Diffusion Engineers Ltd

The consolidated performance of the group as per consolidated financial statements is as under:

2. Dividend

During the Year, the board had declared and distributed an interim dividend of 2.5% & proposed final dividend of 2.5%, total dividend for 2023 - 2024 is 5%.

3. Amounts transferred to Reserves

The Board of the company has not transferred any amount to its reserves.

4. State of Company's Affairs & Future Outlook

Your company completes more than 4 decades of its existence, a long and successful journey begun by our Visionary Founder late Shri. N. K. Garg whose disciplined work culture & professional approach towards governance, principles of independence, transparency, accountability, responsibility, compliance, ethics and trust has been successfully adopted by the present management. We continue to uphold the value systems which have been the traditional hallmark of Diffusion Engineers Limited for over four decades.

Prashant Garg, our Promoter and Managing Director, has been instrumental in steering our Company towards forward integration from manufacturing welding consumables to heavy engineering equipment and adding new product lines to our business. He has paved the way for the concept of total wear solutions.

During the financial year 2023-24, the company's turnover amounted to Rs. 2,571.26 million against Rs. 2440.74 million during the preceding year. The company's net profit after interest/depreciation and tax amounted to Rs. 233.95 million against profit of Rs. 168.16 million during the preceding year. Your directors are hopeful that there will be considerable increase in turnover/profits in next financial year and there will be healthy growth. The subsidiary and associate companies have also improved their performance during the year.

Your directors are pleased to inform that, the Company is in process of issuing Equity Shares through Initial Public Offering. The Members of the Company at the Extra Ordinary General Meeting held on 20th December, 2023 approved the issue of Equity Shares through Initial Public Offering [IPO]. In this regard, Board of directors of the Company approved the Draft Red Herring Prospectus ("DRHP") on 26th April 2024 and filed the same with Securities Exchange Board of India (SEBI) and Relevant Stock Exchanges. On 26th July 2024, your company has received in principal approval of National Stock Exchange of India Limited (NSE) and BSE Limited (BSE) for listing its equity shares under proposed public issue and also on July 30, 2024 we have received final observation cum approval letter from the Securities Exchange Board of India on the DRHP.

As on the date of this Report, the Authorised Share Capital of the Company is Rs.40,00,00,000/- consisting of 4,00,00,000 Equity Shares having face value of Rs.10/- each.

• On 25th September, 2023, Authorised Share Capital of the company increased from Rs.5,00,00,000/- consisting of 50,00,000 Equity Shares having face value of Rs.10/- each to Rs.15,00,00,000/- consisting of 1,50,00,000 Equity Shares having face value of Rs.10/- each.

• On 18th November, 2023, Authorised Share Capital of the company further increased from Rs.15,00,00,000/- consisting of 1,50,00,000 Equity Shares having face value of Rs.10/- each to Rs.40,00,00,000/- consisting of 4,00,00,000 Equity Shares having face value of Rs.10/- each.

ii) Paid up Share Capital

During the period under review, the paid-up equity share capital of the Company was increased consequent upon allotment of following equity shares of the Company:

• On 11th October, 2023, Company has allotted 2,65,570 Equity Shares of the face value of Rs.10/- each on preferential basis via private placement.

• On 29th November, 2023, Company has allotted 2,40,18,222 Equity Shares of the face value of Rs.10/- each as fully paid-up Bonus Shares.

6. Directors and Key Managerial Personnel

As of March 31, 2024, your Company has 6 Directors, which includes 3 Independent Directors, 2 Non-Executive Non-Independent Director and 1 Managing Director.

Appointment of Mr. Anil Kumar Trigunayat [DIN - 07900294] as Independent Director

Pursuant to provisions of Section 149, 150, 152, 161[1] of the Companies Act, 2013 and on recommendation of Nomination and Remuneration Committee (‘NRC'), the Board has appointed Mr. Anil Kumar Trigunayat as an Independent director of the Company for a period of five consecutive years effective from 30^th November, 2023. The same has been approved by the members vide their Ordinary resolution dated 07^th December, 2023. The Board is of the opinion that Mr Anil Kumar Trigunayat is a person of integrity, expertise, with competent experience and proficiency to serve the Company as an independent director that can strengthen the overall composition of the Board.

