elgi equipments ltd share price Management discussions

Our Purpose

In the past, we started our Management, Discussion, and Analysis ("MDA") with a recap of our business and financial achievements for the year. For FY23 and the future, we will start with a discussion of our Purpose. ELGis Purpose is being a good company that is fair in its engagement with and treatment of its stakeholders. Our stakeholders include customers, employees, investors, suppliers, and society. Our Purpose will follow the golden rule, which is to treat others as we would like to be treated. We experience the elation when we are treated fairly and the pain when we are not. Thus, it is within us to be and do what makes us feel that we have been treated fairly. While we will work with an agency to sharpen its definition for communication, the most important outcome of the exercise will be for us to review our policies and practices to our stakeholders and revise them as per our purpose. We must be a good company and being good is good for the business as well.

Introduction

In FY23, we delivered sales and profitability as per the Annual Business Plan ("ABP") goals and we are well placed to achieve the committed results set forth in our five-year Strategic Business Plan ("SBP"). As a note, the ABP refers to the goals in the immediate year of discussion, while the SBP refers to the goals in the five-year forecasted period (FY 2021-22 to FY 2025-26). For more detail on SBP, refer to the MDA from the annual report of FY20 in the "Investors" section of our website: https://www.elgi.com/in/financials/. Based on our FY23 performance, we are committing to the following targets in FY25-26:

1. Revenue – Rs. 37,500 Mn.

2. EBITDA – 16%

3. ROCE – 30%

We will discuss our performance by regions and relevant functions. We will list our strategic priorities and review our FY23 performance. Please note that the notes under the "Review" section will include highlights other than our strategic priorities and potential areas for improvement.

India

Our India business maintained its momentum from FY22. Government policies supported infrastructure and manufacturing investments which translated to growth across our segments.

Price increases from Q2 to Q4 of FY23 helped maintain margins and reinforce our premium brand position. We maintained our fixed costs below plan to deliver strong EBITDA.

z Industrial Oil Lubricated z Strategic Priorities z Grow market share by driving awareness in specific industries. z Expand distribution. z Drive profitability via price increases and aftermarket capture. z FY23 Review z Enjoyed growth without the benefit of COVID driven oxygen generation demand from FY22. z Our direct drive reciprocating compressor helped drive double digit growth within the reciprocating compressor segment. z Increased volume of our larger industrial machines indicating increased awareness amongst sophisticated buyers. z Need to renew our go to market efforts to win with new customers to drive market share growth. z Oil Free z Strategic Priorities z Grow market share by building awareness, expanding product range, improving product performance, and offering best in class aftermarket service. z FY23 Review z FY23 represented our best year for oil free sales and were entering FY24 with a strong order book with healthy repeat customers. z Construction and Mining z Strategic Priorities z Maintain market share and drive profitability. z FY23 Review z Maintained our dominant market share and drove margins with strategic price increases. z Waterwell z Strategic Priorities z Recover dominant share position. z Be first to market with new products. z FY23 Review z Strong rains resulted in soft demand. z Well placed with products and sales processes to capture demand. z Railways z Strategic Priorities z Maintain core customer market share. z Increase share in new segments and OEM opportunities. z FY23 Review z Double digit growth post COVID. z Increased margins by focusing on our aftermarket business. z Drove awareness with non-government sectors for future growth.

Africa and Middle East

Our direct to market initiatives in the Middle East delivered strong results. Margin expansion by driving aftermarket and reducing our operational costs helped drive the Middle Easts bottom line. Favourable demand in Africa drove strong results.

North America

FY23 marked our tenth anniversary of serving the North American market. North America exceeded our sales forecast and significantly improved the profitability in FY23. Demand remains strong across our businesses despite recession concerns. We drove margins across our businesses with price increases, but higher one-time fixed costs related to systems and IT lowered the profit. We invested in our fixed costs to improve our operational capabilities to achieve our long-term goals in the region. While the sale of the original Pattons facility helped reduce our long- and short-term debt, our cash generation has not kept up with our sales growth. We intend to reduce inventory and our receivables to drive cash in FY24.

