Pace Digitek

Risks

• Our business is significantly reliant on certain key customers, and we derived 96.25%, 99.45% and 92.16% of our revenue from operations during the Fiscal 2025, Fiscal 2024 and Fiscal 2023 respectively, from our top 10 customers. Further, our business, results from operations, and financial condition are dependent on maintaining relationship with our customers. Further, our business, results from operations, and financial condition are dependent on maintaining relationship with our customers. Loss of any of these customers or loss of revenue from any key customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.

• A significant proportion of our orders are from government related entities which award the contract through a process of tender, and we derived 96.17%, 92.08% and 34.14% of our revenue from operations during the Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively, from our public sector customers. Tenders, typically, are awarded to the lower bidder once all other eligibility criteria are met. Our performance could be adversely affected if we are not able to successfully bid for these contracts or required to lower our bid value.

• Our business operations are diversified and are significantly dependent on demand from our end-use industries / sectors, in particular telecom sector. We derived 94.22%, 95.40% and 81.92% of our revenue from operations during the Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively, from the telecom sectors. Any downturn in the end-use industries / sectors could have an adverse impact on our Company`s business and results of operations.

• Our source of revenue is concentrated to certain regions in India. Our inability to operate and grow our business in such locations may have an adverse effect on our business, financial condition, result of operation, cash flow and future business prospects.

• We are significantly reliant on a few vendors. Our expense towards procurement of raw materials during Fiscal 2025, Fiscal 2024 and Fiscal 2023 was 34.55%, 72.39% and 19.54% respectively. Any loss of vendors will have a material adverse impact on our business and our revenue.

• We are significantly reliant on a few vendors. Our expense towards procurement of raw materials during Fiscal 2025, Fiscal 2024 and Fiscal 2023 was 34.55%, 72.39% and 19.54% respectively. Any loss of vendors will have a material adverse impact on our business and our revenue.

• Our business operations have grown substantially in recent period, particularly in Fiscal 2024, and we may not be able to sustain our rate of growth in the future.

• We have diversified our business operations in the past. Our future success and continued growth will depend on our ability to effectively implement our business and growth strategies. Our failure in effectively implementing our business and growth strategies may adversely affect our results of operations.

• Failure to meet quality standards required by our customers may lead to cancellation of existing and future orders and expose us inter alia to warranty claims, including monetary liability.

• We have a high working capital requirement and if we are unable to raise sufficient working capital, our operations will be adversely affected.

• Delays in payments from our customers exposes us to credit risk and it may have an adversely impact our results of operations and cash flows.

• Under-utilization of our currently operational production lines at our Manufacturing Facilities, set up through Lineage, and an inability to effectively utilize our expanded manufacturing capacities could have an adverse effect on our business, future prospects, and future financial performance.

• Our employee benefit expense is one of the larger components of our fixed operating costs. An increase in employee benefit expense could reduce our profitability.

• There have been instances of inadvertent delays in payments of statutory dues by our Company. Any delays in payment of statutory dues may attract financial penalties from the respective government authorities and in turn may have an adverse impact on our financial condition and cash flows.

• Our Company had in the past failed to comply with certain provisions of Companies Act. Further, our Company has delayed filing of form FC-GPR, and has been unable to file a form FC-GPR, in relation to certain allotment of Equity Shares. Any adverse action in the proceedings relation to these noncompliance which, if determined against us, could have a material adverse effect on our reputation, business, finances, cash flow and results of operations.

• We have not yet placed orders in relation to the capital expenditure requirements and which are proposed to be funded out of the Net Proceeds. If there is any delay in placing the orders, or in the event the vendor is unable to perform its obligations, in part or at all, it may result in time and cost overruns and our business, prospects and results of operations may be adversely affected.

• We operate in a competitive industry. Any inability to compete effectively may lead to a lower market share or reduced operating margins.

• We are dependent on technology in carrying out our business activities and it forms an integral part of our business. Damage to and/or malfunction of any of our operating systems, IT infrastructure or cyber security risks could disrupt our operations and adversely affect our business, results of operations, financial condition and cash flows.

• We are significantly reliant on our Promoters, Key Managerial Personnel, Senior Managerial Personnel and persons with technical expertise. Failure to retain or replace them will adversely affect our business.

