fulfilling offset obligations and expanding into other geographies for IOP and non-IOP projects.

Company Overview

DCX Systems Limiteds unique business model offers diverse solutions to a broad mix of domestic and international customers, including those in Israel, the US, Korea, and India. The companys manufacturing prowess is showcased through its 30,000 sq. ft. facility in Bengalurus SEZ, with an additional 40,000 sq. ft. facility under Wholly Owned Subsidiary, Raneal Advanced Systems Pvt. Ltd., dedicated to Electronic Manufacturing Services (EMS).

Historical Milestones

Incorporated in 2011, DCX Systems began fulfilling deemed export orders and quickly progressed, earning significant certifications such as AS-9100:2016 and ISO 9001:2015. By 2018, the company had obtained industrial licenses and authorisation to export key defence items. Establishing a new manufacturing facility in the Aerospace SEZ, Bengaluru in 2020 marked a significant expansion. In 2022, the company went public, raising INR 400 crore through an IPO and launching Raneal Advanced Systems for backward integration. Recent achievements include incorporating NIART Systems Limited for obstacle detection solutions in railways for safety and efficiency and successfully completing a Qualified Institutional Placement (QIP), raising INR 500 crore.

Business Model and Strengths

DCX Systems business model is characterised by its strong global procurement network, robust manufacturing expertise, and strategic backward integration into EMS. The company leverages its experience and core competencies in electronics manufacturing to cater to various defence and aerospace applications. By focusing on non-offset projects and expanding its high-margin cable and wire harness business, DCX Systems is positioned for sustainable growth.

Industry Landscape

The defence and aerospace sectors present significant opportunities driven by geopolitical tensions, armed forces modernisation, and technological advancements. DCX Systems is well-positioned to capitalise on these industry tailwinds, supported by favourable government initiatives like the Positive Indigenization List and the Defence Acquisition Policy.

Financial Performance

DCX Systems has demonstrated consistent growth, with a healthy CAGR in both revenue and profit over the last five years. As of March 31, 2024, the company reported an order book of INR 801.16 crore. Financial highlights include substantial increases in revenue and PAT, reflecting the companys efficient execution and strategic initiatives.

Industrial Offset Partnership Opportunities

DCX Systems, a prominent player in the Indian defence market, stands out as one of the largest IOPs (Indian Offset

Partners) for the IAI Group from Israel. Specialising in "Build-to-Print" system integration and the manufacturing of cable and wire harness assemblies, DCX Systems excels in various areas of defence technology. Their IOP capabilities encompass various advanced defence systems, including electronic assemblies, automatic missile detection radars, unmanned aerial vehicle systems, Barak systems, medium-range maritime reconnaissance aircraft, and short-range surface-to-air missiles. Accredited with the AS-9100:2016 certification for quality management systems in aviation, space, and defence product manufacturing and holding a Defence Industrial License from the Ministry of Commerce and Industry, DCX Systems is well-positioned to support the manufacturing of critical defence products.

Order Book Position Details

As of March 31, 2024, DCX Systems Limited reported a strong order book position valued at INR 801.16 crores. This significant backlog showcases the companys robust market presence and demand for its products and services across various sectors, particularly in the defence and aerospace industries.

Strategic Vision

Looking ahead, DCX Systems aims to further de-risk its business model by tapping into new opportunities in railways safety and efficency, growing its share of non-offset projects, and expanding its global presence in the aerospace and defence sectors. The companys focus on technology transfer, especially from Israel and the US, aims to enhance its product offerings and save on R&D costs, positioning DCX Systems as a technology-driven product company.

DCX Systems Limited is committed to delivering high-quality products and services. It leverages its strong customer relationships, experienced management team, and advanced manufacturing capabilities to drive continued success and growth in the dynamic defence and aerospace industry.

Leadership

DCX Systems is guided by a highly qualified and competent leadership team renowned for its extensive experience and expertise in the aerospace and defence manufacturing industry. At the helm are Dr H.S. Raghavendra Rao, the Founder - Promoter, Chairman and Managing Director, who brings over three decades of profound experience in electronics manufacturing and the defence and aerospace sectors. Complementing his leadership is Mr. Neal Jeremy Castleman, a Non-Independent and Non-Executive Director with more than four decades of vast experience in the electronic manufacturing sector.

The senior management team at DCX Systems boasts a proven track record of effectively anticipating and capitalising on evolving market trends, managing and expanding operations, and leveraging and deepening customer relationships. Their strategic insights and operational excellence have driven the companys growth and success in a competitive industry.

2. Value Propositions

The companys robust business structure is divided into three main segments: Manufacturing, System Integration, and Others. Each contributes to DCX Systems Limiteds overall value proposition and strategic positioning.

Business Segments and Strategic Value Manufacturing Cable & Wire Harness

Focus on High-Margin Growth: DCX strategically focuses on growing its high-margin cable and wire harness business. This segment is crucial as it supports the companys overall profitability and financial health.

Value Addition: By prioritising this segment, DCX ensures the delivery of high-quality, reliable products essential for various applications, strengthening its reputation and customer trust.

EMS (PCB Assembly)

Core Competency and Backward Integration: The PCB Assembly is a core competency of the company. DCX leverages backward integration through its wholly owned subsidiary Raneal Advanced Systems to enhance efficiency and strengthen its supply chain management.

Operational Efficiency and Cost Reduction: Captive use of PCB assemblies helps reduce costs and improve operational efficiency. This strategic move allows DCX to maintain competitive pricing while ensuring superior product quality. Sector Diversification: This segment caters to defence and aerospace and other sectors and ensures a diversified revenue stream, mitigating risks associated with dependency on a single market.

System Integration IOP (Inter-Operability)

Preferred Partner for IAI Group: DCXs status as the preferred IOP for the IAI Group highlights its credibility and reliability in delivering interoperable solutions.

Higher Yield and Strong Order Book: This segment boasts a higher-than-industry-average yield and a strong order book, reflecting the companys capability to meet high standards and demand.

Non-IOP

Expanding Non-Offset Order Book: DCX focuses on expanding its non-offset order book to reduce dependence on the IOP model. This strategy is crucial for maintaining a balanced portfolio and ensuring steady revenue streams. Value Addition: By diversifying its system integration capabilities, DCX enhances its market reach and customer base, providing customised solutions across different industry needs.

Others Kitting

Assembly-Ready Kits: The kitting segment supplies assembly-ready kits of electronic and electromechanical parts. This service simplifies the procurement process for customers and adds significant value by reducing assembly time and effort.

Strategic Advantage: This capability allows DCX to serve a broader market by offering integrated solutions that are ready for immediate use.

MRO (Maintenance, Repair, and Overhaul)

Testing and Maintenance Projects: The MRO segment focuses on testing and maintenance projects, providing an additional revenue stream for DCX without requiring significant capital expenditure.

Revenue Stream and Efficiency: This segment not only adds to the companys revenue but also showcases its expertise in ensuring the longevity and reliability of its products.

Strategic Positioning and Market Differentiation Comprehensive Solutions: DCX Systems offers a comprehensive suite of services and products across manufacturing, system integration, and MRO. This broad capability set positions DCX as a one-stop solution provider for various industry needs.

Quality and Reliability: The companys focus on high-margin, high-quality products and services ensures that it maintains a strong reputation for reliability and excellence in the market.

Innovation and Efficiency: Through strategic backward integration and operational efficiency, DCX reduces costs and enhances its product offerings, ensuring competitive pricing and innovation.

Sector Diversification: By catering to multiple sectors, including defence and aerospace and other industries, DCX mitigates market risks and secures diversified revenue streams, ensuring financial stability and growth.

