Paras Defence and Space Technologies Ltd Management Discussions

ANNEXURE – 6

Economic Environment

Global Economic Overview1

The world economy advanced by 3.3% during CY 2024 amid prevailing geopolitical tensions, deceleration in China and policy uncertainty in leading economies. Growth in Europe trailed owing to elevated energy prices driven by persistent conflict in Eastern Europe and the Middle East and ageing populations, particularly in Germany and Italy. Conversely, the US economy grew by 2.8%, which helped stabilise world output. Emerging economies in Asia supported overall growth fuelled by robust manufacturing and technological innovation.

Inflation moderated globally to 5.7%, from 6.6% in 2023, driven by advanced economies. However, other regions experienced lingering price pressures, prompting central banks to implement cautious monetary easing. Increased bond yields in developed economies were indicative of concerns among investors about inflation, geopolitical uncertainty and changing monetary policies.

As global growth continues to be increasingly driven by emerging markets, especially in electronics and digital infrastructure, strategic investment and policy changes will be necessary to drive long-term growth.

Outlook

The global economic outlook remains moderate, with projected stable growth at 2.8% in 2025. Disinflationary trends, driven by a cooling labour market and declining oil prices, are expected to continue. This decline is expected to create a conducive environment for central banks to transition toward more expansionary monetary policies. Inflation is forecasted to ease to 4.3% by the end of CY 2025, signalling a steady global economic recovery, particularly in emerging markets.

Geopolitical tensions and structural issues in key emerging markets like China notwithstanding, the overall outlook reflects the potential for growth, supported by government initiatives and fiscal consolidation efforts. The implementation of tariff policies by the US has caused global trade volumes estimates to be forecasted downwards creating an environment of protectionism.

Meanwhile, Europe continues to face the risk of stagnation. Positively, the continued strength in fundamental sectors and post-pandemic consumption growth may support long-term recovery. The manufacturing industry of developing economies stands to benefit from the competitive advantage of supply chain shifts and bilateral trade deals. The evolving global trade landscape, along with strategic fiscal policies and ongoing structural reforms are expected to drive innovation in the medium-term. With enhanced productivity, resilient supply chains, sustained economic growth is

Indian Economic Overview2

Indias economy demonstrated remarkable resilience in FY 2024-25, with its GDP recording a growth of 6.5%. Despite global economic turbulence and geopolitical tensions, Indias economic performance remained strong, supported by a robust export sector. Although the manufacturing industry experienced a slowdown, manufacturing exports, particularly in high-value industries such as electronics strengthened Indias position in global value chains. However, geopolitical uncertainties and supply chain disruptions, particularly in the Red Sea region, have impacted export growth. The electronics industry, particularly semiconductor and electronic components has displayed strong growth. This growth conveys the increasingly crucial role of India in these critical global sectors.

Although inflation remained above the Reserve Bank of Indias (RBI) target range of 4-6% for several months, fiscal management remained prudent, with a fiscal deficit of 4.4%-4.5% of GDP. This provided sufficient fiscal headroom for increased government spending. The

RBIs monetary policies, including 1.5 trillion liquidity injection and interest rate cuts are expected to ease liquidity conditions, support private capital expenditure and stimulate consumption, laying the groundwork for sustainable growth.

Further, the economy witnessed a 26% year-on-year increase in Foreign Direct Investment (FDI) inflows in H1 FY 2024-25, signalling growing investor confidence. The countrys position as the third-largest recipient of greenfield investments demonstrates its potential as a hub for technological advancements, particularly in the electronics and manufacturing sectors.

Outlook

Indias economic outlook remains optimistic, driven by strong domestic fundamentals and a robust growth trajectory. The country is projected to maintain its position as one of the worlds fastest-growing economies, with real GDP growth forecasted at 6.5% for FY 2025-26. This growth is likely to be driven by reduced inflation and enhanced private investment. Infrastructure spending has witnessed notable growth, increasing by 38.8% between FY 2019- 20 and FY 2023-24, with further capital expenditure expected in the latter half of FY 2024-25. This is expected to stimulate demand and attract private sector investment.

