Kirloskar Electric Company Ltd Management Discussions

Annexure - III

Global Economy Outlook

The global economy showed resilience in 2024, growing at a strong annualized rate of 3.2% in the latter half of the year. However, this growth is projected to slow slightly, with global GDP expanding by 3.1% in 2025 and 3.0% in 2026. This moderation is largely due to increased trade barriers in several G20 economies and greater policy uncertainty, which are expected to dampen investment and household spending.

The global economy, including India, is going through heightened uncertainties as the global trade war continues. Notably the Russia-Ukraine war and middle east conflicts, continue to drive volatility. While some supply chain shocks have eased, inflation remains slightly elevated in certain regions, especially the US, due to tariff pressures. The reciprocal tariffs recently announced are considerably larger than anticipated, impacting not only India but also other nations. This escalation risks aggravating the global trade war, which could negatively affect both global and Indian growth if not amicably resolved in the near future.

With the ongoing trade war, the RBI governor has highlighted that there are several known & unknowns that make quantification of the adverse impact difficult.

Industry outlook

The World Bank projects Indias economy to remain exceptionally strong, with an average growth rate of 6.7 percent per fiscal year from 2024 through 2026, solidifying South Asias position as the worlds fastest-growing region. This robust performance is underpinned by strong domestic demand, a significant increase in investment, and resilient services sector activity.

Indias economy is somewhat shielded from the global trade war because it doesnt rely heavily on international trade. However, in todays connected world, India wont be completely unaffected by rising global uncertainties. Even before the trade war grew, Indias economic growth was slowing down, and widespread consumer spending is still a challenge. The global trade war is likely to make Indias economic growth even tougher. On the bright side, domestic inflation is slowing, which is a positive amid worries about growth.

Despite a challenging global environment marked by ongoing geopolitical tensions and trade uncertainties, India is firmly advancing its Viksit Bharat 2047 roadmap. This ambitious plan aims for India to achieve developed nation status by its 100^th year of independence. The government continues to drive this vision through substantial investments in infrastructure and a strong focus on boosting the manufacturing sector, demonstrating a clear commitment to fostering economic growth and stability.

Business Performance

To maintain a strong competitive position, the Company has proactively optimized costs, streamlined its workforce, and consolidated manufacturing operations. The Company manufactures and supplies varieties of electrical capital equipments ranging from AC Motors, DC Motors, EV Motors, Traction, AC Generators, DG Sets, Switchgears and Transformers etc., to the core economic sectors such as:

• Defense

• Metro Rail

• Nuclear Power

• Sugar

• Power Transmission & Distribution

• Data Centers

• Pharmaceutical

• Water & Irrigation

• Electronics

• Fertilizer

• Textile

• Steel and Metals

• Building and Infrastructure

• Oil and Gas Refineries

• Railways

• Thermal

• Mining

• Port & Shipping

• IT & Telecom

• FMCG

• Green Hydrogen

• Renewable (Solar, Floating Solar, Wind, and Hydro)

• Chemical

• Automobile

• Paper

• Cement

The Company upholds standards through the adoption of advanced technologies and dedicated in-house R&D. Our extensive track record of customization projects in Defense, 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

We are strategically positioned to capitalize on significant business opportunities in both domestic and international markets through

2025-2026. Domestically, Indias robust infrastructure development, substantial investments in renewable energy, and ongoing industrial modernization, supported by initiatives like "Make in India," will fuel demand for our diverse electrical equipment. Internationally, the global energy transition, the infrastructure needs of emerging economies, and the increasing requirement for specialized, custom-built electrical solutions present avenues for expansion.

Indias burgeoning solar sector offers a significant growth opportunity. Driven by strong government backing and falling costs, this rapid expansion creates substantial demand for our core products in solar power generation, distribution, and storage. Furthermore, the solar industrys synergy with the growing electric vehicle (EV) market and the broader electrical sector provides additional avenues, as solar power will be vital for charging infrastructure and potentially next-generation EVs, requiring robust motor, generator, and switchgear solutions.

Threats

Our companys future financial performance will be significantly shaped by the evolving global economy. We anticipate moderate global growth, the continuation of protectionist trade policies, and ongoing geopolitical tensions. This presents a risk of volatile input costs for us, given our reliance on imported critical components like CRGO electrical steel.

Intense competition from both domestic and global players, often offering lower-cost products, pressures pricing and margins. Volatile raw material costs, especially for critical inputs like copper, iron, and steel, poses a significant risk, as these costs constitute a large portion of overall production expenses, and the ability to fully pass on such increases to customers remains a challenge. Furthermore, global economic slowdowns or escalating geopolitical tensions could curb industrial demand and export growth.

Despite market dynamics, our business maintains a robust product portfolio that spans all relevant industry sectors.

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:

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.

We expect demand for our diversified product portfolio across sectors like Defense, Railways, and various industrial sectors, supported by governments initiatives to boost domestic manufacturing. We prudently navigate persistent intense competition, volatile raw material prices, and the need for continuous technological upgrades. While the Company is committed to enhancing internal strengths, including operational efficiencies and strategic debt management, maintaining consistent profitability amidst these external pressures will be crucial.

Risks mitigation measures

Recognizing that unstable growth in core sectors poses a significant risk, weve implemented several strategies to mitigate business challenges. Were continuously working to reduce manufacturing costs and enhance operational efficiencies, enabling us to offer competitive pricing. Our broad product portfolio provides a distinct competitive advantage, allowing us to effectively serve key verticals within the electrical engineering capital goods market. Furthermore, we deeply understand the critical role of our supply chain in ensuring the timely sourcing of raw materials and maintaining excellent delivery reliability.

Internal Control System and their adequacy

Your organization has internal audits and processes in place to ensure that all processes are under control. Consistency in operations and compliance as well as ease of monitoring are guaranteed by system-driven controls. Because SAP-ERP is implemented at your company, reasonable assurance regarding the accounting and financial records and controls is guaranteed. Internal auditors confirm accounting records in order to protect company assets from theft or damage and to ensure that the records are trustworthy when creating financial statements. Management reviews provide support for the internal auditors evaluation of internal controls. The corresponding functions are in charge of initiating the resolution of all audit observations and related follow-up actions.

Discussion on financial performance with respect to operational performance:-

Note: The financial statements of the Company has 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 optimizing cost and rationalizing manpower. It was decided to discontinue the component machining activity at the Unit - 15 with effect from January 22, 2024. However this has no adverse impact on the operations of the Company. The Company has complied with all the necessary compliances from time to time.

The number of permanent employees on the rolls of the Company as on March 31,2025 is 858 employees.

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.

The net-worth of the Company for the financial year 2024-25 stood at ? (20,678) Lakhs which has been improved in comparison with net-worth in the previous financial year 2023-24 which stood at ?(22,402.90) Lakhs. The net-worth of the Company is negative from the preceding financial years.

The Company has started making operational profits since the last financial year. The Company continues to face challenges for meeting its working capital requirements. With the resources available and as per the projected sales, we expect to reduce the negative net worth substantially by end of financial year 2025-26, without considering the monetization of non-core assets.

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.