Kernex Microsystems (India) Ltd Management Discussions

(A) Industry and Business Overview:

Review of Operations

Your Company recorded a turnover of Rs. 18,965.11 Lakhs for the financial year 2024-25. The Company has reported a profit before tax of Rs. 3,337.43 Lakhs, compared to a loss of Rs. (2,049.21) Lakhs in the previous financial year.

Domestic

• South Central Railways - (SCR)

We are pleased to inform that the inspection by the Principal Chief Signal & Telecommunication Engineer (PCSTE) has been successfully completed. The inspection covered all technical, operational, and safety parameters as per the prescribed norms and has met the satisfaction of the inspecting authority.

Following the inspection, the handing-over process is currently in progress. This involves: Final documentation and submission of inspection reports, Resolution of any minor observations or comments, if any, Transfer of control and responsibility to the designated Railway authorities, Training and familiarization of the operational staff (if required),Signing of necessary hand-over certificates and records

This marks a critical step towards the formal commissioning of the system and commencement of regular operations. The projects nearing completion underscores the collaborative efforts and technical expertise involved, promising to enhance the regions railway network upon its conclusion.

The TCAS System - Generic Application Version 1.1 has been assessed and certified by Italcertifer S.p.A., Italy. As part of the assessment process, Italcertifer conducted a comprehensive evaluation of both the system design and the manufacturing phase, ensuring full compliance with applicable international standards and safety requirements.

This certification marks a significant milestone, reinforcing the reliability and conformity of the TCAS System Version 1.1 for operational use across south central railway zone.

KERNEX-VRRC JV has bagged order for Upgradation of Kavach Version 3.2 to 4.0 in Sadashivpet Road (Excluding) - Bidar - Parli Vaijnath - Parbhani(Excluding) Section of South Central Railway for an amount of Rs. 21.03 crores. Raw material procurement for the project is currently in progress, and purchase orders have already been placed to ensure timely execution of the work. The first batch of units are getting manufactured internally.

• North Central Railways (NCR) - A&B Projets

Kernex Microsystems and KEC International have formed a consortium and successfully secured two significant contracts with a combined value of approximately Rs.536 crores. These orders pertain to the North Central Railway section, covering a total distance of 751.22 RKM. This collaboration marks a substantial achievement for both companies, highlighting their capabilities in the railway infrastructure sector.

Project 1 - NCR A (Section between Chipyana Buzurg (Excl) - Kanpur (Excl) in the North Central Railway)

> The first and second milestones of the project were completed successfully. The installation works for the balance Milestones is complete, testing & other activities are in progress

> Supply of units for the entire project is complete and the supply of spares is planned

> The loco installation is complete for all planned 139 locos

> The required documentation for the phase wise ISA activity is in progress.

Project 2 - NCR B (Section between Kanpur (Incl) - DDU (Excl) in the North Central Railway)

> The first and second milestones of the project were completed successfully. The installation works for the balance Milestones is complete, testing & other activities are in progress.

> Supply of units for the entire project is complete and the supply of spares is planned

> The loco installation is complete for all planned 153 locos

> The required documentation for the phase wise ISA activity is in progress.

Project 3 -ICF (Integral Coach Factory, Chennai)

> A total of 55 TCAS units have been supplied, out of which 25 units have been successfully installed and commissioned at designated locations, in compliance with all functional and technical specifications. The installation of the remaining units is currently in progress and is being carried out as per the planned schedule by ICF.

Project - 4 - SCR Project - Automatic block signaling system in Vemulapadu - Muddanuru section - (ABS)

> Kernex Microsystems has formed a Joint Venture under name VRRC-KERNEX-CE-RVR JV, for comprehensive signaling and telecommunication works for provision of automatic block signaling system in Vemulapadu - Muddanuru section of Guntakal division in South Central Railway with a combined value of approximately Rs.109.45 crores covering a total distance of 70.73 RKM.

The entire project has been divided into four milestones for structured execution. The current status of each milestone is as follows:

• Milestone 1 and Milestone 2 (covering a total of 18.69 Kms):

The work under these milestones has been successfully completed and commissioned.

• Milestone 3 (20.11 Kms):

The execution work has been completed, and the milestone is currently pending final approval from the Railways.

• Milestone 4 (31.93 Kms):

The work is in progress, and is being carried out as per the implementation schedule.