India is also set to gain from higher Foreign Direct Investment (FDI), particularly due to cost-effective expansion avenues sought by multinational companies. Government efforts such as the Production-Linked Incentive (PLI) scheme will remain crucial in establishing Indias rising prominence in global electronics manufacturing and export markets. The strategic strength of the country, including currency devaluation that has made exports competitively priced and its evolution as a competitive manufacturing hub, will continue to support the sectors growth.

While risks such as geopolitical uncertainties and volatile crude oil prices exist, Indias economic resilience, backed by strong public and private investments positions the nation for sustained economic expansion.

Industry Overview

Global Defence Industry4

The global defence industry is being shaped by a new era of advanced warfare driven by AI-powered planning, autonomous drones and cyber warfare. Escalating geopolitical turbulence and heightened military spending by nations worldwide is favouring the shift of the industry towards emerging players.

In 2024, the world military expenditure reached an unprecedented high of $2,718 billion. The top five military spenders included the US, China, Russia, Germany and India. These nations together accounted for 60% of the global total, with a combined spending of $1,635 billion. Military expenditure formed 2.5 per cent of the global GDP in 2024.

All NATO members heightened their military expenditure in 2024.

Military spending by the USA witnessed an elevation of 5.7% and reached $997 billion, which was 66% of the total NATO spending and 37% of the global military spending in 2024. Israels military expenditure surged by 65% to $46.5 billion in 2024, primarily driven by the prolonged conflict in the Middle-East.

Indian Defence Industry

India maintains the worlds second-largest active armed forces and is the worlds fourth-largest spender on military resources. In recent years, the nation has consistently allocated an estimated 2% of its GDP for defence expenditure. In FY 2024-25, a substantial budget of 6.22 lakh crore was allocated to the defence sector. 5

The sector has witnessed a swift transformation and has significantly reduced its dependence on imports. From being 65%-70% import dependent to achieving 65% domestic manufacturing, the industry has considerably enhanced Indias self-reliance in defence.6 Central to this transformation is the growth of Indias private defence manufacturing industry, contributing 21% to total defence production.7 In FY 2024-25, the Ministry of Defence signed a record 193 contracts, with the total contract value exceeding 2,09,050 crore, nearly double of the previous highest figure. Of these, 177 contracts have been awarded to the domestic industry, amounting to 1,68,922 crore, which is 81% of the total contract value.8 This significant focus on indigenous manufacturing aligns with the nations vision of self-reliance in defence production, boosting local industries and employment generation across the sector.

3Projected

4https://www.sipri.org/media/press-release/2025/unprecedented-rise-global-military-expenditure-european-and-middle-east-spending-surges

5https://www.careratings.com/uploads/newsfiles/1735540355_Indian%20defence%20industry%20-%20CareEdge%20Report.pdf

6https://www.pib.gov.in/PressReleasePage.aspx?PRID=2116612

7https://www.pib.gov.in/PressReleasePage.aspx?PRID=2116612

8https://www.pib.gov.in/PressReleasePage.aspx?PRID=2116612

Source: Ministry of Defence

Defence exports reached an unprecedented 23,622 crore in FY 2024-25, registering a surge of 2,539 crore or 12.04% over FY 2023-24.9 These exports encompassed 15,233 crore from the private sector and 8,389 crore from DPSUs, an increase of 15,209 crore and 5,874 crore respectively from FY 2023-24.10 With policy-driven boost, defence exports are expected to grow at ~19% during next 5 years (i.e. from FY24 to FY29).11 The government aims to increase defence exports to 50,000 crore by FY 2029, reflecting Indias growing importance in the global defence value chain.12

Source: Society of Indian Defence Manufacturers

Moving forward, Indias defence budget has been set to 6.81 lakh crore in FY 2025-26. This is expected to further reinforce the nations defence capabilities. The outlay for annual defence production is projected to increase from 1.75 lakh crore in FY 2024-25 to 3 lakh crore in 2029, projecting a CAGR of 20% and further establishing the nation as a global defence manufacturing hub.13 In addition, the nation is projected to spend 11 lakh crore on fleet modernisation in the next 5-7 years.14