• The financial statements of few of our Group Companies for certain period are not available. Accordingly, in the absence of the select financial information of some of our Group Companies including for certain financial period, prospective investors must rely on their own examination of our Group Companies in making an investment decision.

• We have in the past entered into related party transactions and may continue to do so in the future and we cannot assure you that we could not have achieved more favourable terms if such transactions had not been entered into with related parties and that such transactions will not have an adverse effect on our financial conditions and result of operation.

• We have incurred negative net cash from investing activities and operating activities in the past. Long term negative net cash in investing activities and operating activities in the future could have an adverse impact on our growth prospectus.

• We have incurred indebtedness which exposes us to various risks which may have an adverse effect on our business, results of operations and financial conditions. Conditions and restrictions imposed on us by the agreements governing our indebtedness could adversely affect our ability to operate our business.

• Inability to obtain or protect our intellectual property rights may adversely affect our business. Further, our logo is not registered as of the date of this Draft Red Herring Prospectus.

• There are outstanding legal proceedings involving our Company, our Promoters and our Subsidiaries which, if determined against us, could have a material adverse effect on our business, cash flows, financial condition and results of operations.

• Any break-down of our machinery at our Manufacturing Facilities, set up through Lineage, will have a significant impact on our business, financial results and growth prospects. Our success and financial condition will depend on our ability to maximise our capacity utilisation.

• Health, safety and environmental matters, including compliance with environmental laws and remediation of contamination, could result in substantially increased capital requirements and operating costs.

• We are dependent on third party logistic and support service providers for the delivery of raw materials and finished products and any disruptions in their services including transportation services or a decrease in the quality of their services may adversely affect our business, financial condition and results of operations.

• Failure to keep our technical knowledge confidential could erode our competitive advantage.

• If we are subject to any frauds, theft, or embezzlement by our employees, vendors suppliers, it could adversely affect our reputation, results of operations, financial condition and cash flows.

• Any failure to obtain, renew and maintain requisite statutory and regulatory permits, licenses and approvals for our operations from time to time may adversely affect our business.

• We are dependent on our manufacturing facilities which are situated in Bengaluru, Karnataka. We are subject to risks in relation to our manufacturing process including accidents and natural disasters and also risks arising from changes in the economic or political conditions of Karnataka which in turn will interfere with our operations and could have an adverse effect on our business, results of operations and financial condition.

• Our Promoters have subscribed to Equity Shares at a price which could be below the Issue Price. The average cost of acquisition of Equity Shares by our Promoters could also be lower than the Issue Price.

• Our Promoters and Promoter Group will, even after the completion of the Issue, continue to be our largest Shareholders and can influence the outcome of resolutions, which may potentially involve conflict of interest with the other Shareholders.

• Our Promoters and some of our Directors and Key Managerial Personnel have interests in our Company other than reimbursement of expenses incurred and normal remuneration or benefits.

• Our operations are subject to varied business risks and our insurance cover may prove inadequate to cover the economic losses of our Company.

• We have availed on lease, the use of certain properties from which we operate some of our business operations. There can be no assurance that the lease agreements will be renewed upon termination or that we will be able to obtain other premises on lease on the same or similar commercial terms.

• Our failure to identify and understand evolving industry trends and preferences and to develop new solutions to meet our customers` requirements may materially adversely affect our business and results of operations.

• Regulatory, legislative or self-regulatory developments regarding privacy and data security matters could adversely affect our ability to conduct our business and impact our financial condition.

• We have contingent liabilities outstanding and if these fully materialise and it could adversely affect our business, results of operations and financial condition.

• We have dues which are outstanding to our creditors. Any failure in payment of these dues may have a material adverse effect on our reputation, business and financial condition.

• Our Company has not paid dividends in the last 3 Fiscals and up to the date of this Draft Red Herring Prospectus. Further, there cannot be any assurance that our Company will be in a position to pay dividends in the future.

• The objects of the Issue for which funds are being raised have not been appraised by any bank or financial institution and are based on management estimates.

• Any variation in the utilisation of proceeds from the Issue shall be subject to applicable law.

• This Draft Red Herring Prospectus contains information from an industry report prepared by CRISIL which we have commissioned and paid for.

