Krishna Defence & Allied Industries Ltd Management Discussions

Annexure 1

Global economy

Overview

The global economy displayed remarkable resilience in the year 2023, navigating geopolitical conflicts, energy and food price volatility, and rising inflation. Despite these challenges, global GDP still expanded by an estimated 3.2%¹. To address inflation, central banks worldwide implemented interest rate increases, which had the anticipated effect of slowing economic growth. However, these measures helped avert a global recession, with signs of moderating inflation emerging towards the end of the year.

The US economy demonstrated strength due to robust consumer and government spending, along with a rebound in international trade, resulting in a growth rate of 2.5%². The European Union faced more challenges, with uneven growth across member states. Nonetheless, the EU as a whole saw modest growth, while the Euro area successfully avoided a recession. Chinas recovery was slower, with a growth rate of approximately 5.2%,³ impacted by difficulties in the property sector and subdued consumer confidence. In contrast, emerging markets like India, Vietnam, and Mexico benefited from diverse economic strategies and foreign investments, leading to positive growth trajectories.

Outlook

The global economy is expected to maintain a steady growth rate in CY 2024. While this growth may be modest compared to some historical periods, inflation is projected to continue its downward trend. This suggests a potential soft-landing scenario, where the economy avoids recession or major instability. Despite ongoing challenges in global trade and investment, major central banks are preparing to ease monetary policy. This easing reflects confidence in successfully managing inflation, adding to a cautiously optimistic outlook for CY 2024.

Indian economy

Overview

Despite global headwinds, the Indian economy continues to move on a promising trajectory. In FY24, Indias GDP touched 8.2% with Current Account Deficit (CAD) at 1.9% of GDP.⁴ Strong domestic demand coupled with continuous government spending proved to be the primary drivers of GDP growth in the first half of the fiscal year. On the other hand, rising exports, substantial increases in private consumption, and augmenting infrastructure development created a positive environment for attracting investors. This further contributed to the growth of the Indian economy.

As one of the fastest-growing major economies in the world, India has fortified its position as a lucrative investment destination. Moreover, the governments introduction of flagship programmes, such as ‘Make in India, ‘Aatmanirbhar Bharat, Smart City Mission, Digital India and the PLI scheme, has propelled growth across several sectors.

With 17% of the nations GDP and over 27.3 million workers, the manufacturing sector plays a significant role in the Indian economy⁵. Through the implementation of different programmes and policies, the Indian government hopes to have 25% of the economys output come from manufacturing by 2025.

Outlook

Several high-performance indicators point towards sustained growth in the Indian economy. Along with the Governments increased capex deployment, coupled with strong tax revenue collections, increasing domestic firm demand and accelerating growth of the manufacturing, construction and food industry, India is expected to maintain robust economic activity. Moreover, stable repo rates, government bond yields and healthy foreign exchange reserves indicate towards macroeconomic stability in the near-term.

India is rapidly becoming a preferred destination for global manufacturers due to its robust domestic demand and promising export potential. The countrys per capita GDP is on a steady rise, driving demand and fostering economic growth. Government initiatives aimed at promoting the manufacturing sector, including incentivizing domestic production, enacting labour reforms, and streamlining business regulations, have led to a substantial influx of investments.

Industry overview

Global defence industry⁶

In FY24, global military expenditure surged to $2443 billion, marking a significant 6.8% real-term increase from FY23—the sharpest rise since the past decade. The top 10 spenders, led by the United States, China, and Russia, all recorded heightened military spending. Notably, the 31 NATO members contributed $1341 billion, constituting 55% of the worlds military expenditure. The USA alone saw its military spending rise by 2.3% to $916 billion, comprising 68% of the total NATO military expenditure. Most European NATO members also boosted their military spending in FY23, collectively accounting for 28% of the NATO total—the highest proportion in a decade. Canada and T?rkiye contributed the remaining 4%. Despite a decade passing since NATO members committed to spending 2% of GDP on the military, only 11 out of 31 met or exceeded this target in 2023—the highest number since the pledge was made. Additionally, 28 NATO members allocated at least 20% of their military spending to equipment spending in 2023.

