Kirloskar Electric Company Ltd Management Discussions.

Global Economic Outlook

Yet another challenging year for the Indian economy, the COVID-19 pandemic began with the second wave during the beginning of the June quarter had overwhelming socio-economic impact in the Country and subsequently had dropped levels towards the end of the second quarter. Just as the third wave had faded away in India, geopolitical tensions in Europe sparked off a fresh round of uncertainty in the operating environment. Amidst such a challenging backdrop, the Indian economy rebounded during the year growing by 8.9%, albeit on a low base. The Russia-Ukraine conflict leading to extended global disruptions and spiraling of commodity prices have led to downward revisions to the growth forecast for 2022. Indias Gross Domestic Product growth was 8.7% for the financial year 2021-22 as compared to 7.7% in 2020-21. GDP is expected to grow between 8 - 8.5% in FY 2022-23

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

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 manufactured goods of the Company.

Your Company has taken several bold steps to remain competitive by optimizing the costs, rationalizing manpower, streamlining 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 by 2030. Huge growth is expected for electrical vehicles in India which will see increase in demand for Motors. Further we see a sustained growth for all energy efficient products including Motors, Transformers etc.,

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 and brand acceptance 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 2021-22 2020-21
Rotating Machines Group 12,968 11,493
Power Generation and Distribution Group 18,373 15,171
Others 2,126 1,094
Total 33,467 27,758

Note: Figures has been regrouped as per IND-AS Future Outlook

The RBI has stressed that future growth would be conditioned if the supply-side bottlenecks are addressed, and monetary policy is calibrated accordingly to bring down inflation and boost capital spending. Due to the Russia-Ukraine crisis, the world economy is in the doldrums and it was already battered due to the multiple waves of the pandemic which disrupted logistics and supply chain. The crisis also elevated inflation across the globe as the price of metals, crude oil, and fertilisers skyrocketed.

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. Optimizing 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 the 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)

G=2>
PARTICULARS For the financial year ended March 31, 2022 For the financial year ended March 31, 2021
Revenue from operations 33,467 27,758
Other income (Net) 10,772 361
Total Income 44,239 28,119
Total Expense 38,423 38,906
Profit / (Loss) before exceptional items 5,816 (10,787)
Exceptional Items - -
Profit / (Loss) before tax 5,816 (10,787)
Tax Expense - -
Profit / (Loss) after tax 5,816 (10,787)
Total other comprehensive income (2,491) 12,901
Total comprehensive income for the period 3,325 2,114

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

Your Company, considering the low capacity utilization and to optimize the employee costs, had announced partial lay off of its workmen working in its units situated in Govenahalli (Unit-1), Tumkur (Unit-7) and Budhihal (Unit-15). The Company had applied to concerned Labour departments for partial lay off of workmen at the aforesaid units. The Company during the year under review had also recalled some of its laid off workmen back to work. Timely intimations were made to stock exchanges regarding the same.

Key financial ratios:

Sl. No Particulars of financial ratios 2021-22 2020-21
Debtors Turnover 25 days 42 days
ii Inventory Turnover 48 days 59 days
iii Interest Coverage Ratio 0.26 -0.29
iv Current Ratio 0.33 0.25
v Debt Equity Ratio 1.29 2.43
vi Operating Profit Margin (%) 27.54% -26.85%
vii Net Profit Margin (%) 17.38% -38.86%
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.

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

(Rs in Lakhs)

Sl. No Financial Year Net worth
1. 2021-22 (26,508.18)
2. 2020-21 (32,323.70)
3. 2019-20 (21,537.35)

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: 12.07.2022 DIN: 000312531.