Highness Microelectronics Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in the Draft Red Herring Prospectus. You should also read the section entitled "Risk Factors" beginning on page 27, which discusses several factors, risks and contingencies that could affect our financial condition and results of operations. The following discussion relates to our Company and is based on our restated financial statements, which have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI Regulations. Portions of the following discussion are also based on internally prepared statistical information and on other sources. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year ("Fiscal Year") are to the twelve-month period ended March 31 of that year.

The financial statements have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated September 20, 2025 which is included in this Draft Red Herring Prospectus under the section titled "Financial Statement as Restated" beginning on page 201 of this Draft Red Herring Prospectus. The restated financial statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our restated financial statements.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 27 and 18 respectively, and elsewhere in this Draft Red Herring Prospectus Accordingly, the degree to which the financial statements in this Draft Red Herring Prospectus will provide meaningful information depend entirely on such potential investors level of familiarity with Indian accounting practices. Please also refer to section titled "Certain Convention use of financial information and market data and currency of presentation" beginning on page 16 of this Draft Red Herring Prospectus.

Our company was originally incorporated on September 6, 2007, as a private limited company under the name and style of ‘Highness Micro Electronics Private Limited’, under the provisions of the Companies Act, 1956, pursuant to a certificate of incorporation issued by the Registrar of Companies, Mumbai. Further, pursuant to a resolution passed by our shareholders in its meeting held on February 8, 2008, the name of our company was changed to ‘Highness Microelectronics Private Limited’ and a fresh certificate of incorporation dated March 5, 2008, was issued by the Registrar of Companies, Mumbai. Subsequently, our company was converted into a public limited company pursuant to a resolution passed by the shareholders in an extraordinary general meeting held on August 31, 2024, and the name of our company was changed to ‘Highness Microelectronics Limited vide fresh certificate of incorporation dated November 11, 2024, was issued by the Registrar of Companies, Central Processing Centre. The corporate identification number of our company is U72900MH2007PLC173854.

Highness Microelectronics Limited is an ISO 9001:2015 and ISO 13485:2016 certified Company, specializing in the Design, Develop, Integrate, Assemble & Manufacture Digital-Imaging solutions. Our company offers in two main categories namely ‘

Products‘ & ‘Market Specific solutions /project’.

For more details, please refer chapter titled "Our Business" beginning on page 117 of this Draft Red Herring Prospectus.

As per mutual discussion between the Board of the Company and BRLM, in the opinion of the Board of the Company there have not arisen any circumstances since the date of the last financial statements as disclosed in the Draft Red Herring Prospectus and which materially and adversely affect or is likely to affect within the next twelve months except as follows:

• The Board of Directors of our Company, in its meeting held on September 20, 2025, approved the Restated Financial Statements of our company for the Financial Year ended on March 31, 2025, March 31, 2024, and March 31, 2023.

• The Board of directors of our company, in its meeting held on September 09, 2025, has approved the audited financial statements for the financial years ending March 31, 2025.

• The Board of Directors of our Company, in its meeting held on September 09, 2025, approved and adopted various policies such as identification of material group companies, material outstanding litigations and material dues to creditors in accordance with the disclosure requirements under the SEBI ICDR Regulations.

• The Board of Directors of our Company has appointed M/s S J Kumar & Associates, Company Secretaries as Practicing Company Secretary for issuing Secretarial Due Diligence Report (Search Report) in respect of Initial Public offer of our company at their meeting held on September 09, 2025.

• The Board of Directors of our Company has approved and passed board resolution to raise the funds by way of Initial Public Offering and offer for Sale vide resolution passed at their Meeting held on September 09, 2025.

• The Shareholders of our Company has approved and passed special resolution to raise the funds by way of Initial Public Offering and offer for Sale vide special resolution passed at the Annual General Meeting held on September 09, 2025.

• The shareholders of our Company, at the Annual General Meeting held on September 09, 2025, appointed M/s Jain Vinay & Associates, Chartered Accountants, in the office of Statutory Auditor of the Company from the conclusion of this AGM until conclusion of 23^rd Annual General Meeting.

