Kapston Services Ltd Management Discussions

COMPANY OVERVIEW

Kapston Services Limited continues to cement its position as a leading provider of complete Human Capital Solutions in India. With a service portfolio spanning General Staffing, Security, Soft Services, Technical Services, IT Staffing, we provide end-to-end workforce and facility management solutions. Our sustained growth has been fueled by geographic expansion, diversification, and innovation. This report presents Kapston Managements strategic insight into the companys performance, market outlook, key risks & mitigation, and future direction, with a focus on operational excellence and sustainable value creation.

GLOBAL ECONOMY REPORT

The global economy in Financial Year 2025-26 is projected to grow at 3.1%, continuing its cautious recovery from recent geopolitical, macroeconomic, and climate-linked challenges. The easing of inflation in major economies and a shift towards accommodative monetary policy has restored investor and consumer confidence. However, this recovery is unbalanced. Advanced economies are expected to grow at a modest 1.6%, constrained by demographic shifts, supply chain re-calibration, and cautious fiscal spending. Meanwhile, emerging markets, particularly in Asia, remain global growth engines benefitting from industrial expansion, digital transformation, and improved consumption.

Trade diversification, the rise of green technology, and resilient infrastructure investment are shaping future economic priorities. Businesses worldwide are adapting to a new normal of hybrid work, energy transition, and Al-led productivity enhancements. Asian economies continue to outperform the global average with growth driven by robust domestic demand, industrial expansion and technological advancements.

INDIAN ECONOMY REPORT

India remains a beacon of growth in the global landscape, solidifying its position as one of the fastest- growing economies in the world. In FY 2025-26, Indias GDP is projected to surpass $4.4 trillion, keeping it firmly on track toward the $5 trillion milestone. GDP growth is forecasted at more than 7%, underpinned by sustained domestic demand, robust infrastructure spending, and improved ease of doing business. Key drivers include:

• Strong performance across services and manufacturing.

• Continued push for digital public infrastructure and Make-in-India initiatives.

• Stable inflation maintained through calibrated RBI policy actions.

• Surge in FDI and private equity interest in sectors like logistics, clean energy, and fintech.

Indias demographic dividend, combined with its vibrant startup ecosystem and structural reforms, places it at the heart of the next global economic shift. However, challenges around skill gaps, income disparity, and urban infrastructure must be addressed through inclusive and innovation-led policy frameworks. Investment in infrastructure continues to be a major driver of Indias economic growth. Public and private sector investments in infrastructure have surged with significant projects in urban development, renewable energy and smart cities leading the way. The Central Governments ongoing reforms to improve the ease of doing business alongside a stable macroeconomic environment, have made India an attractive destination for investments.

As India strengthens its influence on the global stage, it is emerging as a pivotal force in shaping the future of the global economy not only by driving regional growth and stability but also by contributing to global solutions through innovation, digital leadership, make-in-India initiatives. With a thriving domestic market, a growing digital economy, and a robust infrastructure push, India is positioning itself as a hub for next-generation industries and sustainable development. Looking ahead, India is well-equipped to maintain its growth momentum and realize its $5 trillion economy vision. The convergence of technology adoption, policy stability, and inclusive development will be the cornerstones of Indias continued ascent as a global economic powerhouse.

INDUSTRY STRUCTURE AND DEVELOPMENTS Staffing Services

Indias staffing services sector continues to grow at an impressive pace, with the organized staffing market projected to maintain a CAGR of 13.2%. This growth is driven by structural economic changes, increased formalization of employment, and the rising need for flexible workforce solutions across industries such as e- com/Q-com, healthcare, logistics, manufacturing, retail, and BFSI/NBFC services. Staffing companies are rapidly evolving into tech-enabled platforms help organizations in precise candidate matching, improved hiring speed, and reduced onboarding costs. Meanwhile, the rise of the gig economy and freelance platforms in white-collar and skilled services is expanding the workforce supply chain beyond traditional boundaries.

