DCX Systems Ltd Management Discussions

ECONOMIC OVERVIEW Global Economy

The global economy remained resilient through 2025, although growth continued against a backdrop of geopolitical tensions, trade fragmentation and uneven financial conditions. The International Monetary Fund estimated global growth at 3.5% in 2025 and projected moderation in 2026 as policy uncertainty, conflict-related disruptions and elevated energy risks weighed on activity. At the same time, investment in technology and strategic infrastructure remained an important source of support.

For the defence sector, the more relevant structural development was the persistence of security-led expenditure despite the uncertain macroeconomic environment. Governments continued to prioritise military readiness, supply-chain resilience and domestic capability creation, reinforcing demand across defence electronics, radar, communications and integrated systems.

Indian Economy

India remained one of the fastest-growing major economies. The IMF estimated real GDP growth of 7.7% in 2025, supported by domestic demand, public investment and continued momentum across manufacturing and services. This relative resilience provided a supportive backdrop for strategic manufacturing sectors, including defence and aerospace.

The policy environment also remained constructive for domestic manufacturing. Capital expenditure, localisation, technology absorption and the expansion of indigenous supply chains continued to receive policy attention, while defence procurement retained a strong domestic orientation.

GLOBAL AND INDIA GROWTH

Real GDP Growth)

Global real GDP growth

\u2019 3.4%
2027 p B
3.0%	2026*
3.5%	2026
India real GDP growth
[ 6.7%
2027 p J
6.4%	2026*
7.7%	2025

P: PrcnoctKXii as per latest economic growth.

Source:

INDUSTRY OVERVIEW Global Defence Environment

Global military expenditure reached $2,887 trillion in 2025, increasing 2.9% in real terms and marking the eleventh consecutive annual rise. India was the fifth-largest military spender globally at $92.1 billion. The continued expansion of defence budgets reflects an environment in which readiness, electronic capability, surveillance, secure communications and resilient supply chains have become strategic priorities.

For defence electronics manufacturers, this translates into increasing demand for high-reliability assemblies, RF and microwave electronics, radar subsystems, secure communication architectures and system-level integration. Qualification thresholds remain high, with customer approvals, traceability, testing and programme continuity acting as important barriers to entry.

Source:

For DCX, the macro backdrop matters primarily through sustained defence modernisation , domestic manufacturing and strategic technology investment.

Indias Defence Manufacturing Opportunity

Indias defence manufacturing ecosystem moved further from import substitution towards capability creation during FY 2025-26. Defence production reached a record ?1.78 lakh crore, up 15.6% over the previous year. Private-sector participation increased to 24% of production, equivalent to around ?42,000 crore. Defence exports reached ?38,424 crore, rising 62.66% year on year.

Policy support continued through Aatmanirbhar Bharat, the Defence Acquisition Procedure 2020, Positive Indigenisation Lists and domestic procurement allocations. For FY 2025-26, 75% of the modernisation budget, amounting to ?1,11,544.83 crore, was earmarked for procurement through domestic sources. Also, ?27,886.21 crore has been provisioned for procurement through domestic private industry.

India Defence Manufacturing Momentum

The industrys direction increasingly favours manufacturers that can combine high-reliability electronics, system integration, localisation and programme support. DCXs capabilities across Systems, Sub-Systems, backward integration including cable and wire harness assemblies, PCBA, testing and qualification align with these requirements. Its long-standing relationships with global OEMs and growing participation in non-offset programmes also provide a route to participate in both Indias localisation opportunity and international defence supply chains.

Source: Ministry of Defence / Press Information Bureau, and

SWOT ANALYSIS

STRENGTHS

> Long-standing relationships with global defence and aerospace OEMs.

> Integrated capabilities spanning cable and wire harness, PCBA, system integration and testing.

> Backward integration through Raneal Advanced Systems.

> Consolidated order book of approximately ?2,984 crore as at March 31, 2026.

OPPORTUNITIES

> Rising domestic procurement and defence indigenisation

> Increasing non-offset and system-level assignments

> Technology transfer and localisation through ELTX Systems and NIART Systems

> Export-led manufacturing and deeper participation in global OEM supply chains

WEAKNESSES

> Long and milestone-driven defence programme execution cycles

> Working-capital intensity associated with high-value components and longer qualification periods

> Dependence on customer schedules, approvals and programme milestones

> Exposure to specialised imported components for select applications

THREATS

> Geopolitical and supply-chain disruption.

> Rapid technology evolution and obsolescence risk.

> Regulatory, qualification and programme delays.

> Cybersecurity, data-security and intellectual-property risks.