z ELGi Industrial Compressors z Engaged in the supply and support of ELGi compressors and parts to nearly 100 distributors across the USA and Canada z Strategic Priorities z Establish quality distribution partnerships in top 40 markets. z Drive long term profitability by building the aftermarket organization. z Establish the North America oil free strategy. z Build talent, process, and technology enablers to achieve CK2 goals. z FY23 Review z Strategic price increases helped drive margins. z Continued distribution expansion in our top 40 markets. z Established joint venture partnership in Buffalo, New York, which is part of our top 40 markets. z ELGi Portable Compressors z Engaged in the supply and support of ELGis (formerly Rotair) range of portable air compressors to distributors and rental outlets across the USA and Canada z Strategic Priorities z Establish distribution in top 20 markets. z Drive long term profitability by expanding product range and reducing material cost. z FY23 Review z Best in class product availability helped drive share growth. z ELGi Distribution Operations z ELGi North Americas distribution brands (Michigan Air Solutions ["MAS"], and Pattons) are engaged in the supply, service, and support of ELGi products, parts, and general compressed air solutions to end customers in North Carolina, South Carolina, Michigan, Georgia, Alabama, and Virginia. z Strategic Priorities z Drive sales of ELGi equipment in top served markets. z Increase service business in largest markets. z FY23 Review z Consolidated leadership of Pattons and MAS under ELGis VP of Distribution Operations. z Achieved record ELGi equipment sales at Pattons. z Equipment and service price increases helped drive profitability. z Need to focus on winning new service customers to drive profitability. z Need to reduce our fixed costs. z Pattons Medical z Engaged in the design, manufacture, supply, and support of medical air and gas systems in the USA. z Strategic Priorities z Improve win rate in existing markets. z Expand into strategic markets such as California. z Drive parts sales. z FY23 Review z Achieved record equipment and parts sales.

Europe

We achieved our revenue and profit goals by driving brand awareness and expanding distribution. Record inflation softened demand across sectors and high energy costs softened demand in energy intense sectors such as steel. Strategic inventory investments helped mitigate supply chain delays, but constrained cash. We anticipate continued supply chain uncertainty owing to the Ukraine war and will invest in inventory accordingly.

z ELGi Industrial Compressors (Oil Lubricated and Oil Free) z Engaged in the supply and support of ELGi compressors and parts to channel partners in Italy, France, Spain, Benelux, Sweden, UK, Netherlands, and Poland. z Strategic Priorities z Establish quality distribution within focus regions. z Increase share of business with existing channel partners. z Establish foundations for future profitability. z FY23 Review z Established metrics to measure channel penetration and assess gaps. z Increased share of business with existing channel partners. z Grew margins with price increase. z Limited EBITDA loss with operational cost control. z Tracking to initial goals to profitability. z Rotair (Portable compressors) z Engaged in the design, manufacturing, and supply of Rotairs range of diesel and gasoline powered portable air compressors, hydraulic breakers, and rampicars. z Strategic Priorities z Improving product profitability. z Expand product range. z Maintain best in class delivery. z FY23 Review z Maintained margins with price increases and cost control. z Supported best in class volume growth in key regions such as the USA. z Product improvement and product launch initiatives remain on track.

ELGi Australia and Southeast Asia

In Australia, we grew our sales and profitability relative to FY22 but fell short of our annual plan. Indonesia met its plan, but we didnt make much progress in other key markets such as Malaysia, Thailand, and Vietnam.

z Oil Lubricated and Oil Free in Australia z Strategic Priorities z Expand independent distribution. z Grow equipment and service market share at Pulford. z Grow oil free market share. z FY23 Review z Won customers in focus industries. z Southeast Asia z Strategic Priorities z Build go-to-market strategies in Vietnam, Malaysia, Thailand, and Indonesia.

z FY23 Review z Growth and momentum in Indonesia across our product categories. z Delays in building go-to market strategies in Malaysia, Thailand, and Vietnam.

ATS ELGi

We exceeded our sales and profitability targets for the year. Improved passenger vehicle sales drove our core products. We increased our share in the tyre shop and two-wheeler segments which is in line with our strategic priorities to expand beyond our passenger vehicle product portfolio.

ELGi Sauer

We achieved record revenue and profitability with growth across sectors such as renewable energy, steel, and general high-pressure applications. Our core naval segment remains robust with a strong outlook for FY24. We continue to expand our engineering capabilities to indigenize our product range. ELGi Sauer will move into a new production and office facility in June 2023.

Strategic Enablers

Our strategys success hinges on the health of our enablers or supporting activities and functions. In this section, we will highlight progress in our enablers which will support our aspirations in FY24 and beyond.

z Leadership and Collaboration z Onboarded Chief Strategy Officer to lead our Product Management Organization (PMO) and Strategy Functions. z Onboarded Chief Human Resources Officer to lead our global HR organization. z Talent Management z Number of employees on roll is 1,258. z Engaged Ernst and Young to conduct a talent assessment for the India region which will ensure we place the right talent in the appropriate roles. z Operations and Supply Chain z Achieved record production output to fulfil record sales globally. z Recognized targeted material cost savings from Project Cosmos, a consulting engagement with Ernst and Young to reduce material costs. z We need to reduce on-hand inventory in our regions to free cash.