• The Board of Directors of our company have approved the appointment of Mr. Mayurkumar Laxmidas Gori as Chief Financial Officer (CFO) of our company, vide board resolution dated August 11, 2025.

• The shareholders of our Company, at the Extra Ordinary General Meeting held on August 07, 2025, appointed M/s Jain Vinay & Associates, Chartered Accountants, to fill the casual vacancy in the office of Statutory Auditor of the Company.

• The Board of Directors of our company have approved the re-constitution of Audit Committee, Nomination and Remuneration Committee and Stakeholder’s Relationship Committee, vide board resolution dated March 28, 2025.

• Our Company has approved the Draft Red Herring Prospectus vide resolution in the Board Meeting dated September 30, 2025.

Our business is subjected to various risks and uncertainties, including those discussed in the section titled

"Risk Factor"

beginning on page 27 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

• Our manufacturing operations are dependent on the availability and pricing of raw materials. Any disruption in supply or significant volatility in raw material costs could materially and adversely impact our business operations, financial performance, and cash flows.

• Approximately 89.68 % of our raw materials are sourced through imports. Any changes in Indias bilateral trade agreements with the countries from which we procure these materials could have a long-term impact on our business operations and sustainability.

• Our exports account for around 34.54% of our revenue from operations. Therefore, any shifts in bilateral trade agreements with our export destinations may pose long-term challenges to our business performance and sustainability.

• A substantial portion of our operational revenue is generated from a limited number of customerss, making our business performance highly dependent on these key relationships.

• Our operations are carried out at two facilities, with registered office located at Office 1C3, 1st Floor, Gundecha Onclave, Kherani Road, Saki Vihar, Andheri (East), Mumbai, Maharashtra, India, 400072 and Factory at R-364, TTC Industrial Area, Rabale, Mumbai-400701. Any disruption, breakdown, or temporary shutdown at either of these facilities could materially and adversely affect our business operations, financial condition, operating results, and cash flows.

• Failure to obtain or renew approvals, licenses, registrations and permits to operate our business in a timely manner, or at all, may adversely affect our business, financial condition, results of operations and cash flows.

• Any adverse changes in central or state government policies.

• Company’s results of operations and financial performance.

• Our Company’s inability to meet its working capital requirements or maintain its existing credit facilities.

• Competition in the industry that we operate;

• Our success depends on the continued services and performance of the members of our management team and other key employees.

• Increase in the prices of our raw material.

• Market fluctuations and industry dynamics are beyond our control.

• Our ability to successfully execute our growth strategies.

• General Economic and Market Conditions.

For Significant accounting policies please refer "Significant Accounting Policies", under Chapter titled Financial Statement as Restated beginning on page 201 respectively of the Draft Red Herring Prospectus.

Except as mentioned in chapter "Financial Statement as Restated" on page 201 of this Draft Red Herring Prospectus, there has been no change in the accounting policies during the Fiscal 2025.

There are no reservations or qualifications or adverse remarks in the auditors’ report on restated financial statements.

Our Results of Operations

The following discussion on the financial operations and performance should be read in conjunction with the Restated financial statements of the company.

(Amount in f thousands, except %)