COMPANY INFORMATION

DCX Systems Limited is an integrated defence electronics and systems manufacturing company serving leading global OEMs and Indian defence programmes. Established in 2011, the Company operates from the Hi-Tech Defence and Aerospace Park SEZ, Bengaluru, with capabilities spanning cable and wire harness assemblies, high- reliability printed circuit board assemblies, RF and microwave modules, electronic subsystems, electromechanical assemblies, system integration, testing and qualification.

Through its wholly owned subsidiary, Raneal Advanced Systems Private Limited, DCX has strengthened its backward integration into electronics manufacturing services and PCBA. The Group also participates in radar, electronic warfare and railway obstacle-detection applications through its strategic joint ventures. Its customer relationships extend across India and key international defence and aerospace markets, supported by long-standing programme participation and stringent quality and compliance standards.

Strengthen the Core	Backward Integration	System Integration	Technology Participation
Cable and wire harness assemblies and established manufacturing competencies.	Raneal expands high- reliability PCBA capability and supply-chain control.	Greater participation across electronic subsystems, radar-related integration, testing and qualification.	ELTX and NIART create pathways for localisation, ToT and emerging product opportunities.

OPERATIONAL AND FINANCIAL HIGHLIGHTS Operational Review

FY2025-26 was marked by deeper programme participation, capability expansion and progress across strategic technology platforms. While execution was moderated by supply-chain disruptions, export-licence delays and qualification timelines, the Company continued to strengthen its operating position across defence electronics, radar systems and high-reliability manufacturing.

Financial Review

During FY 2025-26, DCX reported consolidated revenue from operations of ?743.34 crore, compared with ?1,083.67 crore in FY 2024-25. The moderation in revenue was largely attributable to supply-chain disruptions, delays in export licences for critical components, restricted movement of materials and technical personnel, and extended qualification and certification timelines across certain defence programmes.

Key developments during the year included:

• Consolidated order book of ?2,984 crore as at March 31, 2026, supported by continued domestic and international order inflows.

• Secured a major order of ~?563 crore for manufacture and supply of a Maritime Patrol Radar System for airborne application, alongside with an order of ~?68 crore from Hindustan Aeronautics Limited for antennas and power supplies.

• Obtained a Defence Industrial Licence covering radar systems, electronic warfare systems, avionics and other defence electronic equipment under Category-A classification.

• Advanced the ELTX Systems platform through the Tamil Nadu manufacturing facility initiative for radar and electronic warfare systems under Make in India.

• Progressed NIARTs railway obstacle-detection

Consolidated EBIT stood at ?12.69 crore, with an EBIT margin of 1.71%, compared with ?71.27 crore and 6.58%, respectively, in the previous year. Consolidated PAT was ?(7.71) crore, against ?38.88 crore in FY 2024-25.

The consolidated profitability was also impacted by NIART Systems Limited, which remained in the product- development and R&D stage and had not commenced commercial production during the year. NIART recorded a loss of ?41.78 crore for FY 2025-26, including ?16.27 crore arising from foreign-currency translation under Ind AS 21.

Despite the lower reported earnings, the Company closed the year with a consolidated order book of approximately ?2,984 crore, providing medium-term revenue visibility as programme execution normalises.

The year therefore reflected a

programme through successful functional and fog trials and subsequent prototype deployment and accumulation runs. \u2022 Expanded Raneals manufacturing capability through an oversized PCBA facility and increased participation in surveillance and electronic warfare opportunities.	continued shift from component- level execution towards greater system responsibility , technology participation and localisation

Particulars	FY 2025-26	FY 2024-25
Revenue from Operations	?743.34 crore	?1,083.67 crore
EBIT	?12.69 crore	?71.27 crore
EBIT Margin	1.71%	6.58%
PAT	?(7.71) crore	?38.88 crore
PAT Margin	(1.04%)	3.59%
Closing Order Book	?2,984 crore	?2,855 crore

INTERNAL CONTROLS AND RISK MITIGATION STRATEGIES

DCX has established an internal control framework aligned with the scale, complexity and regulated nature of its defence and aerospace operations. The framework is designed to support reliable financial reporting, safeguard assets,	authority, matrices, segregation of duties, periodic internal audits and review by the Audit Committee. Operational controls extend across procurement, inventory, production, testing, quality assurance, finance, information systems and

maintain process discipline and ensure compliance with applicable statutory, contractual and customer-specific requirements.

The control environment is supported by documented policies and standard operating procedures, defined

statutory compliance. Given the long-cycle and high-reliability nature of defence programmes, the Company places particular emphasis on programme monitoring, supplier qualification, traceability, inventory planning, export-control compliance, information security and milestone-based execution.

