Kirloskar Industries Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

A. OPERATIONS OF THE COMPANY:

WINDMILLS:

The Company has seven windmills in Maharashtra with total installed capacity of 5.6 Megawatt (MW). The windmills are located at Tirade Village, Tal. Akole, Dist. Ahmednagar. The windmills have generated net wind energy of 49.05 Lakh units of electricity in the year under review as against 89.93 Lakh units of electricity in the previous year showing decrease of 54% over the previous year.

During the year under review, generation of units from the windmills has gone down due to various reasons viz., major break down of one Wind Energy Generator (WEGs) during the period of 7 months, non-availability of timely maintenance due to internal issues of Wind World India Limited (WWIL), service providers, unfavorable weather conditions and agitation by local people against operation of windmills.

The Company is required to apply for Open Access Permission to Maharashtra State Electricity Distribution Company Limited (MSEDCL) every Financial Year. Currently, the Company has the necessary Open Access Permission and is selling the wind power units generated to a third party consumer.

All the seven windmills are registered with the National Load Despatch Centre (NLDC)and are eligible for the Renewable Energy Certificates (RECs). During the year, the Company has sold 5,120 RECs as against 3,243 RECs in the previous year. This has resulted in revenue of Rs. 77 Lakhs (previous year Rs. 49 Lakhs) during the year. The Company is having 10,537 RECs units as on 31 March 2017 (previous year 9,593 units).

OTHERS:

The Company owns lands and buildings thereon and apartments and offices in Pune, Bangalore, New Delhi and Jaipur. The Company has granted most of these lands and buildings and offices on leave and license basis to group and other companies.

During the year under review, your Company made investments of Rs. 26.48 Lakhs in equity shares of Kirloskar Ferrous Industries Limited (KFIL). Pursuant to the said investment, the Companys holding in KFIL has increased to 51.45% as on 31 March 2017, from 51.43% as on 31 March 2016. During the year under review, the Company has invested Rs. 1 Lakh in S.L. KirloskarCSRFoundation.The Company has thereafter transferred 200 equity shares of Rs. 10 each in the share capital of S.L. Kirloskar CSR Foundation. As a result, the holding of the Company in S.L. Kirloskar CSR Foundation is reduced to 19.60% from 20% as on 31 March 2017.

B. COMPANY PERFORMANCE:

During the year under review, your Company earned an income of Rs. 4,797 Lakhs (previous year Rs. 7,670 Lakhs). The fall in income in the year under review is on account of most of the companies, in which your Company holds shares have not declared any dividend in the year under review. In the previous year, these companies had declared dividend twice.

In the year under review, the Company received dividend of Rs. 713 Lakhs declared by the investee companies for the Financial Year2016-17.

The Profit Before Tax is at Rs. 3,746 Lakhs (previous year Rs. 6,838 Lakhs) after providing for depreciation of Rs. 100 Lakhs (previous year Rs. 89 Lakhs).

C. HUMAN RESOURCES:

As on 31 March 2017, the Company has 8 employees on its roll, including the Executive Director.

D. EMPLOYEE STOCK OPTION PLAN:

Human resource is the key resource for the continuous growth and development of a company. The Company strongly believes that an equity component in the compensation goes a long way in aligning the objectives of an individual with those of the organisation.

To enable the employees, present and future, to share the wealth that they help to create for the organisation over a certain period of time, the Board of Directors in its meeting held on 4 July 2017, considered and approved to introduce and implement "Kirloskar Industries Limited - Employee Stock Option Plan 2017" (KILESOP2017) in accordance with the provisions of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, (SEBISBEB Regulations), subject to the approval of the members.

Details of the proposal for the KIL ESOP 2017 are mentioned in the Statement setting out material facts annexed to the Notice of the ensuing Annual General Meeting.

E. CONCERNS AND THREATS:

Following are the identified risk/ concerns and threats for the operations of the Company:

• Natural calamities like cyclones, earthquake and fire or act of God damage the windmills.

• Agitation by the local people against the operation of windmills.

• Frequent and erratic changes in the Open Access Rules and Regulations and administrative delay in issuing Open Access Permission.

• Underutilisation by customer of units generated specially due to non-working in various Time Zones.

• Major maintenance due to failure of important components of the windmills.

• Disturbances and failure in the Maharashtra State Electricity Distribution Company Limited (MSEDCL) grid.

• Non-availability of timely maintenance by service provider adversely affecting the operations of the windmills.

F. PROSPECTS:

Wind energy generation is largely dependent on natural factors such as velocity of wind, continuity of the flow, etc. and are unpredictable and beyond control. The business is also largely impacted adversely by frequent and erratic changes made by the MSEDCL in the open access policies.

The market for Renewable Energy Certificates (RECs) continues to be sluggish; this trend is expected to continue in the current Financial Year. Consequently, there is a risk of RECs getting lapsed. Further, the Central Electricity Regulatory Commission vide its order dated 30 March 2017, reduced the realisable rate of RECs from f 1,500/unit to f 1,000/unit. Considering the same, the Company is evaluating the proposal of selling green energy i.e., without availing RECs benefits.

G. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has adequate internal control systems to ensure operational efficiency, accuracy and promptness in financial reporting and compliance ofvarious laws and regulations.

The internal control system is supported by the internal audit process. An Internal Auditor has been appointed for this purpose. The Audit Committee of the Board reviews the Internal Audit Report and the adequacy and effectiveness of internal controls periodically.

H. CAUTIONARY STATEMENT:

Statements in this Report, particularly those which relate to Management Discussion and Analysis, describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed orimplied.

I. SEBI REGULATIONS AND LISTING FEES:

The annual listing fees for the year under review have been paid to BSE Limited and National Stock Exchange of India Limited, where your Companys shares are listed.

J. SUBSIDIARY COMPANY AND CONSOLIDATED FINANCIAL STATEMENTS:

As on 31 March 2017, the Company has one subsidiary, i.e., Kirloskar Ferrous Industries Limited (KFIL).

The Board presents Audited Consolidated Financial Statements incorporating the duly Audited Financial Statements of KFIL and as prepared in compliance with the Companys Accounting Standard 21 as per the Companys (Accounting Standards) Amendment Rules, 2016, notified by the Ministry of Corporate Affairs (MCA) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (the Regulations).

Pursuant to Rule 5 of the Companies (Accounts) Rules, 2014, the Statement containing the salient feature of the Financial Statement of a Companys subsidiary and associate companies under the first proviso to Sub-section (3) of Section 129 of the Companies Act, 2013, (the Act), in Form AOC - 1 is required to be enclosed to the Financial Statements.

The Consolidated Financial Statements prepared as per the applicable provisions and duly audited by the Statutory Auditors, are presented elsewhere in this Annual Report along with Form AOC-1.

Further, the Company undertakes that the Annual Accounts of the Subsidiary Company and the related detailed information shall be made available to the shareholders on demand, at any point of time. The Annual Accounts of the Subsidiary Company shall also be kept open for inspection by any shareholder at the Registered Office of the Company.

BRIEF HIGHLIGHTS OF BUSINESSES OF SUBSIDIARY COMPANY:

KIRLOSKAR FERROUS INDUSTRIES LIMITED (KFIL):

KFIL is in the business of manufacturing of iron castings and has its manufacturing facilities at Bevinahalli Village in Karnataka and Solapurin Maharashtra.

The Board of Directors of KFIL has recommended a dividend of Rs. 1.75 (35%) per equity share (Previous year interim dividend 25% i.e., Rs. 1.25 per equity share of Rs. 5 each) for the Financial Year ended 31 March 2017.

KFILachieved net sales of Rs. 1,13,370 Lakhs (previous year Rs. 1,11,390 Lakhs).

Profit Before Tax (PBT) for the year under review stood at Rs. 12,146 Lakhs, as compared to Rs. 8,522 Lakhs of previous year. Also Profit After Tax (PAT) for the year under review stood at Rs. 9,057 Lakhs, as compared to Rs. 5,773 Lakhs of the previous year.

KFIL sold 2,53,495 MT of Pig Iron valued at Rs. 58,891 Lakhs during the Financial Year 2016-17, as compared to 2,89,485 MT of Pig Iron valued at Rs. 62,312 Lakhs in the previous year.

KFILsold 65,892 MT castings aggregating to Rs. 51,912 Lakhs during Financial Year 2016-17, as compared to 56,661 MT castings aggregating to Rs. 46,067 Lakhs in the previous year.

KFIL participated in the auction of mines but the mines have been won by other companies a price which was not economical to KFIL.

Government has informed that the Financial Year 2017-18, would bean important year for the mining industry as there are around 300 mineral blocks to be leased (of which, Karnataka alone has about 100 odd leases). These mines would be auctioned in different states during the Financial Year 2017-18. KFIL will pursue in its efforts to acquire iron ore mines from the e-auction.

Iron ore mining is slowly opening up and presently 29 mines have been allowed for mining 33 million tons per annum. As demand is higher than the actual mining, iron ore prices in Hospet sector are still higher.

During the year under review, KFIL repaid entire outstanding amount of long term loans. Also KFIL has been able to reduce considerably the financing cost of working capital facilities by availing facilities at a very competitive rate.

KFIL has undertaken the following projects during the year under review:

1) Commenced the civil work for machine shop at Koppal Plant and is expected to be completed in first half of Financial Year 2017-18. Simultaneously KFIL is working on getting the orders for machined castings from its customers and also on procuring machines for machining of castings. Machine shop will be commissioned progressively in a phased manner based on the order position. The completion of machine shop will facilitate an increase in business by bringing more value added items for KFIL.

2) Installation of fettling facilities for superior casting finish at Solapur Plant.

3) Upgradation of Mini Blast Furnace I resulting in lower coke consumption and increasing the production capacity of pig iron.

4) Commenced Railway siding project and the civil work has been completed. The project is expected to be completed in Financial Year 2017-18. Completion of this project will facilitate inward movement of raw materials and outward movement of pig iron resulting in reduction in cost of transportation and handling losses.