Customer-Centric Approach: DCXs ability to provide customised solutions, from assembly-ready kits to comprehensive MRO services, demonstrates a deep understanding of customer needs, enhancing customer satisfaction and loyalty.

Expanding Opportunities with NIART Systems in the Railway Sector

DCX Systems is poised to capitalise on burgeoning opportunities in the railway sector through its strategic joint venture with ELTA Systems, forming NIART Systems Ltd., (NIART) in Israel. This collaboration is set to revolutionise obstacle detection solutions and enhance the safety and efficiency of railway operations, both domestically and internationally.

Joint Venture with ELTA Systems

Formation and Objectives: DCX Systems has strategically partnered with ELTA Systems to establish NIART Systems Ltd. This joint venture aims to develop advanced obstacle detection solutions, leveraging ELTAs technological expertise and DCXs robust manufacturing capabilities.

Technology Transfer and Product Development: The joint venture involves the Transfer of Technology (ToT) from ELTA Systems to NIART. This allows DCX to utilize its manufacturing prowess to produce high-quality radar and optics products. This collaboration harnesses our manufacturing expertise alongside ELTAs technological excellence to deliver superior products that offer excellent track visibility, ensuring standards of safety comparable to global levels.

Market Focus: NIART Systems is set to target both domestic and export markets within the railway sector. By addressing the specific needs of these markets, NIART aims to provide state-of-the-art solutions that meet and exceed industry standards.

Strategic Benefits and Market Positioning

Technical Expertise and Manufacturing Synergy: The joint venture allows DCX to benefit from ELTAs technical know-how while leveraging its own manufacturing facilities. This synergy ensures the production of high-quality, reliable products that are crucial for the railway industrys safety and efficiency.

Procurement and Integration: NIART Systems will procure system integration (SI), cables, and printed circuit board assembly (PCBA) from DCX. This integration within the supply chain enhances operational efficiency and ensures the seamless delivery of comprehensive solutions to the market. Global Market Access: The partnership includes overseas tie-ups to facilitate access to global markets. This strategic move positions DCX and NIART Systems to expand their reach and establish a significant presence in the international railway sector.

3. Review of Economy

Global Economy

The global economy has shown resilience despite predictions, with consistent growth and a quick slowdown in inflation. Challenges included supply chain disruptions post-pandemic, energy and food crises due to geopolitical factors, and significant inflation followed by internationally coordinated monetary tightening. Despite this, the US economy has outperformed its pre-pandemic trend, boosting the US dollar while emerging economies strive to recover.

The IMFs World Economic Outlook forecasts stable growth at 3.2% for this year and the next, with inflation dropping from 2.8% in 2024 to 2.4% in 2025. Positive changes in supply dynamics, such as reduced energy price shocks and increased labour supply due to immigration in advanced countries, support strong economic development and quick disinflation. However, challenges like inflation risk and fiscal adjustments remain and require decisive actions.

Global monetary policy alignment is weakening, potentially impacting capital flow, cross-border investor portfolios, and asset values. Emerging markets face debt burdens and difficulties in obtaining capital. Financial firms face increased funding costs, and deteriorating asset quality might limit lending. High inflation could pressure entities using leveraged investment strategies to unwind positions.

Digital transformation and remote work surged, dramatically changing business operations. Firms adopted digital tools to adapt, enhancing productivity and communication among dispersed teams. This digitisation created new opportunities for efficiency and creativity. While AI applications raise concerns about labour and financial disruptions, they offer the potential for increased efficiency. Nations must improve digital infrastructure, prioritize human capital, and collaborate on international regulatory frameworks.

Indian Economy

Amid global uncertainties, India stands resilient. In fiscal year 2023-24, Indias GDP grew by 7.6%, building on a 7% growth rate from the previous year. Key sectors like construction and manufacturing drove this resurgence, with construction growing by 10.7% and manufacturing by 8.5%.

In Q3 FY 2023-24, real GDP surged by 8.4%, with manufacturing growing by 11.6% and construction by 9.5%. The IMF forecasts Indias GDP growth at 6.8% for 2024-25 and 6.5% for 2025-26. Reducing the current account deficit, driven by solid service exports and lower oil import costs, contributes to Indias economic resilience.

The Monetary Policy Committee maintained the repo rate at 6.50%, with the Marginal Standing Facility rate at 6.75% and the Standing Deposit Facility rate at 6.25%, emphasising stability. The RBI aims to enhance Indias global footprint, positioning itself as a model central bank within the global South.

According to the RBIs Annual Report, credit to MSMEs increased by 14.1% year-on-year in March 2024, supported by collateral-free loans. Credit to non-banking financial companies (NBFCs) and trade within the services sector also grew by 20.2% in March 2024. However, this growth moderated post-regulatory measures announced by the RBI in November.

Credit to MSMEs by Scheduled Commercial Banks (SCBs) expanded by 20.9% from 2023-24 to December 2023. This highlights the crucial role of SCBs in fostering entrepreneurship and increasing access to financial resources for small and medium-sized enterprises.

Indias economic resilience reflects its commitment to progress. The fiscal year 2023-24 will be remembered for Indias steadfast march towards a promising and prosperous future, driven by visionary policies and the indomitable spirit of its people. As we progress, let us build on these achievements with renewed vigour towards a brighter tomorrow.

4. Review of Global and Indian Defence Sector

The global defence sector witnessed significant growth in 2023, with total military spending reaching $2443 billion, a 6.8% increase from the previous year. This surge underscores the escalating global insecurity, ongoing conflicts, and rising geopolitical tensions. India, as the worlds fourth-largest military spender, continued its strategic focus on enhancing defence capabilities and infrastructure amidst regional challenges, particularly with China. These trends highlight the crucial role of defence expenditure in maintaining national security and global stability.

Global Defence Sector

In 2023, global military spending reached an unprecedented $2443 billion, a 6.8% increase from the previous year. This surge in expenditure reflects the heightened global insecurity, ongoing conflicts, and rising geopolitical tensions.

The United States led the global defence expenditure with $916 billion, a 2.3% increase from the previous year. Chinas spending followed at $296 billion, a 6% rise, driven by its strategic military advancements and regional ambitions. Russias expenditure surged by 24% to an estimated $109 billion, primarily due to its ongoing conflict with Ukraine. Ukraines military spending increased significantly, reaching $64.8 billion, making it the eighth-largest military spender in 2023.

Other top military spenders included Saudi Arabia ($75.8 billion), the United Kingdom ($74.9 billion), Germany ($66.8 billion), France ($61.3 billion), and Japan ($50.32 billion). These countries substantial investments underscore their focus on modernizing their defence capabilities amidst escalating global tensions.

Indian Defence Sector

India maintained its position as the fourth-largest military spender in 2023, with an expenditure of $83.6 billion, a 4.2% increase from 2022. This growth is part of Indias strategic focus on enhancing its defence capabilities and infrastructure, particularly in response to the ongoing border tensions with China following the Ladakh standoff in 2020.

Indias defence modernisation efforts include significant investments in various military assets such as fighter jets, helicopters, warships, tanks, artillery guns, rockets, missiles, and unmanned systems. These investments reflect Indias commitment to bolstering its military readiness and maintaining a robust defence posture.

In 2022, Indias military spending was $81.4 billion, a 6% increase from 2021 and a substantial 47% rise since 2013. This consistent increase highlights Indias long-term commitment to strengthening its military capabilities.

For the fiscal year 2024-25, India allocated Rs 6.21 trillion

($83.6 billion) for defence, which is 1.89% of its projected GDP. Although slightly lower than the previous years revised estimates, this allocation represents a 4.72% increase from the budget estimates for 2023-24. This budget underscores Indias focus on maintaining a strong defence infrastructure amidst regional security challenges.

