Kirloskar Pneumatic Company Ltd Management Discussions

Building Sustainable Competitive Advantage through the Magnificence of Manufacturing:

At Kirloskar Pneumatic, our commitment lies in consistently delivering superior Compressors and Compression Systems. Your Company achieve this through a relentless pursuit of Innovation and Manufacturing Excellence.

Over the years, many companies have strategically outsourced a significant portion of their manufacturing operations. This approach addresses challenges in workforce management, infrastructure requirements and capital expenditures, while also taking advantage of global cost efficiencies. However, this strategy has led to a gradual loss of expertise in key processes, impacting the companies ability to innovate and drive future growth in these areas. This shift also contributes to the phenomenon of jobless growth observed in the industry.

At Kirloskar, we believe in the Magnificence of Manufacturing as the bedrock for building an enduring and competitive business. This gives us the ability to constantly innovate and improve on our Products and Processes delivering superior value to our customers. Unlike other streams, Manufacturing builds not only a competitive advantage for the company; it also creates family-building/community-building jobs. It creates a sustainable and equitable ecosystem. Thats magnificence in its true sense.

During the last few years, we at Kirloskar have invested in building manufacturing excellence: Be it the finest Screw Rotor manufacturing facility; be it the one-of-its-kind Tezcatlipoca Impeller manufacturing set-up; the most energy-efficient half-a-ton part forging facility for alloy steel gear blanks; integrated fabrication and finish machining facility for complex base frames of upto 50 tons and other system packages……. the list goes on. And we have just started on this pivot. There are several more projects on the anvil that will make Kirloskar a truly integrated Compressor and Compression System manufacturing company.

The Magnificence of Manufacturing is based on Science and Technology. At Kirloskar, we have over 200 Engineers working in our R&D as well as the Design and Engineering team. We have during the last few years received 8 patents, 11 design registrations, 6 trademark and filed 3 patents, 2 Design Registrations, 17 Trademark and 24 peer-reviewed technical papers at international forums. There have been over 60 mini-projects on process improvements in manufacturing. These are in Digitalization / Smart manufacturing, Electrification of processes that can eventually be made ‘green, Circular manufacturing process and processes with zero waste etc.

The ESG initiatives are in this way imbedded in the Magnificence of Manufacturing.

As a commitment to building Manufacturing excellence on an ongoing basis, even the new CSR initiatives are with Nettur Technical Training Foundation (NTTF) that will train underprivileged wards to become skilled technicians who will then get well paying manufacturing jobs in industry.

Manufacturing excellence as a process has helped the company to improve its profitability in a year when the topline sales growth was muted on account of lower exports. However, as the company becomes more and more competitive both in its offerings and in its costs, we will continue to increase our market share in all our business verticals. The near 50% plus growth in order booking during the year is a testimony to this.

At Kirloskar, Handling Pressure is our Business and we will excel in this through the Magnificence of Manufacturing

Global economic overview1 & Outlook

In the year 2023, the global economy demonstrated resilience, despite facing volatility in commodity prices and significant geopolitical hurdles across Europe and West Asia. Inflation declined to 5.3%, surpassing the projections set by the International Monetary Fund in October 2023, while global growth reached 3.1%.

According to the IMF, global growth is estimated to be approximately 3.1% in 2024 and reach 3.2% in 2025. The elevated interest rates implemented by several central banks across major economies to combat inflation and withdraw fiscal support amid high debt, is likely to weigh on economic activity.

Inflation is likely to stabilise following the monetary tightening measures implemented by the central banks of major economies of the world. Global headline inflation is expected to decline to 5.8% in 2024 and 4.4% in 2025.

As per the recent report of International Monetary Fund, global conflict can undermine trade. As youll be aware, attacks on cargo ships in the Red Sea have forced a rerouting of vessels between Asia and Europe, driving up container prices. Shipping disruptions are particularly detrimental for Pacific Island countries, with which both depend heavily on imports and are poorly connected to global shipping networks. Such frictions reinforce the impact of trade restrictions that continue to be implemented at a rapid pace both in Asia and elsewhere. Few regions have benefited as much from trade integration as Asia. Hence, geoeconomic fragmentation continued to be a large risk.