Particulars	For the financial year ended on
	March 31, 2025	%*	March 31, 2024	%*	March 31, 2023	%*
Revenue From Operation	1,40,737.82	99.29%	1,07,046.22	97.37%	96,742.49	97.65%
Other Income	1,000.29	0.71%	2,887.46	2.63%	2,329.72	2.35%
Total Income	1,41,738.10	100.00%	1,09,933.67	100.00%	99,072.21	100.00%
Expenditure
Cost of Material Consumed/ Cost of Goods Purchased	61,979.46	43.73%	36,125.25	32.86%	37,487.54	37.84%
Changes in inventories	-18,471.04	-13.03%	-24,303.24	-22.11%	-2,662.81	-2.69%
Employees Benefit expenses	17,492.53	12.34%	12,734.57	11.58%	9,477.03	9.57%
Other expenses	34,548.94	24.38%	22,831.85	20.77%	21,144.08	21.34%
Finance costs	4,258.73	3.00%	1,816.59	1.65%	2,500.18	2.52%
Depreciation and amortisation expenses	9,269.38	6.54%	29,107.14	26.48%	24,772.35	25.00%
Total Expenses	1,09,078.00	76.96%	78,312.17	71.24%	92,718.37	93.59%
Profit/(Loss) Before Tax	32,660.11	23.04%	31,621.51	28.76%	6,353.84	6.41%
Tax Expense:
Current Year	8,436.36	5.95%	7,950.00	7.23%	1,700.00	1.72%
Deffered Tax	-503.10	-0.35%	-54.57	-0.05%	330.72	0.33%
Current Tax expense relating to prior years	-	0.00%	-	0.00%	-	0.00%
Total Tax Expenses	7,933.26	5.60%	7,895.43	7.18%	2,030.72	2.05%
Profit for the Year	24,726.84	17.45%	23,726.08	21.58%	4,323.12	4.36%

*% of Total Income.

The following discussion on results of operations should be read in conjunction with the Restated Financial statements for the financial year ending March 31, 2025, 2024, and 2023. Our revenue and expenses are reported in the following manner:

" Revenue of operations:

The core revenue of our Company is derived from designing, developing, integrating, assembling and manufacturing of Digital-Imaging Solutions.

" Other Income:

The major components of Other Income include Sundry Balances, Foreign Exchanges gains, Interest income and

Our expenses primarily consist of Cost of material consumed/ cost of goods purchased, Changes in inventories, Employees Benefit expenses, Finance Cost, Depreciation and amortisation expenses and other expenses.

" Cost of material consumed/ cost of goods purchased

It includes import and domestic purchases made during the year along with Custom duty on export.

" Changes in inventories

It is the difference of opening stock of finished goods and balance at the end of year.

" Employee benefit expenses

It includes Director’s remuneration, Salaries, wages, bonus, Gratuity, Contribution to Provident and ESIC and other staff welfare expenses.

" Other expenses

Other expenses mainly comprise of Travelling & Accommodation Expenses, Freight, Forwarding & Transportation Charges, rent, rate and taxes, Legal & professional charges, Advertisement Expenses, Interest, Penalty & Late Fees on GST, Security Charges, General Expenses, Service charges, Repairs and Maintenance, Electricity Charges, Audit Fees, Account Writing Charges, Conveyance expenses, Courier charges, Professional tax, telephone expenses and Insurance charges etc.

" Finance cost

It includes Interest expenses and other borrowing costs.

" Depreciation and amortisation expenses

It includes depreciation on tangible assets such as Plant & Machinery, Furniture & Fixtures, Computers, and Office Equipment, as well as amortisation of intangible assets such as Website and Research & Development.

" Total Income

Our total income increased by 28.93% to Rs. 1,41,738.10 thousand for the financial year 2024-25 from Rs. 1,09,933.67 thousand for the financial year 2023-24 due to the factors described below:

" Revenue of operations

Our revenue from operations increased by 31.47%, reaching Rs. 1,40,737.82 thousand in the financial year 2024-25, compared to Rs. 1,07,046.22 thousand in 2023-24. The geographical bifurcation of revenue from operation for the FY 2024-2025 & 2023-2024 is presented in the table below:

(Amount in Rs. thousands, except %)

Particulars	Year Ended 31st March, 2025	%	Year Ended 31st March, 2024	%
Domestic sales	97,605.18	69.35%	1,05,863.11	98.89%
Export sales	43,132.64	30.65%	1,183.11	1.11%
Total Revenue from operation	1,40,737.82	100.00%	1,07,046.22	100.00%

The financial data for the years ended 31st March 2024 and 2025 reflects a notable shift in the company’s revenue composition. Export revenue grew from f 1,183.11 crore in FY 2024 accounting for just 1.11% of total operating revenue for FY 2024 to f43,132.64 crore in FY 2025, contributing a substantial 30.65%. This increase highlights a strategic pivot toward expanding its presence in international markets, thereby reducing its dependence on domestic sales and diversifying its revenue streams.

