Kilburn Engineering Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis covers Kilburn Engineering Limited’s (KEL) 36th Annual Report for the fiscal year 2023-24, focusing on financial performance, business segments, risks, and ESG initiatives.

I. Financial Performance:

The report highlights strong year-on-year growth across several key financial metrics:

• Revenue from Operations: Increased by 32.36% to ₹2,932.1 million (₹2,215.3 million in FY2022-23). This significant increase is attributed to improved economic conditions and higher order inflow.
• EBITDA: Grew by 87.11% to ₹648.7 million (₹346.7 million in FY2022-23), reflecting improved operating e/fficiency and cost measures. The EBITDA margin increased from 15.65% to 22.12%.
• Profit After Tax (PAT): Rose by 31.62% to ₹396.7 million (₹301.3 million in FY2022-23). Earnings per share increased from ₹8.66 to ₹10.47.
• Order Book: Stood at ₹2,270 million as of March 31, 2024, indicating robust future demand.

Key Financial Ratios (Significant Changes Highlighted): While the report provides several key ratios, a detailed analysis requires the full numerical data from the financial statements. The report mentions significant changes in some ratios compared to FY2022-23, likely due to the acquisition of M E Energy and equity issuance:

• Return on Net Worth (RONW): Decreased significantly, likely due to increased equity from share issuances.
• Debt-Equity Ratio: Decreased significantly, suggesting a reduction in leverage due to equity issuance.

II. Business Segments:

KEL operates primarily in two divisions:

• Process Equipment (PE): This segment focuses on designing, manufacturing, and commissioning customized process equipment for diverse industries, including chemicals, petrochemicals, refineries, oil & gas, power, fertilizers, and food processing. The report notes strong demand in this area, with notable orders for rotary kilns, fluid bed dryers, and paddle dryers.
• Tea Drying Equipment: KEL maintains a leading market position in tea dryers, both domestically and internationally. The report indicates continued robust demand, with numerous orders received during FY2023-24.

III. Acquisition of M E Energy Private Limited:

The acquisition of M E Energy, a waste heat recovery (WHR) and reutilization systems specialist, is a major highlight of the report. This strategic move:

• Expands KEL’s capabilities into thermal engineering and heat recovery, complementing its existing drying systems.
• Creates synergies by leveraging the combined client bases of both companies for cross-selling opportunities.
• Positions KEL as a more holistic solution provider in the thermal engineering domain.

IV. Risks and Challenges:

The report identifies several key risks and mitigation strategies:

• Increased Competition: The industry is facing increasing competition, both domestically and internationally (particularly from China). Mitigation involves focusing on performance guarantees and superior after-sales service to build customer trust.
• Intellectual Property Rights (IPR) Infringement: The Company is proactively innovating its products and focusing on providing complete systems to mitigate this risk.
• Long Execution Periods: This risk is mitigated through robust contracts and project management practices.
• Currency Fluctuations: The Company employs currency hedging strategies to manage this risk.
• Cyclical Nature of the Industry: The Company is diversifying its product portfolio and expanding geographically to mitigate cyclical downturns.
• Customer Delays: Mitigation strategies include using Letters of Credit (LCs) with new and international customers and negotiating delays.

V. ESG Initiatives (Environmental, Social, and Governance):

KEL demonstrates a commitment to ESG principles through several initiatives:

• Environment:
  • A/forestation e/fforts around facilities.
  • Investment in energy-e/fficient machinery and LED lighting to reduce energy consumption and emissions.
  • Waste management solutions using eco-friendly drying systems, addressing pollution concerns.
• Social:
  • Investment in employee training and development to enhance skills and future-readiness.
  • Industry-leading employee welfare practices to foster a positive work culture.
• Governance:
  • Robust and ethical corporate governance framework, regularly reviewed by the Board.
  • Transparent and accountable decision-making processes.
  • Vigil mechanism policy for reporting unethical behaviour and fraud.
  • Compliance with all applicable Secretarial Standards.

CSR Activities: KEL spent ₹2.8 million on CSR activities during FY2023-24, focusing on hunger eradication, poverty alleviation, and education.

