KSB Ltd Management Discussions

ANNEXURE II TO BOARDS REPORT

INTRODUCTION

The Company is engaged in the business of manufacture of power-driven pumps and industrial valves. Castings are mainly produced for captive consumption.

INDUSTRY STRUCTURE AND DEVELOPMENT:

General:

Global Macro-Economic Outlook

The current year 2024 presents a dynamic and complex economic landscape. While the initial fears of a deep recession in response to high inflation and rising interest rates havent materialized, persistent inflation in key economies dampens growth expectations. The IMF currently projects global GDP growth at 3.1%, a modest improvement from 2.7% in 2023, IMF raises Indias FY24 GDP growth forecast to 7.8%, higher than the governments projection. Global inflation is anticipated to fall gradually to 5.8% in 2024 from 6.8% in 2023, yet it will still remain above the long-term average of 3.9%. Geopolitical uncertainties leading the pace of geo-economic fragmentation will further accelerate in 2024. The global inflation outlook for 2023 suggests that, while the inflation is expected to moderate from the last years peak, the ongoing supply chain disruptions, red sea crisis and potential energy shocks will remain headwinds.

Indian Economy:

Despite global headwinds, Indias economy remains a beacon of relative resilience. Domestic demand continues to be the primary driver of growth. Inflation is expected to gradually taper down to the Reserve Bank of Indias target range of 4% to 6% by the end of the year. Indias equity markets have outperformed major global markets reinstating the trust of global investors into the Indian Market.

Government investments in infrastructure and its focus on attracting private investment through Production-Linked Incentive (PLI) schemes remain key tailwinds propelling growth. The government targeted measures under the Make in India initiative to bolster domestic manufacturing and promote self-reliance across various industries. The manufacturing sector is particularly poised to benefit from the improving investment climate, leading to further job creation and economic expansion. While exports could face some turbulence due to the global slowdown, the strong domestic demand will provide continued momentum for the service sector.

Pumps and Valves Industries:

The Indian pumps and valves industries stand to benefit significantly from the robust economic expansion and governments focus on infrastructure development. Increased investments in irrigation, water supply, sanitation, and urban housing projects will fuel demand for pumps in the water segment. Additionally, greenfield and capacity expansion initiatives in petrochemical, steel, cement, water, wastewater, power and other allied industries will boost both pump and valve demand. These factors combined are expected to propel the Indian pump and valve markets to a sustained growth trajectory over the next few years. Sustainability remains a driving force in the sector, with technological innovations paving the way for greener and more energy-efficient pumps and valves.

OPPORTUNITIES AND THREATS

With the resilient economic outlook driven by consumption demand, the current market situation presents a mix of opportunities for our Company. We are witnessing an ever-expanding demand for our pumps and valves, and we are well-positioned to capitalize on it. Our strategic expansion plans to expand in untapped potential geographies, focus market approach and foraying into new business segments will further strengthen our market presence. Identifying emerging opportunities and diversifying our product offerings into new market segments, such as Hydrogen, firefighting and railways will unlock further growth potential. Additionally, our dedication to the aftermarket segment, through readily available spares and on-demand service, fosters long-term customer relationships and opens up valuable revenue streams.

Company remains vigilant of potential threats like volatile commodity prices, intensifying competition and a possible slowdown in exports. Increased emphasis on product life cycle cost (LCC), customer expectations on reduced development time are also mounting pressure to create ecosystem for sustainable developments. As a Company, we are prepared to mitigate these risks through sound strategies, including resource allocation, capacity expansion, and strategic partnerships. Investing in automation and digital solutions will further enhance our operational efficiency and cost competitiveness.

The year ahead presents both challenges and immense potential for the pumps and valves industry. By leveraging our established strengths, embracing technological advancements, and adapting to the evolving market dynamics, we are confident in continuing our successful growth trajectory and solidifying our position as a leading player in the industry.

SEGMENT WISE PERFORMANCE (Consolidated):

During the year under review, pumps and related spares worth 18,968 Million (Previous year 15,219 Million) and valves and related spares worth 3,504 Million (Previous year 3,001 Million) were sold. Out of the above, export of pumps, valves and their spares in terms of value were 2,998.08 Million (Previous year 2,551 Million).