Other Income

The other income decreased by 65.36% to f 1,000.29 thousand for FY 2024-25 from f 2,887.46 thousand for FY 202324. The table below presents the changes in the other income on year on year basis:

(Amount in f thousand, except %)

Particulars	31-Mar-25	31-Mar-24
- Discount Received	0.03	93.81
% Change yoy basis	(99.97%)
- Foreign Exchange gains and losses	437.72	0.00
% Change yoy basis	-
- Insurance claims received	19.80	123.70
% Change yoy basis	(83.99%)
- Sundry Balances W/back	498.50	349.74
% Change yoy basis	42.54%
- Interest Received	44.22	22.63
% Change yoy basis	95.38%
- Cancellation / Liquidated damages	0.00	1,507.84
% Change yoy basis	(100.00%)
- Profit on Sale of Motor Car	0.00	789.73
- Other income	1,000.29	2,887.46
% Change yoy basis	(65.36%)

From the above table the decline in other income is primarily attributable to the non-occurrence/receipt of order cancellations by customers, being recognized during the F.Y 2024-25, as compared to Rs.1,507.84 thousand in the previous F.Y 2023-24. Additionally, there was a reduction in discounts received and lower insurance claims compared to the previous F.Y.

Total Expenses

Total Expenses increased by Rs. 30,765.83 thousand and 39.29% to Rs. 1,09,078.00 thousand in the financial year ended March 31, 2025, from Rs. 78,312.17 thousand in the financial year ended March 31, 2024. Our total expenses increased due to the factors described below:

Cost of material consumed/ cost of goods purchased

The total cost of materials consumed increased significantly by Rs.25,854.21 thousand, representing a 71.57% year- over-year growth, from Rs.36,125.25 thousand in FY 2023-24 to Rs.61,979.46 thousand in FY 2024-25.

Amount in Rs. Thousand

Particulars	FY 2024-2025	FY 2023-2024
Import Purchases	48,946.46	27,077.78
% change YoY	80.76%	-
Domestic Purchases	6,394.71	5,632.82
% change YoY	13.53%	-
Custom Duty on Import	6,638.29	3,414.66
% change YoY	94.41%	-
Total	61,979.46	36,125.25
% change YoY	71.57%	-

This substantial rise was primarily driven by an 80.76% increase in import purchases, which grew from Rs.27,077.78 thousand to Rs.48,946.46 thousand. In addition, customs duty on imports nearly doubled, increasing by 94.41% to Rs.6,638.29 thousand from Rs.3,414.66 thousand in the previous fiscal year. While domestic purchases also registered a growth of 13.53%, rising from Rs.5,632.82 thousand to Rs.6,394.71 thousand, the overall increase in cost of materials was largely attributable to the surge in imports and duties, reflecting a strategic or operational shift toward imported raw materials during the year.

The overall increase in the cost of materials consumed during Fiscal 2025 is primarily attributable to higher sales volumes. With the growth in sales by 31.47% in F.Y 24-25 over the previous year, the requirement for raw materials also increased, resulting in higher consumption costs as compared to the previous fiscal year.

Changes in Inventories

Changes in inventories was (Rs. 24,303.24) thousand in the fiscal year ended March 31, 2024, and fiscal year ended March 31, 2025, it was about (Rs. 18,471.04) thousand. This resulted in increase in change of inventories in terms of value by (Rs. 5,832.20) thousand.