Indian economic overview and outlook

Despite facing persistent inflation, India maintained its position as one of the worlds fastest-growing economies during the fiscal year FY 2023. The Indian economy observed a slight increase in inflation from 4.9% in October 2023 to 5.7% in December of the same year. However, a reduction to 5.1% in January 2024 was observed due to positive developments in the food sector. Indias economy is anticipated to surpass 7.6%2 exhibiting resilience while navigating global challenges as per Ministry of Statistics & Programme Implementation, Government of India. Leveraging its G20 host position, India has actively advocated for significant multilateral initiatives. The Indian banking sector has played a crucial role in driving economic growth through effective monetary policies.

Even International Monetary Fund has noted that India has successfully navigated multiple shocks in recent years and its now one of the fastest growing major economies in the world. Now, India has put lot of emphasis on Capex spending in terms of building infrastructure; be it airports, roads, railroads and so on. And thats clearly had a very beneficial impact on growth. This is led by private consumption and public investment. Now, consumption is picking up with inflation coming down right now, inflation about 4.7 percent in India, which is close to the mid target of 4 percent. So inflation is coming down and expects to come down even further. That should provide a fill up to consumption going forward.

The Indian Governments fiscal policy for FY 2024-25 is to strengthen the domestic economy while maintaining macroeconomic stability in the face of global challenges. Emphasising on inclusivity and sustainability, this policy aims to better equip the economy to deal with unforeseen challenges. A significant portion of resources is allocated for capital investment to maintain the momentum of infrastructure development, with a collaborative approach to fiscal federalism to assist state-level initiatives in this area. Innovative resource allocation mechanisms are being introduced to improve cash management, demonstrating the Governments commitment to strengthening the Indian economy and promoting comprehensive development across all sectors.

Interestingly, the next seven fiscals (2025 - 2031) will see the Indian economy crossing the USD 5 trillion mark and inching closer to USD 7 trillion. A projected average expansion of 6.7% in this period will make India the third-largest economy in the world and lift per capita income to the upper middle-income category by 2031.

To be sure, there will be near- and medium- term challenges posed by geopolitics, slowing potential growth from an uneven global recovery, climate change and technological disruptions.

As per CRISIL Market Intelligence & Analytics Report on India Economy (March 2024), the Indian economy will take support from domestic structural reforms and cyclical levers and can retain — perhaps even improve — its growth prospects.

This can be done by continuing to build infrastructure — both digital and physical — and undertaking growth-enhancing reforms aimed at improving the ease of doing business. Amid global risks, this can also allow India to grasp opportunities from diversifying global supply chains.

Company overview

Kirloskar Pneumatic Company Limited (KPCL), one of the core companies of the Kirloskar Group, was founded by Late Shri Shantanurao Kirloskar in 1958*. KPCL caters to a wide range of industries, including oil, gas, steel, cement, food and beverage, railway, defence, marine sectors and more by offering diverse range of products.

State-of-the-art scalable manufacturing facilities ensure prompt and reliable services and quality products are being delivered to the consumers. Their large in-house capabilities have enabled the Company to establish a geographic footprint spanning more than 30 countries. Consistent investments in manufacturing processes have facilitated the Company to modernise its facilities, streamlining its operations, reducing delivery time and maintaining quality and consistency in production.

The sites in Hadapsar, Saswad and Nashik represent the Companys technological prowess. The Company is equipped with one of the most modern machine shops in India. KPCL has a state-of-the-art plant for manufacturing high precision screw, reciprocating and centrifugal compressors, gears, pinions, etc. The newly inaugurated forging facility to make High Speed Gear Blanks and a comprehensive fabrication facility to make base frames, pressure vessels and a range of heat exchangers etc. The Company is working on the Industry 4.0 initiatives with use of IIoT, bar code and digitalization etc. Highly-trained and qualified Service Personnel present across India contribute to the seamless operation of KPCL.