India vs. China

The comparison between India and China is particularly noteworthy, given their ongoing border standoff along the Line of Actual Control (LAC) in eastern Ladakh since May 2020. Both nations have been engaged in multiple military talks to address the border dispute, highlighting the strategic importance of their defence expenditures.

Chinas military spending, at $296 billion, is significantly higher than Indias $83.6 billion. This disparity underscores Chinas aggressive military modernisation and strategic ambitions, prompting India to enhance its defence capabilities to maintain regional stability.

Reference: Stockholm International Peace Research Institute (SIPRI)

Defence Exports from India

Indias defence exports have surged to an unprecedented Rs 21,083 crore (approximately US$ 2.63 billion) in the Financial Year (FY) 2023-24, marking a 32.5% increase from the previous fiscals Rs 15,920 crore. This remarkable growth signifies a 31-fold increase over the past decade compared to FY 2013-14. The private sector and Defence Public Sector Undertakings (DPSUs) have played crucial roles in this achievement, contributing 60% and 40% to the record exports. The number of export authorisations issued also rose from 1,414 in FY 2022-23 to 1,507 in FY 2023-24. A comparative analysis over two decades shows a 21-fold increase in defence exports from Rs 4,312 crore during 2004-05 to 2013-14 to Rs 88,319 crore between 2014-15 and 2023-24. This substantial growth is attributed to government policy reforms, ‘Ease of Doing Business initiatives, and comprehensive digital solutions for promoting defence exports. It underscores the global acceptance and demand for Indian defence products and technologies.

Reference:pib.gov.in

5. SWOT Analysis of DCX Systems Limited

Strengths

Diverse Product Portfolio: DCX offers various products, including cable assemblies, wire harnesses, electronic subassemblies, Printed Circuit Board assemblies (PCBA) and high-end system integration. This allows the company to cater to various sectors such as aerospace, defence, automotive, and telecommunications, providing a robust and diversified revenue stream.

Strong Customer Base: The company has a solid customer base, including major defence and aerospace players like Lockheed Martin and IAI. This ensures steady revenue and enhances the companys reputation and market position.

Advanced Manufacturing Capabilities: DCX has invested in state-of-the-art manufacturing facilities, including a 30,000 sq. ft. unit in Aerospace SEZ, Bengaluru and a 40,000 sq. ft. facility for EMS through its wholly owned subsidiary, Raneal Advanced Systems. These facilities enable the company to produce high-quality products that meet stringent industry standards.

Backward Integration: The companys backward integration into EMS (Electronic Manufacturing Services) through Raneal Advanced Systems allows for better cost control, optimal working capital utilisation, and enhanced supply chain management.

Global Reach: DCXs operations and customers span Israel, the US, Korea, and India. Geographic diversification reduces dependency on any single market and mitigates regional risks.

Weaknesses

High Operational Costs: Maintaining advanced manufacturing facilities and ensuring high-quality standards result in substantial operational costs. This can impact profit margins, especially during periods of fluctuating demand. Supply Chain Dependencies: DCX relies on a diverse global procurement network. While this can provide cost efficiencies, it also exposes the company to risks related to supply chain disruptions, which can affect production schedules and delivery timelines.

Inventory Management: Efficient inventory management is crucial due to the high value and technical specifications of components used in DCXs products. Any inefficiencies or inaccuracies in inventory could lead to increased costs and delays.

Intense Competition: The market for cable assemblies and electronic sub-assemblies is highly competitive, with numerous players vying for market share. This intense competition can lead to price wars and reduced profit margins.

Opportunities

Expansion into Emerging Markets: Growing economies, particularly in Asia, present significant opportunities for DCX to expand its market presence and increase sales, especially in sectors such as defence and aerospace.

Technological Advancements: Continuous technological advancements provide opportunities for DCX to enter into Joint Ventures and develop new products through Transfer of Technology that can meet evolving customer needs. Focus areas include obstacle detection solutions for railways and advanced PCBA manufacturing.

Increased Defence Spending: As many countries increase their defence budgets, there is a growing demand for high-quality defence products. DCX can capitalise on this trend by leveraging its strong capabilities in system integration and cable and wire harness assemblies.

Strategic Partnerships and Collaborations: Strategic alliances with other companies can open new business opportunities, enhance product offerings, and expand market reach. The JV with ELTA Systems for obstacle detection solutions in railways is a prime example.

Government Initiatives: Various government initiatives, such as ‘Make in India, the Positive Indigenization List, and the Defence Acquisition Policy 2020, provide a conducive environment for DCX to increase its domestic manufacturing and reduce import dependencies.

Threats:

Economic Uncertainty: Global economic fluctuations and uncertainties can impact the budgets of key sectors such as aerospace and defence, affecting demand for DCXs products. Economic downturns could also result in reduced government spending on defence.

Regulatory Changes: Changes in industry regulations and standards can pose challenges for DCX, requiring continuous adaptation and compliance efforts. Non-compliance can result in fines, sanctions, and loss of business.

Supply Chain Disruptions: Disruptions in the supply chain, whether due to geopolitical issues, natural disasters, or other factors, can affect the companys ability to deliver products on time and maintain quality standards. This can lead to customer dissatisfaction and financial losses.

Cybersecurity Threats: DCX, a company involved in high-tech manufacturing for defence and aerospace, is a potential target for cyberattacks. Ensuring robust cybersecurity measures is essential to protecting sensitive data and maintaining operational integrity.

Technological Disruptions: Rapid technological advancements can lead to disruptions in the industry, rendering existing products and technologies obsolete. This threat is compounded by the fast-paced nature of innovation in the aerospace and defence sectors, where technological superiority is a critical factor.

6. Key Drivers of the Business

Indigenous Industry Drivers

The ‘Atma Nirbhar Bharat initiative is a significant driver for the indigenous industry. It focuses on several key areas, including the Positive Indigenization List, which promotes domestic manufacturing and reduces import dependency, and Budget Allocation, which increases financial support for defence and related sectors. Additionally, the Corporatization of Ordnance Factory Board (OFBs) aims to enhance efficiency and competitiveness, while liberalised Foreign Direct Investment (FDI) policies attract global players. The Indian Offset policy encourages self-reliance through strategic measures.

The industry also benefits from tailwinds such as the application of EMS products in civilian sectors like medical devices and the transfer of technology to develop new products.

Growing Defence Landscape and Key Opportunities

The global and Indian defence sectors present substantial opportunities driven by ongoing political tensions, modernisation efforts, and evolving technology trends. The global defence spending forecast from CY22 to CY27 shows a steady increase:

Year	CY22	CY23	CY24	CY25	CY26	CY27
Amount	2181	2290	2427	2524	2600	2652
(USD
billion)

This growth is driven by factors such as ongoing political tensions and geopolitical uncertainty, great power struggles and competition amongst nations, the modernisation of armed forces, and changing technology trends alongside new policy changes.

Market Growth

The Global Defence Electronics Market is also experiencing significant growth. The market is expected to grow from USD 142 billion in CY22 to USD 237 billion in CY30, with a CAGR of 6.61%.

Year	CY22	CY30
Amount (USD billion)	142	237
CAGR		6.61%

The Indian Defence Electronics Market is forecasted to grow from USD 2577 million in CY22 to USD 7204 million in CY30, with a CAGR of 13.71%.

Year	CY22	CY30
Amount (USD million)	2577	7204
CAGR		13.71%

Indian Defence Exports have also shown significant growth, increasing from USD 200 million in FY17 to USD 1629 million in FY22, with a CAGR of 13.71%.

