Qualitek Labs Ltd Management Discussions

Annexure C

A. Industry Structure & Developments

The Testing, Inspection, and Certification (TIC) industry in India is witnessing rapid expansion, driven by rising quality consciousness, stricter regulatory compliance, and the increasing complexity of global trade and supply chains. These factors have significantly boosted the demand for reliable, accredited third-party testing and quality assurance services across diverse sectors including automotive, defence, pharmaceuticals, food and agriculture, environment, electronics, and metallurgy. In this evolving landscape, Qualitek Labs Limited plays a vital role as a NABL-accredited laboratory (ISO/IEC 17025:2017), offering a wide array of services including testing, inspection, homologation, certification, and consultancy.

Backed by a professional team with over a decade of industry experience, the Company delivers customized, sector-specific solutions while maintaining high standards of accuracy, reliability, and customer service. The industry has also seen a digital transformation with the integration of Laboratory Information Management Systems (LIMS) to enhance operational transparency and efficiency. Qualitek Labs has adopted a cloud-based LIMS infrastructure, enabling real-time tracking, client login access, and streamlined sample-to-report workflows.

To strengthen its service capability and ensure proximity to industrial hubs, the Company has established advanced laboratories in Pune and Bhubaneswar and is in the process of launching additional facilities in Noida and a second lab in Pune. These strategically located labs cater to high- growth sectors such as automotive (including EV battery, polymer, vibration, and component testing), electrical and electronics, energy, medical equipment, packaging, and environmental monitoring. In addition, the Company continues to invest in research and development and deploys a skilled workforce of technicians and engineers to ensure compliance with national and international standards such as IS, ASTM, ISO, DIN, and SAE.

With robust infrastructure, digital systems, technical expertise, and a commitment to quality, Qualitek Labs is well-positioned to capitalize on the growing opportunities in the TIC industry while contributing to enhanced industrial safety, public health, environmental sustainability, and global product conformity.

B. Opportunities and Threats

The Testing, Inspection, and Certification (TIC) sector continues to present a promising growth trajectory, supported by increasing regulatory focus, globalization, and the rising need for quality assurance across industries. While the Company is well-positioned to capitalize on these developments, certain external and industry-related risks warrant continuous monitoring.

Opportunities:

• Increasing demand for accredited testing and certification due to stricter regulatory frameworks.

• Rising focus on quality standards in sectors like EVs, pharma, defence, and food safety.

• Expansion into untapped geographical markets and new customer segments.

• Government initiatives like "Make in India" and increased export compliance requirements.

• Technological advancements enabling digital transformation (e.g., LIMS, ERP, automation).

Threats:

• Intense competition from global and regional TIC service providers.

• Dependence on technical manpower and risk of attrition in specialized roles.

• Potential delays in regulatory approvals and accreditations.

• Cybersecurity threats due to increasing digitalization.

• Economic or policy fluctuations impacting demand in client industries.

C. Segment-wise Or Product-wise Performance

Our business activity primarily falls within a single business and geographical segment — "Testing Services". The entire revenue from operations for the financial year ended March 31, 2025, amounting to Rs.4,586.48 lakhs, was generated from testing, inspection, certification, and related services. Although the Company caters to a diverse client base across industries such as automotive, defence, environment, food, and pharmaceuticals, the nature of services offered remains within a unified operating segment. Accordingly, the Company does not follow any other segment reporting.

D. Outlook

Outlook for the Testing, Inspection, and Certification (TIC) industry remains positive, driven by rising regulatory requirements, industrial growth, and demand for quality compliance across sectors. Qualitek Labs Ltd. is well-positioned to benefit from these trends through its NABL-accredited facilities, digital infrastructure, and expansion into new locations like Noida and Pune. With a focus on quality, innovation, and client service, the Company is poised for sustainable growth in the coming years.

E. Risks and Concerns

Qualitek Labs Limited operates in a dynamic and highly regulated environment, where both internal and external factors can influence its business performance. The Company has established a structured risk management framework to identify, assess, and mitigate key risks to ensure business continuity and sustainable growth.

Internally, the Company mitigates quality and reputation risks through a robust NABL- and ISOcompliant Quality Management System. Operational and integration risks from expansion are addressed via SOPs and dedicated teams. Contractual, technological, and HR-related risks are managed through contract controls, regular infrastructure upgrades, employee training, and retention programs.

Externally, regulatory risks are addressed through ongoing monitoring and internal audits, while legal risks are covered by insurance and compliance mechanisms. Market and financial risks are mitigated through sectoral diversification and sound financial planning. Cybersecurity is managed through strong IT systems and audits, and force majeure risks are handled through business continuity plans and insurance coverage.

The management remains committed to proactively identifying and addressing potential risks to protect stakeholder interests and support long-term strategic objectives.