Appointment of Ms. Chitra Narendra Garg [DIN - 01784644] as NonExecutive Director

Pursuant to provisions of Section 161 of the Companies Act, 2013 and on recommendation of Nomination and Remuneration Committee (‘NRC'), the Board has appointed Ms. Chitra Narendra Garg as Non-Executive NonIndependent Director of the Company with effect from 05^th December, 2023. The same has been approved by the members vide their Ordinary resolution dated 07^th December, 2023.

¦ Change in Directors after the end of financial year 2023-24 but upto the date of this report.

Dr Renuka Garg (DIN: 02815373), Non-Executive Director of the Company has tendered resignation from post of directorship on the Board of the Company with effect from 23^rd July 2024. Further the Board of Directors have appointed Dr Nitin Garg (DIN: 08558736) as an Additional Director (Non-Executive) on the Board of the Company with effect from 23^rd July 2024 to hold office upto the date of ensuing General Meeting. Accordingly, a resolution for seeking members approval for appointment of Dr Nitin Garg as a Director (Non-Executive) on the Board of the Company is included in the Notice convening the Annual General Meeting.

¦ Retire by Rotation:

In terms of the provisions of Section 152 and other applicable provisions, if any, of the Companies Act, 2013, Ms. Chitra Garg [DIN - 01784644] Director retires by rotation at the ensuing Annual General Meeting, and being eligible, offers herself for re - appointment.

¦ Key Managerial Personnel (‘KMP')

In terms of the provisions of Section 2(51) and Section 203 of the Companies Act, 2013 the following are the KMPs of the Company:

1. Mr Prashant Garg [Managing Director]

2. Mr Abhishek Mehta [appointed as Chief Financial Officer, w.e.f 29^th June 2023]

3. Ms Chanchal Jaiswal [appointed as Company Secretary and Compliance Officer, w.e.f 29^th June 2023]

There are no other changes in the KMPs during Financial Year 2023 - 2024

8. Audit Committee

The Audit Committee's role is to assist the Board in overseeing the governance function and responsibilities in relation to the Company's financial reporting process carried out by the Management, internal control system, risk management system and internal and external audit functions. The Audit Committee functions according to its charter/terms of reference that defines its composition, authority, responsibilities and reporting functions.

The Audit Committee consists of the following members -

1. Mr. Ajay Jain [Independent Director & Chairperson of the Committee]

2. Ms. Anita Vijayakar [Independent Director and member of Committee]

3. Mr. Prashant Garg [Managing Director and member of Committee]

During the year under review, six (6) Meetings of the Audit Committee were held on the following dates -

• 29^th June, 2023

• 19^th July, 2023

• 17^th August,2023

• 30^th November, 2023

• 27^th March, 2024

• 30^th March, 2024

9. Corporate Social Responsibility Committee

The Corporate Social Responsibility (‘CSR') Committee of the Board is constituted in accordance with the provisions of Section 135 of the Act. The CSR Committee has been entrusted with the specific responsibility of devising and implementing corporate social responsibility programs. The CSR Committee was reconstituted by our Board at its meeting held on 13^th December 2023.

As on 31^st March 2024, CSR Committee comprises of following members-

1. Ms Anita Vijayakar [Independent Director & Chairperson of Committee]

2. Dr. Renuka Garg [Non-Executive Non-Independent Director and member of Committee]

3. Mrs. Chitra Garg [Non-Executive Non-Independent Director and member of Committee]

During the year under review, meeting of the CSR Committee was held on 17^th August, 2023

10. Nomination & Remuneration Committee

The role of Nomination & Remuneration committee (NRC) is to formulate Policy on director's appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters as specified u/s 178 (3) of the Companies Act, 2013. Nomination & Remuneration Policy of Diffusion Engineers Limited is available on the Company's website at www.diffusionengineers.com