Govt Initiatives

Innovations for Defence Excellence (iDEX)

By engaging MSMEs, startups, individual innovators, R&D institutes and academia, iDEX has provided grants of up to 1.5 crore for the development of innovative technologies. To further enhance self-reliance in defence technology, 449.62 crore has been allocated to iDEX, including its sub-scheme Acing Development of Innovative Technologies with iDEX (ADITI), for 2025-26. Building on its success, iDEX Prime was introduced, enhancing this support to Rs 10 crore.15

Make in India

Through the ‘Make in India initiative and policy reforms, the government has actively promoted domestic production and reduced reliance on foreign procurement. This shift has been a meaningful step towards Indias broader vision of achieving Atmanirbharta (self-reliance) in defence. This has positioned the nation as an emerging hub for the production of advanced military technologies and equipment.

Liberalised FDI Policy

Foreign Direct Investment (FDI) in the defence sector was liberalised in September 2020 to attract foreign investment. The liberalisation has allowed up to 74% FDI through the automatic route and above 74% through the government route. Since April 2000, the total FDI in defence industries stands at 5,516.16 crore.

Ease of Doing Business (EoDB)

The government has introduced several measures to enhance the ease of doing business in the defence manufacturing sector.

The validity of export authorisation for parts and components has been extended from two years to the completion of the order or component, whichever is later.

In 2019, the Defence Product List was streamlined to reduce the number of items requiring a manufacturing licence.

Parts and components of defence items were de-licensed in September 2019 to encourage investment.

The validity of defence licences under the Industries (Development and Regulation) Act, 1951, has been extended from 3 years to 15 years, with a further extension option of up to 18 years.

The introduction of an end-to-end digital export authorisation system has improved efficiency, with more than 1,500 authorisations issued in the last financial year.

9https://pib.gov.in/PressReleasePage.aspx?PRID=2117348

10https://www.pib.gov.in/PressReleasePage.aspx?PRID=2116612

11https://www.careratings.com/uploads/newsfiles/1735540355_Indian%20defence%20industry%20-%20CareEdge%20Report.pdf

12https://www.pib.gov.in/PressReleasePage.aspx?PRID=2117348

13https://www.careratings.com/uploads/newsfiles/1735540355_Indian%20defence%20industry%20-%20CareEdge%20Report.pdf

14https://www.investindia.gov.in/sector/defence-manufacturing

15https://www.pib.gov.in/PressReleasePage.aspx?PRID=2122381

MAKE Procedure

As of March 24, 2025, a total of 145 projects have been undertaken under the MAKE initiative, with the participation of 171 industries, notably driving indigenous defence production.

The initiative includes 40 MAKE-I projects (Government Funded), 101 MAKE-II projects (Industry Funded) and 4 MAKE-III projects (Manufacturing through ToT). These projects are playing a vital role in strengthening self-reliance in defence manufacturing.

Domestic Procurement Allocation: MoD has earmarked 75% of modernisation budget amounting to 1,11,544 crore for procurement through domestic industries during the current fiscal.16

Acing Development of Innovative Technologies (ADITI) Scheme

The newly launched ADITI scheme provides assistance of up to 25 crore to help scale breakthrough innovations. With the broader aim of strengthening the start-ups and MSMEs, the Ministry of Defence has approved purchases worth more than 2,400 crore from startups/MSMEs and projects worth more than 1,500 crore have been approved for development of new technology.17

Global Space Sector

Across emerging economies, the space sector is witnessing a notable surge. Small satellite networks are gaining prominence as the world moves to a space-based economy. The number of launches has increased significantly from a handful a decade ago to a few every week. The global space economy is projected to sustain its momentum and is expected to reach a valuation of $1.8 trillion by 2035.18

Key Drivers19

Declining Launch Costs

Over the course of the past two decades, global space launch costs have witnessed a ten-fold decline, allowing for an increasing number of launches.

