HINDUSTAN AERONAUTICS LIMITED Report on the Audit of Standalone Financial Statements Opinion

We have audited the accompanying Standalone Financial Statements of Hindustan Aeronautics Limited ("the Company") which comprise the Balance Sheet as at 31^st March 2026, and the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and Notes to the Standalone Financial Statements, including a summary of the Material Accounting Policies and other explanatory information (hereinafter referred to as "the standalone financial statements") in which are included the returns of 26 divisions for the period ended on that date audited by the Division Auditors of the company.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Standalone Financial Statements give the information required by the Companies Act, 2013 ("Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31^st March 2026, and its Profit, Total comprehensive income, Changes in Equity and its Cash Flows for the year ended on that date.

Basis for Opinion

We conducted our audit of the Standalone Financial Statements in accordance with the Standards on Auditing (SA's) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the Standalone Financial Statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

(I) Attention is invited to Notes to the Standalone Financial Statements extracted below:

Note 49: Clause - 43G

Revision of pay scales of executives and workmen, with effect from 01.01.2017 was implemented in accordance with the guidelines issued by Department of Public Enterprises vide OM dated 03.08.2017 for Executives and in accordance with the Wage Agreement entered into between Management and Employees Union representative in 2019-20 in respect of Workmen.

On an interpretation on pay refixation and pursuant to the directives of the Administrative Ministry, the pay fixation to be revised and the excess amount paid is to be recovered from the employees. Based on the directives Company issued a Circular dated 24.07.2021 and the communication dated 26.07.2021 for recovery of the excess amount.

While so, the Employees Union and Officers Association have filed Writ Petition with Hon'ble High Court of Karnataka to stay recovery of excess amount of salary paid by the Company. The H'ble High court given verdict in favour of Officers Associations by setting aside the Circular dated 24.07.2021 and the communication dated 26.07.2021 issued by the Management during 2024-25. The order of the H'ble High Court in favour of Officers was put up to the Board in its 490^th Meeting held on 12.02.2025. Board has noted the judgement of the H'ble High Court and accorded approval to abide by the Court order. Accordingly, the differential amount withheld by the Management in respect of Ex-officers has to be released /refunded to the concerned Ex-officers / Nominees along with applicable interest. Further, in respect of officers an amount of '18565 lakhs credited to salaries and wages in the earlier years and kept under claims receivable has been reversed during 2024-25.

In respect of Workmen, The Hon'ble High court vide order dated 10.03.2026 has allowed the Writ petition filed by Employees Union. Accordingly in line with the orders of Hon'ble High Court of Karnataka, the differential amount withheld

by the division along with interest in respect of Ex-workmen to be released /refunded during FY 2026-27 to the concerned Ex-workmen / Nominees.

Further, in respect of workmen impact of one increment an amount of ' 16390 lakhs credited to salaries and wages in the earlier years (upto 31.03.2025) and kept under claims receivable has been reversed during 2025-26. Accordingly, employees cost for the current year is not comparable with the corresponding previous year.

Note 49: Clause - 43D(ii)

Ministry vide OM dated 12.07.2023 has conveyed the approval for increasing the Company's contribution to the Pension Scheme of Executives from existing 7% to 10% of Basic Pay DA w.e.f. 01.01.2017. Revision of Pension contribution from 7% to 10% of Basic Pay DA w.e.f. 01.01.2017 has been made in respect of Executives who are on the rolls of the Company as on the date of implementation of the revised ceiling i.e. 01.01.2017 implemented during 2023-24.

in respect of Workmen, Company issued Circular dated 24.04.2025 has conveyed the approval for increasing the Company's contribution to the Pension Scheme from existing 7% to 10% of Basic Pay DA w.e.f. 01.01.2025. Revision of Pension contribution from 7% to 10% of Basic Pay DA w.e.f 01.01.2025 has been made in respect of workmen who were on the rolls of the Company as on the date of implementation of the revised ceiling during March 2025.

The additional liability accruing to the Company due to the increased ceiling in respect of workmen is ' 4145 lakh pertaining to the year ended 31.03.2026 (previous year: '1051 lakhs [01.01.2025 to 31.03.2025]). Accordingly, employees cost for the current year 31.03.2026 is not comparable with the corresponding previous year 31.03.2025.