The Nomination & Remuneration Committee was reconstituted by our Board at its meeting held on 30^th March 2024. NRC Committee currently comprises of following members-

1. Ms. Anita Vijayakar [Independent Director & Chairperson of the Committee]

2. Mr. Ajay Jain [Independent Director and member of Committee]

3. Ms. Chitra Garg [Non-Executive Non-Independent Director and member of Committee]

During the year under review, three (3) Meetings of the Nomination & Remuneration Committee were held on the following dates -

• 29^th June, 2023

• 30^th November, 2023

• 05^th December, 2023

11. Stakeholders' Relationship Committee

Stakeholders Relationship Committee (SRC) is a committee within an organization that helps the board of directors oversee the interests of stakeholders, such as investors, debenture holders, and other security holders. The SRC's primary role is to resolve concerns and complaints from stakeholders.

As on 31^st March 2024 Stakeholders' Relationship Committee consists of following directors as members -

1. Mr. Ajay Jain [Independent Director & Chairperson of the Committee]

2. Mr. Prashant Garg [Managing Director and member of Committee]

3. Dr. Renuka Garg [Non-Executive Non-Independent Director and member of Committee]

During the year under review, Meeting of the Stakeholders' Relationship Committee was held on 30^th March, 2024

12. Risk Management Committee

The Risk Management Committee was constituted by our Board at its meeting held on 13^th December 2023. Risk Management Committee assist the Board of Directors in fulfilling its oversight responsibilities with regard to the risk appetite of the

Corporation, the Corporation's risk management, identification & mitigation of associated risk.

The Risk Management Committee consists of following members -

1. Mr. Prashant Garg [Managing Director & Chairperson of the Committee]

2. Mr. Ajay Jain [Independent Director and member of Committee]

3. Mr. Anil Kumar Trigunayat [Independent Director and member of Committee]

4. Mr. Abhishek Mehta [Chief Financial Officer and member of Committee]

During the year under review, Meeting of the Risk Management Committee was held on 30^th March, 2024

13. Independent Directors' Meeting

Pursuant to the Companies Act, 2013, the Independent directors must hold at least one meeting in a financial year without attendance of non-independent director and members of the Management. Accordingly, independent directors of the Company met on 30^th March, 2024 and:

¦ Reviewed the performance of non-independent directors and the Board as a whole;

¦ Reviewed the performance of the Chairman of the Company.

¦ Assessed the quality, quantity and timeliness of flow of information between the Company's Management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

14. Corporate Governance

The company has been following best of the Corporate Governance practices. The management strives to protect the interest of all stakeholders in most transparent and fair manner. The Board is balanced as regards the representation of suitable number of non - executive and independent directors who are taking care of the interests and well - being of all the stakeholders. Its decision-making is objective. The Board has an effective mechanism to understand the concerns of stakeholder & it effectively and regularly monitors the functioning of the management team. The Board remains in effective control of the affairs of the company at all times.

15. Secretarial Standards:

The directors state that applicable Secretarial standards have been duly followed by the company.

16. Subsidiaries

Following is the list of Subsidiaries of our company: -

i. Diffusion Super Conditioning Services Private Limited

ii. Nowelco Industries Private Limited

iii. Diffusion Hernon Adhesive and Sealant Private Limited

iv. Diffusion Engineers Singapore Pte. Ltd.

v. Diffusion Wear Solutions Philippines Inc.

vi. Diffusion Eurasia Muhendislik Sanayi Ve Ticaret Anonim Sirketi*

Following are Associates / Joint Venture of our company: -

i) LSN Diffusion Limited (United Kingdom)

ii) Mecdiff Sdn Bhd (Malaysia)