Employee benefit expense

In FY 2023-24, Employee Benefit Expenses was Rs. 12,734.57 thousands which increased to Rs. 17492.53 thousands in FY 2024-2025 thereby adding Rs.¦4,757.97 thousand, reflecting a growth of 37.36% over FY 2023-24. The table below presents the component wise changes in the employee benefit expenses of the company:

Amount in Rs. Thousand

Particulars	FY 2024-2025	FY 2023-2024
Director remuneration	4,382.51	3,600.00
Salaries, wages, bonus etc.	11,405.82	8,072.15
Gratuity	391.80	531.64
ESIC & PF Charges	304.55	-
Staff Welfare	1,007.86	530.77
Total	17,492.53	12,734.57

From the above table, the growth in this component reflects adjustments made towards employee compensation, including annual increments, increased provision for gratuity, and expanded workforce in line with operational requirement . This rise was mainly driven by higher Salaries, Wages, and Bonus, which grew from Rs.8,072.15 thousand in FY 2023-24 to Rs.11,405.82 thousand in FY 2024-25., The increase in Director’s remuneration from Rs.3,600.00 thousand in FY 2023-24 to Rs.4,382.51 thousand in FY 2024-25also contributed to the growth of the total employee benefit expenses. Additionally, the contribution of the ESIC &PF charges of Rs. 304.55 thousands also saw a marginal increase in absolute terms, in line with the higher salary base.

" Other expenses

In Fiscal Year 2024-25, Other Expenses increased by Rs. 11,717.08 thousand, representing a 51.32% rise compared to Rs. 22,831.85 thousand in the previous fiscal year. This increase of 51.32% was due to notable increase in the following expenditure in comparison of the previous F.Y:

Amount in Rs. Thousands, except %

Particulars	FY 2024-2025	FY 2023-2024
Advertisement Expenses	2,923.59	1,260.72
% of change YoY	131.90%	-
Legal & Professional Charges	3,103.50	340.53
% of change YoY	811.39%	-
Service Charges	1,560.08	602.16
% of change YoY	159.08%	-
Travelling & Accomodation Expenses	8,212.97	5,540.33
% of change YoY	48.24%	-
General Expenses	2,185.56	752.79
% of change YoY	190.33%	-

This increase is primarily attributable to the overall increase in business activity during the year, as reflected by the increase in sales and operational volumes The advertisement Expenses more than doubled, increasing by 131.90% to Rs.2,923.59 thousand, indicating enhanced marketing and brand promotional activities. Legal & Professional Charges also saw a surge of 811.39% to Rs.3,103.50 thousand due to increased legal, advisory, and compliance-related requirements amid business growth. The Service charges rose by 159.08% to Rs. 1,560.08 thousand, due to higher reliance on third-party services. The travelling & Accommodation Expenses grew by 48.24% to Rs. 8,212.97 thousand, suggesting more frequent business travel for better client engagement. The general Expenses almost tripled to Rs.2,185.56 thousand, reflecting the overall scale-up in day-to-day operational activities. Additionally, there increase in Freight, Forwarding & Transportation Charges, Rent, Rate & Taxes, Repairs & Maintenance, Interest, Penalty & Late Fees on GST and Security Charges also contributed to increase in the other expenses in comparison to the previous F.Y.

Finance cost

Finance costs primarily comprise of interest-on-Interest Expenses and other borrowing cost, amounted to Rs. 4,258.73 thousand in FY 2024-25, compared to Rs. 1,816.59 thousand in FY 2023-24, reflecting a increase of 134.44%. As of March 31, 2025, the company’s total borrowings stood at Rs.49,015.07 thousand, which was Rs. 12,595.08 thousand in the previous year, marking a significant rise of Rs.36,419.99 thousand. This sharp increase is primarily driven by a substantial rise in unsecured borrowings at relatively high interest rates ranging between 15% and 18%. These loans were likely availed to meet growing working capital needs or to support business expansion. The increase in borrowing particularly unsecured high-cost debt reflects heightened capital requirements during the year, indicating expansionary activity, but it also highlights the need for prudent financial management to handle the growing debt burden and associated interest obligations. Therefore, the company plans to repay its high cost debt through funds raised through the IPO proceeds. For more details refer the chapter titled "object of offer" chapter on page no 83 of this draft Red Herring Prospectus.

" Depreciation and amortization

Depreciation expense declined by Rs. 19,837.76 thousand, representing a 68.15% decrease from Rs.29,107.14 thousand in Fiscal 2024 to Rs.9,269.38 thousand in Fiscal 2025. This reduction was primarily due to the decrease in the amoritisation amounting to Rs.6766.83 during the FY 2024-25 as compared to Rs.27,478.01 for F.Y 2023-24. This has lead to the lower depreciation & amortisation charges during the year.