The Company is divided into two segments – compression products and non-reportable segments and is exploring opportunities to export to the Middle East, South East Asia, Indo-China and South and West Africa.

Industry Structure and Developments, Segment Analysis, Risks and Concerns, Opportunities & Threats and Outlook

Compression products

Under the compression segment, KPCL have three primary product lines: air compressors, refrigeration compressors and compression systems and gas compressors and compression systems. With over 60 years of experience, KPCL has established itself as a leading manufacturer in its industry.

All of these businesses are poised for growth as it caters to the strong demand from multiple industrial sectors, both domestically and internationally. KPCL have a reputation for developing a diverse range of innovative products that are tailored to meet the specific needs of the Indian market.

Moreover, KPCL consistently upgrades its products to ensure that they meet the highest quality and reliability standards. KPCLs growth is further supported by a shift in the global energy landscape. This shift is driven by a combination of environmental concerns and political factors, leading to an increase in demand for the Companys products. With these favourable trends in place, the company is well-positioned to expand its activities and continue its successful trajectory.

Air Compressor business

Air Compressors are used to compress air for diverse purposes such as instrument air to control complex plants as well as service air, power tools, pneumatic, machinery and convening. They are utilized in the industrial sector for air motors, feed air for gas plants and driving pneumatic cylinders during machining process.

From 2021 to 2026, the worldwide air compressor market is predicted to increase at a CAGR of roughly 4%, driven by rising demand for energy-efficient compressors and a growing industrial sector.

Due to increased demand for compressors in the industrial and automotive industries, the Asia-Pacific region is likely to be the fastest-growing market. Air compressors have the highest market size of about approximately USD 30 billion.

There are three types of Air compressors:

a) Screw compressors – largely used for general applications requiring compressed air.

b) Reciprocating compressors – used in small applications etc. with high pressure : for LPG, air separation, CO2

c) Centrifugal compressors – large volume of air in metal, textile and pharma Industry.

KPCL has long enjoyed a strong position in the market for reciprocating compressors. Air Compressor Systems offers a wide range of compressors from 15 distinct product categories. KPCL, a relatively new player in the screw compressor market, has a long-term competitive advantage in this industry since it controls the full value chain, with the ability to design, manufacture, sell and service these machines in India.

In addition, the capabilities of the centrifugal compressor have been improved by optimizing the in-house manufacturing processes and reducing lead time. Additionally, the Company has achieved indigenization of its screw rotors and centrifugal impeller.

The Air Compressor business continues to grow with its two new product lines, the Tezcatlipoca Centrifugal Compressors, and the Aria-Atmos Standard Screw Compressors both doing well. The Tezcatlipoca has quickly established itself as the preferred choice amongst Centrifugal Compressor buyers. We have a good bank of orders for execution for this in FY 2025. This is being the only fully Made in India Centrifugal Compressor in the market, offers the lowest lifetime cost of ownership. We expect this to be a star product group going forward, driving growth.

Overall, there was an intense competition in the Air Compressor space with nearly all the global players being present and vying for market share. We continue to grow our business profitably albeit at a moderate pace.

Refrigeration business

The global industrial refrigeration industry is projected to be worth USD 10 billion. The global refrigeration compressor market is expected to grow at a CAGR of around 4.5% from 2021 to 2026, driven by the increasing demand for refrigeration systems in developing countries and the growing demand for energy-efficient and eco-friendly refrigeration compressors. The Asia-Pacific region is expected to be the largest and fastest-growing market due to the increasing demand for refrigeration systems in the food and beverage industry.

In Hydrocarbon refrigeration, the business is dominated by players who have exhibited a ‘Proven Track Record (PTR) in the market. Your Company is a dominant player in the Hydrocarbon refrigeration market as it has a very strong PTR in handling Hydrocarbons. These refrigeration systems employ a range of refrigerants, including hydrocarbons such as propane and propylene and Butane as well as mixture of these and other hydrocarbons.