OUTLOOK:

Companys outlook for 2024 remains positive as we are on the growing path and have registered significant growth from past 5 years. Our strategic initiatives to expand into new market segments like Railways and Firefighting, alongside continued innovation in energy-efficient solutions, will help us stay ahead on our growth curve. Strengthening domestic presence with expanding our distribution network and service infrastructure will further solidify our market position and improve customer reach. While acknowledging the global slowdown, we expect slower growth in our export.

RISKS AND CONCERNS THE MANAGEMENT PERCEIVE:

While the outlook for 2024 appears promising, we remain cognizant of potential headwinds that could dampen our projected growth. An escalation of the current geopolitical situation, persistent global inflation, and rising interest rates could trigger a deeper global recession, impacting export markets and potentially slowing domestic demand. Additionally, if the withdrawal of readily available credit hinders private sector capital expenditure, the demand for our pumps and valves in key industries could be affected. We are actively taking steps to mitigate these risks, diversifying our product portfolio, optimizing our supply chain, and expanding our domestic market presence. We are confident that our agile approach and sound risk management strategies will enable us to navigate these challenges and deliver sustainable value for our stakeholders in 2024.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

Internal control systems are implemented -

• To Protect Assets and Optimizing Controls:

Our commitment to effective internal control systems remained unyielding in 2023. These systems safeguard our assets, optimize costs, and ensure reliable financial reporting, all while adapting to evolving business landscapes, regulatory changes, and best practices

• To keep constant check on Core Control Areas:

For Asset Safeguarding we maintain comprehensive physical and electronic security measures, including regular inventory reconciliations, access control systems, and data encryption, to prevent asset loss or compromise.

For Cost Management we have robust systems monitoring and manage expenditures, utilizing budget variance analysis, automated expense approvals, and stringent procurement controls to ensure efficient resource allocation and oversight.

• To maintain Financial Integrity:

We adhere to the highest accounting standards and maintain rigorous internal financial controls, including segregation of duties, automated reconciliations, and continuous monitoring, to guarantee accurate and transparent financial reporting

• For Continuous Improvement:

For recognizing the need for continual evolution, we actively implement:

Internal Audit purpose: Internal auditors assess control effectiveness, identify potential vulnerabilities, and recommend corrective actions. We proactively address their findings and track progress through a dedicated risk management database.

Management Review: Periodic reviews ensure adherence to established policies and procedures, identifying areas for improvement and fostering proactive risk management.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL EFFICIENCY

The financial performance of the Company has seen a good contribution from operations perspectives. Various cost optimisation drives by ways of alternate sourcing, standardization, process improvements and operational efficiency improvement has led significant savings. Cost reduction have been achieved in certain areas by implementing efficiency improvement programme within the company.

The following statements cover financial performance review, which are attached to this report.

a) Distribution of income

b) Financial position at a glance

c) Financial summary

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES, INDUSTRIAL RELATIONS

Year 2023 witnessed KSB further solidifying its commitment to its people, recognizing them as the bedrock of our success. As a company we strongly focus on the diversity and inclusion. We built upon the strong foundation laid in 2022 by invigorating employee engagement through open communication channels, targeted skill development initiatives, and unwavering dedication to foster a diverse and inclusive environment. Recognizing the importance of employee well-being, we prioritized work-life balance through flexible work arrangements and wellness programs, while simultaneously creating a stimulating and modern work environment through upgraded facilities and enhanced safety measures. Continuous recognition of individual and team achievements further propelled morale and cemented a deep sense of pride in being part of the KSB family. Maintaining strong industrial relations remained a crucial focus, fueled by open dialogue with employee representatives, competitive compensation packages, and an unwavering commitment to providing a fair and rewarding work environment across all our plants. As we move forward, we remain steadfast in our dedication to investing in our human capital, confident that a highly engaged, skilled, and motivated workforce will not only drive sustainable growth but also strengthen KSBs position as an industry leader in employer excellence.

CAUTION:

This report is based on the experience and information available to the Company in the pumps and valves business and assumption in regard to domestic and global economic conditions, government and regulation policies etc. The performance of the Company is dependent on these factors. However, the performance may be materially influenced by the changes therein beyond the Companys control, affecting the views expressed in or perceived from this report.

KEY FINANCIAL RATIOS

Key financial ratios of the Company showing financial performance are as under:

Ratios (Standalone)	Year Ended 31st December, 2023	Year Ended 31st December, 2022
1. Debtors Turnover (days)	74	71
2. Inventory Turnover (days)	172	182
3. Operating Profit Margin (%)	11.65	12.40
4. Net Profit Margin (%)	9.14	9.88
5. Return on Net Worth (%)	17.48	17.43
6. Interest Coverage Ratio (%)	52.87	40.29

Note: Interest Coverage Ratio has increased due to increase in the profitability for FY2023.