VI. Conclusion:

Kilburn Engineering Limited’s 2023-24 annual report showcases strong financial performance driven by increased revenue and operational e/fficiency. The strategic acquisition of M E Energy significantly expands its capabilities and market reach. While the company faces several industry challenges, its proactive risk mitigation strategies and strong commitment to ESG principles position it for continued growth and sustainable value creation for stakeholders. However, a more in-depth analysis requires accessing the complete financial statements to perform a thorough ratio analysis and assess the long-term financial health and sustainability of the company. The reliance on a few major customers should also be further investigated.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for KEL’s total assets, current assets, cash and cash equivalents, accounts receivable, and inventory as of March 31, 2024, are as follows (all figures in Indian Rupees in lakhs):

• Total Assets: ₹4,286.6 million
• Current Assets: ₹2,476.7 million
• Cash and Cash Equivalents: ₹129.5 million
• Accounts Receivable: ₹6,126.8 million (This includes amounts considered good, those with significant credit risk, and credit impaired amounts. The net realizable value, after impairment allowance, is ₹6,126.76 million)
• Inventory: ₹2,019.7 million

It’s important to note that these figures are extracted from the Standalone Financial Statements. The Consolidated Financial Statements, which include the subsidiary M E Energy, would show different, higher values.

Liability Analysis #

Here are the values for KEL’s total liabilities, current liabilities, long-term debt, and accounts payable as of March 31, 2024, from the standalone financial statements (all figures in Indian Rupees in lakhs):

• Total Liabilities: ₹18,514.1 million (This is calculated by subtracting total equity from total assets: ₹42866.6 million - ₹24352.49 million = ₹18,514.11 million. Rounding may cause slight discrepancies depending on the level of precision used).
• Current Liabilities: ₹13,190.9 million
• Long-Term Debt: ₹5,323.3 million (This represents the net book value of term loans after considering the unamortized balance of restructuring expenses.)
• Accounts Payable: ₹2,605.5 million (This includes amounts owed to micro and small enterprises and other creditors. Note that there may be a distinction made between ‘Trade Payables’ and ‘Other Payables’ within this category.)

Again, these figures are from the standalone financial statements. The consolidated financial statements, incorporating the subsidiary M E Energy, would present different, likely higher, figures.

Equity Analysis #

Based on the Standalone Financial Statements of Kilburn Engineering Limited as of March 31, 2024, here are the values for shareholders’ equity, retained earnings, and share capital (all figures in Indian Rupees in lakhs):

• Shareholders’ Equity: ₹2,435.5 million (This represents the total equity, as it’s presented in the balance sheet. This includes share capital, reserves, and retained earnings.)
• Retained Earnings: ₹1,610.2 million (This is the accumulated profit retained by the company, not distributed as dividends.)
• Share Capital: ₹4,182.0 million (This represents the equity share capital. The report indicates there are also preference shares, but the value of these is not explicitly stated in the readily available information.)

These values are from the standalone financial statements. Consolidated figures, which would include the equity of the subsidiary M E Energy, would be higher.

Income Statement #

Operating Performance #

Here’s a breakdown of Kilburn Engineering Limited’s revenue, cost of revenue, gross profit, operating expenses, and operating income for the fiscal year ended March 31, 2024, based on the standalone financial statements (all figures in Indian Rupees in lakhs):

• Revenue: ₹2,932.1 million
• Cost of Revenue: ₹16,107.0 lakh. This includes cost of materials consumed, subcontracting charges, and changes in inventories of finished goods and work-in-progress. Note that this is different from the “Total Expenses” figure which also includes items like finance costs, depreciation, and other operating expenses.
• Gross Profit: ₹1,325.1 million (Calculated as Revenue - Cost of Revenue: ₹29321.17- ₹16107.03 = ₹13214.14 lakh. Rounding differences may exist).
• Operating Expenses: ₹2,387.1 million (This is an approximation calculated by subtracting the gross profit from the revenue from operations: ₹29321.17 - ₹13214.14 = ₹16107.03 lakh. The actual operating expenses are likely a slightly different figure, which includes items like employee benefits expenses, depreciation and amortization, and other expenses. The exact breakdown requires careful calculation using all components of operating expenses.)
• Operating Income: ₹648.7 million (This is the operating profit before depreciation and interest, as it is EBITDA. The standalone statement of profit and loss shows this figure.)

Keep in mind these are the standalone figures. The consolidated figures would incorporate the financial results of the subsidiary M E Energy and therefore show di/fferent values. The exact values for certain line items would require a more detailed calculation from the complete standalone and/or consolidated financial statements.