Indian defence manufacturing industry⁷

In the Financial Year 2024-25, the Defence Budget has reached H 6,21,540.85 crore, amounting to 13.04% of the total Union Budget, reflecting a strategic move amidst the current geopolitical landscape.⁸

Positioned as the second-largest armed force globally, Indias Defence sector is poised for a transformative phase, driven by the governments emphasis on self-reliance and export promotion through the Aatmanirbhar Bharat initiative. This initiative underscores the prioritization of indigenous manufacturing infrastructure, backed by robust research and development efforts. With a target of achieving a turnover of H 1.75 Lakh Cr in aerospace and defence manufacturing by 2025, along with exports amounting to H 35,000 Cr, the Ministry of Defence is steering towards fostering a self-sufficient ecosystem. As of April 2023, 606 Industrial Licenses have been granted to 369 companies operating in the Defence Sector, signalling an encouraging momentum.

The changing geopolitical scenarios at Indias borders, including territorial disputes with neighbouring countries, have resulted in a growing demand for defence equipment to secure the nations borders. Consequently, India has been ranked among the top importers of defence equipment over the last five years to attain a technological advantage over its opponents. To modernise the armed forces and reduce dependency on external sources for defence procurement, several policy support initiatives have been undertaken by the government to encourage ‘Make in India activities. SRIJAN Portal was launched to promote indigenisation, showcasing over 32,000 items for public view, with 7,283 items indigenised by March 2023.

To fortify the domestic defence industry, the government is committed to enhancing transparency, predictability, and ease of doing business. This commitment is evidenced through initiatives such as de-licensing, de-regulation, export promotion, and liberalization of foreign investment. The Department of Military Affairs (DMA) has introduced four Positive Indigenization Lists, encompassing 411 military items, aimed at catalysing domestic production. Furthermore, to bolster exports and attract foreign investment, Foreign Direct Investment (FDI) in the

Defence Sector has been liberalized, reaching up to 74% through the Automatic Route and 100% via the Government Route. Two Defence Industrial Corridors have been established in Uttar Pradesh and Tamil Nadu to attract an investment of H 10,000 crores per corridor.

Over the last five years, defence exports have increased by 334%, with India now exporting to over 75 countries due to collaborative efforts.

Growth drivers

Budget Allocation for DRDO: In the Interim Budget 2024-25, US$ 2.9 billion (H 23,855 crore) was allocated to DRDO, while a corpus of US$ 12.0 billion (H 1 lakh crore) was earmarked for Deep Tech, offering long-term loans to tech-savvy companies to foster innovation in defence technologies within India.

Defence industrial corridors: Defence Industrial Corridors (DICs) are dedicated zones that provide crucial infrastructure, land, and streamlined regulatory processes, attracting both domestic and foreign investors. This fosters collaboration, knowledge transfer, and the creation of a robust supply chain within the DICs. With easier access to resources and a supportive ecosystem, companies can manufacture equipment efficiently, leading to increased domestic production and a stronger Indian defence industry.

IDR Act: The revamped Defence Acquisition Procedure (DAP), also known as the IDR act, is poised to accelerate growth in domestic defence manufacturing. The IDR act prioritizes indigenous procurement by introducing faster clearances, categorizing defence requirements to favour Indian vendors, and offering offsets (investments in Indian firms) for foreign manufacturers. This incentivizes technology transfer and boosts domestic production capabilities. By creating a more level playing field for Indian companies, the IDR act is expected to attract investments, enhance innovation, and propel the industry towards self-sufficiency.

Promotion of indigenous design and development of defence equipment: Promoting indigenous design and development of defence equipment is a strategic growth driver for Indias manufacturing sector. By fostering domestic innovation in areas like missiles, warships, and combat vehicles, India reduces dependence on foreign imports and strengthens its technological prowess. This not only boosts self-reliance but also creates high-skilled jobs, attracts investments in R&D, and fuels the growth of a robust domestic defence ecosystem, ultimately positioning India as a leading defence manufacturing nation.

Modernization and upgradation: Indias military modernization push translates directly to growth in domestic defence manufacturing. The ageing equipment and weaponry across the armed forces necessitate large-scale procurement. By prioritizing domestic production to meet these requirements, the government fuels demand for Indian-made defence equipment. This incentivizes manufacturers to expand capacity, invest in new technologies, and create high-skilled jobs, fostering a robust domestic industry capable of meeting future defence needs.