*Diffusion Eurasia Muhendislik Sanayi Ve Ticaret Anonim Sirketi (DEMSTAS) is a Company incorporated in Turkey on February 16, 2024 and is registered with the IZMIR Trade Registry Office under Trade Registry number 253826. Holding in the said company was agreed as follows: Diffusion Engineers Limited - 70% and Gurkhan Gokhan - 30%. Total Share capital proposed was 2,50,000 Turkish Lira and 25% of the same i.e. 62,500 Turkish Lira was paid by Gokhan Gurcan. Contribution of Diffusion Engineers Limited was to be done within 24 months from the date of registration. As on 31st March 2024 your company had not invested any amount in the said company. On 21st May 2024, Diffusion Engineers Limited transferred 1,75,000 Turkish Lira in the said company as their 70% capital contribution. Thus, consolidation was not required for FY 2023-24

17. Particulars of Loan, Guarantees and Investments under Section 186

Pursuant to Section 186 of the Companies Act, 2013, the details of the Loans given, guarantees on securities provided and investments made are provided in the notes to the financial statement and Annexure 3 of this report.

18. Particulars of Contracts or Arrangements with Related Parties

All the related party transactions entered into during the financial year were on arm's length basis, in the ordinary course of business and were in compliance with the applicable provisions of the Act. Particulars of contracts or arrangements with related parties referred to in Section 188 (1) of the Companies Act,2013 in the prescribed Form AOC-2 is appended which forms part of this Report.

Your directors draw attention of the members to Notes of financial statement which sets out Related Party disclosures.

19. Deposits

The Company has not accepted/renewed any deposit from the public within the ambit of Section 73 of Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.

20. Statutory Auditors

The members at the 41^st Annual General Meeting held on 25^th September, 2023 appointed PGS & Associates, Chartered Accountants (Firm Registration No. - 122384W) as Statutory Auditors of the Company to hold office for a period of five [5] years commencing from conclusion of 41^st Annual General Meeting till the conclusion of Annual General Meeting to be held in the year 2028.

Further, the report of Statutory Auditors along with notes to Financial Statement is enclosed to this report. The observations made in the Auditors' Report are selfexplanatory and therefore, in the opinion of the Directors, do not call for further comments. The Auditor's Report does not contain any qualification, reservation, adverse remark or disclaimer.

21. Details in respect of frauds reported by auditors under section 143 (12) other that those which are reportable to central governments:

As per Auditors Report, no fraud reported by auditor of the Company.

22. Secretarial Audit

Pursuant to provision of section 204 of Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Board of directors in its meeting held on 17th August 2023, appointed Mr. Madhav Kawde, Practicing Company Secretary (CP No. 1892) as Secretarial Auditor to conduct the secretarial audit of the company for the financial year 2023 - 2024. The secretarial audit report in Form MR - 3 is annexed to this report. The observations made in the Secretarial Audit Report are self-explanatory and therefore, in the opinion of the Directors, do not call for further comments. The Secretarial Audit Report does not contain any qualification, reservation, adverse remark or disclaimer.

23. Cost Audit Records

Company has maintained cost records as per section 148 (1) of Companies Act, 2013.

24. Cost Auditors

As per Section 148 of the Act, the Company is required to have the audit of its cost records conducted by a Cost Accountant in practice. The Board on the recommendation of the Audit Committee has appointed M/s A. B. Verma & Co., Cost Accountants, Nagpur (Firm Registration No. 102527/ Membership No. 31367), as the Cost Auditors of the Company for FY 2024 - 2025 under Section 148 and all other applicable provisions of the Act read with the Companies (Cost Records and Audit) Amendment Rules, 2014.

M/s A. B. Verma & Co., have confirmed that they are free from disqualification specified under Section 141(3) and provision to Section 148(3) read with Section 141(4) of the Act and that the appointment meets the requirements of Section 141(3)(g) of the Act.

The remuneration payable to the Cost Auditors is required to be placed before the members in a general meeting for their ratification. Accordingly, a Resolution for seeking members' ratification for the remuneration payable to M/s A. B. Verma & Co. is included in the Notice convening the Annual General Meeting.