Increasing Space Applications and Investment

An increase in space-related activities including space tourism has fuelled rising investments from the private sector.

Competitive Zeal

Awareness and excitement over the latest space developments is evident all over the world. Governments and business leaders are increasingly realising the potential of space-related technologies for the future.

Commercial Innovation

Shrinking size of satellites, paired with heightened commercial innovation is resulting in a surge of new space applications. For example, objects may now be identified at a resolution of 15 centimetres from space-based earth observation. Additionally, the cost per pixel has sustained its decline, enhancing the commercial viability of such operations.

Indian Space Sector

Indias space sector has demonstrated notable technological accomplishments over the years. The cost-effectiveness, reliability and efficiency of the Indian Space Agency, Indian Space Research Organisation (ISRO) has come to the fore in numerous recent missions. The organisation has successfully launched satellites for communication, navigation and earth observation and was the first in Asia and fourth in the world to have successfully accomplished an interplanetary Mars Orbiter Mission (Mangalyaan).

In 2021, the Indian space industry contributed 2% to the global share. This is expected to rise to 8% by 2030 and further to 15% by the year 2047.20 Indias space industry is projected grow to $44 billion by 2033.21

Government Initiatives

Indian Space Policy

The Indian Government has launched various initiatives and policy schemes, such as Indian Space Policy 2023, to augment the capabilities in technology development. These schemes are expected to benefit allied sectors and promote the inclusive socioeconomic development of the nation.

Seed Funding Scheme

The Seed Funding Scheme aims to increase the participation of private companies, start-ups and industrial corporations to supplement and enhance the expanding infrastructure in the space sector. In the journey to become a global leader, the space sector of India is set to offer a plenitude of opportunities.

FDI

Currently, India allows 100% FDI in the space sector thereby unleashing new horizons of innovation and growth in the sector.22

Indias space budget has tripled from 5,615 crores in 2013-14 to 13,416 crores in the recent budget, marking a staggering 138.93% increase.23

Indian National Space Promotion and Authorisation Centre (IN-SPACe)

To facilitate participation from the private sector, the Department of Space (DoS) established the National Space Innovation and Applications (NSIL) and Indian National Space Promotion and Authorisation Centre (IN-SPACe). The Indian government is also providing unstinted support and encouragement through initiatives such as the recently approved $120 million venture capital fund dedicated to the space sector.24 Indias scientific advancements in AI, quantum technology and bioengineering are further cementing the nations position as a champion in space and other futuristic technologies.

Upcoming Projects

Upcoming projects such as Aditya L-1, Indias first space-based mission to study the sun, highlights the countrys commitment to space exploration. The trials for the Gaganyaan Mission, Indias first human spaceflight mission, are set to commence along with the ROBO Mission by the end of 2025. Four astronauts have been identified for the mission, with one already invited by the US to visit the International Space Station. By 2035, India aims to establish the Bharat Antariksh Station, reinforcing the nations journey to its goal of sending its first astronaut to the Moon by 2040.

Company Overview

Paras Defence and Space Technologies, founded in 1979, is a publicly traded Indian Company listed on the BSE and the National Stock Exchange. Headquartered near Mumbai, with manufacturing facilities in Navi Mumbai and Ambernath, Paras specialises in high-precision products and turnkey systems for the defence and space sectors.

The Companys operations are organised into two main verticals:

Optics and Optronic Systems

Defence Engineering (Defence Electronics, Electromagnetic Pulse (EMP) Protection Solutions and Heavy Engineering)

Over the course of more than four decades, Paras has developed technologies for rockets and missiles, space research, naval platforms, armoured vehicles, electronic warfare, surveillance and electromagnetic shielding. Through its subsidiaries, the Company also works on drones, Radio Frequency (RF) and microwave systems, anti-drone solutions, EO/IR systems for avionics and quantum technologies.

Paras state-of-the-art facilities support end-to-end delivery, from concept and design through manufacturing to integration and commissioning of both small and large systems. A strong emphasis on research and development highlights its role as an Indigenous Design, Development and Manufacturing (IDDM) partner for Indias defence industry.