Year	FY17	FY21	FY22
Amount (USD million)	200	1110	1629
CAGR			13.71%

These figures and initiatives underscore the significant potential for growth and investment in the defence electronics sector, driven by favourable government policies, increasing defence spending, and technological advancements.

Opportunities for DCX

DCX is well-positioned to capitalise on the industry tailwinds and numerous government initiatives. The growth projections for various industry segments show the high India market potential for DCX.

Cable & Wire Harness Industry Size

Year	2022	2029
Amount (USD million)	541.2	1477.3
CAGR	15.4%
EMS Industry Size
Year	2019	2025
Amount (USD million)	400.0	4510.0
CAGR	49.7%
MRO Industry Size
Year	2022	2031
Amount (USD million)	77.0	165.0
CAGR	8.8%

DCX Systems Limited is the only Indian company capable of offering a complete range of products, including EMS (PCBA), System Integration, Cable and wire Harness Assembly, Electro Mechanical Assembly, and MRO services.

Numerous government initiatives such as the Positive Indigenisation List, Defence Acquisition Policy 2020, Corporatization of Ordnance Factory Board (OFBs), and Indian Offset – Self Reliant further support the growth and opportunities for DCX in the industry.

7. Review of Performance

Key Developments During the Year

Significant Purchase Orders Secured DCX Systems has made substantial progress in securing high-value contracts. Notably, the company received a purchase order from M/s Lockheed Martin Corporation, USA, amounting to US$1.99 million (equivalent to Rs. 16.53 crore).Recently, DCX systems also received one of the biggest orders valued at Rs. 1250 crores from Larsen and Toubro Limited. This order highlights DCX Systems growing reputation and capability to meet the demands of major global defence contractors.

Expansion of Export Orders The company further strengthened its international presence by receiving a significant purchase order for export from overseas customers. This order is valued at approximately US$ 55.13 million (equivalent to Rs. 457.58 crore). This achievement underscores DCX Systems commitment to expanding its market reach and enhancing its global footprint.

Successful Fundraising In January 2024, DCX Systems raised Rs. 500 crores through a Qualified Institutional Placement (QIP). The fundraising involved participation from institutional investors such as Mutual Funds (MF), Foreign Institutional Investors (FII), and Insurance Companies (IC). The capital raised will be strategically invested in the companys NIART Systems Limited subsidiary, joint ventures, and other subsidiaries covering defence and aerospace industry. This influx of capital will support DCX Systems growth initiatives and further enhance its operational capabilities.

Strategic Focus on Supply Chain and Cost Efficiency DCX Systems is committed to improving its operational efficiency and profitability. The company plans to enhance its supply chain efficiency and cost efficiency, aiming for better profit margins. A key part of this strategy is to focus on new verticals like the ‘Make in India initiative, Joint Ventures (JVs), and Transfer of Technology (ToT) projects. These efforts are expected to drive sustainable growth and solidify DCX Systems position as a leader in the industry.

Review of Financial Performance

The company demonstrated a robust financial performance in FY24, characterised by significant revenue growth and strategic cost management. The companys proactive approach to securing high-value contracts, optimising expenditures, and successfully raising capital through a Qualified Institutional Placement (QIP) has positioned it for sustained growth and enhanced profitability. This financial overview provides a comprehensive comparison of key metrics between FY23 and FY24, highlighting the areas of progress and identifying opportunities for future improvement.

Financial Performance Analysis Revenue from Operations

• FY24: Rs. 1423.40 crore

• FY23: Rs. 1253.63 crore

• Growth: 13.54%

During the year under review, Company has executed orders in the new products, thereby enhancing the product mix that the Company offers in the market. With this new products Company was able to achieve substantial growth.

Raw Material Expenses

• FY24: Rs. 1328.92 crore

• FY23: Rs. 1119.22 crore

• Growth:18.74%

As the Company relies on various sources for supply of its raw materials, it is open to the challenges posed by global supply chain issues and demand and supply situations, During the year under review, though the cost of such raw-materials remained more or less same, the fluctuations in their prices and the cost of raw materials for new products has affected the Company, to a small extent.

Employee Cost

• FY24: Rs. 12.06 crore

• FY23: Rs. 10.50 crore

• Growth: 14.86%

The Company which is in its growth phase, has adopted and created a very competent and efficient workforce for its operations. The number of employees has gone up from 95 to 114 for the period under review and this coupled with annual increase as resulted in the above increase in employee cost.

Other Operating Expenses (Incl. FX Gain/Loss)

• FY24: Rs. 12.34 crore

• FY23: Rs. 40.00 crore

• Growth: -69.15%

The total other operating expenses during the year recorded at Rs. 12.34 Crores, was much lower than the amount recorded for FY23 at Rs. 40 Crores. Amount spent during the FY23 included the forex loss compared to nil losses for the year, thereby affecting the financial statements in a favourable manner.

Total Expenditure (Incl. FX Gain/ Net Loss)

• FY24: Rs. 1384.20 crore

• FY23: Rs. 1197.06 crore

• Growth: 15.63%

The increase in Total expenditure is in usual course of business. The higher raw material cost and the Employee cost has been off-set by the lower forex loss compared to last year, thereby recording a nominal increase in the total expenditure.

Other Income

• FY24: Rs. 46.21 crore

• FY23: Rs. 29.54 crore

• Growth: 56.43%

As stated elsewhere, the Company has made a QIP during Jan 2024; and the proceeds of this QIP has been placed with banks as term deposits till the deployment of funds as per objects of the issue is completed. This has resulted in higher earning of interest for the period under review.

Depreciation

• FY24: Rs. 2.48 crore

• FY23: Rs. 1.82 crore

• Growth: 36.26%

The Company is in a growth phase, which warrants for investment in plant and machinery and other equipment. The company has thus been adding these assets over a period of time and this has lead to increase in depreciation for the period.

EBIT

• FY24: Rs. 113.79 crore

• FY23: Rs. 111.63 crore

• Growth: 1.93%

EBIT in absolute terms has shown a very small improvement owing to higher revenue achieved during the year, coupled with lower expenditure in terms of forex losses.

EBIT Margin

• FY24: 7.99%

• FY23: 8.90%

• Growth: -91 basis points

Despite the higher revenue and other income, the Company had challenges in total expenditure toward raw material cost and employee cost during the year. This has resulted in adversely affecting the EBIT margin by 91 basis points.

Interest

• FY24: Rs. 28.39 crore

• FY23: Rs. 25.53 crore

• Growth: 11.20%

The Companys financial cost has gone up by about 11% during the period under review, owing to the fact that the interest subvention which the Company was enjoying till middle of the period under review has been withdrawn, as the threshold limit for such scheme has been surpassed by the Company. Owing to this withdrawal, the finance cost of the company has gone up marginally for the period under review.

Profit Before Tax

• FY24: Rs. 85.40 crore

• FY23: Rs. 86.10 crore

• Growth: -0.81%

The Profit Before Tax for the year stood at Rs. 85.40Cr, which is almost same as the last year.

Tax

• FY24: Rs. 17.30 crore

• FY23: Rs. 14.09 crore

• Growth: 22.78%

Owing to product mix and the customer mix, there has been an adverse impact on Tax outgo for the year at Rs.14.09 crore, compared to Rs. 17.30 crore earlier.

Profit After Tax

• FY24: Rs. 68.10 crore

• FY23: Rs. 72.01 crore

• Growth: -5.43%

Profit after Tax at Rs. 68.10 crore is slightly lower compared to Rs. 72.01 crore achieved during FY23.