• Certain non-GAAP financial measures and certain other statistical information relating to our operations and financial performance such as EBITDA, CAGR of EBITDA, EBITDA margin, return on equity, return on capital employed, profit after tax margin, and inventory turnover ratio have been included in this Draft Red Herring Prospectus. These non-GAAP financial measures are not measures of operating performance or liquidity defined by Ind AS and may not be comparable.

• Our source of revenue is concentrated in in states such as Maharashtra, Karnataka, Jammu and Kashmir, Andhra Pradesh and Tamil Nadu. We have derived 46.05%, 40.62% and 0.13% of our revenue from operations during the Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively, from Western region of India. Our inability to operate and grow our business in such locations may have an adverse effect on our business, financial condition, result of operation, cash flow and future business prospects.

• We are significantly reliant on a few vendors. Our expense towards procurement of raw materials during Fiscal 2025, Fiscal 2024 and Fiscal 2023 was 34.55%, 72.39% and 19.54% respectively. Any loss of vendors will have a material adverse impact on our business and our revenue.

• Revenue from projects constituted 97.43%, 93.04% and 31.56%, of our revenue from operations during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Failure to maintain and augment our revenue therefrom could materially adversely affect our business and financial condition.

• Our business operations have grown substantially in recent period, particularly in Fiscal 2024. Our revenue from telecom vertical was 94.22%, 95.40% and 81.92% during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. We may not be able to sustain our rate of growth in the future.

• We commenced our operations as an electrical equipment product manufacturer for telecom infrastructure industry, and over the years we have expanded our operations in the telecom infrastructure industry to comprise products, projects, O&M, and services and solutions.

• Failure to meet quality standards required by our customers may lead to cancellation of existing and future orders and expose us inter alia to warranty claims, including monetary liability. Our Company has incurred warranty charges amounting to Rs. 380.70 million, Rs. 273.23 million and Nil for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively.

• We have incurred negative net cash from investing activities during Fiscal 2024, Fiscal 2023, and, operating activities for Fiscal 2025 and Fiscal 2023 in the past. Long term negative net cash in investing activities and operating activities in the future could have an adverse impact on our growth prospects.

• We have a high working capital requirement. Our net working capital requirement constituted Rs. 9,692.74 million, Rs. 4,037.05 million and Rs. 2,071.84 million, for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. If we are unable to raise sufficient working capital, our operations will be adversely affected.

• Delays in payments from our customers exposes us to credit risk and it may have an adversely impact our results of operations and cash flows. Our trade receivables were 75.58%, 44.22% and 78.36%, of our total revenue from operations in Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively.

• During Fiscal 2025 and Fiscal 2024, Fiscal 2023, our capacity utilisation for (i) passive equipment was 38.69%, 55.98% and 64.96%; and (ii) battery was 15.32%, 27.91% and Nil, respectively. Underutilization of our currently operational production lines at our Manufacturing Facilities, set up through Lineage, and an inability to effectively utilize our expanded manufacturing capacities could have an adverse effect on our business, future prospects, and future financial performance.

• The financial statements of 3 of our Group Companies for certain period are not available. Accordingly, in the absence of the select financial information of some of our Group Companies including for certain financial period, prospective investors must rely on their own examination of our Group Companies in making an investment decision.

• Except for a techno economic viability report issued by Dun & Bradstreet for the MSEDCL BESS Project, the objects of the Issue for which funds are being raised have not been appraised by any bank or financial institution and are based on management estimates.

• Our employee benefit expense is one of the larger components of our fixed operating costs. Our employee benefits expenses during Fiscal 2025, Fiscal 2024 and Fiscal 2023 were Rs. 667.13 million, Rs. 531.85 million and Rs. 750.26 million, respectively. An increase in employee benefit expense could reduce our profitability. Further, our employee attrition ratio was 15.59%, 69.80% and 24.08%, for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. If we are unable to retain and recruit qualified and proficient employees our business and financial condition could be adversely affected.

• There have been instances of inadvertent delays in payments of statutory dues/liabilities, such as contribution towards provident fund and ESIC, tax deduction at sources on salaries and other than salaries, and GST, by our Company. Any delays in payment of statutory dues may attract financial penalties from the respective government authorities and in turn may have an adverse impact on our financial condition and cash flows.

