Zen Technologies Ltd Management Discussions

GLOBAL ECONOMY

The global economy demonstrated significant resilience in, 2024, expanding by 3.3% despite persistent inflationary pressures, restrictive monetary policy and widespread geopolitical instability [source: International Monetary Fund (IMF) World Economic Outlook, April 2025]. Developed nations benefited from resilient labour markets and steady demand for services, while countries like India continued to anchor growth among emerging economies.

Looking ahead, the IMF forecasts a moderation in global GDP growth to 2.8% in 2025 before showing a modest recovery to 3.0% in 2026. While growth in advanced economies are expected to decelerate further and emerging and developing markets—particularly in Asia—are projected to maintain momentum at 3.7%. However, global risks remain high due to rising protectionism, regional conflicts, and fragmented trade channels.

Inflation trends have begun to stabilise, though unevenly. Advanced economies may see inflation hover around 2.5% in 2025, while developing nations could see it ease to 5.5% [source: OECD, March 2025]. Core inflation—especially in services—continues to challenge central banks, many of which are still treading cautiously.

While inflation is conventionally measured through consumer price indices, long-term erosion of purchasing power may be more effectively assessed through alternative benchmarks such as gold or Bitcoin. These reflections are gaining relevance as investors and policymakers evaluate the broader consequences of monetary expansion over the last decade.

GEOPOLITICAL TENSIONS AND DEFENCE READINESS

Heightened geopolitical volatility has elevated the strategic importance of defence preparedness globally. For India, the evolving threat landscape ranging from cross-border incursions to drone-based and hybrid warfare has necessitated a shift towards continuous readiness. This has translated into sustained investments in platform modernisation, simulation-driven training, and indigenous counter-drone and surveillance solutions, reinforcing the Armed Forces ability to respond swiftly and effectively to emerging security challenges.

Sun Tzu captured this reality best when he wrote, "The art of war teaches us to rely not on the likelihood of the enemys not coming, but on our own readiness to receive him, not on the chance of his not attacking, but rather on the fact that we have made our position unassailable." That principle is more relevant now than ever. Investing in continuous training and modern defensive systems—particularly those capable of neutralising drone threats—is no longer about maintaining superiority, it is about ensuring survival in a world where the cost of unpreparedness grows by the day.

GLOBAL DEFENCE INDUSTRY

In 2024, the global defence sector witnessed strong expansion, with military spending of $2.718 trillion, reflecting a remarkable 9.4% increase from the previous year which is —one of the most significant annual escalations since the Cold War era (Source: Stockholm International Peace Research Institute, SIPRI Yearbook 2025).

This surge was not driven by any single flashpoint, but rather stemmed by a widespread reassessment of national security priorities across continents:

(-) The United States (U.S.) maintained its position as the largest spender with total military expenditure reaching $997 billion.

(-) European Nations defence spending increased by 17%—largely due to the war in Ukraine.

(5) Asia-Pacific region contributed 22% of global military expenditure, with China alone allocating $227 billion.

(-) Both Ukraine and Russia allocated large portions of GDP to defence: 43% and 7%, respectively, due to ongoing conflict.

The global defence landscape has transitioned from a reactive framework to a strategically driven, forward-looking model. Governments are committing to long-term investment on modernisation, domestic production, and next- generation systems. From AI integration to cyber resilience, the industry is undergoing a foundational shift in how threats are anticipated and addressed.

WHATS DRIVING THE DEFENCE BOOM

Several converging factors are shaping the sustained growth of the global defence sector:

(-) Persistent Geopolitical Conflicts:

Wars in Eastern Europe, unrest in the Middle East, and friction in the Indo-Pacific continue to push nations toward urgent defence spending.

(-) Depletion of Conventional Weapon Stockpiles:

Existing arsenals, especially for artillery and precision munitions, are being depleted faster than they can be replenished—forcing rapid procurement.

(-) Next-Gen Equipment:

Many militaries are phasing out older systems and prioritising modern assets such as simulated training, drones, missile shields, and mobile armour. According to MarketsandMarkets (2025), the global airborne defence systems market alone is projected to grow to $ 106.2 billion by 2025.