Project - 5 - Chittaranjan Locomotive Works (CLW) - Supply and Installation of Loco TCAS

> Your company has bagged order for Supply, Installation, Testing and commissioning and defect liability and long term annual maintenance of On-Board KAVACH equipment along with supply and installation of CAB roof antenna including complete wiring, harnessing, cabling and connection with Loco KAVACH System from Chittaranjan Locomotive Works. Total no. of units to be supplied is for 2,500 with a value of approximately Rs.2041.40 crores. Raw material procurement for the project is currently in progress, and purchase orders have already been placed to ensure timely execution of the work. The first batch of units are getting manufactured internally.

Project - 6 South Eastern Railways (SER) - (GD & GQ Routes)

> Kernex Microsystems (India) Limited, in consortium with MRT Signals Limited, has successfully secured a major contract valued at approximately ?325.33 crores. This prestigious order involves the Supply, Installation, Testing, and Commissioning of Kavach across GO & GO routes covering 688 RKM in the Kharagpur and Chakradharpur Divisions of South Eastern Railway.

> This significant win underscores the technical expertise and execution capabilities of both consortium partners in the field of advanced railway signaling and safety systems. It also marks a key milestone in their contribution to the Indian Railways modernization and safety enhancement initiatives.

> The survey of stations in the Chakradharpur sectionis complete and work is in progress at Kharagpur section. The other survey activities like RSSI survey Is in progress for the entire section to meet the Milestonel requirements. Material procurement is in progress for the units planned for Milestone 2 requirements. Appointment of assessor for the ISA activity is in progress.

Project - 7 - North Central Railways (NCR) - (BHUTESHWAR (INCL) - DHOLPUR (INCL) Section in NCR)

> KERNEX-KEC Consortium has bagged order for provision of KAVACH (Train Collision Avoidance System), along with Tower and 4X48 fibre OFC as a backbone on BHUTESHWAR (INCL) - DHOLPUR (INCL) Section in NCR valued at approximately ?85.14 crores. Raw material procurement for the project is currently in progress, and purchase orders have already been placed to ensure timely execution of the work.

> The survey of stations in the entire section is complete. The other survey activities like RSSI survey Is in progress for the entire section to meet the Milestonel requirements. Material procurement is in progress for the units planned for Milestone 2 requirements. Appointment of assessor for the ISA activity is in progress.

Project - 8 - MAS-GDR, MAS-AJJ, AJJ-RU SR Section of Chennai Division in Southern Railways - (SR)

> KERNEX- VRRC CONSORTIUM has bagged order for Provision Of Kavach (Train Collision Avoidance System), In MAS-GDR, MAS-AJJ, AJJ-RU Sections (271km) Of Chennai Division in SR valued at approximately ?173.11 crores. Raw material procurement for the project is currently in progress, and purchase orders have already been placed to ensure timely execution of the work.

> The survey of stations in the entire section is complete. The other survey activities like RSSI survey Is in progress for the entire section to meet the Milestonel requirements. Material procurement is in progress for the units planned for Milestone 2 requirements. Appointment of assessor for the ISA activity is in progress.

Project - 9 Arakkonam (AJJ Jn)-Jolarpettai(JTJ Jn) Section of Chennai Division in Southern Railways - (SR)

> KERNEX- VRRC CONSORTIUM has bagged order for Provision of KAVACH (Train Collision

Avoidance System) along with Tower and 48 Fiber OFC as backbone Network in Arakkonam (AJJ Jn)-Jolarpettai(JTJ Jn) Section of Chennai Division in SR valued at approximately ?135 crores. Raw material procurement for the project is currently in progress, and purchase orders have already been placed to ensure timely execution of the work.

> The survey of stations in the entire section is complete. The other survey activities like RSSI survey Is in progress for the entire section to meet the Milestonel requirements. Material procurement is in progress for the units planned for Milestone 2 requirements. Appointment of assessor for the ISA activity is in progress.

Project - 10 Palanpur - Samakhiyali - Gandhidham Section (300.71 Km) On Ahmedabad Division of Western Railway

> KERNEX-KEC Consortium has bagged order for Provision of KAVACH Version 4.0 or latest (formerly known as Train Collision Avoidance System-TCAS), including provision of communication back bone based on UHF and OFC on Palanpur - Samakhiyali - Gandhidham Section on Ahmedabad Division of Western Railway valued at approximately ?182.81 crores. Raw material procurement for the project is currently in progress, and purchase orders have already been placed to ensure timely execution of the work.