Net Profit After Tax increased by Rs. 1,000.77 thousand, representing a growth of 4.22%, from Rs.23,726.08 thousand in Fiscal 2024 to Rs.24,726.84 thousand in Fiscal 2025. This improvement was primarily driven by higher revenue from operations during FY 2024-25 as compared to FY 2023-24.

While revenue grew by 31.47%, the growth in PAT was relatively moderate at 4.22%, as the increase in sales was offset by higher expenses. The rise in costs was mainly on account of higher consumption of materials/purchase of goods and higher input cost, employee benefit expenses, finance costs, and other operating expenses. However, this impact was partly mitigated by a reduction in depreciation and amortization expenses during the year.

" Total Income

Total Income for the period ended March 31, 2024, stood at Rs. 1,09,933.67 thousand whereas in financial year 2022-23 it stood at Rs. 99,072.21 thousand representing an increase of 10.96% due to the factors described below:

" Revenue from operations

Our Revenue from Operations increased by 10.65%, rising to Rs. 1,07,046.22 thousand in the Financial Year 2023-24 from Rs. 96,742.49 thousand in 2022-23. The geographical bifurcation of revenue from operation for the FY 2023-2024 & 2022-2023 is presented in the table below:

Particulars	Period Ended March 31, 2024	%*	Period Ended March 31, 2023	%*
Domestic sales	1,05,863.11	98.89%	96,077.86	99.31%
Export sales	1,183.11	1.11%	664.63	0.69%
Total Revenue from operation	1,07,046.22	100.00%	96,742.49	100.00%

*% of revenue from operations.

The sales are primarily driven by domestic operations, which contributed Rs. 1,05,863.11 thousand in FY 2023-24, accounting for 98.89% of total sales. Although domestic sales grew in absolute terms from Rs.96,077.86 thousand in FY 2022-23, In contrast, export sales showed a notable increase, rising from Rs.664.63 thousand in FY 2022-23 to Rs. 1,183.11thousand in FY 2023-24. This growth led to an increase in their contribution to total sales from 0.69% to 1.11%. The higher growth rate of export sales indicates improved performance in international markets and efforts by the company to expand its global footprint. Overall, reflecting strong business expansion, likely driven by increased sales volumes in domestic and export sales.

Other Income

The other income increased by 23.94% to Rs. 2,887.46 thousand for FY 2023-24 from Rs. 2,329.72 thousand for the FY 2022-23. The table below presents the component wise change in the other income of the company during the fiscal 2023 and 2024:

Amount in f thousand, except %

Particulars	31-Mar-24	31-Mar-23
- Discount Received	93.81	0.04
% Change yoy basis	2,18,326.66%
- Foreign Exchange gains and losses	-	1,129.19
% Change yoy basis	(100.00%)
- Insurance claims received	123.70	62.43
% Change yoy basis	98.15%
- Sundry Balances W/back	349.74	956.00
% Change yoy basis	(63.42%)
- Interest Received	22.63	182.06
% Change yoy basis	(87.57%)
- Cancellation / Liquidated damages	1507.84	-
% Change yoy basis	-
- Profit on Sale of Motor Car	789.73	-
% Change yoy basis	-
- Other income	2,887.46	2,329.72
% Change yoy basis	23.94%

From the above table, the increase is attributed due to the receipt of the Cancellation/ Liquidation charges of Rs. 1507.84 thousand and profit on sales of the motor car amounting to Rs. 789.73 thousand in the F. Y 2023-2024 as compared to the F.Y 2022-23 Other components like Discount Received, Insurance claims received also attributed to the increase in the other income from previous F.Y.