(-) Technological Integration:

Emerging technologies—AI, autonomy, cyber warfare—are attracting unprecedented funding. Drone warfare in particular has transformed from niche to mainstream.

(-) Localised Manufacturing:

Countries are building out domestic supply chains to reduce vulnerability and secure critical production lines. Policy frameworks such as the U.S. CHIPS Act, Europes Defence Industrial Strategy, and Indias Atmanirbhar Bharat are encouraging onshore manufacturing of critical defence equipment.

(-) Economic Rationale:

Defence is now seen not just as a security imperative but also as a tool for driving innovation, exports, and industrial resilience.

MAJOR TRENDS SHAPING THE FUTURE OF DEFENCE

(-) Artificial Intelligence and Autonomy:

AI is increasingly embedded into command systems, surveillance, and autonomous platforms, transforming how operations are planned and executed. Military-grade autonomy is no longer theoretical; it is operational in unmanned aerial, ground, and naval vehicles.

(-) Cybersecurity:

Digital infrastructure is now a frontline concern. Governments are ramping up investments to guard against growing cyber threats. According to Allied Market Research, the global cybersecurity market for defence is projected to exceed $ 50 billion by 2027.

(-) Green Defence:

Militaries are beginning to factor in emissions, fuel efficiency, and alternative energy, aligning security goals with sustainability.

(-) Immersive Training:

Augmented and virtual reality tools are improving combat readiness while cutting down on live training costs and wear on real equipment.

INDIAN ECONOMY

India maintained its position as the worlds fastest-growing major economy in FY25, with GDP projected at 6.5% as per the National Statistical Office (NSO), Second Advance Estimates, February 2025. This growth was driven by strong manufacturing output, services expansion, and continued investment in infrastructure and digital systems. Despite global headwinds, Indias macroeconomic fundamentals remain stable. Inflation is within the central banks tolerance band, the fiscal deficit is on a consolidation path, and foreign exchange reserves remain robust. Importantly, India has benefited from its diversified trade relationships, increased domestic manufacturing under the Atmanirbhar Bharat initiative, and growing participation in global value chains.

Looking ahead to FY26, the Reserve Bank of India (RBI) has projected real GDP growth at 6.5% (RBI Monetary Policy Statement, April 2025).

The growth is expected due to stable inflation, rising incomes, and a normal monsoon are expected to support consumption in both rural and urban areas. Government Policy support—such as the Production-Linked Incentive (PLI) scheme and expanded digital services—will likely sustain Indias growth momentum even amid global uncertainty.

INDIAS DEFENCE SECTOR: FROM IMPORTER TO EXPORTER

Indias defence sector is witnessing a significant structural shift, transitioning from an import-reliant framework to a domestically focused, innovation-led manufacturing ecosystem.

Overview of Indias Defence Sector

(-) The Union Budget for FY26 allocated R6.81 Lakhs Crore (~$ 78.8 billion) to the Ministry of Defence, making it the largest allocation among all ministries.

(-) R1.80 Lakhs Crore has been earmarked for capital expenditure, of which 75% committed to domestic procurement, ensuring sustained demand for indigenous defence manufacturers. (Source: Ministry of Defence - Press Information Bureau (PIB) Release, February 2025)

(-) FY25, the defence production reached a record R1.46 lakh Crore, representing15% increase from the previous year. (source: Ministry of Defence Annual Report 2024-25)

(5) Growth of Defence Exports soared to R23,622 Crore (~$ 2.76 billion), a dramatic rise from R686 Crore in FY14 (Source: Department of Defence Production (DDP), MoD - Annual Export Data).

This transformation is being driven by targeted policy moves—from Positive Indigenisation Lists to relaxed FDI norms and the iDEX innovation scheme.

The Government aims to achieve R3 Lakhs Crore in defence production and R50,000 Crore in exports by 2029, signalling Indias emergence as a major player in the global defence supply chain. Achieving these targets will require sustained focus on R&D, advanced manufacturing, and skilled workforce development, supported by a strong and self-reliant industrial ecosystem.