> The survey of stations is planned in the entire section and the POs were released. Material procurement is in progress for the units planned for Milestone 2 requirements. Appointment of assessor for the ISA activity is in progress.

International

EGYPTIAN NATIONAL RAILWAYS (ENR), CAIRO

Project Overview:

• Total Gates Supplied: 136

• Total Gates Installed and Commissioned: 124

• Final Handover Status: In Progress Material Supply and Adjustments:

• 100% Material Supply Completed.

• The project was mutually agreed to be shortened from 136 Lx gates to 124 Lx gates.

• 2 Lx gates were repaired and rebuilt.

• Remaining material related to the 10 Lx gates that were not installed is currently being handed over to ENR. So far, 102 wheel sensors have been handed over.

Warranty Maintenance:

• Warranty maintenance for three groups (totaling 102 Lx gates) has been completed.

• Warranty maintenance for the fourth group (22 Lx gates) has also been completed.

Final Handover (FHO):

• FHO of Lx sites is ongoing.

• FHO has been completed for 81 out of 85 Lx sites that are currently operational.

• ENR has dismantled and removed 39 Lx sites out of the 124 Lx gates that were commissioned. Remaining Deliverables:

• 100 Booms were delivered to ENR for use as spares.

A) Research & Development and Addition of New Products

The South Central Railway Specific Application Safety Case (SASC) has been approved by the Independent Safety Assessor for both Diesel and Electric Locomotives.

Type tests have been successfully completed for the newly developed MIE cards. These microcontroller- based intelligent modules are crucial components, serving as the primary controllers responsible for all logic and control operations of the Kavach system.

The hardware development and software implementation for Kavach 4.0 have been completed. Currently, internal verification and validation, RDSO functional tests, and locomotive trials are in progress to ensure the systems functionality and readiness for deployment.

Implementing Kavach 4.0 enables us to interface seamlessly with various types of electronic interlocking used across Indian Railways. It also supports station-to-station communication via fiber optics and allows the implementation of temporary speed restrictions, enhancing the systems flexibility and operational safety.

Passenger locomotive trials, and the GASC (Generic Application Safety Assessment) by Independent Safety Assessment (ISA) are scheduled for completion by the second quarter of FY2025-26.

Sub module of KAVACH, MSOC (Multi Serial To OFC Converter ) development scheduled to complete third quarter of FY2025-26 (In sourcing).

NMS (Network Monitoring System) for KAVACH development will be completed by third quarter of FY2025-26 (In sourcing)

To support large quantity Kavach systems manufacturing, card level and system level testing automation works are in progress. Scheduled to complete by FY2025-26 Q2.

New generation of MIE 3.0 cards has been initiated, centered around Microchip / Xilinx FPGAs. This FPGA-based platform will enable us to develop the foundational components for Moving Blocks and Communications-Based Train Control (CBTC) systems, paving the way for more advanced and efficient railway signaling solutions.

The prototype platform is expected to be ready by the third quarter of FY2025-26, with the first Loco Kavach hardware utilizing the new platform anticipated to be ready by the third quarter of FY2025-26.

Due to the prioritization of Kavach 4.0 development the LTE integration with Kavach is scheduled for completion in first quarter of FY2026-27.

B) Future outlook

The Union Budget 2025-2026 has reaffirmed the Government of Indias strong commitment towards the modernization and safety of Indian Railways, with a continued emphasis on high capital expenditure (CAPEX) and the deployment of advanced safety technologies.

Key Highlights & Impact Areas:

• Increased CAPEX Allocation:

The Railway Budget 2025-26 has allocated over ?2.75 lakh crores in capital expenditure, a significant portion of which is earmarked for infrastructure development, electrification, station modernization, and safety enhancement measures.

• Focus on Kavach Deployment:

Indian Railways has outlined a comprehensive plan to roll out the Kavach - Train Collision Avoidance System (TCAS) across 40,000+ RKM in a phased manner. Budgetary allocations for safety have increased, with Kavach implementation prioritized in high-density and high-speed corridors.

• Safety as Core Strategy:

In light of past rail accidents and growing public demand for safer travel, the Railway Ministry is aggressively pursuing zero-tolerance safety policies. This includes wide deployment of Kavach, automated signaling, upgraded telecom systems, and AI-based surveillance.

• Opportunities for Technology Providers:

Companies like Kernex Microsystems, with proven expertise in TCAS/Kavach, are well-positioned to benefit from these policy priorities. The successful execution of ongoing Kavach contracts enhances credibility and opens avenues for participation in upcoming tenders.