	On behalf of the Board of Directors,
	GAURAV SWARUP
Mumbai, 26th April, 2024	Chairman

DISTRIBUTION OF INCOME (STANDALONE)

	Year ended 31st December, 2023		Year ended 31st December, 2022
		%		%
1. Raw Materials/Bought-out Components Consumed	12,775	55.94	9,880	52.90
2. Excise Duty(till 30th June, 2017)	-	-	-	-
3. Employee benefits expense	2,697	11.81	2,439	13.06
4. Other Expenses	4,064	17.80	3,434	18.39
5. Finance cost	53	0.23	61	0.33
6. Depreciation	497	2.18	453	2.42
7. Taxation
Current	722	3.16	538	2.88
Deferred	-19	(0.08)	76	0.41
8. Other Comprehensive (Income)/Expense	(24)	(0.11)	68	0.36
9. Dividend (including tax thereon)	522	2.29	435	2.33
10. Retained Earnings	1,548	6.78	1,290	6.91
TOTAL	22,835	100.00	18,674	99.99

FINANCIAL POSITION AT A GLANCE (STANDALONE)

Rs Million

CAPITAL

	Year ended 31st December, 2023	Year ended 31st December, 2022
ASSETS OWNED
Non-Current Assets
1. Property, Plant and Equipment (including Capital Work in Progress and RoU assets)	4,290	3,735
2. Intangible Assets	224	17
3. Investments	63	63
4. Other Non-Current Assets (net)	227	562
5. Deferred Tax Assets (net)	178	167
Current Assets (Net) excluding borrowings	7,496	6,386
TOTAL	12,478	10,930
FINANCED BY
1. Borrowings	-	-
2. Net Worth*	12,478	10,931
TOTAL	12,478	10,931
*Represented by
Equity Share Capital	348	348
Other equity TOTAL	12,130	10,583
	12,478	10,931
INCOME EARNED
1. Revenue from operations	22,472	18,220
2. Other Income	363	454
TOTAL	22,835	18,674
INCOME DISTRIBUTED
1. Materials consumed	12,775	9,880
2. Employee benefits expense	2,697	2,439
3. Other expenses	4,064	3,434
4. Finance cost	53	61
5. Depreciation	497	453
6. Taxation
Current	722	539
Deferred	(19)	76
7. Other Comprehensive (Income)/Expense (net)	(24)	68
8. Dividend (including tax thereon)	522	435
9. Retained Income	1,548	1,290
TOTAL	22,835	18,674

FINANCIAL SUMMARY (STANDALONE)

	2023	2022	2021	2020	2019
CAPITAL ACCOUNTS ( Million)
Equity and Liabilities
Equity Share Capital	348	348	348	348	348
Other Equity	12,130	10,583	9,293	8,116	7,459
Non-Current Liabilities	458	453	537	462	424
Assets
Non-Current Assets
Gross Block	9,547	8,467	7,805	7,482	7,184
Net Block	4,514	3,752	3,498	3,435	3,418
Investments	63	63	63	63	63
Other Non-Current Assets	685	1,015	643	381	408
Deferred Tax Assets (net)	178	167	220	168	119
Current Assets (Net)	7,496	6,386	5,754	4,879	4,223
REVENUE ACCOUNTS ( Million)
Revenue from operations and Other Income	22,835	18,674	15,337	12,404	13,308
Gross Profit before finance cost and depreciation	3,299	2,921	2,459	2,001	1,886
Finance cost	53	61	50	34	53
Depreciation	497	453	436	418	457
Profit before tax	2,749	2,407	1,973	1,549	1,376
Profit after tax	2,046	1,793	1,466	973	978
Dividend amount (including tax thereon)	522	435	296	278	251
Retained earnings	1,548	1,290	1,176	657	675
SELECTED INDICATORS
Return on Capital Employed %	23.17	22.97	20.98	17.46	17.00
Current Ratio	2.05	2.01	2.06	2.01	1.96
Earnings per share	58.78	51.50	42.12	27.96	28.10
Debt equity ratio	0	0	0.00	0.07	0.08
Book value per share	358.50	314.05	276.99	243.18	224.30
Dividend %	150	125	85	80	60
Fixed Assets Turnover	5.06	4.98	4.38	3.61	3.89