Kirloskar Brothers Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis dissects Kirloskar Brothers Limited’s (KBL) Integrated Annual Report for FY 2023-24, covering its financial performance, business segments, risk management, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

KBL reported strong financial results for FY 2023-24, showcasing significant growth and improved profitability. Key highlights (consolidated basis unless otherwise noted):

• Revenue: Increased by 7% to ₹40,012 million (₹37,302 million in FY 2022-23). This growth is attributed to robust demand across various sectors. Standalone revenue grew by 7% to ₹27,560 million.
• EBITDA: A remarkable 36% surge to ₹5,783 million (₹4,263 million in FY 2022-23), leading to a 302 bps expansion in EBITDA margin to 14.5%. Standalone EBITDA showed a 36% increase.
• PAT: Increased by 48% to ₹3,497 million (₹2,358 million in FY 2022-23), with a 242 bps expansion in PAT margin to 8.7%. Standalone PAT increased by 48%.
• EPS: ₹30.65 (₹19.22 in FY 2022-23), reflecting substantial earnings growth.
• ROE: Improved to 18.06% from 14.00%.
• ROCE: Significant improvement, though precise figures aren’t directly provided.
• Dividend: A 300% dividend (₹6 per share) was declared, up from 150% in the previous year.
• Debt: The company highlights its debt-free status, a significant achievement reflecting robust financial health and efficient cash flow management.

Key Financial Ratios (Consolidated):

• Current Ratio: 1.65 (1.54 in FY 2022-23) - Indicates improved short-term liquidity.
• Debt-Equity Ratio: 0.03 (0.09 in FY 2022-23) - A dramatic reduction demonstrating significantly lower debt levels.
• Debt Service Coverage Ratio: 7.13 (2.89 in FY 2022-23) - Substantially improved ability to service debt.
• Interest Coverage Ratio: 138.29 (23.18 in FY 2022-23) - A massive improvement highlighting increased earnings relative to interest expense.
• Inventory Turnover: 3.18 (3.43 in FY 2022-23) - Suggests slightly slower inventory movement.
• Debtors Turnover: 6.21 (6.16 in FY 2022-23) - Relatively stable accounts receivable turnover.
• Operating Profit Margin: 12.60% (9.81% in FY 2022-23) - Significant improvement driven by operational efficiencies and improved product mix.
• Net Profit Margin: 8.97% (6.55% in FY 2022-23) - Substantial improvement in profitability.

II. Business Segments:

KBL operates across a various range of sectors, a key strength contributing to its resilience. The report highlights these segments:

• Water Resource Management: Strong orders from large contractors in various Indian states. Focus on value-added products (LLC™ pumps, Autoprime pumps, KirloSmart™).
• Irrigation: Successful execution of major projects, primarily involving vertical turbine pumps.
• Power: Significant orders for cooling water pumps (including nuclear power plants), concrete pumps, and slurry pumps.
• Valves: Strong growth driven by the Jal Jeevan Mission and increased steel and power projects.
• Building & Construction: Impressive 21% growth in order bookings, supplying pumps to prestigious projects like the Ram Mandir, various metro lines, and major infrastructure developments.
• Industry: Growth driven by the Process and Pharma sectors. Focus on energy-efficient pumps and aftermarket services.
• Oil & Gas: Exceptional 90% sales increase. Focus on global market expansion.
• Marine & Defence: Concentrated on supplying indigenously manufactured pumps and firefighting systems.
• Retail Pumps: Focus on introducing energy-efficient models to bolster market share.

III. Risk Management:

The report outlines a detailed risk management framework addressing many key risk areas:

• Talent Management: Focus on attracting, retaining, and developing skilled professionals, especially given industry competition.
• Cyber and Information Risk: Implementation of AI/ML-based cybersecurity tools, enhanced vulnerability management, and improved data governance procedures.
• Financial Performance Risk: Strategies to optimize margins through a shift towards high-margin segments, international expansion, and value engineering.
• New Technology Commercialization Risk: Development of KPIs to accelerate product launch, robust IP strategy, and market research to address delays.
• Procurement Cost & Supplier Dependence: Focus on diversifying suppliers, developing strategic partnerships, and employing tools for cost control.
• Geopolitical Risk: Minimising exposure through diversified international operations and reduced reliance on international suppliers.