PAT Margin

• FY24: 4.78%

• FY23: 5.74%

• Growth: -96 basis points

Basic EPS

• FY24: 6.83*

• FY23: 8.47

• Growth: -19.36%

Significant Changes in Ratios, if any

The following are the two important ratios that have shown significant improvement as shown below:

	FY 22	FY23	FY24
Current Assets ratio:	1.17	1.83	2.57
Debt Equity ratio:	4.27	0.89	0.24

As can be seen from the above table, there has been significant improvements in both the ratios.

8. Human Resources for FY24

Our employees are pivotal to our business success, and we prioritize attracting and retaining top talent. We seek specific skill sets, interests, and backgrounds that align with our business needs.

Our workforce comprises a balanced mix of seasoned professionals and fresh talent, providing us with both stability and growth potential. This blend of skilled, semi-skilled, and unskilled resources, along with a robust management team, has been instrumental in executing our growth strategies. Additionally, we offer comprehensive training programs that include behavioural, technical, and on-the-job training for our employees.

Human Resources and Industrial Relations

At DCX Systems our human resources strategy is centred around fostering a culture of continuous learning, innovation, and inclusivity. We believe that our employees are our greatest asset, and we are committed to attracting, retaining, and developing a diverse and talented workforce. In FY24, we focused on enhancing employee engagement through various initiatives, including comprehensive training programs, leadership development workshops, and robust performance management systems. We have also strongly emphasised employee well-being, offering a range of health and wellness programs. As of 31 March 2024, the company has 114 employees. Our industrial relations have remained stable, underpinned by proactive communication and collaboration with labor unions and employee representatives, ensuring a harmonious workplace environment. We continue to uphold the highest labour practice standards, aligned with national regulations and international best practices.

9. Internal Control Systems

DCX Systems Ltd. has established a robust internal control system designed to ensure the accuracy and reliability of financial reporting, compliance with applicable laws and regulations, and the efficient operation of its business activities. Our internal control framework includes well-defined policies and procedures, regular audits, and reviews by both internal and external auditors to assess the effectiveness of these controls. The audit committee periodically reviews the internal audit reports and ensures that corrective actions are taken promptly to address any deficiencies. We believe our internal control system is adequate, providing reasonable assurance regarding the safeguarding of assets and the integrity of our financial statements.

10. Return on Networth

The Companys Return on Networth stood at 6.09% as on March 31, 2024 vis-a-vis 12.70% as on March 31, 2023.

11. Risk & Risk Mitigation

Risk	Risk Definition	Risk Probability	Risk Impact	Risk Mitigation
Business Dynamics	Variance in the demand and supply of the product in various areas.	Medium	High	Predict demand based on experience and adjust supply accordingly.
Business Operations	Risks related to organisation and management include planning, monitoring, and reporting systems in day-to-day management.	High	High	We have a defined organisational structure, clear information flow, backup positions, sufficient raw material stock, cost reduction steps, captive power, and strong HR relations.
Liquidity Risks	Financial solvency and liquidity risks, borrowing limits, and cash management risks.	Medium	Medium	Proper financial planning, annual and quarterly budgets, variance analyses, daily and monthly cash flows, support for foreign exchange transactions with LCs and bank guarantees, and suitable hedging.
Credit Risks	Risks in settlement of dues by clients, provision for bad and doubtful debts.	Medium	Medium	Creditworthiness assessment systems, provision for bad debts, recovery management, and follow- up processes for government outstanding.
Logistic Risks	Use of outside transport services.	Medium	Medium	Committed service providers, in-house logistics, optimised operations through multiple transportation modes, and transit risk insurance.
Market/ Industry Risks	Demand and supply risks, quantities, qualities, suppliers, lead time, interest rate risks, raw material rates, supply interruptions.	High	High	Procurement from different sources, alternative sources for uninterrupted supply, experience- based planning, inventory control, and new vendor ties.
Human Resource Risks	Employee turnover risks, replacement risks, training risks, skill risks, and availability of manpower.	Medium	Medium	Proper recruitment policy, appraisal system, regular training, and employee welfare activities.
Disaster Risks	Natural risks like fire, floods, earthquakes.	Low	High	Property insurance, fire hydrants, extinguishers, safety drills, first aid training, ESI/EPF coverage, professional risk assessments, and automated defibrillators.
System Risks	System capability, reliability, data integrity, coordinating and interfacing risks.	Medium	High	Continuous system monitoring and upgrades, password protection, licensed software, and data security access control.
Legal Risks	Contract risks, contractual liability, frauds, judicial risks, insurance risks, patent/design/ copyright infringement risks.	Medium	High	Engage professionals/advisors, compliance management system, quarterly compliance reports, and secretarial audit reports.

FORM AOC-1

Statement containing salient features of the financial statement of Subsidiaries/Associate Companies/Joint Ventures (Pursuant to first proviso to sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014)

Part "A": Subsidiaries

( in Mn)

S. No. Particulars	Details
1. Name of the Subsidiary	Raneal Advanced Systems Private Limited
2. Reporting period for the subsidiary concerned, if different from the holding Companys reporting period.	NA
3. Reporting currency and Exchange rate as on the last date of the relevant financial year in the case of foreign subsidiaries	NA
4. Share Capital	128.50
5. Reserves & Surplus	73.46
6. Total Assets	1,133.74
7. Total Liabilities	1,133.74
8. Investments	NIL
9. Turnover	2,368.56
10. Profit before taxation	92.06
11. Provision for taxation	15.22
12. Profit after taxation	76.84
13. Proposed Dividend	NIL
14. % of Shareholding	100%

 

S. No. Particulars	Details
1. Name of the Subsidiary	NIART Systems Ltd, Israel
2. Reporting period for the subsidiary concerned, if different from the holding Companys reporting period.	15.10.2023 to 31.12.2023
3. Reporting currency and Exchange rate as on the last date of the relevant financial year in the case of foreign subsidiaries	NIS
4. Share Capital	-
5. Reserves & Surplus	-
6. Total Assets	-
7. Total Liabilities	-
8. Investments	-
9. Turnover	-
10. Profit before taxation	-
11. Provision for taxation	-
12. Profit after taxation	-
13. Proposed Dividend	NIL
14. % of Shareholding	100%

Notes: The following information shall be furnished at the end of the statement:

1. Names of subsidiaries which are yet to commence operations – NIART Systems Ltd (Israel)

2. Names of subsidiaries which have been liquidated or sold during the year – NIL

Part "B": Associates and Joint Ventures

Statement pursuant to Section 129 (3) of the Companies Act, 2013 related to Associate Companies and Joint Ventures

S. No. Particulars	Details
1. Name of Associates/Joint Ventures	NIL
2. Latest audited Balance Sheet Date
3. Shares of Associate/Joint Ventures held by the Company on the year end:
• No. of Shares
• Amount of Investment in Associates/Joint Venture
• Extent of Holding %
4. Description of how there is significant influence
5. Reason why the associate/joint venture is not consolidated
6. Net worth attributable to shareholding as per latest audited Balance Sheet
7. Profit/Loss for the year
• Considered in Consolidation
• Not Considered in Consolidation

1. Names of associates or joint ventures which are yet to commence operations. -NIL

2. Names of associates or joint ventures which have been liquidated or sold during the year. -NIL

DETAILS OF REMUNERATION OF DIRECTORS, KMPs AND EMPLOYEES AND COMPARATIVES

(Pursuant to Section 197(12) of the Companies Act, 2013 and Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014) as amended by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016

a) Ratio of remuneration of each director to the median remuneration of the employees and percentage increase in remuneration:

Sl. No. Name of the Director	Designation	Ratio of remuneration to Median Remuneration	% of increase/ Decrease in Remuneration Y-O-Y
1. Dr. H S Raghavendra Rao	Chairman and Managing Director	65.67	No Change
2. *Sankarakrishnan Ramalingam	Non-Executive Director	0.00	N.A.
3. * Ranga K S	Whole-Time Director	15.32	N.A.#
3. Neal Jeremy Castleman	Non-Executive Director	0.00	N.A.
4. Kalyanasundaram Chandrasekaran	Non-Executive Independent Director	N.A.##	N.A.
5. Panchangam Nagashayana	Non-Executive Independent Director	N.A.##	N.A.
6. Lathika Siddharth Pai	Non-Executive Independent Director	N.A.##	N.A.