Bottom Line Metrics #

Here are the net income, EBITDA, basic EPS, and diluted EPS values for Kilburn Engineering Limited for the fiscal year ended March 31, 2024, as reported in the standalone financial statements (all figures in Indian Rupees):

• Net Income: ₹396.7 million
• EBITDA: ₹648.7 million
• Basic EPS: ₹10.47
• Diluted EPS: ₹10.47

These figures are from the standalone financial statements. The consolidated financial statements, including the subsidiary M E Energy, would show di/fferent values.

Cash Flow #

Cash Flow Components #

Based on the standalone statement of cash flows for Kilburn Engineering Limited for the year ended March 31, 2024, here are the cash flow figures (all figures in Indian Rupees in lakhs):

• Operating Cash Flow: ₹2,639.8 million (This is the net cash flow from operating activities after considering adjustments for non-cash items.)
• Investing Cash Flow: ₹(9,951.5) million (This is a net outflow, largely driven by investments in subsidiaries and the purchase of property, plant, and equipment.)
• Financing Cash Flow: ₹7,353.7 million (This is a net inflow, primarily from equity issuances and increases in working capital borrowings.)

Note that these figures are from the standalone statement of cash flows. The consolidated statement of cash flows would include the cash flows of the subsidiary M E Energy and thus will show different values.

Cash Flow Metrics #

To calculate free cash flow (FCF), we need to make some assumptions and estimations based on the provided data, as the report doesn’t directly state FCF. The calculation will use the standalone figures.

• Capital Expenditure (CAPEX): The report doesn’t give a direct CAPEX figure. However, the investing cash flow statement shows ₹1,545.1 million in purchases of property, plant, and equipment (including capital work in progress). We’ll use this as a proxy for CAPEX. It’s important to note that this might not perfectly represent CAPEX if there were other significant investing activities not solely related to tangible fixed assets.

• Dividends Paid: ₹379.6 million was paid in dividends during the fiscal year 2023-24, according to the standalone statement of cash flows.

• Free Cash Flow (FCF): A common FCF calculation is: Operating Cash Flow - Capital Expenditures.

Therefore, using the proxy for CAPEX:

FCF ≈ ₹2,639.8 million - ₹1,545.1 million = ₹1,094.7 million

Important Considerations:

• This FCF calculation is an approximation. It relies on using the purchase of property, plant, and equipment as a proxy for CAPEX. A more precise calculation would require a detailed breakdown of all cash outflows related to capital investments.
• Consolidated figures would be di/fferent. This calculation only uses standalone figures. The consolidated FCF would consider the capital expenditures and operating cash flows of M E Energy.
• Other uses of cash: The FCF calculation above doesn’t account for other uses of cash, such as debt repayments, acquisitions, or other significant investments that aren’t strictly capital expenditures. A true FCF calculation should factor those in.

In summary, based on the available information and using the stated proxy for CAPEX, the approximated FCF is ₹1,094.7 million, CAPEX is approximately ₹1,545.1 million, and dividends paid were ₹379.6 million. These are standalone figures, and the consolidated values would di/ffer.

Profitability Ratios #

To calculate the profitability ratios, we’ll use the standalone financial statement figures. Note that slight variations may occur due to rounding in the reported numbers. All figures are expressed as percentages.

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (₹1,325.1 million / ₹2,932.1 million) * 100 ≈ 45.2%

• Operating Margin: (Operating Income / Revenue) * 100 = (₹648.7 million / ₹2,932.1 million) * 100 ≈ 22.1% (The report states this as 22.12%)

• Net Profit Margin: (Net Income / Revenue) * 100 = (₹396.7 million / ₹2,932.1 million) * 100 ≈ 13.5% (The report states this as 13.53%)

• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100. To calculate the average shareholders’ equity, we need the previous year’s figure, which is not explicitly provided in this summary. The report mentions a significant decrease in ROE, implying a change driven by the increase in equity due to the capital raise.

• Return on Assets (ROA): (Net Income / Average Total Assets) * 100. Similar to ROE, we need the previous year’s total assets to compute the average. The report does not state the ROA value.

Important Considerations:

• These calculations are based on the standalone financial statements. Consolidated figures, incorporating the subsidiary M E Energy, will produce di/fferent results.
• Precision: The exact values for Gross Profit and Operating Expenses were approximated, which can slightly influence the calculated ratios.
• ROE and ROA require additional data: The precise values for ROE and ROA cannot be calculated without the previous year’s figures for shareholders’ equity and total assets. The report only notes a significant decrease in ROE, indicating a substantial change relative to the prior year.