Financial Performance	( in Lakhs)
Particulars	FY 2024-25	FY 2023-24	YoY Growth %
Revenue from operations	33,385	23,243	43.63
Other income	1,186	934	26.98
Total Expenses	25,891	19,716	31.32
Costs of materials consumed	12,505	11,318	10.49
Purchase of stock in trade	2,159	2,033	6.20
Change in inventory of finished goods, work-in-progress and stock in trade	483	(2,557)	(118.89)
Employee benefits expense	3,338	2,728	22.36
Finance costs	552	385	43.38
Depreciation and Amortisation expense	1,354	1,216	11.35
Other expenses	5,500	4,593	19.75
Profit before tax	8,680	4,461	94.58
Tax expenses	2,174	1,039	109.24
Profit for the year	6,506	3,422	90.12
Total Comprehensive income	6,467	3,386	90.99

Revenue from operations

Revenue from operations increased by 43.6% to 33,385 Lakhs in FY 2024-25 from 23,243 Lakhs in FY 2023-24.

Other Income

Other income increased by 26.98% to 1,186 Lakhs in FY 2024-25 from 934 Lakhs in FY 2023-24.

Total Expenses

Total expenses increased by 31.32% to 25,891 Lakhs in FY 2024-25 from 19,716 Lakhs in FY 2023-24.

Cost of materials consumed

Cost of materials consumed increased by 10.49% to 12,505 Lakhs in FY 2024-25 from 11,318 Lakhs in FY 2023-24.

Purchases of stock in trade

Purchases of stock in trade increased by 6.20% to 2,159 Lakhs in FY 2024-25 from 2,033 Lakhs in FY 2023-24.

Change in inventories of finished goods, work-in-progress and stock in trade

Change in inventories of finished goods, work-in-progress and stock in trade amounted to 483 Lakhs in FY 2024-25 as against (2,557) Lakhs in FY 2023-24, reflecting a turnaround of 3,040 Lakhs. This indicates that inventory levels declined during the year, contributing to a higher cost of goods sold compared to the previous year.

Employee benefits expense

Employee benefits expense increased by 22.36% to 3,338 Lakhs in FY 2024-25 from 2,728 Lakhs in FY 2023-24.

Finance costs

Finance costs changed by 43.38 % to 552 Lakhs in FY 2024-25 from 385 Lakhs in FY 2023-24.

Depreciation and Amortisation Expense

Depreciation and amortisation expense increased by 11.35% to 1,354 Lakhs in FY 2024-25 from 1,216 Lakhs in FY 2023-24.

Other expenses increased by 19.75% to 5,500 Lakhs in FY 2024-25 from 4,593 Lakhs in FY 2023-24.

Profit before Tax

Profit before tax increased by 94.58 % to 8,680 Lakhs in FY 2024-25 from 4,461 Lakhs in FY 2023-24.

Tax Expenses

Tax expenses increased by 109.24% to 2,174 Lakhs in FY 2024-25 from 1,039 Lakhs in FY 2023-24.

Profit for the Year

Profit for the year increased by 90.12% to 6,506 Lakhs in FY 2024-25 from 3,422 Lakhs in FY 2023-24.

Total Comprehensive Income

Total comprehensive income increased by 90.99% to 6,467 Lakhs in FY 2024-25 from 3,386 Lakhs in FY 2023-24.

Cash flows

Cash and cash equivalents on the balance sheet include cash at banks, cash on hand and short-term deposits with an original maturity of three months or less, which carry minimal risk of value change. In the statement of cash flows, cash and cash equivalents are represented by cash and short-term deposits, minus any outstanding bank overdrafts, as these are considered a fundamental aspect of our cash management.