Focus on Indigenous Development: Key defence manufacturing companies in India are currently focusing on designing and developing various indigenous weapons and essential products to boost domestic manufacturing capabilities and align with the Governments vision of ‘Aatmanirbhar Bharat.

iDEX Challenge: The Innovations for Defence Excellence (iDEX) initiative is a flagship programme launched by the Ministry of Defence. It seeks to foster innovation and technology development in defence and aerospace by engaging startups, MSMEs, individual innovators, R&D institutes, and academia. Through the iDEX Challenge, the government identifies specific defence technology requirements and invites innovative solutions, thereby driving indigenisation and strengthening the domestic defence ecosystem.

Aatmanirbhar Bharat Abhiyan: The Aatmanirbhar Bharat Abhiyan, or Self-Reliant India Mission, is a comprehensive vision outlined by the Government of India to make the country more self-sufficient across various sectors, including defence. This mission emphasises the need for indigenisation and encourages the local production of defence equipment, reducing dependency on foreign imports and promoting the development of a robust domestic defence industry.

Srijan Portal: The Srijan Portal is an online platform launched by the Ministry of Defence to promote indigenisation of defence production. The portal provides information on items that are being imported by the Defence Public Sector Undertakings (DPSUs), Ordnance Factory Board (OFB), and Services, which can be indigenised by Indian industry. By facilitating the exchange of information and collaboration between the defence forces and the industry, the Srijan Portal plays a crucial role in achieving self-reliance in defence manufacturing.

Positive Indigenisation List: The Ministry of Defence has also introduced the Positive Indigenisation List, which comprises a range of weapons, platforms, and systems that will only be procured from domestic manufacturers. This list includes items that have been identified for phased ban on imports, thus encouraging the development and production of these items within the country. The Positive Indigenisation List is a significant step towards ensuring that critical defence equipment is produced locally, thereby bolstering national security and supporting the domestic defence industry.

Indian Navy outlook

The Indian Navy is currently focused on expanding its fleet and capabilities, with an ambitious vision to become one of the top five shipbuilding nations and a major ship repair hub globally within the next decade. In the financial year 2024 (FY24), the Indian Navy experienced substantial growth, marked by the induction of several new vessels, including advanced stealth destroyers, frigates, and submarines. This expansion is designed to enhance operational readiness and maritime security. The defence budget for FY24 saw an increase of 15% compared to the previous year, with a significant portion allocated to the Navy for the procurement and modernisation of assets, thereby reinforcing its strategic objectives.

Indigenous development has been a key focus area, aligning with the Make in India initiative. There has been a marked increase in indigenously developed vessels, with several new ships and submarines launched by Indian shipyards. Strategic partnerships and joint ventures with leading global defence manufacturers have further bolstered the Navys technological capabilities, ensuring that it remains at the forefront of maritime innovation. Training and manpower development have also been prioritised, with advanced training programmes and the induction of skilled personnel, ensuring the Navy is equipped with the expertise to operate new technologies effectively.

Key drivers

Expansion of Fleet: Aim to increase the fleet to at least 175 warships by 2035 from the current 132, with 68 new warships and vessels on order.⁹

Indigenous Development: Commissioning of INS Vikrant, showcasing Indias ability to design, build and operate indigenous aircraft carriers, with plans to procure 26 Rafale Marine aircraft to enhance naval aviation capabilities.¹⁰

Government Support and Investment: Significant government investments, estimated at Rs. 2 lakh crore, to support fleet expansion and modernization.¹¹

Multinational Engagements: Regular participation in multinational naval exercises like MILAN, involving over 50 countries, to improve operational capabilities and maritime security.¹²

Advanced Submarines: Inclusion of new Scorpene-class submarines and planned development of indigenous submarines under Project 751 to enhance underwater capabilities.