• Private Sector & PPP Collaboration:

With increased push for Make in India and public-private partnerships (PPP), the government is encouraging private participation in technology-driven safety solutions—creating favorable market dynamics for established players in the signaling and safety domain.

Strategic Direction:

Going forward, Kernex Microsystems will:

• Strengthen manufacturing and supply chain infrastructure to meet increased demand for Kavach systems.

• Invest in product innovation and R&D to remain aligned with Indian Railways evolving technical specifications and global safety benchmarks.

• Expand collaboration with consortium partners and OEMs to execute large-scale, multi-zone projects.

• Actively participate in upcoming tenders and long-term framework agreements floated under the National Rail Plan.

In summary, with a robust policy push, increased budgetary support, and growing emphasis on indigenous safety solutions, the outlook for railway signalling and TCAS providers remains highly promising, and Kernex is well-placed to capitalize on this national priority.

Various Safety Measures Taken to Enhance Safety in Train Operations

Indian Railways, in collaboration with technology partners and under the directive of the Ministry of Railways, has undertaken a multi-pronged approach to enhance operational safety and ensure zero-accident operations. The key safety measures include:

1. Implementation of Train Collision Avoidance System (Kavach)

• Deployment of Kavach, an indigenously developed Automatic Train Protection (ATP) system, to prevent train collisions due to human error.

• Kavach automatically applies brakes in case of signal passing at danger (SPAD) or excessive speed, thereby enhancing loco pilot response and safety.

2. Track and Infrastructure Modernization

• Replacement of worn-out rails, track renewal, and mechanized maintenance using high-end track machines.

• Use of Ultrasonic Flaw Detection to identify internal defects in rails and welds.

3. Signal and Telecom Upgrades

• Implementation of Electronic Interlocking Systems to reduce human dependence and increase route safety.

• Upgrading of signals with LED lighting and Automatic Block Signaling (ABS) to manage dense rail traffic.

4. Safety of Level Crossings

• Elimination of Unmanned Level Crossings (UMLCs) by constructing road under bridges (RUBs) and over bridges (ROBs).

• Enhanced gate interlocking and monitoring systems at manned crossings.

5. Rolling Stock and Loco Safety

• Introduction of LHB coaches with superior crashworthiness and anti-telescopic features.

• Deployment of Vigilance Control Devices (VCDs) and Train Protection and Warning Systems (TPWS) in locomotives.

6. Real-Time Monitoring and AI-Based Tools

• Installation of CCTV cameras, drone surveillance, and Al-powered analytics to monitor infrastructure and detect anomalies.

• Use of Remote Diagnostic Systems (RDS) for predictive maintenance of locomotives and coaches.

7. Crew Training and Human Factor Management

• Regular training and psycho-analysis for loco pilots and safety staff.

• Real-time monitoring of crew alertness using bio-metric and RFID-based systems.

8. Fire and Disaster Management

• Installation of fire detection and suppression systems in coaches.

• Periodic mock drills and emergency preparedness plans in coordination with NDRF and state agencies.

9. Cyber security in Rail Systems

• Ensuring robust IT and OT security for signaling, telecom, and operational systems to prevent cyber threats that may impact safety.

These measures are part of a larger vision under the National Rail Plan (NRP) to transform Indian Railways into a safe, modern, and high-capacity transport network. With the combined focus on technology, infrastructure, and human capital, the goal of achieving zero accidents is being systematically pursued.

Modernization and Up gradation of Railway Infrastructure

Indian Railways is undergoing a transformative journey with a focus on modernization and upgradation of its infrastructure to enhance capacity, efficiency, safety, and passenger comfort. This initiative is aligned with the Governments vision under the National Rail Plan (NRP) 2030 and ‘Viksit Bharat objectives.

Key Focus Areas in Modernization and Up gradation:

1. Electrification of Railway Network

• Accelerated target of achieving 100% electrification of broad-gauge routes to reduce dependence on fossil fuels and lower carbon emissions.

• Adoption of energy-efficient technologies for traction and station operations.

2. Track Infrastructure Up gradation

• Deployment of modern track materials, long welded rails, and high-capacity sleepers for improved speed and load-bearing.

• Use of Track Monitoring Systems, including drones, ultrasonic flaw detection, and GPS-based inspection trolleys.

3. High-Speed and Semi-High-Speed Corridors

• Development of Dedicated Freight Corridors (DFCs) and High-Speed Rail (HSR) projects such as the Mumbai-Ahmedabad Bullet Train.