SIMULATION: THE NEW STANDARD IN MILITARY TRAINING

Simulator-based training has emerged as a critical component of modern military preparedness, offering the Indian Armed Forces a cost-effective, scalable, and technology-enabled alternative to traditional field-based training. The Ministry of Defence has institutionalised simulator adoption through dedicated policy frameworks, with a focus on indigenous development, operational efficiency, environmental sustainability and combining self-reliance with innovation. The framework supports the development of simulators for key operational areas and encourages outsourcing maintenance to Indian firms, aligning with Atmanirbhar Bharat. This approach enhances training safety, and delivers realistic, high-fidelity combat readiness through advanced, repeatable simulation environments.

Advanced tools powered by AR, VR, and AI are transforming how soldiers prepare for combat. These technologies reduce the need for live equipment while offering highly realistic, scenario-based training environments. According to global defence market estimates, the defence simulation and training sector is expected to grow from $ 13.7 billion in 2024 to $ 21.1 billion by 2034, at a CAGR of 7.9%, with India positioned as a significant contributor to this growth

DRONE WARFARE, AUTOMATED SYSTEMS AND THE NEED FOR COUNTERMEASURES

The increasing deployment of unmanned aerial systems (UAS) has fundamentally transformed the modern battlefield. Drones, once limited to surveillance tech, has quickly evolved into low-cost, high-impact strike capability, operational flexibility, and capacity for autonomous or remotely operated precision strikes. As a result, counter-drone systems are now vital to national defence strategies.

Indias counter-drone market is forecast to grow at a staggering 34.8% CAGR, with market size expected to reach $430 million by 2030 (Source: Market Research Future, 2024). Several factors are fueling this growth:

(-) Ongoing breakthroughs in

AI,sensor fusion and autonomous decision systems.

(-) Increased domestic R&D efforts supported by public and private investment.

(-) Strong government backing for indigenous solutions.

Modern counter-drone systems rely on layered defence-combining radar, radio frequency jamming, conventional weapons enhanced with remote capabilities, cyber takeover, high powered microwaves, kinetic interceptors, and laser tech to detect, track, and neutralise threats. Indias emphasis on developing these systems domestically not only ensures security but also builds long-term industrial capability. These systems need to be tightly integrated with both soft-kill and hard kill options. We are advancing the nations capabilities in these crucial areas through cutting-edge innovation through self-funded R&D.

ABOUT THE COMPANY

Zen Technologies Limited, established in 1993, has evolved into a leading provider of advanced defence training solutions and counter-drone technologies within Indias rapidly expanding defence ecosystem. Headquartered in Hyderabad with strategic operations across India, UAE, and the United States, the company has transformed into a comprehensive defence technology provider addressing contemporary warfare requirements through cutting-edge simulation and security platforms.

The companys core business offerings encompasses three primary verticals: training solutions including live ranges and virtual simulation systems, cutting-edge counter-drone detection and neutralisation technologies, and advanced military hardware platforms including robotic surveillance systems and remote weapon stations.

Zen Technologies maintains an extensive portfolio of indigenously designed products ranging from tank crew gunnery simulators and containerised driving systems to comprehensive anti-drone solutions designed for border security and critical infrastructure protection.

The Company has established itself as an innovation leader through substantial research and development investments, maintaining an impressive portfolio of 85 patents globally. The companys commitment to indigenous development aligns with Indias Make in India and Atmanirbhar Bharat initiatives.

With over 1,000 training systems deployed globally and ISO 9001:2015, ISO/IEC 27001:2022, and CMMI Maturity Level 5 certifications, Zen Technologies maintains operational excellence whilst establishing itself as a trusted partner for defence and security forces worldwide.

FINANCIAL PERFORMANCE REVIEW

Zen Technologies Limited delivered its strongest financial performance to date in FY25, achieving new records across revenue and profitability metrics. The companys standalone revenue from operations stood at T93,066.72 Lakhs— reflecting an impressive 116% jump from T43,027.51 Lakhs in FY24. This sharp rise was largely driven by timely project execution, both in India and overseas, across its simulation and counterdrone portfolios.