While the IT staffing segment faced a slowdown due to global economic uncertainties and reduced discretionary tech spending from Western economies, the industry is now witnessing a demand across sectors. Additionally, demand for niche tech talent in areas such as generative AI, blockchain, and digital finance is reshaping the recruitment landscape. However, the rapid digitalization is also pushing traditional staffing firms to reinvent their business models. Success in this sector will now depend on agility, scalability, tech-integration, and the ability to offer end-to-end workforce lifecycle management solutions.

Facility Management Services (FMS)

The Integrated Facility Management (IFM) industry in India is undergoing a strategic transformation, evolving from a cost control utility service to a strategic enabler of workplace efficiency, sustainability, and employee experience. The FM industry is projected to grow at a CAGR of 7.37% by 2030, Key growth drivers including thee rise of smart and green buildings across metro and Tier 1 cities. ESG-driven operations, mandating energy- efficient, zero-carbon, and health-compliant infrastructure. Integration of IoT, Building Management Systems (BMS), AI/ML, and robotics for predictive maintenance and real-time operations. Last but not the least Increased demand from SEZs, data centers, retail chains, and hospitality segments for integrated, multi-location service delivery.

Workplace dynamics have also shifted dramatically with hybrid and flexible work models, leading to demand for agile space management, workplace experience platforms, and tech-driven compliance solutions. Global clients increasingly prefer end-to-end FM partners capable of providing comprehensive services covering housekeeping, MEP, horticulture, and utility management under a single SLA-driven contract.

Security Services

Indias private security industry, already the largest in the world with over 11 million guards, continues to expand at a steady CAGR of 11.3%, buoyed by increasing demand across commercial, industrial, residential, and infrastructure sectors. New trends defining the future of security services include: Deployment of AI-powered surveillance, facial recognition, drones, and integrated control rooms. Increasing need for specialized security for sectors like logistics hubs, SEZs, manufacturing plants, gated communities, and critical infrastructure.

Awareness is growing around data privacy, and cyber-physical security convergence. Client expectations are evolving from simple manpower-based guarding to outcome-based and technology-integrated solutions. There is a strong push towards skill standardization, professional training, and adherence to industy norms. Security companies are also investing in incident response systems, and real-time patrol analytics, offering clients better visibility and risk mitigation. However, sustaining competitive advantage will require a balance between technology adoption, workforce welfare, and compliance enforcement. Organized security service providers with capabilities in compliance, technology, and training are expected to lead the consolidation phase over the coming years.

OPPORTUNITIES AND THREATS PRODUCT - WISE

TYPE OF SERVICE	OPPORTUNITIES	THREATS
Staffing Services	Indias staffing services sector continues to grow at an impressive pace, with the organized staffing market projected to maintain a CAGR of 13.2%. Gig economy growth (potential to engage 25-30% of Indias workforce). Increased demand in e-com/Qcom, healthcare, BFSI / NBFC, and logistics. Regulatory reforms encouraging formal employment.	Growing competition from digital-only staffing platforms. The formalization of the non-farm sector is essential to stabilize the industry. As the industry grows, it faces increasing competition from both traditional staffing companies and new market entrants. Talent shortage in emerging skills like AI, cybersecurity, and green tech. Increased automation in recruitment may reduce traditional service margins.
Facility Management Services	Indias rapid urbanization, coupled with a booming construction sector and the growing popularity of green buildings, drives demand for facility management services. Demand for ESG-compliant buildings and FM integration. Urban infrastructure development, smart cities, and REIT expansion. Scope for comprehensive FM and CRE services. Growing demand for hospitality-style workplace services. The FM industry is gradually adopting automated service delivery and technology- driven platforms.	The FM market in India is highly fragmented with a mix of organized and unorganized players. High attrition and skill deficit in technical services. Price pressure due to unorganized players. Rapid technology disruptioning threaten traditional FM models.
Security Services	Indias private security industry, already the largest in the world with over 11 million guards, continues to expand at a steady CAGR of 11.3%. Rising demand from critical infrastructure and public-private projects. Deployment of tech-based surveillance systems. Scope for training-led differentiation. The deployment of specialized personnel and advanced security systems are essential for managing security risks in public and private spaces. As technology continues to evolve, the security sector has the opportunity to enhance its offerings through innovations such as Al- powered surveillance, biometric access control and integrated security platforms.	As the number of security firms increases, the market may become saturated, leading to intense competition and price wars. Established companies may face pressure from newer entrants offering lower-cost services, which cou l d impa ct profitability. Wage parity and welfare compliance challenges are another areas of improvements. Market saturation and pricing pressure and Need for constant upskilling and reskilling to meet evolving threats.

