KSB Ltd Management Discussions.

ANNEXURE II TO BOARD’S REPORT

INT RODUCTION

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

As per world bank report, Global economic growth for 2018 is estimated to be 3% as economic slack dissipates, monetary policy accommodation in advanced economies is removed, and global trade gradually slows.

In India, growth has accelerated, driven by an upswing in consumption, and investment growth has firmed as the effects of temporary factors wane.

Pumps and valves industries

Growth is witnessed in certain segments of Pumps and Valves industries in 2018 compared to 2017. Healthier order inflows provide prospects for growth in upcoming year.

OPPORTUNITIES AND THREATS

The industry offers varied opportunities for the company to maintain growth. The Company continues to take efforts to identify opportunities in various types of products, government initiatives, and competitive advantage and deploys efforts and resources that may be required.

The company constantly monitors the threats from competition, industry, product life cycle, raw material costs and takes steps to maintain/ enhance existing competence.

SEGMENTWISE PERFORMANCE (Consolidated)

During the year under review, pumps and related spares worth 8,106 Million (Previous year

7,118 Million) and valves and related spares worth 1,557 Million (Previous year 1,473 Million) were sold. Out of the above, export of pumps, valves and their spares in terms of value were 1,521 Million (Previous year 1,150 Million). OUTLOOK

The Company expects the market for pumps, valves and services to grow reasonably in line with general industrial outlook. The export sector is also expected to grow moderately. RISKS AND CONCERNS THE MANAGEMENT PERCEIVE

The competition is expected to be more aggressive leading to price pressures. Uncertainty in global economic growth is expected to impact the growth rate in India and consequently the Company’s operations. The growth in the industrial sector depends on government policies, better infrastructure, removal of labour market rigidities and growth in agricultural sector would depend on favourable monsoons and effectiveness of implication of Government policies to boost income of farmers. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Internal Control Systems are implemented:

• To safeguard the Company’s assets from loss or damage.

• To keep constant check on cost structure.

• To provide adequate financial and accounting controls and implement accounting standards.

The system is improved and modified continuously to meet with changes in business condition, statutory and accounting requirements. Internal controls are adequately supported by Internal Audit and periodic review by the management. The Audit Committee meets periodically to review -

• Financial statement, with the management and statutory auditors.

• Adequacy/scope of internal audit function, significant findings and followup thereon of any abnormal nature, with the internal auditors.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL EFFICIENCY

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

sb) Financial position at a glance

c) Financial summary MATERIAL DEVELOPMENTS IN HUMAN RESOURCES, INDUSTRIAL RELATIONS

Considering the strategic vision and business growth, one of the main challenges for HR was to ensure the competent, engaged and motivated human resources to succeed. Organizational development initiatives have been taken to strengthen the various functions, attracting the talent pool, retention of key employees and maintain healthy work environment. The ongoing initiatives have also been sustained like Leadership Development, Performance Management, Learning and Development, Succession Planning and Health and Safety Management in alignment to the business requirements as per business strategy. As a part of HR employee engagement programme, the continuation of Employee Engagement initiatives like Communication Meetings, Sports tournaments, Celebration of local festivals, Flexi-Work Hours, Career Development, IT infrastructure development, Reward and Recognitions is ensured. The business initiatives and process improvements have been backed up with focus on open and safe work environment. The employee relations at all the plants continued to be healthy and productive. Productivity linked settlements at two plants has been completed in 2018.

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. It may be materially influenced by the changes therein beyond the Company’s control, affecting the views expressed in or perceived from this report.