z Products and Technology z Strategic Priorities z Ensure continuous improvement of current products across range expansion, performance, energy consumption, reliability, and cost. z Launch new products as per market feedback, customer feedback, competitor portfolio, revenue potential, and profit potential for strategic regions. z Develop and launch new products in a timely manner in keeping with our strategic business plans. z Long term product development based on stated and unstated customer needs. z FY23 Review z Performance Improvement z Improved energy efficiency in our larger oil lubricated range thereby elevating our products to market leaders in energy efficiency. z Improved energy efficiency in our oil free (dry screw) range z Range expansion z Smaller kilowatt AB series oil free compressors to address a wider range of oil free customer needs. z Continued investment in our direct drive piston compressor range which offers superior performance and reliability in a price driven category. z Increased range in our electric powered portable compressor range to address growing demands for energy efficiency in the category. z We need to improve our ability to identify product improvement and development opportunities by region and allocate resources to bring improvements and new products to market in line with our business goals. z Digital Transformation z Strategic Priorities z Enhance the overall Digital Quotient ("DQ") of the organisation. z Drive digitisation of business processes z Create digital eco-system. z FY23 Review z Focused on improving the DQ across the organisation. z Launched the Digital Innovation DOJO - ELGis digital transformation strategy based on the premise of ‘Experiment, Start Small & Scale Fast. z Brand z Strategic Priorities z Drive awareness, consideration, and conversion for our customers in our target markets z Manage our stakeholders experience with our brand. z FY23 Review z Significant growth in awareness and leads generated from our digital and social media platforms. z Continued growth in our public relations presence globally. z Increased participation at end customer events to generate "pull" for the ELGi brand. z Environmental, Social, and Governance (ESG) z Strategic Priorities z Environment: Focus on energy efficiency, lower emissions, and resource-neutral operations. z Social: Employee centricity and access to quality education. z Governance: Inclusive ESG governance. z FY23 review z Published our first ESG report for FY2022 in November 2022. z Defined Short term and long-term Goals for E, S and G. z Non-Core Assets z The Company identified certain non-core assets and initiated actions to liquidate these. During the year we sold certain larger value assets and used the funds to repay the debts.

Internal Control Systems and their Adequacy

The Company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable regulations. The systems are periodically reviewed for identification of control deficiencies and formulation of time bound action plans to improve efficiency at all the levels. The Audit Committee of the Board constantly reviews internal control systems and their adequacy, significant risk areas, observations made by the internal auditors on control mechanism and the operations of the Company and recommendations made for corrective action through the internal audit reports. The Committee reviews the statutory auditors report, key issues, significant processes and accounting policies. The Directors confirm that the Internal Financial Controls are adequate with respect to the operations of the Company. A report of Auditors pursuant to Section 143(3) (i) of the Act certifying the adequacy of Internal Financial Controls is annexed with the Auditors Report.

Details of significant changes in key financial ratios (Consolidated):

S.No.	Ratio	Formula	2022-23	2021-22	% of change
1	Operating profit margin %	Gross profit/Total Income	16.09%	13.47%	19.46%
2	Net Profit margin %	Net Profit*/Total Income	9.44%	6.92%	36.42%
3	Return on net worth %	Net Profit*/Average Networth Revenue from Operations/Average	30.85%	20.17%	52.95%
4	Debtors turnover ratio	Trade Receivables	5.91	5.76	2.70%
5	Inventory turnover ratio	Revenue from Operations/Average Inventory	5.57	6.07	(8.34%)
6	Current ratio	Current Assets/Current Liabilities	1.79	1.65	7.96%
7	Interest coverage ratio	(Finance Cost + Profit before Tax)/Finance Cost	21.36	24.55	(13.01%)
8	Debt equity ratio	Long Term Debt/Networth	0.02	0.06	(71.84%)

* Net profit excluding Exceptional item (net of tax) for Financial Year 22-23

Improvement in profitability ratios was primarily due to increase in profit driven by growth in sales and improved margin realisation. The inventory turnover ratio was impacted by continuing challenges in the supply chain. Interest coverage ratio dropped due into increase in cost of borrowing in certain markets. Improvement in Debt/Equity could be achieved because of reduction in long term borrowings.

Boards Report

Dear Shareholders,

Your Directors hereby present the sixty third Annual Report of Elgi Equipments Limited ("Elgi/the Company") along with the audited financial statements for the financial year ended March 31, 2023.

Financial Results

The highlights of the standalone performance of your Company during the fiscal are given hereunder:

(Rs.. in millions)

Particulars	2022 - 23	2021 - 22
Profit before depreciation, exceptional items & tax	3,923.37	2,881.11
Less: Depreciation and amortisation expenses	383.60	367.68
- Exceptional items	-	–
Profit Before Tax	3,539.77	2513.43
Less: Income tax expense	814.99	619.92
Net Profit	2,724.78	1,893.51
Add: Opening balance in retained earnings	7,956.07	6,247.48
Less: Dividend paid during the year	364.45	253.28
- Transfer to general reserve	-	–
Add: Remeasurement of post-employment benefit obligation, net of tax	(11.79)	17.38
Transfer to retained earnings of gain on sale of Treasury shares, net of tax	-	50.98
Transfer to retained earnings on Exercise of shares under ESOP scheme	1.09	–
Closing balance in P&L account	10,305.70	7,956.07

Review of Business Operations

The Company realised an operating revenue of Rs. 17,566.35 Million as against Rs. 15,825.90 Million in 2021-22.