" Total Expenses

Total Expenses decreased by Rs. 14,406.20 thousand and 15.54%, from Rs. 92,718.37 thousand in FY ended March 31. 2023, to Rs. 78,312.17 thousand in FY ended March 31, 2024. Our total expenses increased due to the factors described below:

" Cost of material consumed/Cost of goods purchased

Cost of material consumed for the year ended March 31, 2024, stood at Rs. 36,125.25 thousand whereas in financial year ended March 31, 2023, it stood at Rs. 37,487.54 representing a decrease of -3.63%. During the financial year ended March 31, 2024, the company reported decrease in the cost of materials consumed as a significant portion of production in FY 2023-24 was intended for sale in FY 2024-25, leading to a substantial increase in closing stock which rose from Rs. 13,753 thousands in FY 2023 to Rs.38,057 thousands in FY 2024. This reduced COGS for FY 2023-24, as fewer goods were considered "sold" in accounting terms and this artificially boosted profitability, as production costs were deferred to inventory rather than expensed.

" Changes in inventories

Changes in inventories was Rs. (2,662.81) thousand in the financial year ended March 31, 2023, and fiscal year ended March 31, 2024, it was about Rs. (24,303.24) thousand. This resulted in increase in change of inventories in terms of value by Rs. (21,640.43) thousand.

" Employee benefit expense

In FY 2023-24, Employee Benefit Expenses increased by Rs. 3,257.54 thousand, reflecting a growth of 34.37% over FY 2022-23. This rise was mainly driven by higher Salaries, Wages, Bonus and Gratuity during the period. The table below presents the component wise increase in the employee benefit expenses during the period:

Amount in Rs. Thousand

Particulars	FY 2023-2024	%*	FY 2022-2023	%*
Director remuneration	3,600.00	28.27%	2,640.00	27.86%
Salaries, wages, bonus etc.	8,072.15	63.39%	6,524.23	68.84%
Gratuity	531.64	4.17%	-212.89	-2.25%
ESIC & PF Charges	-	0.00%	-	0.00%
Staff Welfare	530.77	4.17%	525.68	5.55%
Total	12,734.57	100.00%	9,477.03	100.00%

From the above table, the growth in this employee benefit expenses reflects adjustments made towards employee compensation, including annual increments, increased provision for gratuity, and expanded workforce in line with operational requirement. This rise was mainly driven by higher Salaries, Wages, and Bonus, which grew from Rs. 6524.23 thousand in FY 2022-23 to Rs.8,072.15 thousand in FY 2023-24 accounting for 23.73% increase over the previous year. The increase in Director’s remuneration from Rs.2640 thousand to Rs.3,600.00 thousand in FY 2023-24 also contributed to the growth of the total employee benefit expenses. Additionally, the contribution to the gratuity and staff welfare expenses also saw an increase in absolute terms, in line with the higher salary base.

" Other expenses

In Fiscal Year 2023-24, Other Expenses rose by Rs. 1,687.78 thousand, marking a marginal increase of 7.98% from Rs. 21,144.08 thousand in the previous year. This rise is mainly due to the overall expansion in business operations, driven by higher sales and increased operational activity.

The increase in Other Expenses is mainly due to higher spending across various cost heads, including Travelling & Accommodation Expenses, Advertisement Expenses, Foreign Exchange Losses, Interest, Penalty & Late Fees on GST, Interest on custom Duty, GST & TDS and Security charges among others.

Finance cost

The finance costs primarily comprise of interest Expenses and other borrowing cost., which amounted to Rs. 1,816.59 thousand in FY 2023-24, compared to Rs. 2,500.18 thousand in FY 2022-23, reflecting a decrease of 27.34%. The decline in the finance cost is attributable to strategical shift in the source of the loan as presented in the table below:

Particulars	FY 2023-2024	FY 2022-2023
Secured borrowings	12,097.31	9,765.51
Unsecured borrowings	497.77	1,691.57

From the above table, it is clear that the company undertook a strategic shift in its borrowing structure during FY 202324. The composition of the loan taken changed from unsecured borrowings to secured borrowings in order to reduce the overall cost of capital. Unsecured borrowings carrying high interest rates (15% to 18% p.A) were reduced from f 1,691.57 crore in FY 2022-23 to Rs. 497.77 crore in FY 2023-24. In contrast, secured borrowings, which attract significantly lower interest rates (9.5% to 9.8%), increased from Rs. 9,765.51 crore to Rs. 12,097.31 crore during the same period. This strategic reallocation of debt sources demonstrated effective financial management and cost saving of Rs. 683.59 thousands during the year.

