K Provision, contingent liabilities and contingent assets

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised under finance costs. Expected future operating losses are not provided for. Provision in respect of loss contingencies relating to claims, litigations, assessments, fines and penalties are recognised when it is probable that a liability has been incurred and the amount can be estimated reliably.

Contingent liabilities and contingent assets:

A contingent liability exists when there is a possible but not probable obligation, or a present obligation

that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

Contingent assets are not recognised in Standalone Financial Statements since this may result in the recognition of income that may never be realised.

However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and is recognised.

L Earnings per share

Basic Earnings Per Share ('EPS') is computed by dividing the net profit attributable to the equity shareholders by the weighted average number of equity shares outstanding during the year.

Diluted earnings per share is computed by dividing the net profit by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless issued at a later date. In computing diluted earnings per share, only potential equity shares that are dilutive and that either reduces earnings per share or increases loss per share are included. The number of shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for the share splits.

M Cash flow statement

Cash flows are reported using the indirect method, whereby net profit/ (loss) before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from regular revenue generating (operating activities), investing and financing activities of the Company are segregated.

N Cash and cash equivalents

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with banks that are readily convertible into cash which are subject to insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments.

O Foreign currency transactions and balances

In preparing the Standalone Financial Statements of the Company, transactions in currencies other than the Company's functional currency (i.e. foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items

denominated in foreign currencies are translated at the rates prevailing at that date.

Monetary assets and liabilities denominated in foreign currencies are translated at INR spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in the statement of profit and loss.

Net loss relating to translation or settlement of borrowings denominated in foreign currency are reported within finance costs. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).

In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a nonmonetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Company initially recognises the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Company determines the transaction date for each payment or receipt of advance consideration.

P Financial liabilities and equity instruments: Classification as debt or equity:

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments:

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a Company are recognised at the proceeds received, net of direct issue costs.

Q Recent accounting pronouncements:

Ministry of Corporate Affairs ("MCA") notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. For the year ended March 31, 2024, MCA has not notified any new standards or amendments to the existing standards applicable to the Company.

Notes:

(i) Terms of long term loan from ICICI Bank

The outstanding term loan carries a rate of interest ranging from 9.85% to 10.85% to p.a with repayments to be made in 66 monthly equal instalments starting from september, 2025.

The primary security for the loan was secured by way of:

(a) First charge by way of hypothecation on entire Property, plant and equipment of the Company

(b) Second charge by way of hypothecation on entire current assets of the Company

The loan was also secured by collateral security of first charge on the, Industrial land admeasuring 8831 Sq. yards along with building, located at plot no. 17/B, Phase III, Industrial Park, Sy.No.163 & 164, APIIC IALA, Pashamylaram, Patancheru, Medak, Telangana in the name of Azad Engineering Limited.

(ii) Loan from Yes Bank

The outstanding term loan carries a rate of interest 10.50% p.a with repayments to be made in 24 monthly unequal instalments.

The Company has taken the Equipment Finance Loan arrangement flor buying of specific Plant & Machinery. This loan is secured by exclusive charge by way of hypothecation of machinery purchased.

(iii) Terms of Long Term Loan from Consortium Banks (Union Bank of India(UBI), IndusInd Bank Limited(IndusInd), ICICI Bank Limited(ICICI))

The outstanding term loan carries a rate of interest ranging from 7.5 % to 8.5% p.a with repayments to be made in 6-20 quartly equal instalments.

The primary security for the loans consists of:

1. First pari-passu charge by way of hypothecation on the company's entire current assets (present and future).

2. First pari-passu charge by way of hypothecation on the company's entire fixed assets (present and future).

The collateral security for the loan includes:

1. First pari-passu charge on industrial land (5178.80 sq. yards) and building at plot no. 90/C, Phase 1, IDA Jeedimetla, Hyderabad, Telangana, in the name of Swastik Coaters Pvt Ltd.