• Introduction of Vande Bharat Express as Indias indigenous semi-high-speed train with modern onboard features.

4. Signaling and Telecom Upgrades

• Transition from mechanical to Electronic Interlocking (EI) systems for efficient and safer train operations.

• Expansion of Automatic Block Signaling (ABS) and Centralized Traffic Control (CTC) systems for high-density routes.

• Implementation of LTE/5G-based communication systems for seamless and real-time connectivity.

5. Modernization of Stations and Terminals

• Redevelopment of over 1,000 railway stations under the "Amrit Bharat Station Scheme" with world-class passenger amenities.

• Use of modular construction, green building techniques, and smart signage systems at stations.

6. Rolling Stock Upgrades

• Introduction of modern LHB coaches for enhanced safety and passenger comfort.

• Manufacturing of new-generation locomotives and EMUs with regenerative braking and IoT-based monitoring.

7. Implementation of Kavach and Other Safety Technologies

• Nationwide deployment of Kavach (TCAS) - an indigenously developed Automatic Train Protection System to prevent collisions.

• Use of AI and data analytics to predict maintenance needs and prevent operational failures.

8. Integration of Renewable Energy

• Installation of solar and wind energy systems at stations and production units.

• Electrification integrated with green energy corridors to meet sustainability goals.

9. Digital and Smart Infrastructure

• Development of digitally integrated control centers, E-office systems, e-procurement platforms, and online passenger services.

• Use of data analytics, GIS, IoT, and block chain to enhance decision-making and operations.

Indian Railways modernization and infrastructure upgradation are not only improving operational efficiency and safety but also acting as a catalyst for economic growth, employment generation, and sustainable development. With strategic investments and strong execution, the Indian Railways is evolving into a world-class transportation ecosystem.

C) Mission Raftar: Indian Railways rolls out Train Collision Avoidance System

As part of its ambitious Mission Raftar, Indian Railways is taking decisive steps to enhance both speed and safety in train operations. A key component of this initiative is the rollout of Kavach, Indias indigenously developed Train Collision Avoidance System (TCAS).

About Mission Raftar

Mission Raftar is a strategic initiative launched by Indian Railways with the goal of increasing the average speed of passenger trains by 25 km/h and enhancing the operational efficiency of the railway network. It focuses on the modernization of rolling stock, reduction of congestion, and upgrading of signalling and safety infrastructure.

Kavach - Safety Through Indigenous Innovation

Under Mission Raftar, the deployment of Kavach is a critical step in ensuring safe high-speed train operations. Developed in collaboration with RDSO and Indian industry players like Kernex Microsystems, Kavach offers:

• Automatic braking in case of signal passing at danger (SPAD)

• Real-time speed monitoring and auto-regulation

• Loco-to-loco and loco-to-station communication

• Protection during unsafe conditions such as fog or poor visibility

D) Opportunities

With the Indian Railways undergoing a historic transformation through large-scale modernization, electrification, and safety enhancement programs, significant growth opportunities are emerging for technology providers, OEMs, and system integrators.

1. Expansion of Kavach Deployment

• Indian Railways plans to roll out Kavach (TCAS) across 40,000+ Route Kilometers in a phased manner.

• Increasing number of zonal tenders and bundled packages will offer long-term, multi-crore project opportunities for qualified vendors and consortiums.

• Successful implementation in pilot sections positions players like Kernex Microsystems to participate in upcoming high-value tenders.

Domestic and International Successes:

Pioneering Implementation of TCAS (Kavach):

Successfully executed pilot and commercial projects of Train Collision Avoidance System (TCAS) - now known as Kavach—in partnership with Indian Railways and RDSO. Kernexs role in the development and deployment of indigenous ATP systems has been central to Indias rail safety modernization.

Ongoing Projects Across Multiple Railway Zones:

Executed and currently delivering large-scale supply, installation, testing, and commissioning contracts for Kavach across zones such as South Central Railway, South Eastern Railway, and Konkan Railway,

spanning hundreds of Route Kilometers (RKMs).

Turnkey Project Execution:

International Successes

1. Egypt National Railways (ENR) - Onboard Safety Systems:

Supplied Onboard Train Control Systems to Egypt National Railways, marking the companys first major breakthrough in the global railway market.

2. Compliance with International Safety Standards:

Products and systems have been positively assessed by global certification agencies such as Italcertifer (Italy), reinforcing their credibility and enabling export readiness to other regions.