Stealth Frigates: The Indian Navy is significantly enhancing its surface warfare capabilities with the commissioning of seven Project 17A-class stealth frigates. These frigates, including the recently launched INS Mahendragiri, are equipped with advanced stealth features, state-of-the-art weapons such as BrahMos missiles and Barak-8 surface-to-air missiles, and sophisticated sensors (Project 17A Frigates).¹³

Offshore Patrol Vessels & Missile Vessels: In a huge boost to achieve ‘Aatmanirbharta in defence, Ministry of Defence signed contracts with Indian shipyards for acquisition of 11 Next Generation Offshore Patrol Vessels (NGOPV)and six Next Generation Missile Vessels (NGMV) at an overall cost of approx. Rs. 19,600 crore. The contract for acquisition of 11 Next Generation Offshore Patrol Vessels under Buy (Indian-IDDM) category was signed with Goa Shipyard Ltd (GSL) and Garden Reach Shipbuilders and Engineers (GRSE), Kolkata. Of the 11 ships, seven will be indigenously designed, developed & manufactured by GSL and four by GRSE. The delivery of the ships is scheduled to commence from September 2026. The contract for acquisition of six Next Generation Missile Vessels was signed with Cochin Shipyard Limited at a cost of Rs. 9,805 crore. The delivery of ships is scheduled to commence from March 2027. The NGMVs would be heavily armed war vessels incorporating stealth, high speed and offensive capability.

Fleet Support Ships: Ministry of Defence signed a contract with Hindustan Shipyard Limited, Visakhapatnam for acquisition of five Fleet Support Ships (FSS) for the Indian Navy at an overall cost of approx Rs. 19,000 crore. The FSS will be employed for replenishing ships at sea with fuel, water, ammunition and stores, enabling the Indian Naval Fleet to operate for prolonged periods without returning to harbour. They can also be deployed for evacuation of people and HADR operations. The ships of 44,000 Tons will be the first-of-its kind to be built in India by an Indian Shipyard. This project will generate employment of nearly 168.8 lakh man-days over a period of eight years.

Dairy equipment manufacturing industry

The global dairy equipment manufacturing market has seen significant growth, increasing from $10.63 billion in 2023 to $11.38 billion in 2024¹⁴, driven by heightened dairy product demand, increased automation, and stringent quality regulations. Projected to reach $15.02 billion by 2028, the market is influenced by trends such as value-added dairy products, healthier options, sustainable practices, and advancements in technology like IoT.

In India, the worlds largest milk producer with a 24.64% global share in 2021-22, milk production surged by 58% to 230.58 million tonnes in FY24. Key states contribute over half of the total output. Infrastructure investment is critical, with government incentives aimed at enhancing processing, chilling, logistics, and cattle feed infrastructure, alongside opportunities in value-added products, organic milk, and exports.

Company overview

Krishna Defence and Allied Industries Limited (KDAIL) is a rapidly advancing defence company, providing critical components to the Indian Navy for its warships and developing special products for the Indian Army. With in-house capabilities for designing, developing, and manufacturing a wide range of equipment for both the Defence and Dairy sectors, the companys products exemplify indigenous excellence, crafted with utmost precision to cater to a promising defence market. In alignment with the national goal of achieving indigenous defence equipment manufacturing capabilities and self-sustainability, KDAIL has a rich history of innovation and growth. Starting in 1997 with the manufacturing of dairy equipment, the company entered the defence sector in 2006 by developing shipbuilding steel sections for the Indian Navy, previously imported. In 2022, KDAIL was listed on the NSE Emerge platform. The company operates state-of-the-art manufacturing facilities in Halol, Gujarat for defence equipment, and in Kalol, Gujarat for dairy equipment. Their defence products include shipbuilding steel sections, improved space heating devices, weld consumables, ballast bricks and profiles for T-90 tanks while their dairy equipment product spectrum feature milk cooling tanks, robotic milk collection units, and stainless-steel milk cans. With over 27 years of operations and a dedicated workforce of more than 260 employees, KDAIL continues to develop indigenous solutions to replace imported defence components, by supplying critical items to both the Navy and the Indian Army.

The Companys research and development (R&D) capabilities drive the companys product diversification across various business verticals. These capabilities encompass product design, engineering, simulation, prototyping, and testing, primarily conducted at its manufacturing facilities. Its research focuses on creating innovative products and solutions tailored to meet customer expectations and preferences while enhancing production processes and product quality. Leveraging its R&D strengths, the company is currently developing several new products, some of which have already garnered orders.

Waveoptix Defence solution Pvt LTD (Associate Company)

The Company has ventured into defence electronic which has a state-of-the-art manufacturing & testing facility in Bengaluru, where it significantly enhances its RF and optical technologies capabilities. This advanced facility includes comprehensive RF testing and measurement infrastructure, covering a range from 9KHz to 44GHz, equipped with signal generators, spectrum analysers, network analysers, and high-performance oscilloscopes. Additionally, the optical testing and measurement infrastructure boasts cutting-edge manufacturing and testing equipment, such as optical insertion and return loss testers, polishing machines, and a wide array of connectors and cables.