2. First pari-passu charge on industrial land (5392 sq. yards) and building at plot no. 90/D, Phase 1, IDA Jeedimetla, Hyderabad, Telangana, in the name of M/s Rouland Chemicals Pvt Ltd.

3. First pari-passu charge on industrial land (8831 sq. yards) and building at plot no. 17/B, Phase III, Industrial Park, Sy.No.163 & 164, APIIC IALA, Pashamylaram, Patancheru, Medak, Telangana, in the name of Azad Engineering Private Limited.

The loan is also secured by the personal guarantees of Mr. Rakesh Chopdar and Mrs. Jyoti Chopdar, and the corporate guarantees of Swastik Coaters Pvt Ltd and Rouland Chemicals Pvt Ltd.

(iv) Loan from TATA Capital

The outstanding term loan carries a rate of interest ranging from 9.63 % to 14.29 % p.a with repayments to be made in 24-60 monthly equal instalments.

The company has taken the Equipment Finance Loan arrangement and the same is used for buying of specific Plant & Machinery and these are secured by exclusive charge by way of Hypothecation of machinery purchased to be purchased out of fund.

(v) Vehicle loans

Vehicle loans from bank amounting to ' 36.58 (March 31, 2023: ' 23.25) carry interest rate of 7.25% to 11.04% p.a and are repayable in 37- 39 equated monthly instalments. The said loans are secured by way of hypothecation of vehicles purchased.

(vi) Terms of Compulsorily convertible debentures -Piramal Trusteeship Private Limited

The company has raised the CCD (Compulsory Convertible Debenture) from Piramal Structured Credit Opportunities Fund. The investment amount is ' 1,600 and company has issued 1,600 fully paid -up Compulsorily Convertible Debenture.

The CCD's are secured by

1) 51% share pledge of all the present and future shares outstanding of the Issuer, (on a fully diluted basis, present and future and in dematerialised form) shall be required.

2) Non-Disposable Undertaking ("NDU") and Non-encumbrance over the balance shares present and future on a fully diluted basis and POA

3) First charge on all machinery purchased from the proceeds of the Instrument (to the tune of ' 400.00) and

4) Second Charge on security given to Consortium Bank.

The CCD carries the coupon of 10% per annum payable monthly, which shall increase to 14% post expiry of 36 months, and then increase by 2% at the beginning of each calendar quarter up to 20% till conversion of the CCDs.

The instrument has life of 7 years with Put & Call option and minimum assured IRR is 18% or MOIC of 1.35x. There is upside sharing with the company if Piramal make IRR greater than 22%. The CCD will be converted into equity base on pre agreed EV/EBITDA of 18 times of FY 2022-23 net of debt.

On December 11, 2023, Compulsorily Convertible Debentures of Piramal Structured Credit Opportunities Fund, were converted into 4,978,062 Equity Shares.

Direct tax:

For AY 2022-23, a demand of ' 15.71 arose out of an intimation order dated July 26, 2023 passed u/s 143(1) on processing of return of income. The demand was due to credit not allowed in respect of a challan of ' 2.00 due to mismatch and denial of deduction claimed u/s 80JJAA amounting to ' 33.76. The Company has submitted a request for allowing the credit and submitted necessary application to the authority seeking relief in this matter. Based on the facts and circumstances of the case, management is of the view that application would be considered favourably by the respective authority and necessary relief would be granted.

For AY 2021-22 a demand of ' 3.96 was received vide an intimation order dated March 7, 2023 passed u/s 143(1) while processing the of return of income. The demand arose due to denial of deduction claimed u/s 80JJAA amounting to ' 7.72. However, the management has submitted necessary application to the authority seeking relief in this matter, based on the facts and circumstances of the case, necessary relief would be granted.

For AY 2020-21, a demand of ' 6.82 arose due to disallowance made by assessing officer while passing the assessment vide order dated September 24, 2022 . The Company has preferred an appeal against the said assessment order before the Commissioner of Income Tax (Appeals) and the same is pending. The case is yet to be taken up for hearing and necessary action will be taken as soon as the case is taken up for hearing.