The details of division wise performance and other operational details are discussed at length in the Management Discussion and Analysis section. There was no change in the nature of business of the Company during the financial year ended March 31, 2023.

Share Capital

During the year under review, there were no changes in the issued and paid-up share capital of the Company. The issued and paid-up share capital of the Company consist of 31,69,09,016 equity shares of face value of

Rs. 1/- each amounting to Rs. 31,69,09,016/- as on the date of the report.

Transfer to reserves

The Company has not transferred any amount to the General Reserve during the year under review. However, an amount of Rs. 2,724.78 million of the current profits has been carried forward under the head retained earnings.

Dividend

Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations"), the Dividend Distribution Policy of the Company is hosted in the Companys website https://www.elgi.com/in/policies/ dividend-policy.pdf. For the financial year 2022-23, in line with the Dividend Distribution Policy, the Board of Directors at their meeting held on May 19, 2023, has recommended a dividend of Rs. 2/- per share (200%) on the paid-up share capital of 31,69,09,016 equity shares. Subject to the approval of shareholders, an amount of

Rs. 633.82 million will be paid as dividend after deducting applicable taxes (Previous Year Rs. 364.45 Million).

Transfer of Unclaimed Dividend/Shares to Investor Education and Protection Fund

In terms of Sections 124 and 125 of the Companies Act, 2013, ("Act") unclaimed or unpaid dividend relating to the financial year 2015-16 is due for remittance to the Investor Education and Protection Fund ("IEPF") established by the Central Government.

Further, pursuant to Section 124(6) of the Act, read with IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, 48,621 equity shares of Re.1/- each on which dividend had remained unclaimed for a period of 7 years have been transferred to the credit of demat account identified by the IEPF Authority during the year under review.

Annual Return

The Annual Return of the Company for the financial year 2022-23 as required under Section 92(3) of the Act is available on the website of the Company and can be accessed on the Companys website at the link https://www.elgi.com/in/financials/.

Board Meetings held during the year

During the year, four meetings of the Board of Directors were held. The details of the meetings are furnished in the Corporate Governance Report which is attached to this Report.

Committees

As on March 31, 2023, the Company has Audit Committee, Nomination and Remuneration Committee, Compensation Committee, Stakeholders Relationship Committee, Risk Management Committee and Corporate Social Responsibility Committee. Detailed note on the composition of the Board and its Committees are provided in the Corporate Governance Report attached to this Report.

Statement on compliance with Secretarial Standards

The Directors have devised proper systems to ensure compliance with the provisions of all applicable Secretarial Standards and such systems are adequate and operating effectively.

Directors Responsibility Statement

Pursuant to the requirement under Section 134(3)(c) of the Act, with respect to Directors Responsibility Statement, it is hereby confirmed that:

a. In the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures from those standards; b. The Directors have 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 at the end of the financial year and of the profit of the Company for that period; c. The Directors have taken proper and sufficient care for 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 have prepared the annual accounts on a going concern basis; e. The Directors 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 the applicable laws and such systems were adequate and operating effectively.

Details in respect of frauds reported by Auditors under Section 143(12) of the Act, other than those which are reportable to the Central Government

There were no instances of frauds identified or reported by the Statutory Auditors during the course of their audit pursuant to Section 143(12) of the Act.

Declaration of Independent Directors

The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed both under the Act and SEBI Listing Regulations.

Remuneration policy of the Company

The Board has based on the recommendation of the Nomination and Remuneration Committee, framed a policy for fixing and revising remuneration of Directors, Key Managerial Personnel, Senior Management Personnel and other employees of the Company. The Remuneration policy is annexed herewith as Annexure A to this report. The Remuneration policy of the Company can be accessed on the Companys website at the link https://www.elgi.com/in/policies/remn-policy.pdf.

Comments on Auditors Report

There are no qualifications, reservations or adverse remarks or disclaimers made by Price Waterhouse Chartered Accountants LLP, Statutory Auditors.

There are no qualifications, reservations or adverse remarks or disclaimers made by MDS & Associates LLP, Secretarial Auditors in their report.

Particulars of Loans, Guarantees or Investments made under Section 186 of the Act

Details of loans given, investments made, guarantees given and securities provided pursuant to the provisions of Section 186 of the Act have been given in the notes to the Financial Statements.