SEGMENT - WISE/PRODUCT - WISE PERFORMANCE - 2024-25

Staffing Services

Indias organized staffing industry maintained strong momentum in FY 2024-25, with an estimated growth rate of 13.2%, reflecting continued demand for flexible, skilled, and tech-enabled workforce solutions. The number of flexi workers employed nationwide crossed 2 million, with the contract workforce becoming a strategic asset across several verticals. Key Performance Trends:

• Sectoral Demand: FMCG, E-commerce, Healthcare, BFSI/NBFC, Manufacturing, and e-Com/Q-Com emerged as top demand drivers for contract staffing.

• Digital Transformation: Staffing operations further embraced automation, AI-enabled screening, e- onboarding, and performance analytics with real-time tracking of productivity & attendance.

• Rise of Skilled Staffing: Beyond general staffing, there is a significant increase in demand for semi-skilled and technically trained personnel across logistics, EV maintenance, healthcare support, and retail.

• Gig & Platform Work: Platform-based staffing saw wider adoption, especially for last-mile delivery, on- demand technical services, and freelance roles in Tier 2/3 towns.

Facility Management Services (FMS)

The FM segment saw accelerated evolution in FY 2024-25, with rising client expectations, ESG mandates, and technology integration driving large-scale transformation. The market crossed new milestones in terms of contract value and scope of services offered. Key Performance Trends:

• Integrated FM Contracts: Clients across IT Parks, Hospitals, Retail Chains, Airports, and Real Estate REITs preferred single-window, integrated FM service providers.

• Smart & Sustainable Operations: A significant portion of new contracts required smart sensors, energy monitoring systems, and predictive maintenance models.

• Green Building Focus: Compliance with LEED, IGBC, and other green certification norms became a standard requirement.

• Digital Dashboards: Clients increasingly demanded centralized FM dashboards to track asset health, workforce deployment, energy usage, and ticket closures.

• Workplace Experience Services: The scope of FM widened to include hospitality services, concierge, front- office automation, and wellness initiatives especially in corporate and high-end commercial spaces.

Security Services

The private security sector evolved further in FY 2024-25 as demand increased for tech-assisted risk management solutions. Kapston leveraged this opportunity to upscale its service portfolio and drive greater value for clients. Key Performance Trends:

• Sectoral Growth: Security demand grew in Logistics Hubs, Residential Townships, Educational Institutions, and Event Management Zones. Specialized offerings like VIP protection, female security workforce, and access control integration saw strong traction.

• Tech-Enabled Security: AI-based video surveillance, facial recognition systems, and real-time patrolling apps are the requirements from clients.

• Workforce Upskilling & Training: To address the evolving threat landscape and changing client expectations, the need of the hour is upskilling & reskilling.

• Gender Diversity & Inclusion: There is an increased focus on deploying trained women security professionals in malls, corporate parks, and healthcare facilities where gender-sensitive and customercentric guarding is a priority.

• Smart Uniforms & Mobility: In select sites, guards were equipped with mobile handsets for real-time reporting, and quick-access tools to respond to alarms or medical emergencies.

Security clients sought partners who could combine manpower strength with surveillance capability, regulatory compliance and tech innovation.

RISKS AND CONCERNS

Staffing Services

The staffing industry is operating in a rapidly evolving landscape, where technological disruption, client

expectations, and geopolitical volatility continue to reshape demand-supply dynamics. Key Risks:

• Talent Shortage in Emerging Skills: The exponential rise in demand for digital talent in areas such as Generative AI, cloud-native development, cyber security, and industry-specific tech solutions has created a significant talent mismatch.

• Global Macroeconomic Volatility: The continued slowdown in the Global advanced economies has created a "cautious hiring" sentiment in IT and consulting sectors. This directly impacts IT staffing demand.