Key risks and mitigation approach

Risk Area	Exposure	Mitigation / Controls in Place
Programme Execution Risk	Delays in qualification, certification, customer approvals or milestone completion can defer revenue recognition.	Programme-level monitoring, customer coordination, defined execution milestones, testing and qualification protocols, and periodic management review.
Supply-chain & Component Risk	Dependence on specialised and imported components can expose operations to shortages, export-licence delays and geopolitical disruptions.	Approved vendor framework, alternate-source development, procurement planning, inventory buffers for critical components, supplier performance monitoring and traceability controls.
Working-capital & Liquidity Risk	Defence programmes can involve extended procurement and execution cycles.	Budgeting, cash-flow monitoring, working-capital planning, receivables review and conservative balance- sheet management.
Technology & Obsolescence Risk	Rapid changes in radar, EW and defence electronics can affect product relevance and component availability.	Technology Transfer arrangements, strategic partnerships, obsolescence management, capability upgrades and continued participation in new programme opportunities.
Quality & Compliance Risk	Failure to meet defence, aerospace or customer-specific standards can affect qualification and programme continuity.	AS9100:2016, ISO 9001:2015, IPC standards, controlled manufacturing processes, inspection, testing and documented quality systems.
Cybersecurity & Data Risk	Defence programmes involve sensitive technical and customer information.	Access controls, licensed systems, information-security procedures, periodic audits, vulnerability assessments and restricted access to sensitive information.
Regulatory & Export-control Risk	Defence manufacturing is subject to industrial licensing, security classifications, export controls and customer-country regulations.	Legal and secretarial review, compliance monitoring, licence tracking, export documentation controls and periodic statutory reviews.
Human-capital Risk	Specialist technical skills are critical to execution quality and continuity.	Structured recruitment, training, skill development, performance reviews, succession planning and employee-welfare practices.
Business Continuity Risk	Fire, natural events, IT disruption or facility interruption can affect programme delivery.	Insurance cover, fire and safety systems, emergency procedures, drills, data backup and continuity planning.

Requirements and structured processes for reporting workplace hazards. No safety-related incidents were reported during FY 2025-26. Employee well-being is further supported through health and accident insurance coverage, statutory retirement benefits and a structured grievance- redressal mechanism. As DCX expands into increasingly complex system-level programmes, the Company will continue to strengthen workforce capability alongside its manufacturing and technology platform.

OUTLOOK

DCX enters FY 2026-27 with a consolidated order book of approximately ?2,984 crore, expanding system-level capabilities and improving visibility across radar, electronic warfare and high-reliability electronics programmes. Management has also indicated easing supply-chain conditions, greater predictability in export-licence processes and continued progression of key programmes through qualification milestones.

HUMAN RESOURCES

DCXs ability to execute high-reliability defence and aerospace programmes is closely linked to the technical capability, safety and development of its workforce. The Companys people practices therefore focus on skill development, occupational health and safety, employee well-being and structured performance management. As at March 31,2026, DCX had 89 permanent employees and 139 workers, including 52 permanent and 87 other-than- permanent workers. During the year, 100% of permanent employees and permanent workers received health and safety as well as skill-upgradation training, while 100% were also covered under performance and career- development reviews.

The Company maintains an occupational health and safety management system covering workplace risk identification, safety procedures, training, incident reporting and investigation. Its practices include first- aid and fire-safety training, periodic mock drills, PPE

The external environment remains supportive. Indias defence production reached ?1.78 lakh crore in FY 2025-26, while defence exports rose 62.66% to ?38,424 crore. The FY 2026-27 defence budget further reinforces domestic manufacturing, with approximately 75% of the capital acquisition allocation earmarked for procurement from domestic industry.

CAUTIONARY STATEMENT

Certain statements in this Management Discussion and Analysis may be forward-looking in nature and reflect the Companys current expectations, estimates and assumptions regarding future business conditions, performance and prospects. Actual results may differ materially due to factors including geopolitical developments, changes in government policies and regulations, defence procurement timelines, supply-chain disruptions, availability of critical components, foreign exchange movements, technology changes and other risks inherent to the Companys operations.

Readers are therefore cautioned not to place undue reliance on such forward-looking statements. The Company undertakes no obligation to publicly update or revise these statements except as required under applicable laws and regulations.

Against this backdrop, DCX will remain focused on disciplined order-book execution, improving operating efficiency, progressing ELTX and NIART towards commercial milestones, and deepening participation in non-offset, surveillance and electronic warfare opportunities.