For AY 2015-16 there is a demand of ' 0.74. Originally a demand had arisen in pursuance of assessment. The company had gone for appeal against assessment order . The company has paid the taxes of ' 0.38 based on computation. An order giving effect to the settlement of dispute under Vivad Se Vishwas and taxes paid is to be passed by the officer.

Goods and services tax :

The Company has received an order from the Office of Commissioner Appeals, GST and Central Tax, demanding a payment of ' 4.22 for the period January 2022 to March 2022 vide Appeal No. 01/2023 (MD) DGST/1455 and ' 5.29 for the period April 2022 to July 2022 vide Appeal No. 01/2023 (MD) DGST/1455 due to an excess refund claimed. This demand is based on findings related to the improper calculation of the turnover of zero-rated supplies, irregular availment of Input Tax Credit (ITC) on capital goods, and the inclusion of ineligible credit in the Net ITC used to determine the eligible refund amount. The management believes there are valid grounds to contest this order and intends to file an appeal with the GST Tribunal. However, the tribunal has not yet been constituted by the department.

Customs duty:

All of the customs duty notices relate to Advance authorization/ EPCG Authorization licenses granted to the company. These licenses will enable the company to import the goods by claiming upfront exemption from payment of customs duty for Raw materials and Capital equipment's respectively. However, the grant of these licenses stipulate for fulfillment of specified export obligation. While the company has largely met the stipulated export obligation, it is yet to obtain and submit export obligation discharge certificate to the customs authorities. The reason for non submission of this document is attributable to delay in fixation of norms by norms committee. The Company has received intimation from Customs towards payment of duty amounting to ' 75.11 (March 31, 2023 : ' 86.24). Thus, as soon as the input output norms are finalized the company will furnish the requisite documents to customs authorities asking for the closure of the issue.

The Company based on its legal assessment does not believe that any of the pending claims require a provision as at the balance sheet date, as the likelihood of the probability of an outflow of resources at this point of time is low.

The Managing Director of the Company takes decision in respect of allocation of resources and assesses the performance basis the report / information provided by functional heads and are thus considered to be Chief Operating Decision Maker.

Based on the Company's business model, manufacturing high precision and OEM components, have been considered as a single business segment for the purpose of making decision on allocation of resources and assessing its performance. Accordingly, there are no separate reportable segments in accordance with the requirements of Ind AS 108 'Operating segment' and hence, there are no additional disclosures to be provided other than those already provided in the standalone financial statements. The information relating to revenue from external customers and location of segment assets of its single reportable segment has been disclosed as below.

The geographic information analyses the Company's revenues and segment assets by the country of domicile and other countries. In presenting geographic information, segment revenue has been based on the location of the customer and segment assets are based on geographical location of the assets.

The board of directors have overall responsibility for the risk management framework. The board of directors are responsible for developing and monitoring the risk management policies. The board of directors monitors the compliance with the risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.

The risk management policies are to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

A. Credit risk

i. Credit risk management

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Company's receivables from deposits with landlords and other statutory deposits with regulatory agencies and also arises from cash held with banks and financial institutions. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

The Company limits its exposure to credit risk of cash held with banks by dealing with highly rated banks and institutions and retaining sufficient balances in bank accounts required to meet a month's operational costs. The Management reviews the bank accounts on regular basis and fund drawdowns are planned to ensure that there is minimal surplus cash in bank accounts. The Company does a proper financial and credibility check on the landlords before taking any property on lease and hasn't had a single instance of non-refund of security deposit on vacating the leased property. The Company also in some cases ensure that the notice period rentals are adjusted against the security deposits and only differential, if any, is paid out thereby further mitigating the non-realization risk. The Company does not foresee any credit risks on deposits with regulatory authorities.

„ 36| Capital Management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders' equity. The Board of Directors also monitors the level of dividends to equity shareholders.

For the purpose of the Company's capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company's capital management is to maximize the shareholder value and to ensure the Company's ability to continue as a going concern.

