Kirloskar Electric Company Ltd Management Discussions

The Management of Kirloskar Electric Company Limited ("the Company" or "KECL") is pleased to present the Management Discussion and Analysis (MD&A) Report for the financial year ended 31 March 2026. The report provides an overview of the macroeconomic environment, industry developments, operational and financial performance, opportunities, risks and the outlook for the Company. This report should be read in conjunction with the Companys Audited Financial Statements, the Directors Report and Notes to Accounts.

The statements contained in this MD&A describing the Companys objectives, expectations, estimates, projections and outlook may constitute forward-looking statements within the meaning of applicable laws and regulations. These statements are based on managements current assumptions and expectations regarding future events and are subject to inherent risks and uncertainties. Actual results may differ materially from those expressed or implied owing to various factors including changes in macroeconomic conditions, government policies, fluctuations in commodity prices, exchange rate volatility, interest rate movements, geopolitical developments, supply chain disruptions, technological changes, competitive intensity, customer demand, regulatory changes and other factors beyond the Companys control.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable laws.

Global Economy Outlook

During FY 2025-26, the global economy demonstrated tenuous resilience, navigating a complex landscape shaped by shifting trade alignments, persistent geopolitical conflicts, and an accelerating artificial intelligence (AI) investment cycle. According to the International Monetary Funds (IMF) World Economic Outlook (April 2026), global growth is projected to moderate to 3.1% in 2026 and 3.2% in 2027, remaining below the pre-pandemic historical average. The period was characterised by a distinct divergence in economic momentum between advanced economies and emerging markets, with the latter continuing to anchor global output.

In stark contrast to the sluggish momentum observed in many advanced economies, the Indian economy demonstrated exceptional resilience and growth during the fiscal year 2025-26. According to the Provisional Estimates released by the National Statistical Office, Indias real gross domestic product grew by a robust 7.7% in the fiscal year 2025-26, accelerating from the 7.1 percent recorded in the previous fiscal year. This exceptional performance firmly cements Indias position as the fastest-growing major economy globally. This growth is being systematically driven by a sustained government push for capital expenditure, a resilient real estate cycle, robust domestic consumption, and strong macroeconomic fundamentals.

Indian Economic Overview

India continued to maintain its position as one of the fastest growing major economies in the world during FY 2025-26, supported by prudent fiscal management, resilient domestic consumption, robust public capital expenditure and sustained policy reforms.

Indias manufacturing sector demonstrated encouraging growth driven by increasing capacity utilisation, private capital expenditure, expansion in exports across select engineering products and growing investments in high-value manufacturing sectors. Corporate balance sheets remained healthy while the banking sector continued to witness improvement in asset quality and credit growth. The countrys power demand continued to witness healthy growth supported by increasing industrial activity, urbanisation, digital infrastructure, electric mobility and expanding commercial establishments.

While inflation remained within manageable levels for most part of the year, businesses continued to face challenges arising from fluctuations in commodity prices, imported input costs, logistics expenses and exchange rate volatility. Nevertheless, Indias strong domestic market, favourable demographics, policy continuity and infrastructure-led growth continue to provide a robust foundation for long-term industrial expansion.

Industry outlook

The outlook for the Indian electrical equipment industry remains positive, supported by sustained investments in infrastructure, expansion of the power sector, increasing adoption of renewable energy and continued emphasis on domestic manufacturing.

Indias transition towards a cleaner energy mix, coupled with increasing investments in transmission infrastructure, railway electrification, metro rail projects, data centres and industrial automation, is expected to create new opportunities for the electrical equipment sector. In addition, the growing focus on energy efficiency, digitalisation and smart manufacturing is accelerating the replacement of conventional equipment with technologically advanced and energy-efficient solutions. While the industry continues to face challenges arising from commodity price fluctuations, supply chain disruptions, competitive pricing pressures and geopolitical uncertainties, the long-term growth fundamentals remain favourable.

Industry Structure and Developments

The Indian electrical equipment industry remained resilient during FY 2025-26, supported by sustained investments in infrastructure, expansion of manufacturing capacity, rapid urbanisation, renewable energy projects, railways, data centres and transmission & distribution networks. Government initiatives such as Make in India, Atmanirbhar Bharat, the National Infrastructure Pipeline, Production Linked Incentive (PLI) Schemes and increased capital expenditure sustained demand for electrical equipment across various sectors.

The demand for rotating machines, transformers, switchgear and power electronics remained healthy, driven by industrial expansion, renewable energy integration, metro rail projects, commercial construction and modernisation of power infrastructure. However, volatility in commodity prices, global geopolitical developments, supply chain disruptions and pricing pressures continued to pose challenges for the industry.