# These Directors held their respective offices only for part of the year and hence the percentage of increase of remuneration in these cases is not comparable with that of the previous year.

## The Non- Executive Independent Directors were paid remuneration by way of sitting fees for attending the Board/Committee Meetings.

* During the year, Mr. Sankarakrishnan Ramalingam and Mr. Ranga K S resigned from the directorship of the Company w.e.f., 31.08.2023 and 31.03.2024 respectively.

The remuneration to the Executive Director and Key Managerial Personnel does not include provisions made for gratuity and compensated absences, as they are obtained on an actuarial basis for the Company as a whole.

Sl. No. Name of the KMP	Designation	Ratio of remuneration to Median Remuneration	% of increase/ Decrease in Remuneration Y-O-Y
1. G.S Manjunath	Sr. Manager-HR & Admin	5.40	13.94%
2. Prasanna Kumar T S	Sr. DGM- Finance & Accounts	10.02	15.71%
3. Rajanikanth K N	Sr. Manager-Logistics	4.75	13.30%
5. Anand S	Sr. DGM-Supply Chain Management	8.62	16.67%
6. Shiva Kumara R	Vice-President	13.41	16.67%
7. Pramod. B	Sr. DGM-Operations	8.62	16.67%
8. Atul D Mutthe	Manager-Quality	4.21	10.74%
9. *Nagaraj R Dhavaskar	Company Secretary and Compliance Officer	2.61	N.A.#
10. *Ranga K S	Whole Time-Director and Chief Financial Officer	15.32	N.A.#
11. *Gurumurthy Ganapati Hegde	Company Secretary and Compliance Officer	4.51	N.A.#

#These KMPs held their respective offices only for part of the year or part of the previous year and hence the percentage of increase/decrease of remuneration in these cases is not comparable.

During the year under review, Mr. Nagaraj Radhakrishna Dhavaskar resigned as Company Secretary and Compliance Officer of the Company w.e.f 31.01.2024.

During the year under review, Mr. Gurumurthy Ganapati Hegde was appointed as Company Secretary and Compliance Officer of the Company w.e.f., 08.02.2024.

During the year under review, Mr. Ranga K S resigned from the position of Whole Time Director and Chief Financial Officer (CFO) w.e.f. 31.03.2024.

1. Percentage increase / (decrease) in median remuneration of employees in the financial year	The median remuneration of employees increased from 0.360 Mn, as at March 31, 2023 to 0.365 Mn as at March 31, 2024, representing an increase of 1.35%.
2. Number of permanent employees on the rolls of the Company	There were 114 permanent employees on the rolls of company as on March 31, 2024.
3. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration	The average percentile increase in employee remuneration other than managerial personnel was 1.75%. The percentile increase in managerial remuneration was 0%. The increase in managerial remuneration is in line with the measures to attract and retain the best talent. The Company pay incremental remuneration to middle and senior management to enhance shareholder values.
4. The key parameters for any variable component of remuneration availed by the directors;	Not Applicable

5. The Company affirms remuneration is as per the Remuneration Policy of the Company.

6. The median remuneration of employees during the financial year 2023-24 was 0.365 Mn b) Remuneration of top ten employees:

Name of Employee	Designation	Remuneration Received (in Mn)	Qualification	Experience (years)	Date of Commencement of employment	Age (years)	Last Employment	% of Equity share capital in Company
Dr. H S Raghavendra Rao	Chairman & Managing Director	22.89	Honorary Doctorate in business management	33	16.01.2012	55	Served as a Director in multiple companies	5.04
Ranga K S	Whole-Time Director/CFO	5.85	Chartered Accountant	26	23.12.2021	56	Microplastics Pvt Ltd	0.07
Shiva Kumara R	Vice President	5.13	Bachelor of Engineering	23	01.10.2021	42	Served as a Director in Raneal Technologies Pvt Ltd	0.11
Prasanna Kumar T S	Sr. DGM Finance & Accounts	3.48	Chartered Accountant	21	23.04.2012	43	Udupa Poojari & Sadashiva Chartered Accountants	0.07
Anand S	Sr. DGM-SCM	3.29	Diploma	17	02.08.2021	39	Served as a Director in VNG Technology Pvt Ltd	0.04
Pramod B	Sr. DGM- Operations	3.29	Bachelor of Engineering	18	01.10.2021	44	Served as a Director in Raneal Technologies Pvt Ltd	0.04

 

Jagadeesh N	Sr. Manager- Accounts	2.92	Master of Commerce	15	02.05.2022	37	Financial Consultant	0.00
Ravichandra S G	Sr. Manager- Production	2.03	Bachelor of Engineering	17	Bachelor of Engineering	38	Varsity Instruments Pvt Ltd	0.01
G S Manjunath	Sr. Manager – HR & Admin	1.87	Master of Business Ad- ministration	30	01.02.2012	52	Le Meridian	0.07

None of the top ten employees in terms of remuneration, are relative, as per the provisions of 2(77) of the Companies Act, 2013, of any of the Directors of the Company. c) Employees drawing more than 1.2 Crores to be recorded:

Name of Employ- ee	Designation	Remuneration Received ( in Mn)	Qualification	Experience (years)	Date of Commencement of employment	Age (years)	Last Employment
Dr. H S Raghavendra Rao	Chairman & Managing Director	22.89	Honorary doctorate in business management	33	16.01.2012	55	Served as a Director in multiple companies

FORM NO. MR-3 SECRETARIAL AUDIT REPORT

FOR THE FINANCIAL YEAR ENDED 31.03.2024

[Pursuant to Section 204(1) of the Companies Act, 2013 and

Rule No.9 of the Companies (Appointment and Remuneration Personnel) Rules, 2014]

To,

The Members,

DCX Systems Limited

CIN: L31908KA2011PLC061686

Reg. Off. Add: Aerospace SEZ Sector, Plot Nos.29,30 and107, Hitech Defence and Aerospacepark, Kavadadasanahalli, Bengaluru rural 562110 Karnataka India.

I have conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate practices by DCX SYSTEMS LIMITED (hereinafter called "the Company"). Secretarial Audit was conducted in a manner that provided me with a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing my opinion thereon.

Based on my verification of books, papers, minute books, forms and returns filed and other records maintained by the company and also the information provided by the Company, its officers, agents and authorized representatives during the conduct of secretarial audit, I hereby report that in my opinion, the company has, during the audit period covering the financial year ended on 31.03.2024, complied with the statutory provisions listed hereunder and also that the Company has proper Board-processes and compliance-mechanism in place to the extent, in the manner and subject to the reporting made hereinafter: I have examined the books, papers, minute books, forms and returns filed, and other records maintained by the Company for the financial year ended on 31.03.2024, according to the provisions of: (i) The Companies Act, 2013 (the Act) and the rules made thereunder; (ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA) and the rules made thereunder; (iii) The Depositories Act, 1996 and the Regulations and Byelaws framed thereunder; (iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings; (External Commercial Borrowings is not applicable to the Company during the audit period)

(v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act):-

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; (b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015; (c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018; (d) The Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021; (Not Applicable to the Company during the Audit Period)

(e) The Securities and Exchange Board of India (Issue and Listing of Non-Convertible securities) Regulations, 2021; (Not Applicable to the Company during the Audit Period)

(f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;

(Not Applicable to the Company during the Audit Period)

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021; (Not Applicable to the Company during the Audit Period)

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018; (Not Applicable to the Company during the Audit Period)

(i) The Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018; (vi) The management has identified and confirmed the following laws as specifically applicable to the Company: (a) Industries (Development and Regulation) Act, 1951. (b) Registration and Licensing of Industrial Undertakings Rules, 1952 and Registration and Licensing of Industrial Undertaking (Amendment) Rules, 2019.