Note 49: Clause - 13B

Exceptional item shown during 2024-25 represents ' 589 Lakhs received on 12^th September 2024 for compensation received from the Office of Special Land Acquisition Officer, Bangalore under KIADB Act, on compulsory acquisition of 315 Sq. Mtrs. (0.078 Acres) of HAL land at Beninganahalli Village, Bangalore by M/s. Bangalore Metro Rail Corporation Ltd.

Note 49: Clause - 31B

inventory items (both Company and Customer owned) held at the LCA TD store were damaged due to flood in September 2022. in respect of Company-owned items, the actual loss was assessed at ' 1,033 lakhs, for which a provision was created in the books of accounts. Following the division's insurance claim, the insurance Surveyor confirmed the loss at ' 1,033 lakhs, and the full and final settlement was received from the insurance company in March 2026. Consequently, as of March 31, 2026, there is no damaged Company-owned inventory remaining in the books.

Regarding Customer-owned items, the initial loss was assessed at ' 5,590 lakhs, and a provision for replacement charges was established. However, based on feedback from OEMs regarding the retrieval of these items, the loss was reassessed at ' 1,091 lakhs. Accordingly, the excess provision of ' 4,499 lakhs was reversed by March 31, 2026. A provision of ' 1,091 lakhs for flood-affected Customer-owned inventory is being maintained as a future liability.

Note 49: Clause - 31D

One overhauled Su-30 Aircraft having tail no. SB-182 got crashed during a flight near Ozar, Nashik on 04^th June 2024. HAL has taken an insurance policy for efforts and material used in overhaul, and preferred the claim with the insurance Company for ' 14435 lakhs. An amount of ' 14071 lakhs have been advised for payment by insurance Company after deducting policy Administration charges. The disbursement has been received by HAL Nasik on 17^th January 2025.

Further, Brought on Charge (BOC) action of SB-182 was not completed and Aircraft was under custody & control of HAL. Board of investigation (BOi) has been setup for finding the exact reason for the accident of aircraft. Customer is also demanding for the replacement of equivalent Aircraft. As there is no replacement aircraft (Cat-B) available, out of prudence, provision of ' 84336 lakhs for new aircraft have been created during 2024-25.

Note 49: Clause - 31C

Existing FPQ, arising out of 3^rd PPRC, is up to 2022-23. 4^th PPRC is under progress, due to which the prices for the year 202324 and onwards is yet to be firmed up.

For the year 2023-24, FPQ sales has been provisionally recognised by considering the approved FPQ price of 2022-23 and applying indices for 2023-24.

For the year 2024-25, FPQ sales has been provisionally recognised by considering the prices of 2023-24, as arrived above and applying indices for 2024-25.

For the year 2025-26, FPQ sales has been provisionally recognised by considering the prices of 2024-25 as arrived above.

Since FPQ finalisation has taken more than two years, on conservative basis the prices of 2024-25 has been considered for the financial year 2025-26 without any escalation.

Note 49: Clause - 43C(ii)

During the year 2011, C&AG observed that the profits earned from short-term deposits is an incidental activity and not a core activity of the Company and inclusion of the interest income from these deposits for PRP computation had led to excess of payment of ' 4318 lakhs to its executives. Based on HAL reply on difficulties in recovery, the C&AG vide letter dated 11^th November 2024, suggested that the issue of difficulties in retrospective recovery of excess amount of ' 4318 lakhs paid on account of PRP for the year 2009-10 to 2011-12 be placed before the Board for obtaining waiver and disclose in the Financial statements.

In compliance with the C&AG letter, the issue of difficulties in retrospective recovery of excess amount paid on account of PRP for the year 2009-10 to 2011-12 to its Executives was placed before HAL Board in its 488^th Meeting held on 16^th December 2024.

After deliberation, HAL Board approved the waiver from recovery of ' 4318 lakhs of excess payment of PRP for the Year 2009-10 to 2011-12 to its Executives.

Necessary accounting treatment has been done in the accounts for the year ended 31.03.2025.

Note 49: Clause - 27

Balance shown under Trade Receivables, Trade Payable, Claims Receivable, Advance against Goods and Services, Capital Advances, deposits and stock / materials lying with sub-contractors / fabricators are under reconciliation. Since the Company is a Government entity under the control of Ministry of Defence (MoD), around 98% of the Company's turnover, around 99% of Trade receivables and Contract Assets, around 98% of Claims receivables and around 100% of the customer advances is with respect to Government and Government related entities. The bills are raised on the customers by the divisions located at various places and reconciliation is carried out on an ongoing basis. However, management does not expect to have any material financial impact of such pending confirmation / reconciliation.