• Retention and Candidate Dropouts: Increased options for candidates in gig and platform-based employment models have led to high dropout rates.

• Digital Disruption & Disintermediation: Direct-to-talent platforms and AI-powered hiring marketplaces are disrupting traditional staffing business models.

• Mitigation Strategies: Focus on sectoral diversification (BFSI, logistics, healthcare, e-commerce) to de-risk reliance on IT. Adopt talent engagement platforms to manage pipeline visibility and reduce hiring friction.

Facility Management Services (FMS)

Indias facility management sector is under pressure to meet rising client expectations around compliance, ESG

alignment, and technology integration, while managing its own internal challenges around labor and skill quality.

Key Risks:

• Scarcity of Technical Talent: There is a persistent shortfall of skilled professionals, especially in MEP services, HVAC operations, automation systems, and green building technologies. This limits scalability and SLA adherence in large integrated contracts.

• High Attrition in Front-Line Workforce: The FM industry continues to rely on semi-skilled/unskilled labor, which faces high attrition due to wage disparity, limited career progression, and workplace migration patterns.

• Fragmented Market & Price War: Unorganized players offering low-cost services continue to disrupt pricing models, especially in single-service contracts. This threatens margins and dilutes service quality benchmarks.

Security Services

The security services industry in India, while growing, is increasingly exposed to risks linked to human capital

readiness and the rise of technology-led security models. Key Risks:

• Skill Gaps and Lack of Standardization: Despite government efforts, a large portion of security personnel still lack formal PSARA-certified training, first responder skills, or exposure to tech-enabled surveillance tools.

• Tech Adoption Lag: Many mid-sized and traditional security firms are lagging in implementing central monitoring systems, real-time alert platforms, or drone-based patrolling, putting them at a disadvantage in high-value contracts.

• High Attrition in Urban Deployment: City-based guards face burnout, cost-of-living pressures, leading to high attrition. Replacements often lack site familiarity, reducing security efficacy.

INDUSTRY OUTLOOK

Staffing Services

Indias organized staffing industry is entering a phase of strategic maturity and diversification, driven by a

combination of demographic advantage, policy support, and digital disruption. The market is expected to grow

steadily at a CAGR of 13.2% the next five years. Key Trends Shaping the Outlook:

• Sectoral Expansion: Flexi-staffing is no longer limited to logistics and e-commerce. Growth is now evident across manufacturing, retail, healthcare, fintech, tourism, EV services, and agri-logistics.

• Digitalization & Automation: Leading staffing players are embracing end-to-end digitization including AI- powered candidate screening, chatbot-driven interviews, digital onboarding, and workforce analytics dashboards.

• Gig Economy Acceleration: The gig economy, already gaining traction in urban India, is expanding into white-collar and semi-skilled domains. India is expected to have over 20 million gig workers by 2030, contributing significantly to GDP.

• Custom Workforce Solutions: Demand for project-based, skill-certified, and location-flexible manpower is rising. Staffing firms are evolving from transactional hiring agencies into workforce strategy partners.

Facility Management Services (FMS)

Indias FM industry is entering a period of value-driven consolidation and transformation. From being seen as a

cost-control utility, FMS has become a strategic enabler for sustainability, compliance, and workforce well-being.

Key Trends Driving Growth:

• Smart Buildings & Tech Adoption: With the proliferation of Grade A commercial spaces, SEZs, and tech parks, clients expect integration of IoT, BMS, energy dashboards, and touchless facility access.

• ESG-Linked Contracts: More than 70% of large enterprise clients are now linking FM outcomes to green building standards (LEED, IGBC) and carbon reduction targets.

• Urbanization & Infrastructure Boom: Tier 2 and Tier 3 cities are witnessing growth in data centers, logistics parks, educational institutions, and hospitals, all of which require professionally managed facilities.

• People + Technology Model: FM companies are shifting from manpower-based deployment to a "people + platform" approach using mobile apps, AI chatbots, and real-time dashboards to track performance, uptime, and issue resolution.