The new facility setup allows for rapid prototyping of complex RF and optical systems, enabling end-to-end system realisation with in-house expertise in RF, digital, and optical domains. Rigorous environmental testing ensures product durability and reliability. This strategic enhancement strengthens the Companys position in delivering high-performance, rugged systems for various applications and enhances its reputation for innovation and quality in RF and optical technologies.

Strategic Growth and Expansion

Krishna Defence and Allied Industries Limited (KDAIL) is embarking on a path of sustained growth and expansion through a focused three-pronged strategy.

Capacity Expansion

KDAIL is making substantial investments to expand its production capacity for existing products. This includes acquiring advanced machinery, such as customized furnaces and heat treatment equipment etc. Additionally, the company is securing an adjacent 40,000 square foot plot to establish a new production line. These efforts are aimed at enhancing operational efficiency and meeting increasing demand.

Strategic Partnerships

The company is diversifying its product offerings through strategic partnerships. Currently, KDAIL is in final stages of negotiations for a joint venture with a European manufacturer which is leader in composite doors and hatches. This collaboration will introduce innovative products to the Indian market and explore export opportunities, broadening the companys market reach.

Sustainable Growth

By focusing on capacity expansion and strategic product diversification, KDAIL is poised to achieve sustainable growth and strengthen its position as an industry leader. This expansion will also generate new job opportunities and contribute to the overall strength of the Indian manufacturing sector.

Key strengths

Diversified range of products

Expanding beyond its current steel and alloy offerings, the company aims to meet the Indian militarys modernization needs by diversifying into Composite Doors and Hatches, Specialised Weld Consumables and Unmanned Vehicle for doing underwater survey of the Naval Ship, this strategic move positions it as a comprehensive solution provider for domestic procurement, enhancing its market presence and aligning with evolving armed forces requirements. The governments focus on specialization and private sector involvement presents expanded opportunities. Leveraging core competencies in product design, development, and testing, along with technology transfer for defence applications, the company is poised to benefit from Indias Make in India program and increased indigenization efforts.

Precision engineering expertise with complex product manufacturing capability

With comprehensive in-house capabilities, the company develops and manufactures defence application products, and dairy equipment. Utilising precision machining, assembly, and specialized fabrication, it produces critical assemblies and precision components for defence sectors. Sourcing raw materials from trusted vendors, its stringent quality control ensures low rejection rates and meets customer requirements. Having successfully delivered orders for the Indian Armed Forces and dairies, the company is primed to capitalize on future opportunities. its specialized operations and stringent quality control make it challenging for new players to qualify for such projects.

Strong R&D capabilities with a focus on innovation

The company prioritizes Research and Development (R&D) to enhance its product range, investing in adaptable manufacturing processes. Its experienced team of engineers drives complex product development, keeping it at the forefront of technological advancements. This focus on R&D has enabled the company to continually upgrade its manufacturing technology and processes. With a strong emphasis on R&D, the company has developed a diverse range of products for the defence and dairy sectors, including bulb bars, Space heating Device (Bukhari), Ballast bricks, Specialized Weld Consumables and Profiles for T-90 Tanks for the Indian Armed Forces, as well as innovations like the Solar BMC and Robotic Milk Collection Unit for dairy applications. The companys dedicated R&D team remains committed to expanding its product portfolio across both sectors.

Long Standing Relationship with the customers

With stringent qualification processes in the defence sector, the companys registrations with all the shipyards, DRDO and Directorate of Quality Assurance (Naval) reinforces its credibility. Decades of experience in manufacturing engineering products have built in trust with its customers, who rely on the company for tailored solutions. Its engineering prowess enables a consistent delivery of high-quality precision components and assemblies, thus fostering strong customer relationships. The company prioritizes understanding and meeting its customers specific needs, ensuring satisfaction which in turn enables continued dependence on its products and services by its clients.