(c) The Special Economic Zones Act, 2005 and the rules made thereunder.

I have also examined compliance with the applicable clauses of the following: (a) Secretarial Standards issued by The Institute of Company Secretaries of India;

(b) The Listing agreement entered into by the Company with BSE Limited and National Stock Exchange of India Limited and Securities and Exchange Board of India (Listing Obligations and Disclosures Requirements) Regulations, 2015; During the period under review the Company has complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards, etc. mentioned above.

I further report that the compliance by the Company of applicable financial laws such as direct and indirect tax laws and maintenance of financial records and books of accounts have not been reviewed in this audit since the same have been subject to review by the statutory auditors, tax auditors, and other designated professionals.

I further report that the Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors, and Independent Directors. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act.

Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance and consent to shorter notice have been taken wherever required and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting.

The majority decision is carried through while the dissenting members views are captured and recorded as part of the minutes, wherever applicable. I further report that there are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines including general laws like labour laws, environmental laws. I further report that during the audit period the company have following events / actions have taken place and same is mentioned as below;

1. During the year under review, Mr. Sankarakrishnan Ramalingam (DIN 00078459), had tendered his resignation as Non-Executive and Non- Independent Director of the Company with effect from August 31, 2023 and Mr. Krishnabhagawan Srinivasa Ranga (DIN: 02386255) was appointed as Whole Time Director of the Company and Key Managerial Personnel under the Companies Act, 2013 with effect from September 01, 2023.

2. During the year under review, the Company obtained the approval for continuation of Directorship of Mr. Neal Jeremy Castleman (DIN: 05159412) as Non-Executive, Non-Independent Director of the Company after attaining the age of 75 years, in the Annual General Meeting held on September 25, 2023, by passing the Special Resolution Pursuant to regulation 17(1A) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

3. During the year under review, the Company has incorporated the wholly owned subsidiary ("WOS") in the name and style of "NIART Systems Limited" in Israel has been incorporated on October 15, 2023, as approved by Registrar of Companies, Israel.

4. During the year under review, the Company has Conducted the Extra-Ordinary General Meeting of the Company for the approval of raising the funds in one or more tranches, by issuance of equity shares and/ or other eligible securities on December 14, 2023 and further on January 19, 2024 the Company has issued and allotted 1,46,62,756 equity shares of face value of INR 2/- at a premium of INR 339/- aggregating INR 499,99,99,796 and the Company has obtained the listing approval from the exchanges.

5. During the year under review, CS. Nagaraj R Dhavaskar has tendered his resignation from the post of Company Secretary, Legal and Compliance Officer of the Company (Key Managerial Personnel) with effect from the closure of the business hours on 31-01-2024 and CS Gurumurthy Hegde has been appointed as the Company Secretary, Legal and Compliance Officer of the Company with effect from Thursday, 08th February 2024.

6. During the year under review, Mr. Krishnabhagawan Srinivasa Ranga has tendered his resignation from the post of Chief Financial Officer and Whole-Time Director of the Company (Key Managerial Personnel) with effect from 31-03-2024.

Annexure A

To,

The Members,

DCX Systems Limited

CIN: L31908KA2011PLC061686

Reg. Off. Add: Aerospace SEZ Sector, Plot Nos.29,30 and107, Hitech Defence and Aerospacepark, Kavadadasanahalli, Bengaluru rural 562110 Karnataka India.

My Secretarial Audit Report of even date, for the Financial Year 2023-24 is to be read along with this letter.

Managements Responsibility

1. It is the responsibility of the management of the Company to maintain secretarial records, devise proper systems to ensure compliance with the provisions of all applicable laws and regulations and to ensure that the systems are adequate and operate effectively.

Auditors Responsibility

1. My responsibility is to express an opinion on these secretarial records, standards and procedures followed by the company with respect to secretarial compliance based on my audit.

2. I believe that audit evidence and information obtained from the companys management is adequate and appropriate for me to provide a basis for my opinion.

3. I have followed the audit practices and process as were appropriate to obtain reasonable assurance about the correctness of the contents of the secretarial records. The verification was done on a test basis to ensure that correct facts are reflected in secretarial records. I believe that the process and practices I have followed provide a reasonable basis for my opinion.

4. Wherever required, I have obtained the managements representation about the compliance of laws, rules and regulations and happening of events etc.

Disclaimer

1. The Secretarial Audit report is neither an assurance as to the future viability of the Company nor of the efficacy or effectiveness with which the Management has conducted the affairs of the Company.

2. I have not verified the correctness and appropriateness of the financial records and Books of Accounts of the Company.

ANNEXURE-5

FORM NO. AOC- 2

(Pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014).

Form for Disclosure of particulars of contracts/arrangements entered into by the Company with related parties referred to in sub section (1) of section 188 of the Companies Act, 2013 including certain arms length transaction under third proviso thereto:

1. Details of contracts or arrangements or transactions not at Arms length basis:

Sl. No. Particulars	Details
a) Name (s) of the related party & nature of relationship	Nil
b) Nature of contracts/arrangements/transaction	Not Applicable
c) Duration of the contracts/arrangements/transaction	Not Applicable
d) Salient terms of the contracts or arrangements or transaction including the value, if any	Not Applicable
e) Justification for entering into such contracts or arrangements or transactions	Not Applicable
f) Date of approval by the Board	Not Applicable
g) Amount paid as advances, if any	Nil
h) Date on which the special resolution was passed in General meeting as required under first proviso to section 188	Not Applicable

2. Details of contracts or arrangements or transactions at Arms length basis:

Sl. No. Particulars	Details
a) Name (s) of the related party & nature of relationship	RNSE-Tronics Pvt. Ltd. (a private company in which a director or his relative is a member or director)
b) Nature of contracts/arrangements/transaction	i. Purchase of Raw materials, goods and
	ii. Availing or Rendering of Services
c) Duration of the contracts/arrangements/ transaction	The contract or arrangement shall be on a continuous basis throughout the year
d) Salient terms of the contracts or arrangements or transaction including the value, if any	1,966.02 Mn and the transaction is of ordinary course of business at arms length basis
e) Date of approval by the Board, if any	13.10.2022
f) Amount paid as advances, if any	NIL

 

Sl. No. Particulars	Details
a) Name (s) of the related party & nature of relationship	DCX Chol Enterprises Inc
	(Any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager)
b) Nature of contracts/arrangements/transaction	i. Sale of finished goods and
	ii. Availing or Rendering of Services
c) Duration of the contracts/arrangements/ transaction	The contract or arrangement shall be on a continuous basis throughout the year
d) Salient terms of the contracts or arrangements or transaction including the value, if any	0.41 Mn and the transaction is of ordinary course of business at arms length basis
e) Date of approval by the Board, if any	13.10.2022
f) Amount paid as advances, if any	NIL

 