Security Services

The Indian private security industry continues to evolve into a hybrid model of manpower and machine, offering

integrated physical and digital protection solutions. With over 11 million security personnel, the sector plays a

crucial role in safeguarding Indias public and private infrastructure. Key Outlook Highlights:

• Integrated Risk Management: Clients now demand security services that blend surveillance systems, incident response automation, AI-powered analytics, and trained guards. Real-time monitoring and command center integration are becoming standard.

• Sectoral Demand Expansion: Security services are expanding beyond corporates into gated communities, industrial corridors, data centers, malls, schools, and event venues. Risk assessments, evacuation drills, and specialized response teams are part of standard service portfolios.

• Cyber-Physical Security Convergence: As buildings become smarter, the distinction between physical and digital security is blurring. Clients expect guards to be familiar with cyber safety protocols.

• Professional Training & Women Guard Deployment: There is rising demand for guards trained in customer service, emergency response, tech-enabled patrolling, and soft skill management especially in hospitality, malls, and public-facing environments. Deployment of female guards has increased in metros, airports, and schools.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The management of the company has established a robust framework of internal financial controls to ensure smooth and efficient operation of the business. These controls are designed to safeguard the companys assets, prevent and detect fraud & errors, and ensure the accuracy & completeness of financial records. The system also supports the timely preparation of reliable financial disclosures, ensuring that the companys reporting is transparent and compliant with applicable laws and regulations. The company has implemented a set of policies and procedures that guide the orderly conduct of business activities. These policies ensure adherence to the companys standards and provide clear directives on operational processes. Measures have been put in place to protect the companys assets from unauthorized access, loss or damage. Regular audits and checks are conducted to ensure that assets are managed effectively and are accounted for accurately. The internal control system includes mechanisms for the early detection of fraud and errors. These mechanisms are designed to identify irregularities in operations or financial reporting promptly, enabling timely corrective action.

The company maintains detailed and precise accounting records that reflect all financial transactions accurately. This ensures that the financial statements present a true and fair view of the companys financial position. The internal controls are aligned with the objective of ensuring that all financial disclosures are reliable and are prepared in a timely manner. This helps in maintaining the trust of stakeholders and complying with regulatory requirements. The Audit Committee of the Board plays a crucial role in overseeing the internal audit function. Regular updates and presentations from internal auditors keep the committee informed about the effectiveness of the internal controls. This ongoing oversight ensures that any risks are managed pro- actively and that the internal control system remains effective in achieving the companys objectives. The companys internal control system is designed to be commensurate with the nature, size and complexity of its operations. It provides reasonable assurance that the companys objectives, in terms of operational efficiency, financial reporting reliability and compliance with laws & regulations are being met. The internal audit function, under the guidance of the Audit Committee, provides further assurance that these controls are effective and that key business risks are being managed appropriately.

For the financial year 2024-25, the management of Kapston Services Limited continued to uphold a strong and comprehensive framework of internal financial controls, designed to ensure the smooth, efficient, and compliant operation of its business activities. These controls are structured to safeguard the companys assets, prevent and detect fraud and errors, and ensure the accuracy and completeness of its financial records.

The internal control system facilitates the timely preparation of reliable financial disclosures, reinforcing transparency in reporting and ensuring adherence to all applicable legal and regulatory requirements. A well- defined set of policies and procedures has been implemented to guide the orderly and consistent conduct of business operations, aligning with the companys standards and providing clarity on key operational processes.

Kapston Services Limited maintains detailed and accurate accounting records that faithfully capture all financial transactions. This supports the preparation of financial statements that present a true and fair view of the companys financial position and performance. The internal controls are aligned with the companys objective of ensuring the reliability, accuracy, and timeliness of all financial disclosures, thereby reinforcing stakeholder trust and fulfilling regulatory obligations.

The internal control system at Kapston Services Limited is commensurate with the nature, size, and complexity of its operations. It provides reasonable assurance that the companys goals particularly those related to operational efficiency, financial reporting reliability, and legal and regulatory compliance are being effectively met. Under the guidance of the Audit Committee, the internal audit function continues to deliver independent assurance on the adequacy and effectiveness of the control framework and the management of key business risks.