The Company benefits from its ‘Concept to Commissioning methodology, which is used to stay ahead of the industrys increasingly stringent environmental, quality and safety regulations. The Company holds a significant market share of approximately 60% in the field of ammonia refrigeration compressors. As part of its efforts to accelerate the development of new products, the Company has made investments in an in-house performance testing facility dedicated to refrigeration compressors.

During the year, KPCL had record sales of Bare-Shaft Ammonia Compressors used in cold chain and ice plants. KPCL remain a dominant player in this segment. The larger installations in food processing plants, dyes and pharma continue to be dominated by imported compressors. KPCL have just started installing its newly product namely Khione Screw Compressor packages in this area. This should see a significant scale up in FY 2025. The Refrigeration package sales to the ammonia terminals and petrochemical plants were affected by delays in delivery of compressors from Europe, as well as in getting clearance from the EPC contractors for the site. KPCL expect this challenge to ease during the next two quarters.

Process Gas Business

Process gas compressors are utilised in a variety of sectors such as oil and gas, chemical and petrochemical. These compressors are used to compress gases such as natural gases, biogas, nitrogen, hydrogen and carbon dioxide for use in a variety of industrial applications.

The market for gas compressors is around USD 4.7 billion, while the market for gas compression systems is approximately USD 24 billion, driven by rising natural gas consumption and the expanding petrochemical industry. The Asia-Pacific region is expected to be the largest and fastest-growing market due to the increasing demand for natural gas in developing countries and the growing chemical and petrochemical industries. This industry is regarded as a worldwide enterprise because of our capacity to make these plants and packages anywhere, sell them anywhere. This business is dominated by the phrase ‘Proven Track Record (PTR). Gasification of the energy basket is a worldwide trend that is supporting this growth. The Company is able to capture this market by using their strong design and engineering capabilities. The Company has a significant market share in the oil and gas industry in India.

During the year, KPCL had record execution of order for oil and gas projects in India and this not only contributed to sales growth but also compensated to the poor offtake of CNG packages. KPCL continue to have strong orders in this space. CNG packages and C?lana Booster Compressor installations continue to lag in spite of various steps and announcements in the sector. KPCL expect to see material change on the ground in FY 2025.

There has been a significant uptick in both inquiries and finalization of orders for Biogas Compressor Packages. The Company has as of now, the most cost-effective compressor package for this, the Jarilo range that can handle gas from 0.5 to 250 bar in Four Stage Configuration. KPCL expect this business to become a significant one during FY 2025 with several major projects under finalization.

Export of gas packages to MENA region was lower by nearly a 100 Crore as we mentioned earlier. KPCL does not expect any significant improvement in FY 2025 with the current situation in this region. However, our investment to build this business in Southeast Asia is bearing fruit and this will grow gradually. The O&M services business continues to grow with the installed base itself growing, KPCL expect this to become more and more significant as we go forward.

The Compression Segment contributes 93% of total revenue and is the only reportable segment.

Other businesses

KPCLs Transmission Division offers gears to the Railway. The Companys expertise spans across various gear and gearbox types, ranging from sub-megawatt to higher megawatt applications. KPCL serves across various niche segments, including rail traction gears, marine gearboxes and renewable energy sectors like wind and hydro turbines. The forging plant will primarily make blanks for our rotors, which goes into our centrifugal and is also for gears that we sell to the railway. It gives us a very strong competitive advantage in these areas.

Outlook

The global economy is getting into a new normal with all the wars and uncertainties getting plugged in. The initial rush to find alternate gas sources, reducing the concentration of supply chain to one country have clearly crossed the hump. We are into a period of relative stability and modest growth. However, KPCL have the advantage of being India-focused and this is an area of high growth. Further, the strategy to focus on building in-house capabilities for manufacture of most critical items and to build a new range of compressors for various requirements based on our IP and Design will further strengthen our competitive position in this market. With a strong order bank at the start of the year, we are committed to delivering double digit growth in top line in FY 2025.

