Kirloskar Electric Company Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT Global Economy Outlook

The global environment around the world continues to go through significant shifts. Post the pandemic, which resulted in supply chain shocks. While initial signs of stability began to emerge, the military conflicts have further intensified this year and continue to impact the global supply chains. Geopolitical tensions due to adverse events such as the Russia-Ukraine war and the Gaza-Israel conflict, alongside volatility in the Middle East, incidents in the Red Sea, and climate change-related occurrences. There was an economic slowdown especially in developed markets.

Industry outlook

The World Bank report stated that "Indias economy has been buoyed by strong domestic demand, with a surge in investment, and robust services activity. It is projected to grow an average of 6.7 percent per fiscal year from 2024 through 2026 making South Asia the worlds fastest-growing region," Despite global uncertainties, India is one of the fastest growing economies in the world. The Country is fast progressing on its Viksit Bharat 2047 roadmap, with an aim to become a developed nation by the 100th year of its independence. The plan that was recently unveiled, chalks out actionable and measurable goals in the areas of economic growth, sustainability, ease of living, ease of doing business and social welfare. The Government is taking several steps in this direction including, making significant investment on infrastructure and providing impetus to manufacturing.

Business Performance

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.

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:

The Company adheres to international standards by acquiring and adopting latest technologies along with in-house R&D. The R&D infrastructure, the knowledge, hard work, dedication and skill base of highly qualified & experienced engineers and corporate zest, are the secrets behind the exhaustive list of customization projects in Defense, Railways, Power, and other diverse complex industrial applications.

Opportunities

Our products reach in the mobility sector is broad and constantly expanding, propelled by advancements in technology, the growing popularity of electric vehicles (or "EVs"), and their incorporation with mobility solutions. Indias emphasis on domestic manufacturing and technological innovation offers us chances to expand and support the global mobility revolution. Indias EV market has experienced a sharp increase in business this year. As the demand for EVs increases, there is a great opportunity for our business to grow and for us to contribute to the success of the EV ecosystem in India.

Threats

In addition to a high dependence on a small number of suppliers, there is a chance that the costs associated with obtaining materials, products, or services could rise. As a result, the company may have less negotiating leverage and be more susceptible to changes in the price and the disruption of the supply chain.

Your business faces constant challenges also from the unorganized sector and new competitors entering the market. Nonetheless, your business enjoys a solid product base across all 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:

( in Lakhs)

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

Future Outlook

The government has made significant investments in the manufacturing sector, which has improved the overall investment climate. India is now seen as a different manufacturing base that can be used to diversify supply chains. This has been essential in helping to modernize and grow the manufacturing sector, which has sped up the construction and advancement of manufacturing facilities in a variety of industries.

The company is upbeat about its prospects for future growth, which are supported by its internal strengths, which it is still working to strengthen and enhance, as well as Indias growth narrative, which is fueled by a number of important factors like progressive and robust manufacturing, a focus on capital investments, a push for infrastructure expansion, resilient capital market dynamics, etc. All of this points to a bright future for the companys operations.

Risks mitigation measures

The company has taken the following steps to mitigate the business risks mentioned above, acknowledging that unstable growth in core sectors poses a significant risk. Company is constantly working to reduce manufacturing costs and increase operating efficiencies so that it can provide competitive prices. Your company has a competitive advantage because of its broad product portfolio, which allows it to serve the main verticals in the capital goods market for electrical engineering. Your Company understands the value of its supply chain in ensuring timely sourcing of raw materials and excellent dependability in fulfilling delivery schedules.

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, 2024: 889 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 2023-24 stood at (22,402.90) Lakhs which has been improved in comparison with net-worth in the previous financial year 2022-23 which stood at (23,920.09)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.