Droneacharya Aerial Innovations Ltd Management Discussions

The Company Management is pleased to present before the members of the Company, the Management Discussion & Analysis Report ("MDAR") of the Companys business for the

nancial year 2023-2024.

Economic overview:

The global economy is anticipated to strengthen in 2025 as uncertainties diminish and major Western central banks are expected to lower interest rates towards the end of 2024. This shift is expected to boost capital ows to India, enhancing private investment and exports. While in ation concerns persist, they are projected to ease in the latter half of the next scal year, barring any unexpected spikes in oil or food prices. India has emerged as the fastest-growing economy in the world and is expected to be one of the top three economic powers over the next decade, backed by its robust democracy and strong partnerships. As India races to clinch the third spot in terms of GDP, the consumer market is also set to become the worlds third-largest by 2027.

Despite signi cant challenges in the global environment – including renewed disruptions of supply lines following the rise in geopolitical tensions, the synchronized tightening of global monetary policies, and in ationary pressures, the Indian economy has shown substantial growth. According to a survey by the Reserve Bank of India, consumer con dence has barely reached pre-pandemic levels, and the improvement over the past few months has been gradual, despite a strong pickup in economic activity. However, the rapid growth of the middle-income class has led to rising purchasing power and even created demand for premium luxury products and services. With the number of middle-to-high-income households with increasing disposable income to rise, this trend will likely get further ampli ed, driving overall private consumer expenditure growth. Indias per capita income has steadily increased by 140%—from US$1,674 in 2014 to US$2,341 in 2022.

India has successfully navigated multiple economic shocks in recent years, solidifying its position as one of the fastest growing major economies in the world. The IMF has raised Indias economic growth forecast to 6.8% for 2024-25 and 6.5% for 2025-26, up from its previous forecast of 6.7% for 2024. The growth in GDP during the year 2023-24 is estimated at 7.6 % as compared to 7.0% in 2022-23. With in ation currently around 4.7%, close to the mid-target of 4%, further decreases in in ation are expected, which should bolster consumer spending. This positive outlook for consumption, combined with continued economic reforms and strong public investment, supports a robust growth trajectory for India in the coming years.

(Source: IMF – April 2024, Deloitte: India economic outlook - April 2024)

Drone Industry Analysis and Developments:

India is positioning itself as a leader in Industry 4.0 by setting an ambitious goal to become a major global hub for drones by 2030. This move is projected to boost the countrys GDP by 1-1.5% and create at least 500,000 jobs in the coming years. Central to this e ort is the Production Linked Incentive (PLI) scheme, introduced by the government in 2021, which the drone industry is now calling to expand. Pawan Goenka, chairperson of the Steering

Committee for Advancing Local Value-add and Exports (SCALE), highlights the industrys satisfaction with the current scheme but emphasizes the need for its enlargement to include more players and increase nancial outlay, especially bene ting startups and small to medium enterprises.

The drone manufacturing industry in India has seen signi cant growth, with annual sales turnover expected to increase from approximately Rs 60 crore in 2020-21 to around Rs 900 crore by 2024-25, according to Minister of State of Civil Aviation Gen. VK Singh (Retd.). This growth is underpinned by the governments liberalized drone regulations introduced in August 2021, which reduced bureaucratic hurdles and opened nearly 90% of Indian airspace as a green zone for drones ying up to 400 feet.

The PLI scheme has so far disbursed Rs 30 crore out of a total incentive pool of Rs 120 crore, with 23 bene ciaries selected, including 12 drone manufacturers and 11 component manufacturers. The governments comprehensive approach also includes the elimination of drone pilot license requirements, establishment of drone training schools, and a ban on the import of foreign drones with certain exceptions, all aimed at fostering a robust domestic drone market.

To further promote indigenous drone usage, the government has simpli ed export policies for civilian drones and rolled out a scheme to provide drones to over 15,000 women-led Self Help Groups (SHGs) between 2023-24 and 2025-26. This initiative enables SHGs to o er drone rental services to farmers. Additionally, the Kisan Drone Scheme o ers incentives and subsidies for farmers to purchase drones for agricultural purposes, enhancing crop monitoring and fertilization.

Finance Minister Nirmala Sitharamans interim budget on February 1, 2024, increased the allocation for the PLI scheme for drones and components to Rs 57 crore for FY 2024-25, up from Rs 33 crore in FY 2023-24. As per the EY-FICCI report Making India the Drone Hub of the World, the global drone market is projected to reach $54 billion by 2025, with India potentially capturing a $4.2 billion share, expanding to $23 billion by 2030.

However, challenges remain, particularly the lack of a robust component ecosystem, forcing domestic manufacturers to rely on imports. Investments are being made to develop this local ecosystem, with companies like IdeaForge leading e orts to indigenize drone technology. Establishing o icial testing facilities and fostering a skilled talent pool for UAV operations are also critical needs. Concerns about the PLI schemes lack of checks and balances have been raised, with industry leaders urging for the inclusion of service-linked incentives alongside production-linked ones to ensure quality and comprehensive industry growth.

(Source: https://economictimes.indiatimes.com/)

Opportunities and threats:

Indias diverse landscape and growing economy present fertile ground for the drone industry.

In agriculture, drones o er signi cant advancements through precision farming. By enabling e icient crop monitoring, precise pesticide application, and detailed soil analysis, drones can help farmers optimize resources and increase yields. Similarly, the expanding infrastructure sector can bene t from drones in surveying, mapping, and monitoring construction sites, enhancing e iciency and safety.

The logistics and delivery sector also stands to gain from drone technology. Drones can revolutionize last-mile delivery, especially in remote or congested urban areas, while also providing crucial services in medical supply delivery and disaster relief. Security applications for drones are equally promising, from border surveillance and industrial monitoring to supporting law enforcement and public safety e orts.

In Indias defence sector, drones have become indispensable for enhancing surveillance, reconnaissance, and combat capabilities. Equipped with advanced sensors, UAVs monitor borders, detect threats, and provide real-time intelligence, particularly in challenging terrains. Armed drones enable precision strikes with minimal risk to personnel. Additionally, drones play crucial roles in counter-terrorism, internal security, disaster management, and humanitarian aid, showcasing their versatility and strategic importance in safeguarding national security.

On the other side, Drone companies in India face several risks and concerns that could hinder their growth and sustainability. A signi cant challenge is the regulatory landscape, which, despite improvements, remains complex and sometimes restrictive. Compliance with evolving regulations can be burdensome and costly, especially for smaller rms. Additionally, illegal imports of drones, often sold at lower prices without adhering to safety and quality standards, create unfair competition for legitimate businesses. This not only undermines market stability but also raises safety concerns, as these unregulated drones can pose signi cant risks to public safety and security.

Increasing competition, both domestic and international, also poses a threat to Indian drone companies. International rms, equipped with advanced technology and substantial nancial resources, can outcompete local startups, making it di icult for them to establish a foothold in the market. This competitive pressure necessitates continuous investment in research and development to keep up with technological advancements, which can strain the nancial resources of smaller companies. Furthermore, cybersecurity risks are a major concern, as drones are vulnerable to hacking and data breaches, potentially compromising sensitive information and operational integrity. Addressing these issues requires a concerted e ort from the industry and regulatory bodies to ensure a fair, safe, and competitive market environment.

Outlook:

The drone industry in India is set to experience signi cant growth, driven by expanding opportunities across various sectors. One of the most promising areas is agriculture, where drones are revolutionizing traditional farming practices. By enabling precision farming, drones allow for e icient crop monitoring, soil analysis, and pest management, which can lead to optimized resource use, reduced costs, and improved yields. With Indias vast agricultural landscapes, the adoption of this technology is crucial for addressing challenges related to food security and sustainability. Government initiatives and technological advancements are making drones more accessible to farmers, further accelerating this trend.

In the defense and security sectors, drones are becoming indispensable tools for enhancing Indias military capabilities. The demand for sophisticated military and surveillance drones is rising as India seeks to bolster its security infrastructure. Domestic manufacturers have a signi cant opportunity to contribute to this demand by developing and producing state-of-the-art drones. This not only supports the countrys defense objectives but also ensures that India remains at the forefront of technological advancements in this critical area Drones are also proving to be vital in crisis and disaster relief e orts, o ering support for search and rescue operations, damage assessments, and the delivery of essential supplies. The Indian governments focus on enhancing drone capabilities for these applications opens up new opportunities for improving disaster response and recovery e orts. By advancing drone technology, India can enhance its preparedness and response to emergencies, ultimately bene ting a ected communities.

Another promising area is the use of drones in last-mile logistics. With the growth of e-commerce and the increasing demand for faster deliveries, drones o er a solution for more e icient and timely delivery of goods, especially in urban areas. This segment is expected to grow as Indias online retail market expands, providing a lucrative opportunity for the application of drone technology in logistics.

Finally, the Indian government is promoting domestic manufacturing of drones as part of the ‘Make in India initiative. Regulations have been put in place to restrict the import of drones while encouraging the production of drone components and the establishment of manufacturing facilities within the country. This policy, coupled with a thriving ecosystem of startups and manufacturers, positions India to become a global leader in drone technology, capitalizing on the diverse opportunities the industry o ers.

Internal control system and their adequacy:

The Company has mechanisms in place to establish and maintain adequate internal controls over all operational and nancial functions. The Management continuously reviews the internal control systems and procedures to ensure orderly and e icient conduct of business. The Company deploys a robust system of internal control that ensures regulatory and statutory compliance; and safeguards investors interests by ensuring the highest level of governance.

M/s Veena Agrawal & Associates, Chartered Accountants are the Internal Auditors of the Company, who conduct audits and submit reports to the Audit Committee and the board. The Internal Audit process is designed to review the adequacy of internal control checks in the system and covers all signi cant areas of the Companys operations. Further, the Audit Committee annually reviews the Internal Auditors independence and performance, and the e ectiveness of the audit process.

Financial Performance w.r.t Operational Performance:

The nancial performance of the company for the FY 2023-24 is set out in the Boards Report, which forms part of the annual report.

Key Financial Ratios:

Material development in Human Resource / Industrial Relation front:

The Company has a committed and dedicated workforce with high enthusiasm. The Human Resource team identifies candidates who have the skills and experience, providing them with career opportunities with suitable training programs. The company offers attractive salaries and benefits packages based on the expertise and experience of the candidate. The company has also designed a succession plan to prevent sudden loss of experience and expertise, to mitigate the risk of decreased efficiency, productivity, and quality of work.

Cautionary Statement:

Statements in the management discussions and analysis section describing the companys projections, estimations, expectations and predictions may be ‘forward-looking statements within the meaning of applicable securities, laws and regulations. Actual results could defer materially from the expressed or implied ones. Important factors that would make a di erence in the companys operations include demand-supply conditions, input costs escalations, changes in government regulations and tax regimes, competition, economic developments within and outside the country etc.