Technological overview

Over the years, KPCL has developed extensive in-house capabilities for designing, manufacturing and testing compressors and compressor systems. A dedicated team of over 200 engineers, focuses on design, engineering and development activities, enabling the Company to introduce a wide range of innovative products to meet the evolving demand of the market. This in-house expertise portrays KPCLs dedication to continuously improve and advance within the compressor industry, ensuring the delivery of high-quality, cutting-edge and reliable solutions to its customers.

During the year, your Company has received 13 IPs and had 10 international publications and participated in several international paper presentations and filed 12 IPs, as per the details below:

Particulars	Filed in FY 2023-2024	Granted in FY 2023-2024
Patents	-	2
Trademark	4	1
Design	8	10
Research Publications in	NA	10

International Forum (Out of this two Research Papers recognised and appreciated)

New launches

The Company has launched new products, which include:

Energy-efficient and cost-effective electric motor-driven screw compressors for compressed air.

Energy-efficient and cost-effective diesel engine-driven screw compressors for compressed air.

A new series of ammonia screw compressors.

Value Chain advantages

At KPCL, the range of in-house capabilities has given significant advantages across the value chain. This includes a foundry that produces cast iron, SG iron and aluminium alloys. The Companys elaborate fabrication plant allows for the production of base frames, pressure vessels and a variety of other structures. The Company has established highly alloy steel forging facility with a 32 Ton hammer at Nashik. This can forged parts of sizes upto 500 Kg each.

Internal control and adequacy

The Company has an Internal Control System, proportionate to the size, scale and complexity of its operations. All internal controls are well aligned with the evolving business needs, objectives and overall strategic direction.

The Audit Committee and the Board decided the scope of the internal audit. To maintain its objectivity and independence, the Board has appointed an external auditor, who reports to the Audit Committee of the Board at regular intervals.

The auditor monitors and evaluates the efficiency and adequacy of internal control systems in the Company and ensures its compliance with operating systems, accounting procedures and policies for various functions of the Company. Based on this report, process owners undertake corrective actions in their respective areas and thus, strengthen the controls further. The observations, along with the corrective measures are then periodically presented to the Audit Committee of the Board.

In FY 2024, Internal Financial Controls laid down by the Board were tested for adequacy and effectiveness and no reportable weakness was observed. The Company has effectively implemented policies and procedures, which ensure proper and efficient conduct of its business.

These further certify the safeguarding of assets, prevention and detection of frauds and errors, accuracy and completion of accounting records and prompt preparation of reliable financial information. Statutory auditors have also attested to the adequacy of internal financial control systems with reference to financial statements.

Operating performance

During the year under review, your Company achieved a sale of _ 13,226.20 Million as compared to _ 12,393.37 Million in the previous year, an approximate growth of 7%. The growth in sales was mainly driven by higher domestic sales. However, execution challenges coming primarily from large package order, lower export and lower shipment of CNG packages have had a dampening effect on the top line. The profit before tax grew from _ 1,432.76 Million to _ 1,778.75 Million, a growth over 24%. All businesses, air, refrigeration & gas compressors and compression systems did very well thereby your Company had all round growth during the year.

Your Companys export sales at _ 687 Million was significantly lower than the previous year.

The EBITDA in the current year is at 16.50% of total income compared to 14.2% in the previous year. Exceptional item in the profit and loss account is a one-time impact of _ 8.38 crores taken on account of impairment of RoadRailer business.

The Company has no loans, neither term loans nor working capital loans. It is a debt-free Company. Financial charges are paid to banks for services not related to any borrowings. The ratio of net working capital-to-sales improved to 19.90% from the previous years 22.20%, improvement is driven by higher customer advances and more favorable payment arrangement with suppliers. Receivables have increased to 86 days from 81 days in the previous year primarily due to elevated Q4 sales and similarly, supplies outstanding have extended to 86 days from 70 days compared to the previous year attributed to improved payment terms with supplier. Your Company had a net cash position of about _ 2,386.30 Million as on 31st March, 2024, after paying final dividend of the previous year and interim dividend declared in the reporting year apart from the capex.