3. Global Partnerships and Integrations:

Collaboration with international OEMs and integrators for system compatibility, export customizations, and technology transfer, establishing a strong foundation for future global bids.

Proven track record of managing complex projects, including interlocking, signaling, and safety automation, with in-house engineering, installation, and commissioning expertise.

Opportunities for Future Growth:

1. Expanding Market Presence:

Domestic Opportunities: Expansion of Kavach (Train Collision Avoidance System)

• Indian Railways has announced the rollout of Kavach across 40,000+ Route Kilometers, creating long-term opportunities for companies with proven TCAS technology and execution capability.

• Increasing participation from private players under Make in India offers a level playing field for indigenous OEMs like Kernex Microsystems.

International Ventures:

The successful execution of projects in Egypt and South Africa has significantly strengthened the Companys global footprint and validated its capabilities in delivering advanced rail safety and signaling solutions in international markets. These accomplishments establish the Company as a credible and competitive player in the global railway technology space.

• In Egypt, the Company delivered onboard safety and control systems tailored to local operational needs, ensuring compatibility with existing infrastructure.

• In South Africa, successful project execution showcased the Companys adaptability to diverse technical, regulatory, and environmental conditions.

These proven international credentials have not only enhanced the Companys brand reputation but also opened avenues for participation in upcoming railway modernization programs in Asia, Africa, and the Middle East, where there is a growing demand for cost-effective, reliable, and indigenous rail safety technologies.

With a focus on scalability, localization, and compliance with global standards, the Company is now strategically positioned to explore:

• Partnerships with global OEMs

• Joint ventures for technology transfer

• Bidding in multilateral-funded rail infrastructure projects

Overall, the Companys proven track record and ongoing innovations in rail safety systems equip it to seize new opportunities and further its growth in both domestic and international markets.

The Company is exploring the potential to diversify into new areas, specifically focusing on:

1. Defense-Related Work:

Opportunities: The convergence of defense modernization and indigenous manufacturing initiatives under Make in India and Atmanirbhar Bharat is creating substantial opportunities for private players in the defense electronics and rail-integrated safety systems domain.

2. Manufacture of Electronic Components:

Expansion Potential: The demand for indigenous manufacturing of electronic components has

surged significantly, driven by national policies promoting self-reliance and global supply chain shifts. This creates a highly favorable environment for companies engaged in or entering the manufacturing of railway, signaling, defense, and industrial-grade electronics.

Market Demand:

The market demand for advanced railway signalling systems, safety electronics, and indigenous infrastructure technologies is witnessing robust growth—driven by government investment, safety mandates, digital transformation, and rising passenger/freight volumes. This trend offers sustained opportunities for companies operating in the railway, defense, and electronics manufacturing sectors.

3. Outsourced Assembly Work:

• Business Model: Offering outsourced assembly services involves assembling electronic components and systems for other companies. This can help the Company utilize its existing facilities and expertise to generate additional revenue.

• Benefits: Engaging in outsourced assembly work can also enhance operational efficiency and flexibility, as it provides a steady stream of work and helps in optimizing resource utilization.

Strategic Approach:

• Feasibility Study: Conduct a thorough market analysis and feasibility study to understand the demand, competition, and potential challenges in these new areas.

• Capability Assessment: Evaluate the current technological and operational capabilities to determine how they can be adapted or enhanced for defense and electronic component manufacturing.

• Partnerships and Collaborations: Explore potential partnerships or collaborations with established players in the defense and electronics sectors to leverage their expertise and market access.

By pursuing these diversification opportunities, the Company can enhance its market position, tap into new

revenue streams, and leverage its existing strengths in technology and manufacturing.

E) Threats

The Company, primarily operating within the Railway sector, faces challenges related to high customer

concentration. To mitigate these risks and ensure sustainable growth, the Company is undertaking several proactive measures:

1. Diversification into New Sectors:

• Objective: To reduce dependence on the Railway sector and spread the risk associated with customer concentration.

• Approach: Explore opportunities in other sectors such as defense, electronic components manufacturing, and outsourced assembly work.

• Action Plan: Conduct market research to identify viable sectors with growth potential and align product offerings with the needs of these sectors.

2. Expansion of Existing Portfolio:

• Objective: To enhance the range of products and services offered within the Railway sector and beyond.

• Approach: Develop new products or improve existing ones to meet evolving market demands and technological advancements.