To obtain the most accurate profitability ratios, it’s recommended to refer to the full standalone and consolidated financial statements and perform the calculations using the precise figures reported therein.

Liquidity Ratios #

To calculate the liquidity ratios, we’ll use the standalone financial statement figures from March 31, 2024 (all figures in Indian Rupees in lakhs). Note that there might be minor variations due to rounding discrepancies in the available data.

• Current Ratio: (Current Assets / Current Liabilities) = (₹2,476.7 million / ₹1,319.09 million) ≈ 1.88 times (The report states this value)

• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (₹2,476.7 million - ₹2,019.7 million) / ₹1,319.09 million ≈ 0.35 times

• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) = (₹129.5 million / ₹1,319.09 million) ≈ 0.10 times

Important Considerations:

• Standalone vs. Consolidated: These calculations use the standalone balance sheet data. The consolidated balance sheet would yield different results.
• Inventory Valuation: The quick ratio is sensitive to how inventory is valued. Changes in inventory valuation methods could significantly impact the quick ratio.
• Cash Equivalents Definition: The cash ratio’s accuracy depends on how “cash and cash equivalents” are defined. This definition can vary slightly between companies.

To obtain the most accurate liquidity ratios, it’s best to refer to the complete standalone and consolidated financial statements for precise figures and ensure consistent application of definitions.

Efficiency Ratios #

Calculating efficiency ratios requires using the standalone financial statements data for the fiscal year ended March 31, 2024. We’ll need to make some approximations due to the lack of precise figures in this summary. Remember that slight variations may occur due to rounding.

• Asset Turnover: (Revenue / Average Total Assets). To calculate the average total assets, we’d need the total assets from the previous year’s financial statements, which aren’t available in the provided summary. The report does not state the asset turnover ratio.

• Inventory Turnover: (Cost of Goods Sold / Average Inventory). The cost of goods sold is not directly stated. We’ll approximate it using the cost of materials consumed (₹1,610.7 million) from the statement of profit and loss, understanding that this is a simplification and may not fully capture the cost of goods sold if it differs from the cost of materials consumed, but is used as the best available proxy. We also need the previous year’s inventory to calculate the average inventory. The report does mention this ratio as being 12.07, likely calculated from complete financial data.

• Receivables Turnover: (Revenue / Average Accounts Receivable). Similar to asset turnover, the average accounts receivable requires data from the previous year’s financial statements. The report mentions the receivables turnover ratio as 5.56 which was calculated using complete information.

Important Considerations:

• Data Limitations: Accurate calculation needs the full financial statements, specifically the previous year’s data for total assets, inventory, and accounts receivable to calculate averages.
• Cost of Goods Sold (COGS): Using “Cost of Materials Consumed” as a proxy for COGS is a simplification. A more accurate inventory turnover ratio would use the actual COGS figure.
• Standalone vs. Consolidated: These calculations utilize only the standalone financial statements. Consolidated figures would produce different results.

To obtain precise efficiency ratios, consult the full standalone and consolidated financial statements of the company.

Leverage Ratios #

To calculate the leverage ratios, we’ll use the standalone financial statement figures from March 31, 2024 (all figures in Indian Rupees in lakhs). Note that there may be slight variations due to rounding in the reported figures.

• Debt-to-Equity Ratio: Total Debt / Shareholders’ Equity = ₹7,289.04 million / ₹2,435.5 million ≈ 3.0 times (This value is not precisely stated in the report, which mentions a significant change in the ratio due to the year’s events but not the precise figure)

• Debt-to-Assets Ratio: Total Debt / Total Assets = ₹7,289.04 million / ₹4,286.6 million ≈ 1.7 times (This ratio is not explicitly stated in the report.)

• Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense = ₹6,492.91 million / ₹944.48 million ≈ 6.9 times (The report mentions this ratio as 9.54, which is likely calculated using a slightly different value of EBIT than this approximation)

Important Considerations:

• Definition of Debt: The precise definition of “Total Debt” used in these calculations should be clarified from the company’s financial statements. This could include short-term and long-term borrowings.
• Standalone vs. Consolidated: The calculations are based on standalone data. Consolidated figures (incorporating M E Energy) would likely produce different results.
• EBIT Approximation: The EBIT used in the interest coverage calculation is an approximation, which could slightly a/ffect the final result. The exact EBIT value should be obtained from the financial statements.