Research and Development

Paras Defence and Space Technologies has a strategic vision for its R&D to lead innovation. The Company runs exclusive R&D facilities in Nerul (Navi Mumbai) and Bengaluru, with specialised engineering teams for technologies related to Optics, Optical Systems, Defence Electronic Systems, Mechanical Systems, Electromagnetics, RF & Microwave etc. The Nerul campus of Paras Defence and Space Technologies has official recognition as a R&D Unit from Indias Department of Scientific and Industrial Research (DSIR), reflecting its commitment towards upholding stringent industry standards.

Paras develops tailored solutions like Optronic Systems for various platforms, Border Surveillance and Defence Systems and electromagnetic shielding amongst others with focus on indigenous design and development. More than 90% of its parts are locally designed and produced, aligning with Indias self-reliance objectives under initiatives like Aatmanirbhar Bharat. Further, synergistic associations with international technology companies enhance its R&D strengths and enable manufacturing cutting edge technologies in India. The Companys R&D strategy ensures process refinement, cost-effectiveness and development of a strong pipeline of products which are essential to counter the evolving defence demands.

Consistent R&D spending on advanced equipment and employee upskilling augment the Companys capability to supply high-margin, technology-driven systems. These initiatives provide early-mover benefits in specialised areas such as anti-drone systems and quantum technologies, while maintaining the ability to adapt to changing customer priorities.

Risk Management

The Companys integrated risk management system is based on a Board-approved plan. The plan provides the processes, which are utilised to identify, analyse and manage risks. The plan further guides procedures to operate, record and monitor risks effectively. The aim of the risk management plan is to undertake a holistic approach so that all important risks are identified, understood and managed suitably. This framework allows the implementation of relevant methodologies and tools for risk identification, assessment, management and reporting.

The Audit Committee and the Board are periodically apprised of potential risks and corrective actions required. The Company manages internal and external risks with sound judgement and appropriate measures.

Human Resource

The Company has a well-defined framework of HR policies aimed at upholding an equal, transparent and equitable workplace culture. It creates a secure, safe and supportive work environment. The HR policies strive to join organisational and employee goals, thereby empowering employees. The Company provides routine skill development training and courses to enhance the competencies of employees. The Company believes that employee friendly management practices, work environment, career developmental opportunities and overall benefits are essential to upholding good employee relations and retention.

The Company invests in acquisition, growth and retention of talent through a range of initiatives, such as learning and development, compensationandbenefits,employeeengagementandperformance management. Employees are recognised and rewarded depending on their yearly performance. Also, the Company granted 78,450 stock options to employees in FY 24-25, in order to attract, retain and motivate the employees thereby giving them an opportunity to participate in the growth of the Company and create long-term wealth in their own hands.

Internal Control Systems

The Company has a strong system of internal controls commensurate with the nature, size and complexity of its business. Detailed policies, guidelines and procedures have been put in place for every business process. The internal control system is designed to provide reasonable assurance for the reliability of financial and other records for effective financial reporting and asset accountability. It also provides for strict compliance with all applicable statutory and regulatory compliance.

There is a robust monitoring mechanism in place to monitor progress on customer agreement terms, pinpointing issues and taking appropriate corrective and preventive measures to achieve assured service levels. A team monitors costs relating to different projects from time to time, giving feedback for course correction if required. The audit committee reviews internal financial controls and systems of risk management with the help of internal auditors. Any deviations from normal practices are reported to the Board and timely remedial actions are taken.

Information Technology

The Company comprehends the significance of technology in business expansion and achievement of its goals to expand customer experience, improve security and ensure convenience of operations.

The Company recognises the crucial significance of data security. It is equipped with a robust IT infrastructure and enterprise resource planning systems implemented at its manufacturing units. The IT infrastructure includes third-party solutions and applications managed internally. The Company employs strong IT disaster management systems such as data backup and retrieval mechanisms to ensure adequate data protection.

Cautionary Statement

This document includes statements about anticipated future events, financial performance and operational results, which are forward looking. Forward-looking statements inherently involve making assumptions and are subject to risks and uncertainties. There is a considerable risk that these assumptions, predictions and other forward-looking statements may not turn out to be accurate. Readers should be cautious not to rely excessively on these forward-looking statements, as various factors could cause actual results and events to differ significantly from those projected.