• Action Plan: Invest in R&D to innovate and expand the product portfolio, focusing on both current and potential future needs.

3. Addressing Technological Changes:

• Objective: To stay competitive in a rapidly evolving technological landscape.

• Approach: Continuously monitor technological trends and invest in upgrading capabilities.

• Action Plan: Implement ongoing training programs for employees, adopt new technologies, and enhance product development processes.

4. Navigating Competition:

• Objective: To remain competitive against multinational and domestic players.

• Approach: Differentiate offerings through superior quality, innovation, and value-added services.

• Action Plan: Analyze competitors strategies, identify unique selling propositions, and adapt business strategies to address competitive pressures.

5. Adapting to Government Policies:

• Objective: To mitigate the impact of changes in government policies on business operations.

• Approach: Stay informed about policy changes and adapt strategies accordingly.

• Action Plan: Engage with industry bodies, participate in policy discussions, and ensure compliance with new regulations.

6. Managing Threats:

• Technological Advances: Invest in technology to stay ahead of competitors and meet market demands.

• Competition: Focus on differentiating the Companys offerings through innovation and quality.

• Policy Changes: Develop flexible business strategies to quickly adapt to regulatory changes.

By proactively addressing these areas, the Company aims to reduce customer concentration risks, capitalize on new opportunities, and strengthen its position in both existing and new markets.

F) Segment wise or product wise performance

The Company operates exclusively in the Rail Safety equipment and services sector, which constitutes its single business segment. The details of the performance of this segment are comprehensively outlined in the Directors Report. This focused approach allows the Company to concentrate its resources and expertise on enhancing its offerings and delivering specialized solutions within this niche market.

G) Risks and areas of concern

While the outlook for the railway signaling, safety systems, and electronics manufacturing sectors remains strong, several risks and areas of concern must be considered to ensure sustainable growth and operational resilience. The key directives and implications are as follows:

1. Project Execution Delays

• Large-scale infrastructure and signaling projects are often subject to delays due to site readiness, dependency on third-party contractors (e.g., Civil/EI vendors), and clearance bottlenecks from Indian Railways.

• Any lag in coordination can lead to cost escalations and delay in milestone-based payments.

2. Regulatory and Compliance Risks

• Strict adherence to specifications laid down by RDSO, Indian Railways, and global safety standards (e.g., CENELEC, SIL levels) is mandatory.

• Delays in product approvals, changes in technical specifications, or evolving certification requirements may impact timelines and go-to-market plans.

3. Supply Chain and Component Dependency

• High dependency on imported electronic components and semiconductors exposes the business to global supply chain disruptions, currency fluctuations, and lead time uncertainties.

• Geopolitical factors can impact the availability and pricing of critical hardware.

4. Working Capital Pressure

• Railway and government contracts often have long payment cycles, with payments linked to inspections, commissioning, and verification by third-party authorities.

• Companies may face cash flow strain due to inventory holding, advance procurement, and delayed receivables.

5. Technological Obsolescence

• Rapid evolution in safety and automation technologies may render existing systems outdated unless R&D and upgrade investments are continuously made.

• Competitors offering more integrated or AI-driven systems could affect market share.

6. Policy and Tendering Risks

• Any change in government policy, tender eligibility criteria, or shift toward different technology frameworks (e.g., imported ATP vs. indigenous systems) may alter the business landscape.

• Increased competition and L1-based tendering sometimes lead to price undercutting and margin pressure.

7. Talent and Skilled Manpower

• Shortage of trained engineers, software developers, and commissioning experts poses a challenge in scaling up multiple projects simultaneously.

• Dependence on a small pool of domain experts increases operational risk.

8. Cyber security Threats

• As signaling and safety systems become more connected and digitized, the risk of cyber attacks on critical infrastructure increases.

• Lack of robust cyber security measures can lead to data breaches, system failures, or safety violations.

Conclusion

While the industry holds immense promise, managing risks proactively through robust project planning, compliance management, financial discipline, R&D investment, and cyber resilience will be crucial.

Building strong partnerships with Railways, vendors, and regulatory authorities will also help navigate

these challenges effectively.

H) Discussion on financial performance with respect to operational performance

The details of the Companys revenue and financial performance for the year under review are comprehensively covered in the Directors Report. Please refer to the respective section of the Directors Report for a detailed analysis and insights into the Companys financial results.