Particulars of contracts or arrangements with Related Parties

All transactions entered into with related parties as defined under the Act and Regulation 23 of the SEBI Listing Regulations during the financial year 2022-23 were in the ordinary course of business and on an arms length pricing basis.

The particulars of contract or arrangement entered into with related parties referred to in Section 188(1) of the Act which are material in nature are disclosed in the prescribed Form AOC-2 and annexed herewith as Annexure B to this report.

The Audit Committee and the Board of Directors have approved the Related Party Transactions Policy and the same has been hosted on the Companys website at https://www.elgi.com/in/policies/rpt-policy.pdf.

The Policy intends to ensure that proper reporting, approval and disclosure processes are in place for all transactions between the Company and related parties.

Material Changes and commitments affecting the financial position of the Company

There are no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year as on March 31, 2023, and the date of this report.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

The information on foreign exchange earnings and outgo, technology absorption, conservation of energy stipulated under Section 134(3)(m) of the Act, read with Rule 8 of the Companies (Accounts) Rules, 2014 is annexed herewith as Annexure C.

Risk Management

Pursuant to the requirement of Regulation 21 of the SEBI Listing Regulations, the Company has constituted a Risk Management Committee ("RMC"), consisting of Board members and senior executive of the Company. The Company has in place a Risk Management framework to identify, evaluate business risks and challenges across the Company both at corporate level as also separately for each subsidiary.

The top 10 risks for the Company have been mapped by the operating management (with additional support of external guidance) after extensive deliberations on the nature of the risk being a gross or a net risk and thereafter in a prioritized manner presented to the Board for their inputs on risk mitigation/management efforts. Based on this framework, a Risk Management policy has been adopted.

The RMC engages in the Risk Management process and has set out a review process so as to report to the Board the progress on the initiatives for the major risks of each of the businesses that the Company is into. The RMC reviews the top 10 risks. The results of the mitigation measures implemented by the Company are given below:

Risk management (Continued...)

S.No.	Risk Category	Risk Summary	Risk Response/Mitigation actions/Position
1	Compliance Risks	The Companys business is subject to legal and regulatory requirements globally; non- compliance could result in severe consequences	The Company had implemented a professional software tool to monitor compliance during FY22. The software has been implemented fully and is working well. We keep updating the tool for any changes in law/new regulations that come into effect.
			Proof of compliance is either being collected or reported by the compliance owners every quarter end. The status is reported to the Audit Committee and Board during their quarterly meetings.
			The process of revisiting the checklist for various entities in rotation is being continued. Further, whenever there is a new entity created in a new geography, we engage a law firm to get the compliance list created within the first year of incorporation.
2	Human Resource Risks	Recruiting and retaining strong talent is key to achieving the Companys aspirations; any gaps in these efforts could impact the achievement of revenue and profitability targets.	The talent acquisition process is getting further strengthened.
			We have involved global leadership in the new leadership hiring process. The global functional leadership is actively engaged in key regional hiring. We now use outcome-based Job Description for all key roles. The competency behaviour model designed by a leading agency is used in key hiring.
			On the other hand, the Company is also investing well in the Talent development model. The functional head for Organisation development and Talent Management along with Chief Human Resource Officer are driving the talent agenda for the Company.
			The project titled "Integration of Talent" was kick started in early September 2021 with the intention to align, design and implement Integrated Talent Management Strategy. The objective being "grow talent pool for global success". The first stage of the project consisting of rolling out and training of Behavioural Competency model, culture assessment, Potential Assessment design, Conduct of Development Centres and identification of Individual Development Plan for key talent, succession planning for key positions across the Company have been completed. The next stage would involve assessment against the Individual development plan, career dialogue with the identified successor and key talent (as part of succession planning initiative).
			Besides the Companys continued focus on understanding market compensation, the Company has also made a significant change in the annual compensation revision process. The Company has moved to a decentralized compensation decision mechanism (instead of HR managing this centrally). The businesses and functions have been given autonomy to recommend and decide on compensation increases for their teams, basis broad corporate guidelines. The intent is to bring ownership in the managers for their people, drive and reward performance. This is also an important enabler to the talent management program, as the Companys managers become more aware and start investing in their human resources at a strategic level.
3	Economic & Market Risks	Our global operations are subject to economic and market risks in the geographies we operate in.	The Companys geographically diversified presence helped it deliver top line growth and improved profitability during and after the Covid period. The Company was able to leverage and cross deploy resources to manage shifting demands. The risk mitigation efforts, supported through serving broad range of industry segments, is serving the Company well.
4	Growth Risks	Acquisitions, joint ventures and investments could be unsuccessful or consume management time and resources, which could adversely affect our operating results	The Company has not made any acquisitions during the year. As a standard practice, detailed due diligence is performed with the help of external experts in the legal, financial and tax areas to fully understand and factor the risks in both making a decision on the deals as well as arriving at the acquisition price. Integration is given adequate weightage whenever there is an acquisition and handled sensitively.