During the year, there were no significant variations (i.e. change of 25% or more as compared to the immediately previous financial year) in the key financial ratios such as Debtors Turnover, Inventory Turnover, Current Ratio, Interest Coverage Ratio, Operating Profit Margin and Net Profit Margin as compared to previous financial year. As on the Balance Sheet date, your Company does not have any debt. As such Debt Equity Ratio is zero and variance to previous period is not applicable. As on 31st March, 2024, your Companys return on net worth improved to 17.81% as compared to 16.52% in the previous financial year resulting from increase in profit for the year.

Risk and concern

The Company recognises the importance of a robust risk management system. The Company follows a proactive approach to systematically address risks. Given the nature of its business, the Company understands its vulnerability to a variety of risks arising from economic, legal, sectoral, ESG (Environmental, Social, and Governance), human resource and operational factors. A comprehensive risk management process enables the Company to remain aware of the risks associated with product supply and project execution. The company-wide Risk Management Matrix is created using inputs from Divisional Risk Management Processes. A dedicated Risk Management Committee examines potential risks and develops mitigation strategies.

For an elaborate risk management approach refers page number 27.

Safety, Health and Environment (SHE)

The Company prioritises safety, health, and environmental sustainability through a range of initiatives. Regular safety audits and monthly monitoring ensure adherence to safe working practices, supported by a comprehensive safety organization. Periodic health checks and counselling sessions promote employee well-being, whereas virtual and physical awareness sessions foster a culture of healthy living and safe working conditions in the organisation. Flexible working hours and additional off days contribute to a healthy work-life balance. The strict PPE policies, work permit systems, and regular safety training ensure the safety of all employees. The Companys commitment to emergency preparedness is evident through organizational-level response plans and regular drills. Additionally, employee training on Company values, code of conduct, and human rights awareness underscores the Companys dedication to a safe, healthy, and ethical work environment. The Company is one of the select Integrated Management System (IMS) certified entities, holding accreditation in ISO 9001, ISO 14001 and ISO 45001 standards. During the year, an external agency has conducted IMS surveillance audit of your Company and confirmed that the IMS certificate is sustained. Your Company is committed to comply with all statutory and regulatory requirements. Your Company has been making efforts in building awareness among employees, suppliers and service providers.

Your Company has given a lot of attention to improving greenery all around its manufacturing plants. Energy conservation initiatives, safety initiatives and quality initiatives are being taken on a regular basis to ensure sustainability. Your Company has been working on ESG initiatives for many years now.

For an elaborate Safety, Health and Environment (SHE) consult page number 51.

Corporate Social Responsibility (CSR)

Inspired by our founder Late Shri S L Kirloskar all our CSR initiatives are focused in the areas of Education, Environment and Health. CSR initiatives in your Company are planned, budgeted, implemented and reviewed regularly.

Your Company has contributed an amount of _ 13.75 Million by way of contribution to Kirloskar Institute of Management for promoting higher management education.

Socio-economically challenged students from 5th to 10th Std. from 3 schools in the vicinity of Saswad Plant are supported for development through Bharari Initiative. The initiative that benefits 200+ students was enhanced by adding life skills, English language modules in addition to activities related to academic skill development.

Your Company is supporting education of girls, by supporting daughters of workmen of Cold Storage Units from UP, Gujarat, Rajasthan and MP. This unique CSR Initiative, named KaShi (Kanya Shiksha), is implemented by employee Volunteers from Regional Offices of the Company in North and West in collaboration with respective State Cold Storage Associations. At present, 30 girl students benefit from this initiative.

Your Company is supporting 3 batches of 3 year diploma programs in Mechatronics & Smart Factory and Electronics & Embedded Systems comprising of 100 socio-economically challenged students at NTTF facilities at Bengaluru, Dharwad and Pune. The selection criteria have ensured that deserving and needy candidates are selected. 37% of these students are girls, 10% are orphans and 9% are having only mother as a single parent, demonstrating focus on gender diversity, inclusion and equity as a guiding principle for the initiative.