The Company continued to focus on operational excellence, customer-centric solutions, product innovation and cost optimisation to strengthen its market position.

Business Performance

KECL, one of Indias established electrical engineering companies, has been engaged in the manufacture of a diversified range of electrical equipment and engineered solutions for over seven decades. With a legacy of engineering excellence and innovation, the Company has developed expertise across Rotating Machines, Transformers, Switchgear, AC Motors, DC Motors, EV Motors, Traction, AC Generators, DG Sets and customised engineering solutions catering to a wide spectrum of industrial and infrastructure sectors.

The Companys product portfolio serves diverse end-user industries including power generation, transmission and distribution, renewable energy, railways, defence, steel, cement, mining, oil & gas, water management, process industries, commercial infrastructure and other core sectors of the economy. Through its manufacturing facilities, engineering capabilities and service network, the Company continues to support customers with reliable, energy-efficient and application-specific solutions.

During the year under review, The Company remained focused on improving operational efficiencies, strengthening execution capabilities, enhancing customer engagement and optimising manufacturing processes. The management continued to emphasise prudent cost management, working capital discipline and operational excellence while maintaining focus on quality, safety and customer satisfaction. The Company remains committed to strengthening its market position through technological advancement, product innovation, enhanced manufacturing capabilities and improved service offerings.

Our extensive track record of customisation projects in Defence, Railways, Power, and complex industrial applications is driven by our robust engineering and R&D infrastructure and the profound expertise, diligence, and skill of our highly qualified engineers.

Opportunities

KECLs manufacturing base and engineering capabilities position the Company to participate in multiple growth sectors of the Indian economy. The Governments continued focus on indigenous manufacturing through the Make in India initiative, coupled with policies promoting localisation, import substitution and self-reliance in critical industries, is expected to increase opportunities for domestic manufacturers of electrical equipment. The Companys established manufacturing base, technical expertise and longstanding relationships with industrial and institutional customers position it favourably to capitalise on these initiatives.

The continuing expansion of Indias power transmission and distribution network, renewable energy integration and modernisation of industrial infrastructure is expected to create sustained demand for rotating machines, transformers, switchgear and customised electrical solutions. In addition, investments in railway electrification, metro rail projects, defence manufacturing and critical infrastructure are expected to generate opportunities for specialized products and engineered solutions where the Company possesses technical expertise and manufacturing capabilities.

The rapid transformation of the automotive industry through increased adoption of electric vehicles (EVs), together with investments in EV charging infrastructure, battery manufacturing and ancillary industries, is expected to create demand for energy-efficient motors, power electronics and other electrical systems. Similarly, the emergence of data centres, semiconductor manufacturing facilities and digitally enabled industrial infrastructure is driving the need for reliable power management solutions and high- performance electrical equipment, presenting new avenues for business growth.

The Companys focus on operational excellence, product quality, engineering capabilities and customer-centric solutions, supported by its diversified manufacturing base and established brand presence, enables it to respond effectively to emerging market requirements. Further, opportunities arising from supply chain diversification, increasing exports of engineering products and growing emphasis on sustainable and energy-efficient technologies are expected to support the Companys long-term growth strategy and strengthen its competitive position.

Threats

The Companys future financial performance will be significantly shaped by the evolving global economy. The Company anticipates moderate global growth, the continuation of protectionist trade policies, and ongoing geopolitical tensions, which present a risk of volatile input costs given its reliance on imported critical components like CRGO electrical steel.

The Company faces competition from both established domestic manufacturers and multinational corporations, particularly in standard product segments where pricing pressures remain significant. Intense competition, coupled with customers increasing emphasis on cost optimisation, quality and shorter delivery timelines, necessitates continuous improvements in operational efficiency, product innovation and customer service to sustain market competitiveness.

The Companys operations are dependent on the availability and cost of key raw materials such as copper, steel, iron and other engineering inputs. Volatility in commodity prices, coupled with fluctuations in foreign exchange rates, may impact input costs and profitability, particularly in projects with long execution cycles where the ability to pass on cost increases is limited. In addition, disruptions in the global supply chain, extended procurement lead times for specialized components and logistics constraints may affect manufacturing schedules and timely execution of customer orders.

The Company continues to address these challenges through prudent procurement practices, continuous cost optimisation initiatives, diversification of its customer base and product portfolio, strengthening of its supply chain, enhancement of manufacturing efficiencies and a structured enterprise risk management framework. These measures are aimed at improving operational resilience and enabling the Company to respond effectively to changing market conditions while pursuing sustainable long-term growth.

Segment wise or product wise performance

Your Company has identified the reportable segments as the Rotating Machines Group, the Power Generation and Distribution Group, and Others, taking into account the nature of products and services, the differing risks and returns, and the internal reporting systems.