I) Internal control systems and their adequacy

The Company has appointed an external firm of chartered accountants to conduct Internal Audit, ensuring that our internal control systems are robust and appropriate for our size and operational nature. These systems are designed to:

• Provide reasonable assurance regarding the accuracy and reliability of financial and operational information.

• Ensure compliance with applicable statutes and regulations.

• Safeguard assets from unauthorized use or losses.

• Execute transactions with proper authorization.

• Ensure adherence to corporate policies.

The effectiveness of these internal controls is regularly reviewed to ensure they remain adequate and effective.

The Internal Audit process is meticulously designed to review the adequacy and effectiveness of the internal control systems across all significant areas of the Companys operations. This includes, but is not limited to:

• Software and Hardware Delivery: Ensuring the systems meet required standards and specifications.

• Production: Monitoring production processes to ensure efficiency and compliance.

• Accounting and Finance: Reviewing financial records and controls to ensure accuracy and adherence to policies.

• Procurement: Verifying that procurement processes are transparent and in line with company policies.

• Employee Engagement: Assessing processes related to employee management and engagement.

• Travel and Insurance: Evaluating travel policies and insurance coverage for adequacy and compliance.

The Company has established an Audit Committee, with details provided in the Corporate Governance Report. The Audit Committee plays a crucial role in overseeing the internal audit process. Its responsibilities include:

• Reviewing Audit Reports: The Committee meticulously reviews the reports submitted by the Internal Auditors to ensure that all findings and recommendations are addressed.

• Systematic Improvements: Suggestions for systematic improvements identified during audits are considered by the Committee. It monitors the implementation of corrective actions to enhance the effectiveness of internal controls.

• Engagement with Auditors: The Committee regularly meets with both the Companys statutory auditors and Internal Auditors to discuss the adequacy of internal control systems. These discussions help in assessing the effectiveness of controls and addressing any concerns.

• Reporting to the Board: The Audit Committee keeps the Board of Directors informed of its major observations and the status of corrective actions, ensuring that the Board is aware of key issues and improvements.

This proactive approach ensures that internal control systems are robust and continuously improved, maintaining the integrity and efficiency of the Companys operations.

Your Company has established well-defined internal control systems designed to ensure the integrity and efficiency of its operations. These systems are integral to maintaining reliable financial and operational information, safeguarding assets, and ensuring compliance with applicable laws and corporate policies.

Certifications Obtained:

(i) ISO 9001:2015: This certification demonstrates the Companys commitment to quality management systems, ensuring that processes meet customer and regulatory requirements.

J) Material developments in HR / Industrial relations area including number of people employed:

During the year, there have been no materially significant changes in the Human Resources (HR) domain. The total number of employees as of March 2025 stands at 363, compared to 228 in the previous year. This increase reflects the Companys expansion and its commitment to enhancing its workforce capabilities.

The Company prides itself on maintaining a positive work environment that fosters innovation and meritocracy. This vibrant work ethic provides employees with opportunities to engage with cutting-edge technologies and leverage their talents effectively. As an organization committed to constant upgrading, the Company has focused on building competence through training, cross-training, and skills up gradation. The aim is to ensure that employees are equipped with the latest knowledge and skills to meet evolving industry demands.

Details of Key Financial Ratios:

S No Details	2024-25
1 Debtors Turnover	15.59
2 Inventory Turnover	2.34
3 Interest Coverage Ratio	5.93
4 Current Ratio	2.64
5 Debt Equity Ratio (Times)	0.23
6 Operating Profit Margin (%)	19.09%
7 Net Profit Margin (%)	27%

Details of significant changes in key financial ratios, along with detailed explanations therefor mentioned in Note No. 43 of Standalone Financial Statements forming part of 33rd Annual Report

K) Cautionary Statement

Statements in the Managements Discussion and Analysis Report that describe the Companys objectives, projections, estimates, expectations, or predictions may be considered "forward-looking statements" as required by applicable laws and regulations. These statements reflect the Companys current views and expectations and are based on certain assumptions.

Key Points:

• Risk of Actual Results Differing: Actual results may differ significantly from those projected or implied in forward-looking statements due to various factors.

• Influencing Factors: Factors such as global and domestic demand-supply conditions, raw material prices, technological advancements, changes in government regulations and policies, tax laws, and other statutory requirements may impact actual outcomes.

	By order of the Board
	For Kernex Microsystems (India) Limited
	Sd/-
	A Seshagiri Rao
	Chairperson of the Company
Place: Hyderabad
Date: 14th August 2025