" Depreciation and amortization expenses

Depreciation and amortization expense increased by f 4,334.79 thousand, representing a 17.50% increase from f 24,772.35 thousand in Fiscal 2023 to f 29,107.14 thousand in Fiscal 2024. The increase is primarily attributable to the amortisation of the intangible asset amounting to Rs. 23,945.10 for FY 2022-23 and Rs. 27,478.01 for F.Y 2023-24 and increase in the depreciation of the tangible assets of the company during the year.

NET PROFIT AFTER TAX

Net Profit has increased by Rs. 19,402.96 thousand from Rs. 4,323.12 thousand in FY 2022-23 to profit of Rs. 23,726.08 thousand in FY 2023-24. This improvement is driven by the following reasons:

• Inventory Movement: During the financial year ended March 31, 2024, the company reported decrease in the cost of materials consumed as a significant portion of production in FY 2023-24 was intended for sale in FY 2024-25, leading to a substantial increase in closing stock which rose from Rs. 13753.28 thousands in FY 2023 to Rs.38,056.52 thousands in FY 2024, this reduced COGS for FY 2023-24,

• Amortization of development expenditure: In FY 2023-24, an amount of Rs.29,107 thousands related to capitalised development expenditure (intangible assets such as product or technology development) was recorded under Depreciation and Amortisation, in accordance with Accounting Standard (AS) 26, which previously was recorded in the COGS. This shift led to reduction in COGS for FY 2023-24, thereby inflating the Margins. ^•

• Reduction in Finance cost: The reduction in finance cost during FY 2023-24 is primarily on account of repayment of borrowings out of internal accruals and operating cash flows. The Company generated net cash from operating activities of Rs.29,219.57 thousand in FY 2023-24, which enabled repayment of Rs.2,898.85 thousand of long-term borrowings during the year. As a result, finance costs declined by 27.34%, from Rs.2,500.18 thousand in FY 2022-23 to Rs.1,816.59 thousand in FY 2023-24.

RELATED PARTY TRANSACTIONS

Related party transactions with certain of our promoters, directors and their entities and relatives primarily relate to Director’s Remuneration, Salary & Wages, and Loan taken, repaid, Sale and Purchases. For further details of related parties kindly refer chapter titled "Financial Statement as Restated" beginning on page 201 of this Draft Red Herring Prospectus.

INFORMATION REQUIRED AS PER ITEM (II) (C) (IV) OF PART A OF SCHEDULE VI TO THE SEBI REGULATIONS:

1. Unusual or infrequent events or transactions

Except as described in this Draft Red Herring Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations

Other than as described in the section titled Risk Factors beginning on page 27 of this Draft Red Herring Prospectus, to our knowledge there are no known significant economic changes that have or had or are expected to have a material adverse impact on revenues or income of our Company from continuing operations.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations

Other than as described in this Draft Red Herring Prospectus, particularly in the sections Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 27 and 203, respectively, to our knowledge, there are no known trends or uncertainties that are expected to have a material adverse impact on our revenues or income from continuing operations.

4. Income and Sales on account of major product/main activities

Income and sales of our Company on account of major activities derives from Sales of Products in Electronics system design & manufacturing industry.

5. Future relationship between costs and income

Other than as described in the chapter titled "Risk Factors" beginning on page 27 of this Draft Red Herring Prospectus, to the best to our knowledge there are no factors, which will affect the future relationship between costs and income or which are expected to have a material adverse impact on our operations and finances. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices.

Increases in our revenues are by and large linked to increases in the volume of business.

6. The extent to which the business is seasonal

Our business is not seasonal in nature.

7. Competitive Conditions

We face competition from existing and potential competitors which is common for any business. Over a period of time, we have developed certain competitive strengths which have been discussed in section titled Our Business on page 117 of this Draft Red Herring Prospectus.