F. Internal Control Systems and Their Adequacy

Qualitek Labs Ltd. has implemented a comprehensive internal control system that is commensurate with the scale and complexity of its operations. The system is designed to ensure the reliability of financial reporting, safeguard the Companys assets, promote operational efficiency, and ensure compliance with applicable laws, regulations, and internal policies. All key business processes—such as sample intake, testing, quality review, report generation, and invoicing—are integrated with the Companys cloud-based Laboratory Information Management System (LIMS), which enhances traceability, accuracy, and client communication. The system incorporates access restrictions, defined approval hierarchies, and process-level controls to prevent unauthorized transactions and ensure accountability.

Periodic internal audits are conducted by independent professionals and reviewed by the Audit Committee of the Board. The Committee monitors the adequacy and effectiveness of the internal controls and recommends improvements as required. Any deviations or control gaps identified during the audit process are promptly addressed by the management. The Company ensures compliance with the internal financial control requirements as prescribed under the Companies Act, 2013, and SEBI (LODR) Regulations, 2015. Management is of the view that the existing internal control systems are adequate and functioning effectively. The Company continues to upgrade its control mechanisms, particularly in the areas of IT systems, inventory, and risk monitoring, to align with evolving business needs.

G. Discussion on Financial Performance with Respect to Operational Performance

Financial year 2024-25 was marked by strong performance across all operational locations and service categories, resulting in both market share gains and improved operating margins compared to the previous financial year. This growth reflects the successful execution of the Companys expansion strategy, improved lab utilization, and a steady increase in demand from key sectors such as automotive, environment, and defence.

The Revenue from Operations on a standalone basis increased significantly from Rs.2,926.59 lakhs in FY 2023-24 to Rs.4,601.74 lakhs in FY 2024-25. The increase was driven by volume growth, client acquisition, and enhanced service offerings. Operational efficiency and cost discipline led to a healthy EBITDA of Rs.1,185.44 lakhs, up from Rs.813.15 lakhs in the previous year.

While the Company incurred higher depreciation and interest expenses due to ongoing investments in lab infrastructure and expansion projects, it still delivered a solid Net Profit After Tax of Rs.528.33 lakhs, up from Rs.430.73 lakhs. Additionally, for the first time, the Company prepared consolidated financial statements, reporting total revenue of Rs.7,074.27 lakhs and net profit of Rs.768.36 lakhs for FY 2024-25, further highlighting the Companys increasing scale and financial strength.

H. Material Developments in Human Resources /Industrial Relations Front, Including Number of People Employed

Your Company considers human capital as its most valuable asset and continues to invest in building a competent, motivated, and performance-driven workforce. The focus remains on fostering a culture of transparency, accountability, continuous learning, and employee engagement. The Companys human resources strategy is aligned with its business objectives and supports organizational growth through structured talent acquisition, retention, and development initiatives.

During the financial year, there were no adverse developments on the industrial relations front. The Company maintained a cordial work environment and a high level of employee morale. The organizational structure has been strengthened across key functional areas including operations, quality assurance, R&D, and business development to support the Companys ongoing expansion and diversification plans.

As on March 31, 2025, the Company had 550 employees spread across various functions such as testing and laboratory operations, finance, HR, legal, sales and marketing, IT, and administration. The Company continues to invest in training and development through structured onboarding programs, technical workshops, leadership development sessions, and cross-functional learning to ensure a future-ready and skilled workforce.

I. Related Party Disclosure:

Additional Notes:

Directors interest shall have the same meaning as under Section 184 of the Companies Act, 2013.There is no transaction in the Company with any person or entity belonging to the promoter/promoter group which holds 10% or more shareholding in the Company.

J. Details of significant changes (i.e. change of 25% or more as compared to the immediately previous Financial Year) in key financial ratios, along-with detailed explanations are as follows:

In compliance with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the following are the key standalone financial ratios for the year ended March 31,2025, along with explanations for those where there is a significant change of 25% or more compared to the previous financial year:

K. Disclosure of Accounting Treatment

The financial statements have been prepared under the historical cost convention, on a going concern basis, and using the accrual method of accounting in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP). Indian GAAP comprises the mandatory accounting standards as specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended), and other accounting pronouncements issued by the Institute of Chartered Accountants of India (ICAI).

L. Cautionary Statement

This Management Discussion and Analysis Report contains certain forward-looking statements that are based on the current expectations, estimates, and projections of the Company, as well as information and data currently available. These statements relate to future events and the Companys future financial and operational performance, which are subject to various risks and uncertainties. Actual results may differ materially from those expressed or implied due to changes in macroeconomic conditions, regulatory developments, market dynamics, and other unforeseen factors. The Company does not undertake any obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise.