Krishna Defence & Allied Industries Ltd Management Discussions

Upon initial observation, the world economy appears to be in the process of a gradual rebound from the repercussions of both the COVID-19 pandemic and the unforeseen conflict between Russia and Ukraine. China, notably, is experiencing a robust resurgence in its economy as it successfully reopens its markets and mitigates supply chain interruptions. Moreover, the turmoil that had affected energy and food markets due to the conflict is progressively diminishing, contributing to a more stable global economic outlook.

The worldwide economy is on a path of gradual recuperation. Predicted growth rates dipped from 3.4% (2022) to 2.8% (2023), eventually stabilizing at 3.0% (2024). Advanced economies faced a more pronounced slowdown, sliding from 2.7% (2022) to 1.3% (2023). In a plausible alternative scenario with heightened financial stress, global growth dropped to around 2.5% (2023), with advanced economies nearing 1%. While central banks have collectively tightened monetary policies to curb inflation, the process might be slower than expected. The ongoing Russia-Ukraine conflict disrupted energy and commodity markets, curbing GDP growth and affecting regions like the US, Euro Zone, China, and emerging markets. Despite challenges, Chinas lead and easing disruptions are fostering a recovery. Central banks policy adjustments are anticipated to rein in inflation.

Indian Economic Review

India outperformed with a 6.8% FY23 growth, surpassing global averages. Projected growth stands at 6.1%, resilient amid global slowdown. Factors include digitization, fiscal prudence, infrastructure push, stable commodities, robust supply chains, domestic demand, investment, and private consumption. Repo Rate increased to 6.5% to control inflation, while CPI/WPI eased. Industrial production grew 10.94%. Inflation is expected to average 5.2% in FY23/24 due to global price ease and demand moderation. Financial sector remains strong, and World Bank revised FY23/24 GDP forecast to 6.4%, citing consumption challenges.

Encouragingly, Indias central government is on track to achieve its fiscal deficit target of 5.9% of GDP in FY23/24. State government deficits are also anticipated to consolidate, contributing to a decrease in the overall government deficit. This has the potential to stabilize the debt-to-GDP ratio. Moreover, the current account deficit is projected to shrink to 2.1% of GDP from an estimated 3% in FY22/23, driven by strong service exports and a reduced merchandise trade gap. These factors signify positive strides for the Indian economy.

Indian Navy plan

The Indian government has approved a Rs 20,000 crore contract to produce a fleet of urgently needed Fleet Support Vessels (FSVs) for the Indian Navy. Hindustan Shipyard Limited (HSL), located in Vizag, will be responsible for the construction of five warships, each weighing 45,000 tonnes. These vessels constitute the largest ships in their class and will be manufactured at the defense ministry-owned shipyard.

Initiated in 2016 following a green light from the Indian Navy, the Indian FSV project aims to enhance the Navys operational capabilities. The primary purpose of these ships is to provide extensive support to warships during long-range patrols, equipped to transport various essentials, including fuel, ammunition, and provisions. Furthermore, the FSVs will cater to ships of all classifications, including the two Indian aircraft carriers.

In addition to addressing the Navys immediate requirements, the project reflects a broader strategic vision. The Indian Navy is actively planning and designing an array of advanced vessels, encompassing next-generation missile vessels and counter-mine vessels. This comprehensive naval modernization effort also encompasses the imminent order of three additional Scorpene class submarines.

By investing in these initiatives, the Indian Navy is poised to significantly bolster its operational effectiveness and maintain a formidable presence in the region.

In a huge boost to achieve ‘Aatmanirbhar in defence, Ministry of Defence, on March 30, 2023, signed contracts with Indian shipyards for acquisition of 11 Next Generation Offshore Patrol Vessels and six Next Generation Missile Vessels 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 at a total cost of Rs 9,781 crore. 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 (NGMV) was signed with Cochin Shipyard Limited (CSL) 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. The primary role of the ships would be to provide offensive capability against enemy warship, merchantmen and land targets.

The indigenous manufacturing of these vessels will encourage Krishna Defence and Allied Industries Ltd for their growth. With the majority of the equipment and systems sourced from indigenous manufacturers, these vessels will be a proud flag bearer of ‘Aatmanirbhar Bharat.

3. Secretarial Audit Report

[Pursuant to section 204(1) of the Companies Act, 2013 and Rule No. 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014]

To,

The Members,

Krishna Defence and Allied Industries Limited 344, Floor-3, Plot-267, A to Z Industrial Estate,

Ganapatrao Kadam Marg, Lower Parel, Delisle Road,

Mumbai-400013,

Maharashtra, India

We have conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate practices by Krishna Defence and Allied Industries Limited having Corporate Identification Number (CiN): U74900MH2013PLC248021 (hereinafter called "the Company"). Secretarial Audit was conducted in a manner that provided me / us a reasonable basis for evaluating the corporate conducts / statutory compliances and expressing our opinion thereon.

Based on our verification of the Companys books, papers, minute books, forms and returns filed and other records maintained by the Company and also the information provided by the Company, its officers, agents and authorized representatives during the conduct of secretarial audit, we hereby report that in our opinion, the Company has, during the audit period covering the financial year ended on March 31,2023, complied with the statutory provisions listed hereunder and also that the Company has proper Board processes and compliance mechanism in place to the extent, in the manner and subject to the reporting made hereinafter:

We have examined the books, papers, minute books, forms and returns filed and other records maintained by the Company for the financial year ended on 31^st March, 2023 according to the provisions of:

(i) The Companies Act, 2013 (the Act) and the rules made there under;

(ii) The Securities Contracts (Regulation) Act, 1956 (SCRA) and the rules made thereunder;

(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(iv) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (SEBI Act):

a) The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time. As such, the Company has listed its shares on the NSE EMERGE, SME exchange, it has been seeking exemption under Regulation 15(2) of the SEBI (LODR) Regulations, 2015 to the extent permitted;

b) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

c) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

d) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018; - Not Applicable during the audit period

e) The Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021; - Not Applicable during the audit period

f) The Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021; - Not Applicable during the audit period

g) The Securities and Exchange Board of India (Issue and Listing of Non-Convertible and Redeemable Preference Shares) Regulations, 2013; - Not Applicable during the audit period

h) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021;

- Not Applicable during the audit period

i) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;

j) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;

k) The Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 / 2018;

(v) As informed to us, there are no other sector specific Laws which are specifically applicable to the Company.

We have also examined compliance with the applicable clauses of the following:

(i) Secretarial Standards under the provisions of the Companies Act, 2013 and issued by the Institute of Company Secretaries of India.

(ii) The Listing Agreement entered into by the Company with NSE Limited (NSE).

During the period under review, the Company has complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards, etc. as mentioned above.

We further report that

The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors and Independent Directors. There has been one change in the composition of the Board of Directors that took place during the period under review.

Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting.

All decisions at Board Meetings and Committee Meetings are carried out unanimously as recorded in the minutes of the meetings of the Board of Directors or Committees of the Board, as the case may be.

We further report that there are adequate systems and processes in the Company commensurate with the size and operations of the Company to monitor and ensure compliance with and other applicable laws, rules, regulations and guidelines, subject to the following observation:

1. The Company is in the process of strengthening compliances under the Labour Laws and Environment Laws.

We further report that

During the audit period the Company has undertaken following events / actions having a major bearing on the Companys affairs in pursuance of the above referred laws, acts, rules, regulations, circulars, notifications, directions, guidelines, standards, etc. referred to above:

1. on 28^th September, 2022, the members at the Annual General Meeting (AGM), inter-alia approved:

(a) Authorization to the Board of Directors to sell, lease or otherwise dispose of undertaking of the Company;

(b) Authorization to the Board of Directors for Borrowings;

(c) Authorization for making loans, giving guarantees and making investments in other bodies corporate; and

(d) Ratification of appointment of Independent Director of the Company.

2. on 30^th January, 2023, the members at the Extra-Ordinary General Meeting (AGM), inter-alia approved:

(a) Increase in Authorized Share Capital and consequent alteration to the Capital Clause of the Memorandum of Association; and

(b) Issuance of Convertible Equity Warrants on Preferential basis.

Note: This Report is to be read with our Letter of even date which is annexed and forms an integral part of this report.

	For H. M. Mehta & Associates
	Company Secretaries
	Sd/-
	Hemang Mehta
	Proprietor
	FCS No.: 4965
	C. P. No.: 2554
Place: Vadodara	Peer Review No.: 1 184/2021
Date: 05-09-2023	UDIN: F004965E00094I02I

To,

The Members,

Krishna Defence and Allied Industries Limited

344, Floor-3, Plot-267, A to Z Industrial Estate,

Ganapatrao Kadam Marg, Lower Parel, Delisle Road,

Mumbai-400013,

Maharashtra, India

Our Secretarial Audit Report of even date is to be read along with this letter.

1. Maintenance of secretarial record is the responsibility of the management of the Company.

Our responsibility is to express an opinion on these secretarial records based on our audit.

2. We have followed the audit practices and processes as were appropriate to obtain reasonable assurance about the correctness of the contents of the secretarial records. The verification was done on the random test basis to ensure that correct facts are reflected in secretarial records. We believe that the processes and practices, we followed provide a reasonable basis for our opinion.

3. We have not verified the correctness and appropriateness of financial records and Books of Accounts of the Company since the same have been subject to review by the Statutory Auditors and other designated professionals.

4. Wherever required, we have obtained the Management representation about the compliance of laws, rules and regulations and happening of events etc.

5. The compliance of the provisions of Corporate and other applicable laws, rules, regulations, standards is the responsibility of management. Our examination was limited to the verification of procedures on random test basis.

6. The Secretarial Audit report is neither an assurance as to the future viability of the company nor of the efficiency or effectiveness with which the management has conducted the affairs of the Company.