Operating profits also witnessed robust growth. Operational EBITDA reached T32,310.17 Lakhs, representing a year- on-year growth of 79% year-on-year, translating to an operational EBITDA margin of 34.7%. Despite ramping up research & development (R&D) expenditure, Zen maintained strong margins supported by its scalable, IP- driven business model. Net profit (PAT) nearly doubled reaching T26,295.07 Lakhs in FY 25, as operational efficiencies and a leaner working capital cycle contributed to the bottom line.

During the year, , the Company raised T100,000 Lakhs through a Qualified Institutional Placement. The proceeds are being deployed to fund acquisitions and expand working capital-key steps to support future growth.

As of March 31,2025, the companys order book stood at T69,194.10 Lakhs, split between T42,239.52 Lakhs in equipment and T26,954.56 Lakhs in long-term service contracts. This strong pipeline supports ongoing momentum and business visibility into the next fiscal year.

In line with its innovation-led roadmap, the Company increased its R&D spend to T3,301.20 Lakhs in FY 25 from T2,665.34 Lakhs in FY 24. Additionally, the Company committed an incremental investment of T7,000 Lakhs to further enhance product development infrastructure, underscoring the companys long-term innovation agenda.

KEY FINANCIAL RATIOS

Particulars	FY25	FY24	% Change	Remarks
Current Ratio (in times)	9.52	2.26	321.62%	The current ratio improved primarily due to increase in cash and cash equivalents from QIP funds raised
Debt-Equity Ratio (in times)	0.03	-	100.00%	The ratio has increased due to increase in borrowings.
Debt Service Coverage Ratio (in times)	18.99	23.28	-18.41%	NA
Return on Equity Ratio (in %)	24.55%	33.47%	-26.64%	The decrease is due to increase in equity from QIP issue
Inventory turnover ratio (in times)	4.93	1.70	190.57%	Increase in COGS which is commensurate with the increase in revenues during the year as resulted in higher inventory ratio
Trade Receivables turnover ratio (in times)	3.40	3.66	-7.05%	NA
Trade payables turnover (in times)	25.16	20.27	24.11%	NA
Net capital turnover ratio (in times)	0.77	1.34	-42.27%	Decrease in ratio is on account of increase in working capital.
Net profit ratio (in %)	28.25%	30.04%	-5.93%	NA
Return on Capital employed (in %)	20.78%	40.56%	-48.75%	The decrease is due to increase in equity from QIP issue
Return on Investment*	NA	NA	NA	NA

ACQUISITIONS DURING THE YEAR

In FY25, Zen Technologies took major steps to broaden its capabilities through targeted acquisitions across different defence verticals.

The headline acquisition was a 76% stake in Applied Research International Private. Limited. (ARIPL), a company with more than 1,000 installations across 50+ countries in naval and maritime simulation. This move allows Zen to diversify into the naval training space and tap into annuity-based software revenues.

The company also acquired a majority 51% stake in Vector Technics Private. Limited a startup focused on developing core components for drones. This strengthens Zens unmanned aerial vehicle (UAV) ecosystem integration with the objective to cut Indias dependency on foreign-sourced drone components.

A third strategic investment was in Bhairav Robotics Private Limited where Zen took a 45.33% stake. The startup specializes in AI-powered robotic warfare platforms. This acquisition accelerates Zens entry into autonomous land systems with access to advanced prototypes and ongoing R&D.

Each of these acquisitions aligns with Zens Make in India strategy and long-term vision of becoming a comprehensive, multi-domain defence tech provider.

OUTLOOK

Looking ahead, Zen Technologies is well-positioned to capitalise on rising global and domestic defence spending. The Company expects to see continued growth in demand for its training systems, drone technologies, and surveillance platforms, especially as governments

prioritise domestic manufacturing and technology self-reliance.

The recent acquisitions will begin contributing more meaningfully from FY26, particularly in broadening Zens reach across land, sea, and air-based defence domains. The T1,000 Crore capital raise provides the financial flexibility to pursue further strategic opportunities and respond quickly to evolving market demands.