• Our Company had in the past failed to comply with certain provisions of Companies Act. Any adverse action in the proceedings relation to these non-compliances which, if determined against us, could have a material adverse effect on our reputation, business, finances, cash flow and results of operations.

• Our Company has delayed filing of forms FC-GPR and has been unable to file forms FC-GPR, in relation to certain allotment of Equity Shares. Any adverse action in this regard which, if determined against us, could have a material adverse effect on our reputation, business, finances, cash flow and results of operations.

• We have not yet placed orders in relation to the capital expenditure requirements which are proposed to be funded out of the Net Proceeds. If there is any delay in placing the orders, or in the event the vendor is unable to perform its obligations, in part or at all, it may result in time and cost overruns and our business, prospects and results of operations may be adversely affected.

• We intend to utilise a portion of the Net Proceeds for funding investment in our Subsidiary, Pace Renewable Energies Private Limited which has incurred losses in the past and has had negative cash flows. Losses in future incurred by Pace Renewable Energies Private Limited could have an adverse impact on its business, growth prospects and future financial performance.

• We operate in a competitive industry. Our major competitors are amongst listed companies including HFCL Limited, Exicom Tele-Systems Limited and Bondada Engineering Limited. Any inability to compete effectively may lead to a lower market share or reduced operating margins.

• We are dependent on technology and ERP software solutions in carrying out our business activities and it forms an integral part of our business. Damage to and/or malfunction of any of our operating systems, IT infrastructure or cyber security risks could disrupt our operations and adversely affect our business, results of operations, financial condition and cash flows.

• We are significantly reliant on our Promoters, Key Managerial Personnel, Senior Managerial Personnel and persons with technical expertise. The number of KMP and Senior Management personnel who left our Company during Fiscal 2025, Fiscal 2024 and Fiscal 2023 was 4, 1 and nil. Failure to retain or replace them will adversely affect our business.

• We have in the past entered into related party transactions and may continue to do so in the future. The sum of all our Related Party Transaction for Fiscal 2025, Fiscal 2024 and Fiscal 2023, was 6.64%, 4.37% and 2.33%, of our revenue from operations respectively. We cannot assure you that we could not have achieved more favourable terms if such transactions had not been entered into with related

• We have incurred indebtedness which exposes us to various risks which may have an adverse effect on our business, results of operations and financial conditions. As of July 31, 2025, our aggregate sanctioned borrowings was Rs 13,580.86 million and aggregate outstanding borrowings was Rs. 8,200.18 million. Conditions and restrictions imposed on us by the agreements governing our indebtedness could adversely affect our ability to operate our business.

• Inability to obtain or protect our intellectual property rights may adversely affect our business. Further, our logo is not registered as of the date of this Red Herring Prospectus and we have filed 2 trademark applications for registration of `Pace Digitek`.

• There are outstanding legal proceedings involving our Company aggregating to ? 497.58 million our Promoters, aggregating to ? 7.65 million, and our Subsidiaries, aggregating to ? 52.31 million which, if determined against us, could have a material adverse effect on our business, cash flows, financial condition and results of operations

• The auditor`s report on the financial statements of the Company included qualifications in the report on the Companies (Auditor`s Report) Order, 2020 issued by the Central Government of India in terms of sub section (11) of Section 143 of the Act (CARO 2020) for Fiscal 2025, Fiscal 2024 and Fiscal 2023 of our current Statutory Auditors and erstwhile statutory auditors. These qualifications did not require any corrections in the Restated Consolidated Financial Information included in this Red Herring Prospectus.

• There have been changes to our key financial ratios which we consider while evaluating our financial conditions. Any significant changes to these financial ratios may impact our business operations and financial conditions.

• We are dependent on the performance of our Subsidiaries, and in particular our Material Subsidiary i.e., Lineage Power Private Limited for the products which are commissioned for the projects undertaken by our Company, and for the Manufacturing Facilities which are set up through Lineage Power Private Limited. Our Subsidiaries constituted 7.31%, 5.68% and 66.49% to our consolidated revenue from operations during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Further, the revenue generated from products manufactured at our manufacturing facility constituted 1.21%, 3.00% and 20.53% of our revenue from operations during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Any losses incurred by the Subsidiaries in the future could have an adverse impact on our performance, on a consolidated basis, and may also impact on our growth prospects.

