Kirloskar Electric Company Ltd Management Discussions.

Global Economic

Outlook

In the last month of FY 2019-20, the Coronavirus (COVID-19) pandemic developed rapidly into a global crisis, forcing governments to enforce lockdowns of all economic activities. In many countries, the uncertainty in businesses is being forced for business to cease or limit their operations for long or indefinite periods of time. Measures taken to contain the spread of the virus, has resulted in an economic slowdown and temporary business shutdown. Covid-19 is significantly impacting business operations of the companies, by way of interruption in production, supply chain disruption, unavailability of personnel, closure / lockdown of production facilities.

The Ministry of Home Affairs, Government of India on March 24, 2020 notified the first ever nation wide lockdown in India to contain the outbreak of Covid-19. Towards the end of the quarter ended March 2020, the operations were disrupted at certain manufacturing facilities of the Company.

In view of the outbreak of the pandemic, the Company undertook timely and essential measures to ensure the safety and well-being of all its employees and workers at all its plant locations, various branch offices and the corporate office. The Company observed all the government advisories and guidelines thoroughly and in good faith.

Industry outlook

As per latest reports, the Indian Economy is likely to regain its pace in the current fiscal and once again expected to become one of the fastest growing economies in the world. Indias Gross Domestic Product growth estimated to be at the rate of abouRs. 4.2% during ongoing fiscal reflecting the robust expansions, private consumption and firm investments to regain its pace once again in the current fiscal as a fastest developing country.

The growth forecast is marked down by more than 6% relative to the October 2019 and January 2020 projections by IMF – an extraordinary revision over such a short period of time. However, global growth is expected to rebound to 5.8% in CY 2020-21, well above the trend, reflecting the normalisation of economic activity based on inherent strengths

Growth in the Advanced Economies group, where several nations are experiencing widespread outbreaks and are deploying containment measures, is projected at (6.1)% in CY 2020-21. The Advanced Economies group is forecast to grow aRs. 4.5% in CY 2020-21.

Growth in the United States (‘US) is expected to drop from 2.3% in FY 2019-20 to (5.9)% in CY 2020-21, before recovering to 4.7% in CY 2020-21. In the first quarter of FY 2019-20, GDP growth could show a significant impact of Covid-19 due to a complete shutdown of economic activities from March 2020. The second and third quarter of FY 2019-20 are expected to reveal a large adverse impact from falling consumption, business investment and exports.

Indias GDP decelerated to its lowest in over six years in the third quarter of FY 2019-20 as per KPMG April 2020 report on the ‘Potential Impact of Covid-19 on the Indian Economy.

Our Company being one of leading manufacturer of Electrical Capital goods such as AC Motors, Generators, DC Machines, Transformers and switchgears depends on the expansion, fresh CAPEX investment and infrastructure projects for growth and to sustain the same. With India poised to be fastest developing country we expect expansion and investments in core sectors like steel, cement, coal, water, irrigation, hydro carbon, electric mobility, renewable energy including the solar and banking in the country. Your Company caters its products to all these sectors and this growth is expected to have its impact on the increased demand for electric manufactured goods of the Company.

Your Company has taken several bold steps to remain competitive by optimizing the costs, rationalizing manpower and consolidating the manufacturing operations. The Company continues to enjoy strong brand image and acceptance of products and services on account of our constant focus on Product reliability, durability and competitiveness.

Opportunities

Your Company is one of the foremost manufacturers of Motors for Electric cars. India is well poised to register multifold growth in electric mobility space. As per various surveys, the number of electrical vehicles on road will grow from 3 million to 125 million 2030. Huge growth is expected for electrical vehicles in India which will see increase in demand for Motors. Further we see a sustained a growth for energy efficient products viz., motors, Converter duty Transformers for Solar and also BIS and Star rated Transformers for power distribution applications.

Threats

The Key sectors and end user Industry are going through a very rough business phase more particularly mining, steel, coal and infrastructure including the real-estate industry. Any change in the government policy and projects guidelines concerning new investments in these sectors, may have an adverse impact on demand for your products. Capacity utilization of the Company remains low and actual performance may also vary as it is dependent on several factors beyond the control of your Company.

Your Company continues to face competition from the unorganized sector and also new players making their presence in the country. However, your company has a strong base for its product in all sectors of the industries.

Segment wise or product wise performance

Your Company has identified the reportable segments as rotating machines group, power generation and distribution group and others, taking into account the nature of products and services, the different risks and returns and the internal reporting systems.