 

S.No.	Risk Category	Risk Summary	Risk Response/Mitigation actions/Position
5	Strategic Risks	Business continuity could be severely affected due to natural disasters or unexpected events like COVID 19 pandemic	Insurance policies commensurate with business requirements have been taken by the Company. These policies are periodically reviewed to strengthen the scope as required.
			The Company has a disaster management plan in place and continues to refine it regularly to meet the changing requirements.
6	Supply Chain Risks	Disruptions in supplies due to concentration of manufacturing facilities in a single location and reliance on one or few suppliers present risks to business stability	The Company continues to explore responses to manufacturing concentration including strategic stocking in various parts of India and rest of the world in the short to mid-term and is planning to have assembly operations in global regions in the mid to long-term. The Company had rolled out an initiative "Cost Optimisation in Operations" (COSMOS) by engaging an expert consultant during FY22.
			The focus is on optimizing material cost and Other variable costs.
			The economic benefits derived out of the COSMOS project are being reviewed and validated. As a part of this initiative, the supplier base is being critically reviewed and augmented as required. Alternative source of supply is being identified for parts with single source of supply. The process of "COSMOS" is being institutionalised to realise further benefits. A dedicated team who worked on the project continue full time to derive cost savings.
			The supplier base has been widened gradually and dependence on particular suppliers and geographies is also being reduced. Work on developing a global network of suppliers is a continuous activity.
			The Company will continue to carry out strategic, selective backward integration such that manufacture of most critical parts are moved in-house.
7	Information Technology Risks	Cyber security risks could disrupt the Companys technology systems, infrastructure, and networks. Gaps in data protection could result in non-compliance of applicable regulations	Reliability is continuously enhanced by adopting and moving critical systems to the Cloud in a phased manner. Product Lifecycle Management (PLM) platform of the Company was moved to cloud during the year FY 2021-22 as the Company upgraded its PLM.
			Up-to-date technology is deployed to ensure that Emails are scanned and quarantined if risks are detected. Multi- factor authentication has been implemented for minimizing cyber risks due to password hacks. Multi-factor authentication has been implemented, including for Virtual Private Network (VPN) to minimize cyber risks due to password hacks. The Company is implementing End Point Detection and Response system in a phased manner.
			Security Information and Event Management (SIEM) solution implementation has begun and is being systematically extended to all critical on-premise platforms. PAM (Privileged Access Management) for exerting control over the elevated access and permissions for users, accounts, processes, and systems across an IT environment are also being implemented. The Company has obtained ISO 27001 certification for IT Operations and plans to extend this to all critical functions.
			IT security audits are performed annually to assess the vulnerabilities in the existing systems. The Company is exploring the possibility to move to half-yearly audit besides deploying intelligent security monitoring tools. Global Data privacy policy to comply with General Data Protection Requirements (GDPR) of Europe and other applicable privacy laws in various jurisdictions is also in the pipeline.
			The Company is moving into quarterly Vulnerability Assessment and Penetration Testing (VAPT) audit. The Company is evaluating various potential security issues and the solutions available to detect and mitigate them.

 

S.No.	Risk Category	Risk Summary	Risk Response/Mitigation actions/Position
8	Financial Risks	Exchange rate fluctuations in the various currencies that Company deals in could adversely affect the Companys financial performance	To minimize fluctuation risks, the Company has a strong hedging process and has a policy in place, besides leveraging the natural hedge that is available. The Company also continuously monitors the exchange rates relevant for its geographies and takes suitable actions to offset adverse changes by adjusting selling prices and costs. During the year, the Company has not had any major impact.
			The Company continues to work with its bankers to understand the regulatory changes in the banking system with reference to managing exchange risks and leverage them suitably.
			This is a continuous process and our good relationship with the financing banks help us get timely advice on this front.
9	Environmental Risks	Global climate change and related regulations can negatively impact our business	The Company focuses heavily on Electric Powered Screw Air Compressors (EPSAC) and Oil Free Screw Air Compressors (OFSAC) for its future growth, gradually reducing the dependence on Diesel Powered Screw Air Compressors (DPSAC) in its overall portfolio.
			Environmental factors and regulatory changes taking place globally are closely monitored to effect appropriate actions to align the Companys products with these requirements.
			The Company has embarked on a major Environmental, Social & Governance(ESG)initiative,notonlytosatisfyregulatoryrequirements that come into force from FY 2022-23 but also as a sincere corporate citizen looking to contribute to a better environment for all. In this connection, the Company will focus on the "E" portion of ESG more emphatically. We have formed a team of cross functional leaders with passion for ESG who have started work on this. The ESG strategy was defined basis a comprehensive materiality survey, maturity assessment and compliance requirements. We have engaged a leading consultant partner to help us in this journey.
			The Companys operations are constantly upgraded to adopt green manufacturing practices.
10	Strategic Risks	The Companys large dependence on India makes it susceptible to the economic fortunes of a single geography	The Company believes that the revenue mix is now well spread across geographies so as to reduce dependence on India. In addition, our strategic plan and consequent measures taken on reducing concentration of domestic sales vis-?-vis total sales is moving in the right direction. India sales to total sales has gone down to 43%, compared to 56% in 2019. It is expected to go further down in the coming years.
			The Companys strategic plan for the mid-term and the strategic initiatives are aligned to this goal to diversify the revenue mix.