For the most accurate leverage ratios, refer to the full standalone and consolidated financial statements. Use the precise values for total debt, shareholders’ equity, total assets, and interest expense reported in those statements. Ensure that you understand the company’s precise definition of “debt” and use the same in your calculation.

Market Analysis #

Market Metrics #

Calculating market capitalization, P/E ratio, P/B ratio, dividend yield, and dividend payout ratio requires information beyond what’s directly provided in the annual report excerpt. We need the following data that is not included in the provided text:

• Current Market Price per Share: This is needed for market cap and P/E calculations.
• Number of Outstanding Shares: This is also necessary for calculating market cap.
• Book Value per Share: Required for the P/B ratio.

Therefore, we cannot calculate these market-based ratios accurately from the given information. The annual report does state that the company is listed on the Bombay Stock Exchange (BSE) and the Calcutta Stock Exchange (CSE), but it does not provide the closing share price, nor does it provide all details needed for book value.

To compute the ratios, you would need to obtain the following from a reliable financial data source such as the BSE website, a financial news site, or a financial data provider:

• Closing share price: Use the closing share price on a particular date (the annual report’s date is an option, but other dates are possible, too).
• Number of outstanding shares: This would be the total number of shares issued and outstanding in the market at the date of the closing price.
• Book value: This can be calculated by dividing the total shareholders’ equity by the number of outstanding shares.

Once you have these figures, you can calculate the ratios as follows:

• Market Cap: Current Market Price per Share * Number of Outstanding Shares
• P/E Ratio: Current Market Price per Share / Earnings Per Share (EPS)
• P/B Ratio: Current Market Price per Share / Book Value per Share
• Dividend Yield: (Annual Dividend per Share / Current Market Price per Share) * 100
• Dividend Payout Ratio: (Dividends Paid / Net Income) * 100

Remember that the dividend payout ratio and dividend yield will use the declared dividend which is subject to approval by shareholders. The other ratios use the closing share price on a specific date and are therefore subject to market fluctuations.

Business Analysis #

Segment Analysis #

The annual report excerpt provides limited details to fully break down the business segments’ performance as requested. We can only offer a partial analysis based on the information provided. Crucial details like precise revenue figures for each segment, market share data, and a complete breakdown of geographic presence are missing.

Based on available information, here’s a partial analysis of the business segments:

1. Process Equipment (PE):

• Name: Process Equipment
• Revenue: Not explicitly stated. The significant increase in overall revenue (32.36%) suggests a substantial contribution from this segment, given its importance to the company.
• Growth Rate: Not explicitly stated for this segment alone. It’s implied to have experienced significant growth given the overall increase in revenue.
• Operating Margin: Not explicitly stated for this segment alone.
• Market Share: Not provided.
• Key Products: Rotary dryers, kilns, gasifiers, heat exchangers, fluid bed dryers, paddle dryers, spray dryers, band dryers, vibrating fluid bed dryers and coolers, air/gas/liquid drying systems, solvent/vapor recovery systems, pressure vessels, heat exchangers, columns, reactors, silos, industrial fans, and continuous mechanized withering systems.
• Geographic Presence: The report mentions an export presence across the USA, France, Germany, the Netherlands, China, Indonesia, Hungary, Thailand, Kenya, South Africa, Brazil, and Bangladesh, among others, but doesn’t specify the revenue contribution from each region.

2. Tea Drying Equipment:

• Name: Tea Drying Equipment
• Revenue: Not explicitly stated. This segment likely contributed substantially to overall revenue, based on the annual report’s emphasis on the company’s market leadership in this area.
• Growth Rate: Not explicitly stated for this segment. However, the report states the company bagged 67 domestic and 5 overseas orders for tea dryers during the year, indicating growth.
• Operating Margin: Not explicitly stated.
• Market Share: The report mentions KEL as a market leader. The exact market share percentage is not provided.
• Key Products: Tea dryers, paddy dryers, sugar dryers, and coconut dryers.
• Geographic Presence: The report specifically mentions 5 overseas orders, along with domestic orders, highlighting both domestic and international presence, but it does not give sales figures.

Limitations of this Analysis:

• Lack of Segmented Data: The report doesn’t provide a detailed financial breakdown for each segment (revenue, operating income, etc.).
• Missing Market Share Data: Precise market share numbers are absent.
• Incomplete Geographic Details: The report mentions regions of export but doesn’t quantify the contribution of each region to the total revenue.