Management remains optimistic about sustaining double-digit growth in the coming years, supported by a healthy order book, ongoing R&D, and strong alignment with national defence priorities.

RISKS AND MITIGATION

Zen Technologies operates in a dynamic and highly regulated industry where innovation, competition, and regulatory changes can shape both opportunities and risks. The Company actively identifies and manages risks to ensure long-term sustainability.

Key risks and corresponding mitigation strategies include:

COMPETITIVE PRESSURE:

The global defence players often engage in aggressive pricing to win contracts. Zen mitigates this by focusing on product customisation, superior performance, and long-term service relationships, which differentiate the Company beyond price.

ECONOMIC HEADWINDS:

Macroeconomic slowdowns and fiscal tightening can impact defence budgets and delay procurement cycles. The Companys diversified product line and presence across multiple geographies reduce dependence on any single economy.

UNCERTAIN ORDERS:

Developing client-specific systems without confirmed orders can affect cash flow. Zen addresses this by securing milestone-based agreements and maintaining close collaboration with clients throughout the development process.

PROCUREMENT CHALLENGES:

Government contracts often prioritise the lowest bidder, which may not reflect quality and lifecycle value. Zen invests in cost optimisation while delivering superior value to remain competitive.

SUPPLY CHAIN DISRUPTIONS:

Global Component shortages, shipping constraints, or geopolitical issues can delay production. To mitigate this, the company has developed a resilient supplier network and contingency planning strategies.

TECHNOLOGY SHIFTS:

Rapid innovation in defence tech may poses a risk of obsolescence. Zen counters this with continuous investment in next- generation R&D,agile product development practices and collaborates with academic and industry partners to stay at the forefront of technological relevance.

CYBERSECURITY

As a developer of defence-grade technologies, Zen operates in a threat-sensitive environment. The Company maintains robust cybersecurity protocols, undertakes periodic audits, implements ISO/IEC 27001:2022 standards, and ensures regular staff training to safeguard sensitive data and intellectual property.

TALENT RETENTION

Specialised talent is crucial to product development. Zen fosters a strong internal culture, offers growth opportunities, and ensures succession planning to retain and develop its workforce.

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

People are central to Zen Technologies success. In FY25, the Company continued investing in its workforce by offering skill-building programmes and leadership development tracks. These efforts are designed to prepare employees for the demands of an evolving defence technology landscape.

As of March 31,2025, Zen employed more than 395 professionals across various domains including engineering, systems design, manufacturing, and customer support. The company has worked hard to build a culture of collaboration, innovation, and operational discipline.

Zen also places a strong emphasis on maintaining constructive industrial relations and open lines of communication with all stakeholders. This proactive approach ensures a motivated workforce aligned with strategic goals.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Zen Technologies has implemented a robust internal control system designed to support the scale and complexity of its growing operations. This framework ensures accountability, financial discipline, and compliance with applicable regulations.

The internal control environment is anchored on the following core element:

(#) A well-defined organisational structure with clearly assigned roles, responsibilities, and reporting hierarchies;

(-) Documented policies and standard operating procedures that govern key financial, operational, and compliance-related activities;

(#) Quarterly internal audits conducted by an independent internal audit function to assess control effectiveness, identify gaps, and recommend improvements;

(-) Oversight by the Audit Committee of the Board, which monitors the implementation of audit findings on quarterly basis and ensures timely corrective actions.

In FY25, the Company conducted a comprehensive review of its financial controls and concluded that the internal controls were adequate and operating effectively, with no material weaknesses identified. The Board and senior management remain committed to ensuring transparency and operational integrity across the organisation.

CAUTIONARY STATEMENT

This report contains forwardlooking statements based on current expectations, assumptions, and projections about future events. These statements involve risks and uncertainties that could cause actual results to differ materially.

Readers are advised to consider these factors carefully. Zen Technologies is under no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise.

While the Company remains confident in its strategy, it acknowledges that external factors—such as global economic conditions, regulatory changes, or technological disruptions—may impact performance in unpredictable ways.