Corporate Social Responsibility Initiatives

The brief outline of the Corporate Social Responsibility ("CSR") Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out as Annexure D to this report in the format prescribed in the Companies (CSR Policy) Rules, 2014. For other details regarding the CSR Committee, refer to the Corporate Governance Report, which is a part of this report. The policy is available on the website of the Company.

Performance Evaluation of the Board, its Committees and the Directors

Pursuant to the provisions of the Act and SEBI Listing Regulations, the Board of Directors has carried out annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report attached as an Annexure to this report.

Statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the Independent Directors

The Board of Directors have evaluated the Independent Directors during the year 2022-23 and opined that the integrity, expertise and experience (including proficiency) of the Independent Directors is satisfactory.

Directors and Key Managerial Personnel

Mr. Harjeet Singh Wahan, Director retires by rotation at the ensuing AGM and being eligible, offers himself for re-appointment. Your directors recommend his re-appointment.

A resolution seeking approval of the Members for the re-appointment of Mr. Harjeet Singh Wahan as Director have been incorporated in the Notice to the AGM of the Company along with brief details about him.

Pursuant to the provisions of Section 2(51) and 203 of the Act, the Key Managerial Personnel of the Company are Mr. Jairam Varadaraj, Managing Director, Mr. Jayakanthan R, Chief Financial Officer and Mr. S Prakash, Company Secretary.

Subsidiaries, Joint Ventures and Associate Companies

The highlights of performance of subsidiaries, associates and joint venture companies and their contribution to the overall performance of the Company during the period review have been disclosed in the Management Discussion and Analysis Report.

The Company has 26 subsidiaries and 9 joint ventures/ associate entities. The statement pursuant to Section 129(3) of the Act, containing the salient features of the financial statements of subsidiary companies, in Form AOC-1 forms part of this Annual report.

Elgi Compressors Vietnam LLC, a wholly owned subsidiary of the Company was incorporated during the year. During the year under review, CS Industrial Services LLC, USA, a joint venture company was formed by Elgi Compressors USA Inc., a wholly owned subsidiary of the Company.

Elgi Compressors USA Inc., Elgi Compressors Europe S.R.L and Pattons Inc., are the material subsidiaries of the Company based on the financials for the year ended March 31, 2023. The Board has approved a policy for determining material subsidiaries, which has been uploaded on the Companys website viz. www.elgi.com.

The consolidated financial statements of the Company and its subsidiaries prepared in accordance with the applicable accounting standards have been annexed to the Annual Report. The annual accounts of the subsidiary companies are hosted on the website of the Company viz. www.elgi.com and will also be kept open for inspection by the shareholders at the registered office of the Company till the date of AGM. The Company will also provide a copy of the annual accounts of subsidiary companies to the shareholders upon their request.

Deposits

Your Company has not accepted any deposit within the meaning of provisions of Chapter V of the Act, read with the Companies (Acceptance of Deposits) Rules, 2014 for the year ended March 31, 2023.

Details of significant and material orders passed by the Regulators or Courts or Tribunals

There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Companys operations in future.

Internal Control Systems and their Adequacy

The Company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable regulations. The systems are periodically reviewed for identification of control deficienciesandformulationoftimeboundactionplansto improve efficiency at all the levels. The Audit Committee of the Board constantly reviews internal control systems and their adequacy, significant risk areas, observations made by the internal auditors on control mechanism and the operations of the Company and recommendations made for corrective action through the internal audit reports. The Committee reviews the statutory auditors report, key issues, significant processes, and accounting policies. The Directors confirm that the Internal Financial Controls are adequate with respect to the operations of the Company. A report of Auditors pursuant to Section 143(3) (i) of the Act certifying the adequacy of Internal Financial Controls is annexed with the Auditors Report.

Statutory Auditors

Price Waterhouse Chartered Accountants, LLP (Firm Reg. No.: 012754N/N500016) Chartered Accountants, Chennai was appointed as the Statutory Auditors of the Company for a second term of five years at the Sixty Second AGM of the Company held on August 12, 2022, till the conclusion of the sixty seventh AGM to be held in the year 2027.

Secretarial Auditors

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed MDS & Associates LLP, (Firm Unique Code: L2023TN013500) Company Secretaries, Coimbatore to undertake the secretarial audit of the Company. The report of the secretarial auditor is attached as Annexure E.