To complete this analysis, detailed financial data broken down by segment is needed from the full annual report. This would allow a full picture of revenue, growth, profitability, market shares, and regional presence for each business segment.

Risk Management #

Risk Assessment #

The annual report excerpt mentions several key risk factors, but it doesn’t provide a comprehensive risk assessment matrix with specific likelihood and impact severity ratings. We can, however, categorize the risks, describe them, and outline the mentioned mitigation strategies. Assessing likelihood and impact severity requires more detailed information and financial analysis beyond what’s provided.

I. Key Risk Factors (Categorized and Described):

A. Competitive Risks:

• Category: Market
• Description: Increased competition in various segments due to the entry of numerous domestic and international players, particularly from China. This pressure could lead to reduced market share, pricing pressure, and lower profitability.
• Mitigation: Focus on superior product quality, performance guarantees, and strong after-sales support to build customer loyalty and differentiation.

B. Intellectual Property Risks:

• Category: Legal/Regulatory
• Description: Infringement of intellectual property rights (IPR) by competitors.
• Mitigation: Proactive innovation to deter copying and development of unique products to create a strong differentiation from competitors.

C. Operational Risks:

• Category: Operational
• Description: Long execution periods for projects (design, construction, commissioning) that expose the company to potential delays, cost overruns, and disruptions.
• Mitigation: Robust project management, appropriate contracts, and potentially adopting strategies to shorten project timelines.

D. Financial Risks:

• Category: Financial
• Description: Cyclical fluctuations in sales due to the capital goods nature of the business and potential for delayed payments from customers. This includes currency fluctuations that a/ffect profitability, given the company’s export business.
• Mitigation: Diversification of products, geographical expansion, currency hedging, insistence on Letters of Credit (LCs) with new customers, and strong contract negotiations.

E. Other Risks:

• Category: Other
• Description: The report implies several other risks including those concerning customers delaying payments and taking delivery of products, and changes in economic environment.
• Mitigation: The Company insists on Letter of Credit terms with new and overseas customers, and it negotiates potential delivery postponements arising from changing economic conditions.

II. Likelihood and Impact Assessment:

The provided excerpt does not offer quantifiable data on the likelihood or severity of these risks. A full risk assessment would typically use a matrix to rate each risk based on its likelihood and potential impact. This would require information like historical data on order cancellations, competitor analysis, and financial modeling to estimate potential losses from various scenarios.

III. Mitigation Strategies:

The report outlines various mitigation strategies, as mentioned above. The effectiveness of these strategies depends on factors not described in the excerpt and can only be assessed by further data analysis.

IV. Trends:

Based solely on this report, it is difficult to accurately forecast trends in risk factors. We can only infer that:

• Competition is intensifying: The industry is becoming more competitive, requiring KEL to focus on differentiation.
• Global economic uncertainty is present: Economic conditions and customer payment behaviour represent a risk that requires mitigation.
• Technological advancement is essential: Proactive innovation in product development and processes helps mitigate some risks.

To perform a complete risk analysis: It would be necessary to review the full annual report, including financial statements and any further risk management documentation the company may have released, analyze the industry trends, and conduct quantitative analysis to determine the likelihood and impact severity of each risk factor more thoroughly.

Strategic Overview #

Management Assessment #

Kilburn Engineering Limited’s management highlights several key strategies, competitive advantages, market conditions, challenges, and opportunities in the annual report. However, the level of detail provided is limited, and some points are implied rather than explicitly stated.

I. Key Strategies:

• Inorganic Growth: The acquisition of M E Energy exemplifies a strategy of acquiring companies with complementary technologies and expertise to expand the company’s product portfolio and market reach.
• Technological Advancement: The report emphasizes the company’s ongoing investments in R&D to develop innovative and cutting-edge products and solutions, particularly focusing on new and niche applications.
• International Expansion: The company aims to capitalize on the global demand for its products by expanding its international presence.
• Cost E/fficiency: The emphasis on streamlining operations, using in-house manufacturing, and reducing reliance on external subcontractors points toward a cost e/fficiency strategy to improve profitability.
• Focus on Core Sectors: While exploring niche applications, management appears committed to maintaining a strong presence in its core sectors (chemicals, petrochemicals, tea, etc.).