MATERIAL DEVELOPMENTS ON HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT Growth in Workforce: As of March 2025 the total number of personnel, including trainees and apprentices are more than 28,000. Which is significantly more than early year personnel recorded in March 2024. This growth

reflects the companys expanding operations and its workforce to meet increasing business demands. Also the number of back office staff was 372 as of March 2025, showing an increase from 335 in March 2024. This stability in the back office workforce indicates the companys efforts to maintain operational efficiency, while managing administrative functions effectively.

The significant increase in personnel, including trainees and apprentices, underscores the companys focus on training and development. By investing in the growth of its workforce, the company ensures that its employees are well-equipped to meet the challenges of the evolving business landscape. The company continues to maintain harmonious industrial relations, fostering a positive working environment that supports employee engagement and productivity. The proactive management of industrial relations ensures that any potential issues are addressed promptly, contributing to the overall stability and growth of the organization.

The companys human resources strategy remains focused on building a skilled, motivated and efficient workforce, which is crucial for sustaining growth and achieving business objectives in the coming years.

FINANCIAL PERFORMANCE

(INR in Lakhs)

Particulars	2024-25	2023-24
Revenue from operations	68,870.17	52,008.06
EBITDA	3,175.04	2,413.99
Less: Finance Costs	1,221.55	1,059.79
Less: Depreciation and amortization expenses	449.47	361.71
Profit before prior period items	1,504.02	992.49
Prior period items	0
Profit before tax	1,504.02	992.49
Less: Current Tax	0	0
Deferred Tax-	-279.36	-264.58
Profit available for appropriations/Loss	1,783.38	1,257.07
Basic Earnings per Share (Rs.)	8.79	6.20
Diluted Earnings per Share (Rs.)	8.79	6.20
Paid up share capital (Face value of INR 5 each)	1,014.41	1,014.41

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Revenue Growth: The company achieved a Excellent revenue growth of 32.26%, reaching INR 68,951.64 Lakhs in FY 2024-25 compared to the previous financial year. This significant increase in revenue reflects the companys continued operational performance and its ability to capitalize on growth opportunities across various business segments.

EBITDA: The Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased by 32%, rising from INR 2,413.99 Lakhs in FY 2023-24 to INR 3,175.04 Lakhs in FY 2024-25. This improvement in EBITDA is a positive sign of the companys ability to enhance profitability through increased scale and efficiency.

Finance Costs: Finance costs saw an increase to INR 1,221.55 Lakhs from INR 1,059.79Lakhs, primarily due to higher working capital utilization driven by business growth. While the increase in finance costs reflects the need for additional resources to support expanding operations, it also highlights the importance of managing working capital effectively to ensure sustainable financial performance.

Depreciation: Depreciation costs increased by INR 87.76 Lakhs on account of management estimates of the future useful lives of certain class of property, plant and equipment .

Taxation: As per Section 80JJAA of the Income Tax Act, 1961, the company has recognized a Deferred Tax Asset due to timing differences between the Income Tax Act and the Companies Act. As a result, the company recorded a tax income of INR 279.36 Lakhs in FY 2024-25, compared to a tax income of INR 264.58 Lakhs in FY 2023-24.

The companys financial performance in FY 2024-25 demonstrates robust growth and effective management of resources. The significant increase in revenue and EBITDA, coupled with prudent management of finance costs and depreciation, has positioned the company well for continued success. The positive tax outcome further enhances the financial results, contributing to overall profitability. The alignment between operational achievements and financial outcomes underscores the companys strategic focus on sustainable growth and value creation for its stakeholders.

RATIO ANALYSIS FOR FY 2024-2025

In accordance with Schedule V(B) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the following is an analysis of the financial ratios for the fiscal year 2024-2025:

Particulars	2024-25	2023-24
Debtors Turnover (No. of Times)	4.74	4.50
Inventory Turnover (No. of Times)	1.57	1.79
Interest Coverage Ratio (No. of Times)	2.23	2.02
Current Ratio (No. of Times)	1.36	1.40
Debt Equity Ratio	1.81	1.40
Operating Profit Margin (%)	3.96	3.95
Net Profit Margin (%)	2.59	2.42
Return on Net Worth (%)	22.23	19.30