Cost Auditors

Pursuant to the provisions of Section 148(3) of the Act, the Board of Directors had appointed STR & Associates, Cost Accountants, Trichy (Firm Registration No.: 000029), as Cost Auditors of the Company, for conducting the audit of cost records for the financial year ended March 31, 2023. The Audit is in progress and report will be filed with the Ministry of Corporate Affairs within the prescribed period.

The cost accounts and records as specified by the Central Government under sub-section (1) of Section 148 of the Act, are made and maintained by the Company.

Details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the year

No applications have been made and no proceedings are pending against the Company under the Insolvency and Bankruptcy Code, 2016.

Details of difference between amount of the valuation done at the time of one-time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof

The disclosure under this clause is not applicable as the Company has not undertaken any one-time settlement with the banks or financial institutions.

Human Resources and Industrial Relations

The Company continues to enjoy cordial relationship with its employees at all levels. The total strength of employees as on March 31, 2023, was 1,258.

Particulars of Employees

In terms of the provisions of Section 197(12) of the Act, read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names of the top ten employees in terms of remuneration drawn and names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules forms part of this Report as Annexure F. Disclosures relating to remuneration and other details as required under Section 197(12) of the Act, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms part of this Report.

Having regard to the provisions of the second proviso to Section 136(1) of the Act and as advised, the Annual Report excluding the aforesaid information is being sent to the members of the Company. Any member interested in obtaining such information may write to the Company Secretary.

Elgi Equipments Limited Employee Stock Option Plan, 2019

The Company has implemented the Elgi Equipments Limited Employee Stock Option Plan 2019 to enable the Company and its subsidiaries to attract, retain and reward appropriate human talent in its employment and to create a sense of ownership and participation amongst the employees. The Compensation Committee administers and monitors the Employees Stock Option Plan of the Company through the Elgi Equipments Limited Employee Stock Option Trust. The Compensation Committee has during the year under review issued 152,600 options at a grant price of Rs. 450/- per option to the eligible employees of the Company. No options were granted to the Directors.

The disclosure pursuant to the provisions of Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 is given as Annexure G to this report.

The Company has received a Certificate from the Secretarial Auditors that the above referred Scheme had been implemented in accordance with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 and the resolutions passed by the members in this regard.

Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

As per the requirement of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and Rules made thereunder, your Company has constituted an Internal Complaints Committee. During the year under review, one case was received/filed pursuant to the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The same was resolved during the year. As on March 31, 2023, no complaint is pending for investigation and resolution.

Business Responsibility and Sustainability Report

In terms of Regulation 34 of the SEBI Listing Regulations, read with relevant SEBI Circulars, new reporting requirements on ESG parameters were prescribed under Business Responsibility and Sustainability Report ("BRSR"). The BRSR seeks disclosure on the performance of the Company against nine principles of the "National Guidelines on Responsible Business Conduct (‘NGRBCs). As per the SEBI Circulars, effective from the financial year 2022-23, filing of BRSR is mandatory for the top 1000 listed companies by market capitalisation. Accordingly, for the financial year ended March 31, 2023, your Company being amongst top 1000 companies, BRSR is annexed as Annexure H to this Report.

Corporate Governance

A report on corporate governance is annexed as Annexure I to this report. The Company has complied with the conditions relating to corporate governance as stipulated in SEBI Listing Regulations.

Vigil Mechanism/Whistle Blower Policy

Pursuant to the provisions of Section 177(9) of the Act, read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Regulations 4 and 22 of the SEBI Listing Regulations and in accordance with the requirements of SEBI (Prohibition of Insider Trading) Regulations, 2015, the Company has a Whistle Blower policy to deal with unethical or improper practice or violation of Companys Code of Business Conduct or any complaints regarding accounting, auditing, internal controls or disclosure practices of the Company.

This Policy inter-alia provides a direct access to the Chairman of the Audit Committee. Your Company hereby affirms that no Director/employee has been denied access to the Chairman of the Audit Committee. Brief details about the policy are provided in the Corporate Governance Report attached to this Report.

The Audit Committee of the Board reviews the Complaints received, redressed, objected, withdrawn and dismissed for, every quarter in their meeting. The Whistle Blower policy is available on the website of the Company at the link https://www.elgi.com/in/policies/wb-policy.pdf.

Acknowledgement

Your Directors thank the shareholders, customers, suppliers, bankers and all other stakeholders for their continued support during the year. Your Directors also place on record their appreciation of the contributions made by employees at all levels towards the growth of the Company.

For and on behalf of the Board

	Jairam Varadaraj	N Mohan Nambiar
Place: Coimbatore	Managing Director	Director
Date: May 19, 2023	DIN: 00003361	DIN: 00003660