II. Competitive Advantages:

• Technological Expertise: KEL positions itself as possessing advanced engineering expertise and unique technologies.
• Customization Capabilities: The company’s ability to provide highly customized solutions is a significant advantage.
• Market Leadership: The report highlights the company’s leading position in the tea drying equipment market and its strong presence in other sectors.
• Performance Guarantees: O/ffering performance guarantees for its products builds trust and differentiates the company from competitors.
• Strong After-Sales Service: Providing strong after-sales support enhances customer relations and strengthens market position.

III. Market Conditions:

The report indicates a generally positive market environment, with a growing manufacturing sector in India, buoyed by government initiatives. However, it notes the emergence of increasing competition, particularly from international players. The demand for KEL’s products seems to remain robust across several key sectors. Specific market data (e.g., market size, growth rates) is limited in this excerpt.

IV. Challenges:

• Intense Competition: Both domestic and international competition pose significant challenges, particularly price pressure and market share erosion.
• Economic Volatility: Fluctuations in the global and domestic economies, along with potential customer payment delays, represent significant challenges.
• Currency Fluctuations: Given KEL’s export business, currency exchange rate risks are significant.
• Long Project Cycles: The lengthy project execution times pose operational challenges regarding management and timely revenue recognition.

V. Opportunities:

• Growth in Key Sectors: The report suggests strong growth opportunities across chemical, petrochemical, tea, and other sectors where KEL operates.
• Acquisition Targets: The successful acquisition of M E Energy highlights the opportunity for future acquisitions to enhance the company’s capabilities.
• Technological Innovation: Developing and implementing new technologies in existing and new sectors is presented as a significant opportunity.
• International Market Expansion: Further penetrating international markets to leverage global demand represents a major opportunity.

Overall:

Management’s strategy focuses on achieving sustainable growth through a combination of organic growth (technological innovation, international expansion) and inorganic growth (acquisitions). The company’s competitive advantages seem to center on its technological expertise, customization capabilities, and customer service. However, understanding the exact market size, growth rates, and market share would necessitate a review of the complete annual report, including relevant market analysis that may be included.

ESG Ratings #

The provided annual report excerpt does not include any ESG ratings from external rating agencies. The report describes KEL’s ESG initiatives, but it doesn’t mention any scores or ratings from organizations that specialize in ESG assessments (such as MSCI, Sustainalytics, Refinitiv, etc.).

To find KEL’s ESG ratings, you would need to consult ESG rating agency websites directly, searching for Kilburn Engineering Limited. The ratings can vary depending on the agency and their specific methodologies.

ESG Initiatives #

Kilburn Engineering Limited’s (KEL) annual report excerpt describes several environmental, social, and governance (ESG) initiatives but doesn’t provide quantitative data like a precise carbon footprint or specific, measurable sustainability goals. Here’s a summary based on the available information:

I. Environmental Initiatives:

• A/forestation: The company undertakes a/forestation e/fforts by planting trees around its facilities and o/ffices. The scale of this initiative is not specified.
• Energy E/fficiency: KEL invests in energy-e/fficient machinery and has implemented LED lighting systems in its o/ffices to reduce energy consumption and carbon emissions. Again, the extent of reduction is not quantified.
• Waste Management: The company highlights its role in providing sustainable waste management solutions through its drying equipment. This is presented as a benefit to clients but not explicitly as a self-imposed environmental goal.

II. Carbon Footprint:

The annual report excerpt doesn’t quantify KEL’s carbon footprint (scope 1, 2, and 3 emissions). Determining this would require a detailed carbon accounting exercise, which is likely not included in the excerpt.

III. Social Initiatives:

• Employee Development: The company emphasizes continuous training and development for its employees, aiming to enhance skills and future-readiness.
• Employee Welfare: KEL mentions industry-leading employee welfare practices to promote a positive work environment. Specific examples are not provided.

IV. Governance Practices:

• Corporate Governance: The report stresses the company’s commitment to robust and ethical corporate governance, including regular Board reviews, transparent decision-making, and a vigil mechanism policy.
• Board Composition: The composition of the board includes a balance of executive, non-executive, and independent directors.
• Committees: The presence of an Audit Committee, Nomination and Remuneration Committee, Stakeholders’ Relationship Committee, and Corporate Social Responsibility Committee demonstrate a structured governance framework.

V. Sustainability Goals:

The annual report excerpt doesn’t explicitly state specific, measurable, achievable, relevant, and time-bound (SMART) sustainability goals. While the company’s actions indicate a commitment to sustainability, the lack of explicit goals prevents a detailed assessment. The report does mention that fulfilling ESG commitments is a company priority.