Experienced and Qualified Management and Employee base

The companys experienced management team, led by its Executive Board, brings vast knowledge and expertise to the company. With extensive experience in its served sectors, the company drives market opportunities, formulate strategies, and manage client expectations effectively. Additionally, the independent directors provide valuable advisory services, thus enhancing performance and compliance. Each business vertical is overseen by experienced segment heads, ensuring strong customer relationships and effective management. Supported by team of 30+ Engineers, experienced Metallurgist, trained personnel and skilled workers, the companys qualified management and employees enable it to expand our operational capabilities, enhance product quality, and drive industry growth.

Product portfolio

Defence	Dairy
In-house Development
Ship Building Steel Sections	Milk Cooling Tanks
Steel profile for T-90 Tanks
Special Steel Alloy Ballast Bricks	Robotic Milk Collection Unit
Special Steel Alloy Welding Wire
Welding Electrodes	Stainless Steel Milk Can
Transfer of Technology from DIPAS & DRDO
Improved Space Heating Device

Discussion on Financial performance with respect to operational performance

The Company has a robust and adequate system of internal financial controls, commensurate with its size and business operation. It ensures timely and accurate financial reporting in accordance with applicable accounting standards, safeguarding of assets against unauthorised use or disposition and compliance with all applicable regulatory laws and Company policies. Internal Auditors of the Company review the internal financial control systems on a regular basis for its effectiveness, and necessary changes and suggestions are duly incorporated into the system. Internal audit reports are also reviewed by the Audit Committee of the Board.

Financial performance

Total revenue increased from Rs. 636.6 Mn in FY23 to Rs. 1064.3 Mn in FY24. Profit Before Tax increased by 95.69% from Rs. 67.3 Mn in FY23 to Rs. 131.8 Mn in FY24. The profit after tax increased by 84.78% from Rs. 53.0 Mn in FY23 to Rs. 97.9 Mn in FY24. Moreover, the financial ratios of the company lie in a good range, thereby indicating a stable financial position of the company in this fiscal year.

(Rs. in Mn)

Particulars	FY24	FY23	YoY growth (%)
Revenue (in H Mn)	1064.3	636.6	67.2
EBITDA (in H Mn)	154.4	88.5	74.4
PAT (in H Mn)	97.9	53.0	84.8
ROCE (in %)	13.45%	14.14%	-

Details of significant changes in the financial ratio:

Particulars	F.Y. 2023-24	F.Y. 2022-23	Variation	Remarks
(i) Debtors Turnover	4.02	2.61	54.02%	Due to Increase in sales
(ii) Inventory Turnover	3.49	2.88	21.18%	NA
(iii) Interest Coverage Ratio	119.33	44.21	169.92%	Due to Repayment of Long-term debt
(iv) Current Ratio	4.32	1.79	141.34%	Due to funds received from preferential issue of shares temporary parked in the short-term fixed deposit
(v) Debt Equity Ratio	0.10	0.51	-80.39%	Due to Repayment of Long-term debt
(vi) Operating Profit Margin (%)	11.21	9.08	23.46%	NA
(vii) Net Profit Margin (%)	9.20	8.32	10.58%	NA

Segment wise performance

Rs. in lakhs

	Year ended 31 March 2024
	Dairy & Kitchen equipments segment	Defence Products	Total
Total Sales & Operating Income	1,461.93	9,180.87	10,642.80
Other Income	11.52	16.65	28.17
Total Income	1,473.45	9,197.52	10,670.97
Segment Results	92.10	1,951.13	2,043.23

Opportunities and threats

Opportunities

Capitalize on Government Initiatives

The Indian governments increased Defence Budget and focus on self-reliance in defence manufacturing offer the company a significant opportunity. Specializing in shipbuilding steel, special steel alloys, and superalloys, the company is poised to benefit from the heightened emphasis on growth of Defence procurement. Actively engaging in tenders can help Krishna Defence secure contracts and expand its presence in the defence sector.

Additionally, through the Make in India 2.0 program, the Company can boost its competitiveness by collaborating with foreign OEMs for co-production. This collaboration provides access to advanced technologies, enhancing their product offerings and positioning them as strong contenders for defence contracts.