Note 49: Clause - 43A

The ceiling of Gratuity payable to Officers & Workmen was ' 20 lakhs w.e.f. 1.1.2017. In terms of the DPE OM dated 3.8.17, the ceiling of Gratuity shall increase by 25% whenever Industrial Dearness Allowance (IDA) rises by 50%. From 01.10.2025 IDA has been revised to 51.80% as notified vide Circular dated 8.10.2025. Accordingly, ceiling of Gratuity to eligible Officers and Workmen of the Company have been revised from ' 20 lakhs to ' 25 lakhs from 01.10.2025.

The additional liability accruing to the Company due to the increased ceiling in respect of officers and workmen is ' 32733 lakh given effect in the year ended 31.03.2026 (previous year : ' Nil lakhs). Accordingly, employees cost for the year ended 31.03.2026 is not comparable with the corresponding previous year.

Note 49: Clause - 55L

The Government of India has notified four Labour Codes, collectively referred to as New Labour Codes effective from 21^st November 2025. The incremental impact of these changes assessed by the company, on the basis of the information available, consistent with the guidance provided by the Institute of Chartered Accounted of India is not material and has been recognised in the financial results of the company for the year ended 31^st March 2026 based on actuarial valuation.

Note 49: Clause - 24D:

During the audit of accounts for the financial year 2024-25, the Comptroller and Auditor General of India (C&AG) raised an observation regarding the accounting treatment of "Offset Credit benefits received free of charge as per the Purchase Order terms from foreign suppliers". Accordingly, the Company referred the matter to the Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India (ICAI) on 24 September 2025 for its opinion on the appropriate accounting treatment. The opinion of the EAC was received on 07 March 2026.

Based on the opinion received from the EAC and the fair valuation assessed by the duly constituted committee, the Company has accounted for the Offset Credit benefits during the current year. Considering the immaterial impact on earlier periods and the impracticability involved in retrospective application, the accounting treatment has been applied prospectively in accordance with the principles of Ind AS 8 relating to accounting policies, changes in accounting estimates and errors.

Accordingly, during the year, the Company has recognised Revenue amounting to ' 11,317 lakhs, Intangible Assets amounting to ' 10,841 lakhs, Amortisation on Intangible Assets amounting to ' 1,790 lakhs, Claim receivable amounting of ' 2,944 lakhs, and Other Liability amounting to ' 3,831 lakhs. Consequently, the profit for the year has increased by ' 9,527 lakhs.

(II) We draw attention that the Company is not complying with Regulation 17(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, and Section 149(4) of the Companies Act, 2013 pertaining to the required composition of its Board of Directors.

(III) We draw attention to the fact that, during the year, up to 1^st June 2025, the Company was not in compliance with the provisions of Section 177 and Section 178 of the Companies Act, 2013 and Regulations 18(1), 19(1), 19(2), 20(2), 20(2A), 21(2) and 17(2A) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, relating to the constitution of the Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and Risk Management Committee, as well as the quorum requirements for Board Meetings, due to the absence of the requisite number of Independent Directors. Subsequently, the said Committees were duly reconstituted and the quorum requirements for Board Meetings were complied with.

Our opinion is not modified in respect of these matters.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements of the current period. These matters were addressed in the context of our audit of Standalone Financial Statements as a whole, and in forming our opinion thereon and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.

Information Other than the Financial Statements and Auditor's Report Thereon

The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the consolidated financial statements, Standalone Financial Statements and our Auditor's Report thereon. The Company's Annual report is expected to be made available to us after the date of this auditor's report.

Our opinion on the Standalone Financial Statements does not cover the other information and, we do not express any form of assurance conclusion thereon.

In connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibility of Management and Those Charged with Governance for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these Standalone Financial Statements that give a true and fair view of the Financial Position, Financial Performance (including Other Comprehensive Income), Changes in Equity and Cash Flows of the Company in accordance with the accounting principles generally accepted in India including the Indian Accounting Standards specified under Section 133 of the Companies Act, 2013. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the Standalone Financial Statements, the Board of directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the board of directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is also responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the Standalone Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Standalone Financial Statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the Standalone Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the Standalone Financial Statements, including the disclosures, and whether the Standalone Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the Standalone Financial Statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the Standalone Financial Statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings including any significant deficiencies in Internal Control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Standalone Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matters

The Standalone Financial Statements also include the audited Standalone Financial Statements of 26 Divisions of the Company, whose financial statements / financial information reflect the total assets of ' 135,35,704 lakh as at March 31, 2026, total income of ' 36,79,354 lakhs and Net profit before Tax of ' 12,1 1,208 lakhs for the year ended 31^st March 2026, as considered in the Standalone Financial Statements which have been audited by the respective independent divisional auditors.

The Independent Auditors Reports on the Standalone Financial Statements of these Divisions have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these Divisions, are based solely on the report of such auditors and the procedures performed by us are as stated in paragraph above.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by Section 143(3) of the Act, based on our audit we report, that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books, and proper return adequate for the purpose of an audit have been received from the branches not visited by us.

c) The reports on the accounts of the branch offices of the Company audited under section 143(8) of the act by the branch auditors have been sent to us and have been properly dealt with us in preparing this report.

d) The Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows dealt with by this Report are in agreement with the books of account and with the returns received from the branches not visited by us.

e) In our opinion, the aforesaid Standalone Financial Statements comply with the Indian Accounting Standards prescribed under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015 as amended.

f) In terms of Circular No. GSR 463(E) dated 05^th June 2015 issued by the Ministry of Corporate Affairs, Government of India, the company being Government Company, is exempt from the provisions of section 164(2) of the Act regarding disqualification of Directors.

g) Ministry of Corporate Affairs vide notification no 1/2/2014-CL-V dated 23^rd February 2018 has exempted the companies engaged in defence production to the extent of application of relevant Accounting Standard on Segment Reporting. In view of the above, no disclosure is made by the company as required by Ind AS 108. Subject to the above, we state that, in our opinion, the aforesaid Standalone Financial Statements comply with the Accounting Standards specified under Section 133 of the Act.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure A". Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting.

i) As per Notification number G.S.R. 463 (E) dated 5^th June, 2015 issued by Ministry of Corporate Affairs, section 197 of the Act regarding remuneration to director is not applicable to the Company, since it is a Government Company.

j) With respect to the other matters to be included in the Auditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its Standalone Financial Statements as on 31.03.2026 except 221 cases pertaining to employee related issues for which the financial implication is not ascertainable - Refer Note 49 (2a), 49 (2b), 49 (20), 49 (21A), 49 (21B) to the financial statements.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, on long-term contracts. The company does not have any derivative contracts.

iii. There has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the company.

iv. (a) The management has represented that, to the best of its knowledge and belief, no funds have been advanced

or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other persons or entities, including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the intermediary shall, whether, 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 provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(b) The management has represented, that, to the best of its knowledge and belief, no funds have been received by the Company from any persons or entities, including foreign entities ("funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, 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 provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and

(c) Based on such audit procedures we have considered reasonable and appropriate in the circumstances; nothing has come to the notice that has caused us to believe that the representations under sub-clause (i) and (ii) contain any material misstatement.

v. (a) The final dividend paid by the Company during the year, in respect of the same declared for the previous year

is in accordance with Section 123 of the Act to the extent it applies to payment of dividend.

(b) The interim dividend declared and paid by the Company during the year and until the date of this audit report is in accordance with Section 123 of the Act.

(c) The Company has not proposed any final dividend for FY 2025-26 up to the date of our report.

vi. Based on our examination which included test checks, performed by us on the Company, the company has used accounting software for maintaining their respective books of account for the period ended 31^st March 2026, which has a feature of recording audit trail (edit log) facility. The audit trail facility has been operating throughout the period 1^st April 2025 to 31^st March 2026 for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.

Based on our examination which included test checks, performed by us on the Company, and information provided to us, the company is preserving the audit trail as per the statutory requirements for record retention as per proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, as amended.

2. As required by the Companies (Auditor's Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013 we give in the "Annexure-B" statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

3. As required by section 143(5) of the Act, we give in "Annexure C" a statement on the matters specified by the Comptroller and Audit General of India for the Company.

FOR GUPTA NAYAR & CO.

Chartered Accountants Firm Reg. No. 008376N

Nandlal Agarwal

Partner

Place: Bengaluru M. No. 091272

Date: 14.05.2026 UDIN: 26091272AKTDBQ3320