To create awareness about mental health, relationships and issues related to adolescence, your Companys School Health Initiative, Releshani reached out to 1,000+ 9th Std. students from 6 schools through 20 workshops each of 3 day duration during this year.

This year, your Company ensured that 15,000+ students from 5 school locations in the nearby vicinity have access to clean and safe drinking water by installing water filtration and purification plants in their premises. Since last year this WaSH initiative has benefitted 25,000+ students from 14 schools.

Your Company is supporting various activities in 12 schools associated with Ram Nadi Restoration Mission through its RRM School Initiative in addition to participating in an online Ram Nadi Festival and other Kirloskar Vasundhara Initiative related activities. This year river restoration message reached out to 3,500+ students and teachers by way of wall paintings, awareness workshops and competitions like elocution, drawings etc. The Millets Festival characterized by awareness workshops, wall paintings and millets recipes competition lead to enthusiastic participation from 4,000+ students, parents and teachers from 5 schools.

Overall CSR initiatives of your Company have benefitted 33,750 + community members in this year.

For an elaborate CSR consult page number 53.

People, Processes and Systems: Its Customer first, always!

KPCL has been recognized as Best Employer 2023 by Kincentric for its human centric approach and strong people processes. This has resulted as recognition for a robust capability development, employee engagement, communication, rewarding culture in the organization. This year the priorities of the organization were building collaboration and succession planning of critical roles in the organization. We started the year by defining very clear goals and priorities for each vertical in the HR function. During the year we imparted 3900+ training man-days covering more than 90% of our workforce through 100+ learning initiatives. L&D programs supporting the strategic objectives were designed and implemented during the year. This included Future leaders grooming, contract management, Finance for Non-Finance, team building, Leadership & Managerial Effectiveness, Project Management etc. There were strategic structural changes made during the year to synergize the operations and business teams across the Organization. 3500+ rewards were given during the year through various reward schemes. Your Company has ensured 100% legal compliance to all applicable labour and factory statutory requirements. Your Company has ensured cordial Industrial relations all the time and has zero man hour loss during the fiscal year.

The IMS audits and certification were done and the Company continued to invest on its participative culture through Theme based virtual Round Table sessions, Reward and Recognition Sessions, Sudnyan Knowledge sharing, 5S, Kaizen & CFTs etc. We participated in National Competition and won several awards.

Values

The values of KPCL guide the Company towards success. The simple yet effective reminder helps the employees to grow towards their respective goals while having a rooted presence in the six fundamental values.

Human resource and industrial relations

Kirloskar Pneumatic prioritises equal opportunity in recruitment, aligning manpower needs with business goals and culture. Various channels such as job portals, referrals, and campus recruitment are utilised for hiring the latest talent in the market. Employee training needs are identified annually by the Company, with tailored programs to upskill the workforce. The Company also possesses Leadership development programmes which are emphasised across all levels through structured programs like Frontline Manager Development and Future Leader Programs.

The Company nurtures and creates employee engagements through a structured reward and recognition framework, linked to individual and team performances. Grievance reporting mechanisms and safety measures, including health checks and flexible working hours, are core to employee well-being, which are dutifully done by the Company. Overall, KPCL fosters a proactive and supportive culture for its employees.

AnelaborateHumanresourceandindustrialrelationsisasbelow:

The Human Resources (HR) department at KPCL is driven by the mission ‘To be an employer of choice. We look at the employees entire work life cycle, to ensure timely interventions that help build a long-lasting and fruitful career.

Recruitment & Staffing: With the growth of business, we continued to focus on having the most befitting managers with the most relevant job-experience to fill in the vacancies. As such, we do have a robust recruitment and Human Resources Management Process. Changes are made in the process based on employee feedback. Selection of new employees is done through a rigorous process to ensure the right candidate is selected. With the projected growth of the business, more number of engineers is getting trained to manage higher level of operational efficiencies.