Sl. No. Particulars	Details
a) Name (s) of the related party & nature of relationship	Raneal Advanced Systems Pvt. Ltd. (Wholly Owned Subsidiary)
b) Nature of contracts/arrangements/transaction	i. Purchase of Raw Materials/Capital goods
	ii. Leasing of property of any kind;
c) Duration of the contracts/arrangements/transaction	The contract or arrangement shall be on a continuous basis throughout the year
d) Salient terms of the contracts or arrangements or transaction including the value, if any	2,367.4 Mn and the transaction is of ordinary course of business at arms length basis
e) Date of approval by the Audit Committee, if any	10.05.2023
f) Amount paid as advances, if any	NIL

 

Sl. No. Particulars	Details
a) Name (s) of the related party & nature of relationship	Mr. Harsha H.M. (Director of a Promoter group company)
b) Nature of contracts/arrangements/transaction	i. Availing or rendering of any services.
c) Duration of the contracts/arrangements/transaction	The contract or arrangement shall be on a continuous basis throughout the year
d) Salient terms of the contracts or arrangements or transaction including the value, if any	2.48 Mn and the transaction is of ordinary course of business at arms length basis
e) Date of approval by the Board, if any	13.10.2022 and 08.02.2024
f) Amount paid as advances, if any	NIL

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTIONS AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

(Pursuant to Section 134 (3)(m) of Companies Act, 2013 & Rule 8 (2) of The Companies (Accounts) Rules, 2014)

A. CONSERVATION OF ENERGY: i. the steps taken or impact on conservation of energy;

The operation of the Company is not energy intensive. However, the Company facilities are built environmental friendly, and the processes are designed for efficiency in usage of resources, energy conservation and to ensure that no waste is transmitted into the environment.

The Company has installed an LED based lighting system across the facilities for conservation of energy. The Company is in the process of making GAAP analysis for implementing IS 14000 with respect to environmental health and safety. ii. the steps taken by the Company for utilizing alternate sources of energy; NIL iii. the capital investment on energy conservation equipment; NIL

B. RESEARCH & DEVELOPMENT (R&D) – NIL C. TECHNOLOGY ABSORPTION: i. the efforts made towards technology absorption;

The Company has provided regular training program for employees for skill upgradation and onsite job training to employees for selected special programs and conducting various internal training to promote and implement the best practices being followed in our industry with respect to manufacturing processes, thus improving the quality and productivity. ii. The benefits derived like product improvement, cost reduction, product development or import substitution; Not Applicable iii. in case of imported technology (imported during the last three years reckoned from the beginning of the financial year); Not Applicable a) the details of technology imported; b) the year of import; c) whether the technology been fully absorbed; d) if not fully absorbed, areas where absorption has not taken place, and reasons thereof; and

D. FOREIGN EXCHANGE EARNINGS AND OUTGO:

( in Mn)

Particulars	2023-24	2022-23
Total Foreign Exchange earnings	14,097.04	8,062.12
Total Foreign Exchange outgo	5,811.57	8,767.82

ANNUAL REPORT ON CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES

1. A brief outline on the Companys CSR Policy:

Companys vision is to actively be assisting in the improvement of the quality of life of the people in the communities, giving preference to local areas around our business operations and thus taking Corporate Social Responsibility (CSR) as a strategic social investment, aiming to align and integrate our resource with societys developmental needs towards creating a better tomorrow.

The CSR activities of the Company are guided by CSR policy, which includes activities mention in Schedule VII of the Companies Act, 2013 with great focus on health, education and employability of those from socially and economically backward groups, the under privileged and marginalized, and the society at large through education, awareness and training.

2. The Composition of the CSR Committee:

The Corporate Social Responsibility Committee comprised of the following directors as its members as on 31st March 2024:

Sl. No. Name of Director	Designation / Nature of Directorship	Number of meetings of CSR Committee held during the year	Number of meetings of CSR Committee attended during the year
1. Mrs. Lathika Siddharth Pai	Chairperson and Member	1	1
2. Mr. Panchangam Nagashayana	Member	1	1
3. Dr. H. S. Raghavendra Rao	Member	1	1

3. Provide the web-link where Composition of CSR Committee, CSR Policy and CSR projects approved by the board are disclosed on the website of the Company: https://dcxindia.com/

4. Provide the Executive summary along with web-link of Impact assessment of CSR projects carried out in pursuance of sub-rule (3) of rule 8 of the Companies (Corporate Social responsibility Policy) Rules, 2014, if applicable:

Not Applicable

5. (a) Average net profit of the Company as per section 135(5): 671.86 Mn

(b) Two percent of average net profit of the Company as per section 135(5): 13.44 Mn

(c) Surplus arising out of the CSR projects or programs or activities of the previous financial years: Nil (d) Amount required to be set off for the financial year, if any: 0.29 Mn (e) Total CSR obligation for the financial year [(b)+(c)-(d)]: 13.15 Mn

6. (a) Amount Spent on CSR Projects (both ongoing projects and other than ongoing projects): 13.20 Mn (b) Amount Spent on Administrative Overheads: Nil (c) Amount Spent on Impact assessment, if applicable: Nil (d) Total amount spent for the financial year[(a)+(b)+(c)]= 13.20 Mn

(e) CSR amount spent or unspent for the financial year:

		(Amount Unspent)
Total Amount Spent for the Financial Year	Total Amount transferred to Unspent CSR Account as per section 135(6)		Amount transferred to any fund specified under Schedule VII as per second proviso to section 135(5)
13.20 Mn	Amount	Date of transfer	Name of the Fund	Amount	Date of	transfer
	Not Applicable	Not Applicable	Not Applicable	Nil	Not Applicable

(f) Excess amount for set off, if any: 0.05 Mn

Sl. No. Particular	Amount (in Mn)
(i) Two percent of average net profit of the company as per section 135(5)	13.44
(ii) Total CSR Obligation for the financial year	13.15
(iii) Total amount spent for the Financial Year	13.20
(iv) Excess amount spent for the financial year [(ii)-(i)]	0.05
(v) Surplus arising out of the CSR projects or programmes or activities of the previous financial years, if any	Nil
(vi) Amount available for set off in succeeding financial years [(iii)-(iv)]	0.05

7. Details of Unspent CSR amount for the preceding three financial years:

1 2	3	4	5	6		7	8
Sl. No. Preceding Financial Year(s)	Amount transferred to Unspent CSR Account under sub- section (6)	Balance Amount in Unspent CSR Account under sub- section (6) of	Amount Spent in the Financial Year	Amount transferred to a Fund as specified under Schedule VII as per second proviso to sub- section (5) of section 135, if any		Amount remaining to be spent in succeeding Financial	Deficiency, if any
	of section 135	section 135		Amount (In Mn)	Date of Transfer	Years
1 FY 2020-21	--	--	-	0.99	30.08.2021	--	--
2 FY 2021-22	--	--	--	--	--	--	--
3 FY 2022-23	--	--	--	--	--	--	--

8. Whether any capital assets have been created or acquired through Corporate Social Responsibility amount spent in the Financial Year:

Yes No

If Yes, enter the number of Capital assets created/ acquired: ____________________________ Furnish the details relating to such asset(s) so created or acquired through Corporate Social Responsibility amount spent in the Financial Year:

Sl. No. Short particulars of the property or asset(s) [including complete address and location of the property]	Pin code of the property or asset(s)	Date of creation	Amount of CSR amount spent	Details of entity/ Authority/ beneficiary of the registered owner
(1) (2)	(3)	(4)	(5)	(6)
				CSR Registration Number, if applicable	Name	Registered address
		Not Applicable

9. Specify the reason(s), if the company has failed to spend two per cent of the average net profit as per sub- section (5) of section 135: Not Applicable