The segment wise turnover of your Company is as follows:

Products	2025-26	2024-25
Rotating Machines Group	25,018	27,080
Power Generation and Distribution Group	29,717	23,066
Others	4,199	4,236
Total	58,934	54,382

Note: figures has been regrouped as per IND-AS.

Future Outlook

KECLs operational resilience stems from its diversified client base and robust order inflow, minimizing reliance on any single industry, customer, or region. This strategic diversification insulates the Company from sector-specific downturns and regional economic slowdowns, thereby bolstering revenue stability.

The Company expects demand for its product portfolio across sectors such as Defence, Railways, and various industrial sectors, supported by the Governments initiatives to boost domestic manufacturing. The Company continues to navigate persistent competition, volatile raw material prices, and the need for continuous technological upgrades. While committed to enhancing internal strengths, including operational efficiencies and strategic debt management, maintaining consistent profitability amidst these external pressures will remain crucial.

Risks mitigation measures

Recognising that unstable growth in core sectors poses a noteworthy risk, the Company has implemented several strategies to mitigate business challenges. The Company is continuously working to reduce manufacturing costs and enhance operational efficiencies, enabling it to offer competitive pricing. The Companys broad product portfolio provides a distinct competitive advantage, allowing it to effectively serve key verticals within the electrical engineering capital goods market. Furthermore, the Company recognises the critical role of its supply chain in ensuring the timely sourcing of raw materials and maintaining excellent delivery reliability.

Internal Control System and its Adequacy

Internal audit processes govern the Companys operations, ensuring consistency and compliance across the organisation. Consistency in operations and compliance, as well as ease of monitoring, are ensured through system-driven controls. As SAP-ERP has been implemented across the Company, reasonable assurance regarding the accuracy of accounting and financial records is provided. Internal auditors verify accounting records to safeguard Company assets against loss or misuse and to ensure the reliability of records used in preparing financial statements. Management reviews support the internal auditors evaluation of internal controls, and the relevant functions are responsible for initiating resolution of audit observations and related follow-up actions.

Discussion on financial performance with respect to operational performance:-

PARTICULARS	Standalone	Consolidated
	2025-26	2024-25	2025-26	2024-25
Revenue from operations	58,934	54,382	58,934	54,382
Other income (Net)	1,106	698	1,106	775
Total Revenue	60,040	55,080	60,040	55,157
Total Expense	58,356	55,334	58,363	55,754
Profit before Exceptional items	1,684	(254)	1,677	(597)
Exceptional Items	(808)	995	(808)	995
Profit / (Loss) before tax	876	741	869	398
Tax Expense	30	25	30	25
Profit / (Loss) after tax	846	716	839	373
Total other comprehensive income	(183)	2,867	(183)	2,867
Total comprehensive income for the period	663	3,583	656	3,240

Note: The financial statements of the Company have been prepared in accordance with Ind AS.

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

During the period under review, your Company concentrated on optimising cost and rationalising manpower. Further to the disclosure in the previous years report, the Board has approved the closure of the component machining activity at Budihal, Bangalore Rural (Unit - 15), with effect from May 28, 2025. However, as stated in the previous years report, this has had no adverse impact on the operations of the Company. The Company has complied with all necessary requirements in this regard, from time to time.

The number of permanent employees on the rolls of the Company as on March 31,2026, was 834.

Key financial ratios

Particulars of financial ratios	2025-26	2024-25
i. Debtors Turnover	46 days	43 days
ii. Inventory Turnover	31 days	31 days
iii. Interest Coverage Ratio	0.06	0.06
iv. Current Ratio	0.43	0.35
v. Debt Equity Ratio	0.76	0.92
vi. Operating Profit Margin (in %)	-0.39%	0.08%
vii. Net Profit Margin (in %)	1.41%	1.30%
viii. Sector-specific equivalent ratios, as applicable	Nil	Nil

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.

The net-worth of the Company for the financial year 2025-26 stood at Rs.(22,393) lakhs, an improvement compared to the net-worth of Rs.(23,238) lakhs in the previous financial year 2024-25. The net-worth of the Company has remained negative since preceding financial years.

The Company has been generating operational profits over the past three financial years, though debt servicing continues to depend on a combination of operating cash flows and planned asset monetisation. The company continues to face challenges to meet its working capital requirements. based on the resources available and projected sales, the Company expects to reduce the negative net worth by the end of financial year 2026-27, without factoring in the monetisation of non-core assets.

Disclosure of Accounting Treatment:

The financial statements of the Company have been prepared in accordance with IND-AS, as prescribed under Section 133 of the Act 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 the financial statements, which form part of this Annual Report.