Precision Engineering Expertise with Complex Product Manufacturing Capability

Krishna Defence and Allied Industries Limited (KDAIL) excels in precision engineering, offering advanced solutions for both defense applications and dairy equipment. The companys in-house capabilities encompass precision machining, intricate assembly, and specialized fabrication processes, enabling the production of critical assemblies and high-precision components. By sourcing raw materials from reliable vendors and adhering to stringent quality control measures, KDAIL ensures exceptional product quality and low rejection rates. Their proven track record includes successfully delivering orders to the Indian Armed Forces and prominent dairy societies. This expertise in precision engineering, combined with rigorous quality standards, positions Krishna Defence as a leader in the industry, making it challenging for new entrants to meet the same high standards. As a result, the company is well-prepared to seize future opportunities and continue its growth trajectory.

Diversified Range of Products

Expanding beyond its current steel and alloy offerings, the company aims to meet the Indian militarys modernization needs by diversifying into Defence Electronics, Composite Door and Hatches, Specialised Weld consumables for defence and Aerospace, Defence electronic and in water survey for Indian Navy Vessels. This move positions the Company as a comprehensive solution provider for domestic procurement, enhancing its market presence and aligning with evolving armed forces requirements. The governments focus on specialization and private sector involvement presents expanded opportunities. Leveraging core competencies in product design, development, and testing, along with technology transfer for defence applications, the company is poised to benefit from Indias Make in India program and increased indigenization efforts.

The company is diversifying its offerings to support the Indian militarys modernization efforts, moving beyond steel and alloys to include Defence Electronics, Composite Doors and Hatches for Naval Ships ,Specialized Weld Consumables for Defence and Aerospace, and underwater survey capabilities for Indian Navy vessels. This strategic expansion enhances the companys role as a comprehensive solution provider for domestic procurement, increasing its market presence and aligning with the changing needs of the armed forces

The governments emphasis on specialization and private sector involvement presents new opportunities for growth. By utilizing its core strengths in product design, development, testing, and technology transfer for defense applications, the company stands to benefit from Indias Make in India program and the drive for increased indigenization. This initiative will enable the company to better meet the defense sectors evolving needs and strengthen its market position.

Address Export Opportunities

The governments emphasis on defence exports creates fresh opportunities for KDAIL. The company can venture into global markets with its shipbuilding steel, special alloys, and consumables, aiming at nations with expanding defence budgets and a preference for indigenous equipment.

Invest in Research and Development (R&D)

Investing heavily in Research and Development (R&D), the company aims to broaden its product range and enhance its manufacturing processes. A skilled team of engineers spearheads complex product development, positioning the company at the forefront of technological innovation. This dedication to R&D has enabled continuous upgrades in manufacturing technology and processes.

The companys strong focus on R&D has resulted in a diverse product lineup for the defense and dairy sectors. Key products include bulb bars, bhukhari, Weld consumables and Special profile for T-90 tanks for the Indian Armed Forces, as well as pioneering innovations such as the Solar BMC and Robotic Milk Collection Unit for dairy applications. This emphasis on R&D highlights the companys capability to adapt to evolving market demands and sustain its industry leadership.

Strengthen Supply Chain Management

An effective and resilient supply chain plays a pivotal role in ensuring prompt delivery and cost-effectiveness. Krishna Defence can concentrate on fortifying its supplier network, guaranteeing consistent access to raw materials, and nurturing enduring collaborations with essential vendors. This approach will mitigate disruptions and elevate their overall production efficiency.

Threats

Fluctuations in Raw Material Prices

Relying on raw materials such as steel and various alloys, Krishna Defence is susceptible to price fluctuations in these commodities, which can moderately influence their production costs and profitability. To address this risk, the company can deploy efficient hedging strategies and consider diversifying their supplier base to explore alternative sources.

Political and Economic Instability

Geopolitical tensions and economic downturns present another layer of risk for the Company. Political instability in key markets can lead to disruptions in supply chains, increased operational costs, and challenges in contract execution. Similarly, economic instability, such as recessions or financial crises, can reduce government defence budgets, leading to decreased demand for defence products and services. These factors can adversely affect the Companys business operations, revenue streams, and growth prospects. To mitigate these risks, the company should develop robust risk management frameworks, diversify its market presence to reduce dependence on any single sector, and maintain strong relationships with key stakeholders. By preparing for potential political and economic disruptions, the Company can enhance its resilience and safeguard its business interests.