• We may be unable to enforce our rights under some of the agreements executed by us on account of insufficient stamping.

• Any break-down of our machinery at our Manufacturing Facilities, set up through Lineage, will have a significant impact on our business, financial results and growth prospects. Our success and financial condition will depend on our ability to maximise our capacity utilisation

• Health, safety and environmental matters, including compliance with environmental laws and remediation of contamination, could result in substantially increased capital requirements and operating costs.

• We are dependent on third party logistic and support service providers for the delivery of raw materials and finished products. Our freight outward expenses were 0.44%, 0.36% and 0.24%, and freight inward expenses were 4.71%, 2.37% and 0.83% of our total expenses for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Any disruptions in their services including transportation services or a decrease in the quality of their services may adversely affect our business, financial condition and results of operations.

• Failure to keep our technical knowledge confidential could erode our competitive advantage.

• If we are subject to any frauds, theft, or embezzlement by our employees, vendors suppliers, it could adversely affect our reputation, results of operations, financial condition and cash flows.

• Any failure to obtain, renew and maintain requisite statutory and regulatory permits, licenses and approvals for our operations from time to time may adversely affect our business.

• We are dependent on our manufacturing facilities which are situated in Bengaluru, Karnataka. We are subject to risks in relation to our manufacturing process including accidents and natural disasters and also risks arising from changes in the economic or political conditions of Karnataka which in turn will interfere with our operations and could have an adverse effect on our business, results of operations and financial condition.

• Our Promoters have subscribed to Equity Shares at a price which could be below the Issue Price. The average cost of acquisition of Equity Shares by our Promoters could also be lower than the Issue Price.

• Our Promoters and Promoter Group will, even after the completion of the Issue, continue to be our largest Shareholders and can influence the outcome of resolutions, which may potentially involve conflict of interest with the other Shareholders.

• Our Promoters and some of our Directors and Key Managerial Personnel have interests in our Company other than reimbursement of expenses incurred and normal remuneration or benefits.

• Our operations are subject to varied business risks and our insurance cover may prove inadequate to cover the economic losses of our Company.

• We have availed on lease, the use of certain properties from which we operate some of our business operations. There can be no assurance that the lease agreements will be renewed upon termination or that we will be able to obtain other premises on lease on the same or similar commercial terms.

• We have availed on lease, the use of certain properties from which we operate some of our business operations. There can be no assurance that the lease agreements will be renewed upon termination or that we will be able to obtain other premises on lease on the same or similar commercial terms.

• Our failure to identify and understand evolving industry trends and preferences and to develop new solutions to meet our customers` requirements may materially adversely affect our business and results of operations.

• Regulatory, legislative or self-regulatory developments regarding privacy and data security matters could adversely affect our ability to conduct our business and impact our financial condition.

• We have contingent liabilities outstanding and if these fully materialise and it could adversely affect our business, results of operations and financial condition. Our contingent liabilities as a percentage of our profit after tax for Fiscal 2025, Fiscal 2024 and Fiscal 2023 constituted 19.87%, 22.54% and 127.25%, respectively.

• We have dues which are outstanding to our creditors. Any failure in payment of these dues may have a material adverse effect on our reputation, business and financial condition.

• Our Company has not paid dividends in the last 3 Fiscals and up to the date of this Red Herring Prospectus. Further, there cannot be any assurance that our Company will be in a position to pay dividends in the future.

• Any variation in the utilisation of proceeds from the Issue shall be subject to applicable law.

• This Red Herring Prospectus contains information from an industry report prepared by CRISIL which we have commissioned and paid for.

• Certain non-GAAP financial measures and certain other statistical information relating to our operations and financial performance such as EBITDA, CAGR of EBITDA, EBITDA margin, return on equity, return on capital employed, profit after tax margin, and inventory turnover ratio have been included in this Red Herring Prospectus. These non-GAAP financial measures are not measures of operating performance or liquidity defined by Ind AS and may not be comparable.