The segment wise turnover of your Company is as follows:

(Rs in Lakhs)

Products 2019-20 2018-19
Rotating Machines Group 11,064 9,378
Power Generation and Distribution Group 19,412 19,241
Others 965 823
Total 31,441 29,442

Note: figures has been regrouped as per IND-AS

Future Outlook

With the shutdown of operations at the beginning of the year we expect business conditions to stabilize and also expect more key reforms will be implemented by the Government in the current fiscal year which will have a positive growth for the Company in the coming years.

Risks mitigation measures

Your Company recognizes the unstable growth in core sectors as major risks and has initiated the following measures for mitigating the above business related risks.

Your Company continually upgrades its engineering strength and design capabilities by incorporating latest technologies in its products and services. Reduction in manufacturing costs and improvement in operating efficiencies are continuously pursued enabling it to offer competitive prices. The wide portfolio of products gives your Company a competitive advantage, as we can cater to the major verticals of the electrical engineering capital goods industry.

Your Company recognizes the importance of its supply chain in sourcing good quality raw materials and other inputs at competitive prices with high reliability in meeting delivery timelines.

Internal Control System and their adequacy

Your Company has Systems and internal Audits in place to have controls on all processes. System driven controls also ensure ease of monitoring and consistency of operations and Compliances. Your Company is under SAP ERP which ensures that there is reasonable assurance about the financial and accounting records and controls. To safeguard assets of the Company against damage/loss and accounting records are reliable for preparing financial statement the records are verified by Internal Auditors. Internal controls are evaluated by the internal auditors and supported by management reviews. All audit observations and follow up actions thereon are initiated for resolution by the respective functions.

Discussion on financial performance with respect to operational performance:-

(Rs In Lakhs)

PARTICULARS For the financial year ended March 31, 2020 For the financial year ended March 31, 2019
Revenue from operations 31,441 29,442
Other income (Net) 428 6,217
Total Income 31,869 35,659
Total Expense 40,939 37,522
Profit / (Loss) before exceptional items (9,070) (1,863)
Exceptional Items 471 -
Profit / (Loss) before tax (8,599) (1,863)
Tax Expense - -
Profit / (Loss) after tax (8,599) (1,863)
Total other comprehensive income (112) (4,870)
Total comprehensive income for the period (8,711) (6,733)

 

Note: The financial statements of the Company has been prepared in accordance with Indian Accounting Standard.

Material developments in Human Resources / Industrial Relations front, including number of people employed

Key financial ratios

Particulars of financial ratios 2019-20 2018-19
i. Debtors Turnover 34 days 43 days
ii. Inventory Turnover 56 days 63 days
iii. Interest Coverage Ratio -17.93% 6.73%
iv. Current Ratio 0.33 0.56
v. Debt Equity Ratio 10.40 3.65
vi. Operating Profit Margin (%) -14.66% 9.35%
vii. Net Profit Margin (%) -28.85% -6.32%
viii. Sector-specific equivalent ratios, as applicable Nil Nil

 

There is no significant Changes i.e. change of 25% or more as compared to the immediately previous financial year in the key financial ratios.

Detailed explanation of above ratios

a. Debtors Turnover:

The above ratio is used to quantify a Companys effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing average debtors by turnover.

b. Inventory Turnover:

Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing average inventory by turnover.

c. Interest Coverage Ratio:

The Interest Coverage Ratio measures how many times a Company can cover its current interest payment with its available earnings. It is calculated by dividing PBIT by finance cost.

d. Current Ratio

The Current Ratio is a liquidity ratio that measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

e. Debt Equity Ratio

The ratio is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly owned funds. It is calculated by dividing a Companys total liabilities by its shareholders equity.

f. Operating Profit Margin

The operating profit margin is a profitability or performance ratio used to calculate the percentage of profit a Company produces from its operations. It is calculated by dividing the EBIT by turnover.

g. Net Profit Margin(%)

The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by turnover.

Details of any change in Return on Net worth (excluding revaluation reserves) as compared to the immediately previous financial year along with a detailed explanation thereof.

Sl. No Financial Year Net worth (Rs In Lakhs)
1. 2019-20 (21,537.35)
2. 2018-19 (12,938.99)
3. 2017-18 (11,076.55)

The net worth of the Company has been eroded and is negative from the preceding three financial years.

Disclosure of Accounting Treatment:

The financial statements of the Company has been prepared in accordance with IND-AS, as prescribed under Section 133 of the Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and subsequent amendments thereto.

The detailed disclosure of accounting treatment is also provided in the notes to financial statements which forms part of this annual report.

For and on behalf of the Board of Directors,
Kirloskar Electric Company Limited
Vijay R Kirloskar
Place: Bengaluru Executive Chairman
Date: Augus 25, 2020 DIN: 00031253