Risks and concerns

Risk	Description	Mitigation strategy
Market risk	As a notable player in the defence and dairy sector, the companys earnings are contingent upon economic growth-related developments.	The company is dedicated to broadening its portfolio and clientele while fostering technology-driven collaborations with prominent global firms. With escalating geopolitical tensions worldwide, the government recognizes the imperative of fortifying Indias defence for the future.
Innovation risk	The inability to achieve breakthrough innovation aligned with evolving consumer preferences poses a risk to earnings.	The company emphasizes innovation, since it has a well-equipped R&D facility staffed by skilled professionals dedicated to developing superior products that align with contemporary trends.
Data security and cyber risk	The business faces data and cybersecurity risks due to its complex nature. Any lapse in security could have detrimental effects on the business.	The company has made investments to ensure the robust protection of its data. Its advanced IT and ERP systems are capable of safeguarding data security and mitigating cyber risks effectively.
Environmental footprints- Waste management	Inadequate management of waste and hazardous substances can endanger employee well-being and safety, and lead to significant environmental harm, such as soil and water contamination.	The company implements a well-established waste management protocol to ensure proper disposal in accordance with waste categorization outlined by the State Pollution Control Boards. The Company also plans to install Solar Power and target is to generate upto 50% through renewable energy sources

Manufacturing

Krishna Defence & Allied Industries Limited (KDAIL) upholds stringent quality standards and continuously advances its manufacturing processes. The companys commitment is reflected in its ISO 9001:2015 certification, NABL-approved in-house testing facilities, and a skilled workforce of 30+ engineers and 2 metallurgists. Recent upgrades include significant capacity expansions with advanced machinery such as press machines, lathe machines, wire drawing machines, melting furnaces, and induction machines. The company has integrated CNC machining, automated welding, and precision fabrication technologies to enhance product quality and efficiency. In-house capabilities extend to designing and manufacturing critical assemblies and precision components, supported by a new heat treatment plant for shipbuilding steel sections and an ERP-based procurement system for streamlined inventory management. The companys manufacturing plants in Kalol and Halol, Gujarat, are equipped with ISO-certified quality management systems, ensuring high standards in every product.

Quality control

In the industries served by the company, adherence to quality standards is paramount to avoid cancellation of purchase orders due to defects or non-compliance with customer specifications. To ensure quality, the quality control team conducts thorough checks at every stage of the manufacturing process, from raw material identification to final assembly. The company offers a warranty period of typically 12 months from the date of delivery, during which any manufacturing defects are repaired or replaced at their expense. Additionally, depending on the customer, the company may be required to provide performance bank guarantees to ensure timely supply of goods and avoid penalties for delays.

Human resources

The company has a diverse workforce that collaborates to maintain high service standards while adhering to industry best practices in HR policies. The company focuses on increasing the representation of female employees to meet diversity goals, recognizing that a contented workforce enhances efficiency and productivity. The company attracts top talent and encourages cross-functional collaboration to cultivate an inclusive work environment. With a commitment to growth, the company empowers employees through various training programs, leadership development modules, and engagement sessions. These initiatives encompass product and process training, behavioural training, sales training, self-management programs, and fraud and risk management training. Utilizing HR analytics, the company ensures smooth leadership transitions through succession planning for the executive committee, emphasizing organizational fit. Engaging employees through regular meetings virtual sessions, workshops, and confluences, the company provides platforms for interaction with business leaders, talent showcasing, and family engagement. Additionally, the company offers long-term incentives, stock options, and competitive compensation to retain its top talent.

260

Total number of employees as on 31^st March, 2024

Internal control systems and adequacy

The Company maintains robust internal control procedures tailored to its size and activities. It believes that safeguarding assets and enhancing operational efficiency are achievable through the implementation of adequate internal controls and the standardization of operational processes. These internal controls and risk management mechanisms adhere to the principles and criteria outlined in the corporate governance code of the organization. They are seamlessly integrated into the overall organizational structure of both the Company and the Group, involving various personnel who collaborate effectively in fulfilling their respective duties. The Board of Directors provides guidance and strategic oversight to the Executive Directors and management, overseeing monitoring and support committees.

Disclosure of Accounting Treatment

The financial statements for the year ended 31^st March, 2024 have been prepared as prescribed in accounting standards and there is no change in treatment of the said accounting standards. Therefore, no explanation by the management is required for the same.

Cautionary statement

The statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand-supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes & other incidental factors.