Overall:

KEL’s annual report demonstrates a commitment to ESG principles, but the lack of quantitative data limits a precise assessment. Further information is required to quantify the carbon footprint, and clarify the precise, measurable, and time-bound sustainability goals pursued by the company. To fully understand KEL’s sustainability performance, you’d need to access the full annual report and any supplemental ESG reporting documentation.

Additional Information #

Operational Metrics #

Based on the standalone financial statements in the annual report excerpt:

• R&D Expenditure: ₹8.72 million (This is the total R&D expenditure for the fiscal year. The report notes that this was 0.03% of total turnover.)

• Employee Count: 283 employees were on the company’s payroll as of March 31, 2024.

These figures pertain to the standalone financial statements. Consolidated figures, which would include employees and R&D spending from the subsidiary M E Energy, are not available in the provided excerpt.

Key Events #

Several significant events are mentioned in Kilburn Engineering Limited’s annual report excerpt for the fiscal year 2023-24:

• Acquisition of M E Energy Private Limited: This is the most significant event, representing a strategic move to expand into waste heat recovery and reutilization systems. The acquisition was completed on February 20, 2024, making M E Energy a wholly-owned subsidiary.

• Equity and Warrant Issuances: The company issued a significant number of equity shares and convertible warrants during the year through preferential allotments, raising substantial capital. These were issued to a mix of promoter and non-promoter investors. This capital raise was clearly a significant financial event impacting the company’s capital structure and financial position.

• Exercise of Convertible Warrants: A significant number of convertible warrants issued in previous years were exercised during the year, leading to further share issuances.

• Acquisition of a Factory Unit: A binding term sheet was signed for the acquisition of a new factory unit in Ambernath, Maharashtra. This signals an expansion in manufacturing capacity.

• Proposed Acquisition of Monga Strayfield Private Limited: A binding term sheet was signed for the proposed acquisition of 100% of Monga Strayfield Private Limited. This will add radio frequency drying and heating capabilities to Kilburn’s portfolio.

These events significantly impacted the company’s financial performance, operations, and strategic direction during the fiscal year. The report indicates that some of the equity/warrant issuances were in preparation for acquisitions. Therefore, it is important to understand that the equity transactions are intricately connected to the acquisition strategy.

Audit Information #

Auditor’s Opinion:

The independent auditor, V. Singhi & Associates, Chartered Accountants, issued an unmodified (clean) opinion on both the standalone and consolidated financial statements of Kilburn Engineering Limited. This means the auditors found the financial statements to be fairly presented in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. However, there were some qualifications in the CARO reports (Companies (Auditor’s Report) Order, 2020) for both the standalone and consolidated reports. These qualifications pertained to specific items in the financial statements related to statutory dues and compliance with specific sections of the Companies Act 2013.

Key Accounting Policies:

Several key accounting policies are outlined in the notes to the financial statements. Key highlights include:

• Basis of Preparation: Historical cost convention with certain assets and liabilities measured at fair value.
• Going Concern: The financial statements are prepared assuming the company will continue as a going concern.
• Current/Non-Current Classification: Assets and liabilities are classified based on their liquidity and expected timing of realization or settlement (generally, within 12 months for current items).
• Functional and Presentation Currency: Indian Rupees (₹).
• Revenue Recognition: The company applies Ind AS 115 “Revenue from Contracts with Customers,” recognizing revenue when control of goods or services is transferred to the customer. Different methods are used for design/construction contracts (over time) and other sales (at a point in time).
• Taxes: Tax liabilities are recognized when probable and reasonably estimable. Deferred tax assets are recognized only if probable and recoverable.
• Provisions: Recognized when there is a present obligation, it’s probable that an outflow of resources will be required, and the amount can be reliably estimated.
• Employee Benefits: Defined contribution plans are expensed as incurred; defined benefit plans (gratuity) are measured using actuarial valuations based on various assumptions.
• Property, Plant, and Equipment (PPE): Measured at cost less accumulated depreciation and impairment.
• Intangible Assets: Measured at cost less accumulated amortization and impairment.
• Financial Instruments: Classified and measured according to Ind AS 109, with different approaches for amortized cost, fair value through profit or loss (FVTPL), and fair value through other comprehensive income (FVOCI).
• Business Combinations: The acquisition method is used for accounting for business combinations.

These are just the high-level policy summaries. For complete details, refer to the detailed accounting policies and notes included in the full annual report.