The Company has not distributed any dividend to its shareholders. The Company monitors gearing ratio i.e. total debt in proportion to its overall financing structure, i.e. equity and debt. Total debt comprises of non-current borrowing which represents liability component of Compulsory Convertible Debentures and current borrowing from banks and financial institutions. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

Sale of products:

Performance obligation in respect of sale of goods is satisfied when control of the goods is transferred to the customer, generally on delivery of the goods and payment is generally due as per the terms of contract with customers.

Sales of services:

The performance obligation in respect of Job work services is satisfied at point of time and acceptance of the customer. In respect of these services, payment is generally due upon completion of the job work and acceptance of the customer.

The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses.

„ 40| Subsequent events

The Company incorporated a fully owned subsidiary named Azad VTC Private Limited in March 2024. Subsequently, the Company invested ' 0.1 in the subsidiary

Azad VTC Private Limited ("Azad VTC") entered into a asset purchase agreement with VTC Surface Technologies Private Limited, for the purchase of certain assets related to offering advanced wear, corrosion and heat resistant coatings. These coatings are a critical application on the components which operate in extremely severe conditions for power generation, aerospace & defence and oil & Gas.

The acquisition is expected to compliment and enhance the business of the Company, offering complete turnkey surface coating solutions for its OEM customers. This acquisition is also expected reduce its dependency on approved third party companies for surface coatings and eventually lead to more opportunities & margin expansion in the long-term.

, 411 Utilisation of funds raised through initial public offer (IPO)

Rs. 2,227.49 Mn have been received in the Escrow account (net off estimated offer expenses ' 172.51 Mn) from proceeds of fresh issue of equity shares. Full amount of ' 2,227.49 Mn have been transferred to the company's account. Further, the fund raised from Offer for sale were remitted to the selling shareholders (net off estimated offer expenses borne / to be borne by the selling shareholders). The utilisation of the net proceeds is summarised as below:

, 42| Statutory disclosures

(a) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Company for holding any Benami property.

(b) The Company does not have any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.

(c) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.

(d) The Company have not traded or invested in Crypto currency or Virtual currency during the financial year.

(e) The Company have not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall: (i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.

(f) The Company have not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall: (i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(g) The Company does not have any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).

(h) The Company does not have any borrowings from banks and financial institutions that are used for any other purpose other than the specific purpose for which it was taken at the reporting balance sheet date.

(i) The Company has complied with the number of layers prescribed under clause (87) of section 2 of the Act read with Companies (Restriction on number of Layers) Rules, 2017.

(j) The Company is not declared as a wilful defaulter by any bank or financial institution or other lender during the any reporting period.

(k) There are no scheme of arrangements which have been approved by the Competent Authority in terms of sections 230 to 237 of the Companies Act, 2013 during the reporting period.

(l) The Company has neither declared nor paid any dividend during the reporting period

(m) The title deeds of immovable properties (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) are held in the name of the Company except for building constructed on the lease hold land as disclosed in note 3(a) and 3(b) in the standalone financial statements.

(n) The Company has not revalued its property, plant and equipment during the financial year 2023-24

Note on Social Security Code: The date on which the Code of Social Security, 2020 ('The Code') relating to employee

benefits during employment and post-employment benefits will come into effect is yet to be notified and the related rules

are yet to be finalised. The Company will evaluate the code and its rules, assess the impact, if any and account for the same

once they become effective.

As per our report even date

For M S K A & Associates For and on behalf of the Board of Directors of

Chartered Accountants Azad Engineering Limited (Formerly Azad Engineering Private Limited)

ICAI Firm Registration No.:105047W

Ananthakrishnan Govindan Rakesh Chopdar Jyoti Chopdar

Partner Chairman and CEO Whole time Director

Membership No: 205226 DIN: 01795599 DIN : 03132157

Ronak Jajoo Ful Kumar Gautam

Chief Financial Officer Company Secretary

M No: A49550

Place: Hyderabad Place: Hyderabad Place: Hyderabad

Date: May 21,2024 Date: May 21,2024 Date: May 21,2024