25. Risk. Management Policy

The Company has developed and implemented a risk management policy which identifies major risks which may threaten the existence of the Company. The same has also been adopted by your Board and is also subject to review from time to time. Risk mitigation process and measures have also been formulated and clearly spelled out in the said policy. The company has been constantly assessing various risk factors and it has adequate risk review system with respect to following areas:

Plant Operations: - Various Plants of the company are running at its optimal capacity. It is paying special attention to Industrial safety and training; company has insured all its plants adequately.

Financial Risk: - The Company has been managing its financial and other resources very effectively; Credit period offered to customers is effectively monitored, with optimal utilization of internal accruals the financial cost is very minimum in comparison with other companies operating in the same field. It also pays more attention to Foreign Exchange Earning and Expenses.

Protection of IPR & Legal diligence: -Constant evaluation of Intellectual Property Rights related issues and Contractual obligations with Jurisdictional issue are diligently observed.

The Risk Assessment and Management Policy is available on the Company's website at www.diffusionengineers.com

26. Disclosures under Sexual Harassment of Women at Workplace (.Prevention. Prohibition & Redressal) Act, 2013

There are no cases reported during the year under review. Ms. Anita Vijayakar (DIN - 01190200) an Independent Director is a Chairperson of the Internal Complaints committee along with various women staff members both from plants and office. Your company has been certified as "Great place to work" for the second time in a row. The Great Place to Work Assessment is considered a ‘Gold Standard' in workplace Culture assessment.

27. Conservation of Energy. Technology Absorption. Foreign Exchange Earnings and Outgo

Details is as per Annexure-IV

28. Corporate Social Responsibility (CSR)

Composition of CSR committee, the details about implementation of various programmes are provided in Annexure-V as per the prescribed format under Companies (Corporate Social Responsibility Policy) Rules, 2014.

29. Extract of Annual Return

Pursuant to Section 92(3) read with Section 134 (3) (a) of the Act and Rule 12 of the Companies (Management and Administration), Rules 2014 the Annual Return in Form MGT - 7 as on March 31, 2024 is available on the Company's website at www.diffusionengineers.com

30. Formal Annual Evaluation of the performance of the Board, its committees & of Individual Directors:

The Board evaluated its performance as a whole and was satisfied with its performance and composition of Independent and Non-Independent Directors. The Board have adequate expertise drawn from diverse industries and business and bring specific competencies relevant to the Company's business and operations. Performance of all the Directors was quite satisfactory.

The term of reference and composition of the Committees is clearly defined. The Committee performed their duties diligently and contributed effectively to the decisions of the Board.

31. Material Changes and Commitments:

There have been no material changes and commitments, which affect the financial position of the company which have occurred between the end of the financial year to which the financial statements relate and the date of this Report.

32. Details of Significant and Material Orders Passed by the Regulators, Courts and Tribunals:

No significant and material order has been passed by the regulators, courts, tribunals impacting the going concern status and Company's operations in future.

33. Internal Financial Control:

The Company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation was observed.

34. Statement on Declaration from Independent Directors:

The Company has received necessary declarations from all Independent Directors of the Company in accordance with the provisions of Section 149(7) of the Companies Act, 2013 confirming that they meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013.

35. Proceedings pending under the Insolvency and Bankruptcy Code,2016:

No application has been made or any proceeding is pending under the IBC, 2016.

36. Difference in Valuation:

The company has never made any one-time settlement against the loans obtained from Banks and Financial Institution and hence this clause is not applicable.

37. Directors Responsibility Statement

In accordance with the provisions of Section 134 (5) of the Companies Act 2013, your directors confirm that:

a) in the preparation of the annual accounts for the financial year ended 31^st March, 2024, the applicable accounting standards had been followed along with proper explanation relating to material departures;

b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31^st March, 2024 and of the profit /loss of the Company for that period;

c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

d) the directors had prepared the annual accounts on a going concern basis;

e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

38. Acknowledgment

Your Directors place on record their gratitude to government authorities, Bankers and all stakeholders for the assistance, co - operation and encouragement they extended to the Company. Your directors also wish to place on records their sincere thanks and appreciation to Employees at all levels for continuing support and unstinting efforts in ensuring an excellent all-around operational performance.