The annualized attrition rate for FY 2024 stands at 13.5%, which is better in comparison to the similar industries. We continue to work on simplifying internal processes. HR process owners collaborate with various teams in the Organization to ensure that employees are able to work at their productive best.

Career Planning: Aspiring managers do need a career path to contribute better. Accordingly, the Critical Role Holders are identified as part of the succession process. A group of identified high-potential employees went through a customized future leaders program conducted by SLKCEE. These programs covered important topics like Personal Leadership, Team evolution, Art of delegation, People motivation theories, managing self and Team performance.

Learning & Development: L&D initiatives are at the foundation of KPCL. Competency Development continues to be a key area of strategic focus for us. During fiscal 2024, the total training provided for employees was at average 4 days per employee which has improved by 60% compared to previous year. This year more than 90% of our employees have undergone at least one training program during the year. Some of our employees are internal trainers and shared their domain knowledge in the

Company. Such an intervention not only fosters a culture of mutual learning, but also encourages others to be a part of the larger community of internal-trainers at KPCL. We introduced Online Learning Management system in 2021, thereby enabling and promoting a culture of self-learning and development in the Organization. Last year, we have focused on imparting training through our LMS and significant number of programs was through the KORE – Online Learning Management system. The Company is investing in our people in a big way as we make this journey together.

The Company undertook the Future leaders program to develop and groom leaders who are truly "Limitless" who will lead from the front and take the organization to new heights, as a part of succession planning.

Rewards & Recognition: It is understood that employee- motivation is key to many success stories. Acknowledging ones value-addition and recognizing them play an important key role. Recognition schemes are monetary as well as non-monetary. Achievers are recognized every quarter for outstanding achievements as Star of the Month, Spontaneous and Team Rewards by Senior Management. As always, we have continued to focus on the much needed performance differentiation to ensure that our high-potential (HiPo), high- performing employees are driven towards higher purpose and goals. They are being groomed as our Talent-Pipeline to succeed to key roles in future. This year we conducted Virtual Reward and Recognition programmes for our Achievers Felicitation.

Apart from the above, we do measure our performance, with intent to raise the bar of better performance; also to scale up the deliverables from HR team.

In addition to the above, we have mechanisms in place to foster a positive workplace environment, free from harassment of any nature. We have institutionalized the Prevention of Sexual Harassment Initiative (PoSH) framework, through which we address complaints of sexual harassment at the workplace. Our policy assures discretion and guarantees non-retaliation to complainants. The Kirloskar group companies have now adopted a common whistle blower policy and an ethics hotline has been created to provide an assuring platform to the employees to highlight discriminatory or violating acts or behaviors.

Communication: An attempt to encourage company-wide employee-communication is one of our pursuits. Dialogue is maintained with employees throughout the year through quarterly performance sessions, in-house magazine (Impeller) and intranet (Shashwat). The employees are aware of various developments in the Company. We have also done focused internal and external communication through interactive campaigns such as revamped House Magazine, revamped HR space on our intranet – Shashwat, New Wall and Table calendars, monthly HBR articles, Quarterly Leadership address, Theme based Round tables sessions and Reward & Recognition sessions. The revamped Marcom approach has resulted into significant rise in the social media followers of your Company. On an average we have 5 social media posts each month regarding various highlights about your Company.

For an elaborate Human resource and industrial relations consult page number 48 named Human Capital.

Cautionary statement

This Report contains statements relating to future business developments and economic performance that could constitute ‘forward looking statements. While these forward looking statements represent the Companys judgements and future expectations, a number of factors could cause actual developments and results to differ materially from expectations. The Company undertakes no obligation to publicly revise any forward looking statements to reflect future events or circumstances. Further, investors are requested to exercise their own judgement in assessing various risks associated with the Company and also the effectiveness of the measures being taken by the Company in tackling them, as those enumerated in this Report are only as perceived by the Management.