On behalf of the Board of Directors,
G. SWARUP
Chairman
Mumbai, 27th February, 2019

DISTRIBUTION OF INCOME (SEPARATE)

INR Million

Year ended 31st December, 2018

Year ended 31st December, 2017

INR % INR %
1. Raw Materials/Bought-out components consumed 5,651 50.46 4,672 46.68
2. Excise Duty(till 30th June, 2017) 0 0.00 249 2.49
3. Employee benefits expense 1,540 13.75 1,446 14.46
4. Other Expenses 2,457 21.94 2,250 22.48
5. Finance cost 37 0.33 35 0.35
6. Depreciation 397 3.55 309 3.09
7. Taxation
Current 367 3.28 405 4.05
Deferred 9 0.08 (35) (0.35)
8. Other Comprehensive (Income)/Expense (10) (0.09) (23) (0.25)
9. Dividend (including tax thereon) 243 2.17 230 2.30
10. Retained Earnings 507 4.53 470 4.70
TOTAL 11,198 100 10,008 100

FINANCIAL POSITION AT A GLANCE (SEPARATE)

INR Million
CAPITAL Year ended 31st December, 2018 Year ended 31st December, 2017
ASSETS OWNED
Non-Current Assets
1. Property, Plant and Equipment (including Capital 3,233 3,104
Work in Progress)
2. Intangible Assets 19 19
3. Investments 63 63
4. Other Non-Current Assets (net) 154 256
5. Deferred Tax Assets (net) 161 176
Current Assets (Net) excluding borrowings 3,936 3,133
TOTAL 7,566 6,751
FINANCED BY
1. Borrowings 434 126
2. Net Worth* 7,132 6,625
TOTAL 7,566 6,751
*Represented by Equity Share
Capital 348 348
Other equity 6,784 6,277
TOTAL 7,132 6,625
INCOME EARNED
1. Revenue from operations 10,931 9,692
2. Other Income 267 316
TOTAL 11,198 10,008
INCOME DISTRIBUTED
1. Materials consumed 5,651 4,672
2. Excise Duty (till 30th June, 2017) - 249
3. Employee benefits expense 1,540 1,446
4. Other expenses 2,457 2,250
5. Finance cost 37 35
6. Depreciation 397 309
7. Taxation
Current 367 405
Deferred 9 (35)
8. Other Comprehensive (Income)/Expense (net) (10) (23)
9. Dividend (including tax thereon) 243 230
10. Retained Income 507 470
TOTAL 11,198 10,008

FINANCIAL SUMMARY (SEPARATE)

2018* 2017* 2016* 2015 2014
CAPITAL ACCOUNTS (INR Million)
Liabilites
Equity Share Capital 348 348 348 348 348
Other Equity 6,784 6,277 5,808 5,184 4,709
Non-Current Liabilities 366 373 370 365 363
Assets
Non-Current Assets
Gross Block 6,615 6,152 5,149 4,603 4,319
Net Block 3,252 3,123 2,351 2,083 2,008
Investments 63 63 63 63 63
Other Non-Current Assets 520 629 704 492 549
Deferred Tax Assets (net) 161 176 153 128 100
Current Assets (Net) 3,502 3,007 3,255 3,131 2,700
REVENUE ACCOUNTS (INR Million)
Revenue from operations and Other Income 11,198 10,008 9,052 8,497 8,292
Gross Profit before
finance cost and depreciation 1,550 1,391 1,315 1,350 1,269
Finance cost 37 35 31 17 22
Depreciation 397 309 294 278 276
Profit before tax 1,117 1,047 990 1,055 971
Profit after tax 740 677 654 698 654
Dividend amount (including tax thereon) 243 230 230 223 229
Retained earnings 507 470 387 475 425
SELECTED INDICATORS
Return on Capital Employed % 15.24 16.03 16.40 19.33 18.73
Current Ratio 1.96 1.99 2.17 2.01 2.00
Earnings per share 21.27 19.45 18.77 20.06 18.79
Debt equity ratio 0.06 0.02 0.01 0.00 0.05
Book value per share 204.91 190.34 176.87 158.94 145.29
Dividend % 60 55 55 55 55
Fixed Assets Turnover 3.44 3.20 3.85 4.08 4.13

* Figures for the years 2018, 2017 and 2016 are as per IND AS compliant financial statements. Previous periods’ figures are as per previous GAAP financial statements.