IV. ESG Initiatives:

KBL demonstrates a substantial commitment to ESG principles, reflected in its materiality matrix and sustainability framework. Key initiatives include:

• Environmental:
  • Climate Change: GHG emission inventory, development of a Net Zero roadmap, increased renewable energy usage (aiming for 70% by FY 2025-26), and energy efficiency improvements across manufacturing processes.
  • Water Management: Rainwater harvesting, wastewater recycling, and reduced specific water consumption.
  • Waste Management: Focus on reducing waste generation, increasing recycling rates (38% in foundries), and moving toward zero waste to landfill.
  • Biodiversity: Habitat creation and landscaping at various plant locations.
• Social:
  • Workforce Diversity: Aiming for 30% female workforce, improved gender diversity in leadership roles (10%), and various employee well-being initiatives (71% employee engagement score).
  • Community Development: CSR spending of ₹32 million+ on projects focused on health, education, and disaster management.
• Governance:
  • Board Diversity: Strong representation of Independent Directors (70%) and women directors (30%). Regular Board and committee evaluations.
  • Risk Management: Robust framework in place, aligned with SEBI regulations.
  • Compliance: Emphasis on adherence to all applicable laws and regulations. Implementation of the Legatrix tool for effective monitoring.

V. Conclusion:

KBL’s Integrated Annual Report demonstrates strong financial performance driven by a diversified business model, effective risk management, and a significant commitment to ESG principles. The report is detailed, presenting detailed information across various aspects of the business. The company’s focus on innovation, sustainability, and stakeholder engagement positions it well for continued growth in a dynamic and competitive market. However, the report could benefit from more granular data on specific sustainability targets and a more precise quantification of its ESG impact. Independent assurance of non-financial information strengthens the report’s credibility.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The provided annual report gives slightly different figures for consolidated and standalone financial statements. Here’s a breakdown of the values you requested, separating the standalone and consolidated figures:

Standalone Financial Statements:

• Total Assets: ₹25,572.405 million
• Current Assets: ₹16,477.972 million
• Cash and Cash Equivalents: ₹1,516.701 million (Note 11A includes fixed deposits with maturity of less than 3 months)
• Accounts Receivable (Trade Receivables): ₹4,700.870 million (Note 6 includes both current and non-current receivables)
• Inventory: ₹4,918.322 million (Note 10 includes raw materials, work-in-progress, finished goods, stock-in-trade, and stores & spares)

Consolidated Financial Statements:

• Total Assets: ₹33,247.101 million
• Current Assets: ₹23,864.902 million
• Cash and Cash Equivalents: ₹2,659.065 million (Note 11A includes fixed deposits with maturity of less than 3 months)
• Accounts Receivable (Trade Receivables): ₹5,851.455 million (Note 7 includes both current and non-current receivables)
• Inventory: ₹8,522.866 million (Note 10 includes raw materials, work-in-progress, finished goods, stock-in-trade, and stores & spares)

Important Considerations:

• Rounding: The report rounds figures to the nearest million (MN). Slight discrepancies may arise due to rounding in calculations.
• Classifications: The classification of certain assets (e.g., some financial assets) might vary depending on specific accounting policies and the level of detail presented in the notes to the financial statements.
• Non-Current vs. Current: The classifications of “current” and “non-current” assets and liabilities depend on the company’s operating cycle and other factors as defined within the report. The values provided for accounts receivables and other items include both current and non-current portions. It’s essential to consult the notes for detailed breakdowns.

To obtain precise figures for specific asset categories, refer directly to the respective notes and tables within the KBL annual report. The summary presented here is based on the information readily available in the main financial statements.

Liability Analysis #

Similar to the asset values, the liability figures in KBL’s annual report differ slightly between the standalone and consolidated financial statements. Here’s a breakdown:

Standalone Financial Statements:

• Total Liabilities: ₹11,050.202 million
• Current Liabilities: ₹9,979.841 million
• Long-Term Debt (Borrowings): - (Note 14 shows that all long-term debt was repaid during the year)
• Accounts Payable (Trade Payables): ₹5,088.019 million (Note 15 includes both current and non-current payables)

Consolidated Financial Statements:

• Total Liabilities: ₹16,006.320 million
• Current Liabilities: ₹14,046.658 million
• Long-Term Debt (Borrowings): ₹645.758 million (Note 14)
• Accounts Payable (Trade Payables): ₹6,713.811 million (Note 15 includes both current and non-current payables)

Important Considerations:

• Rounding: Values are rounded to the nearest million.
• Classifications: The “current” and “non-current” classifications are based on the Group’s operating cycle and other factors as described in the report’s accounting policies. The figures shown for accounts payable and other liabilities include both current and non-current portions. Refer to the notes to the financial statements for precise breakdowns.
• Debt Repayment: The standalone report explicitly states that all long-term debt was repaid during FY 2023-24. This is a significant factor influencing the difference between standalone and consolidated figures. The consolidated statement reflects outstanding long-term debt for the entire group of companies.

For the most accurate and detailed information, consult the notes to the financial statements (specifically notes 14 and 15) within the KBL annual report. This summary provides an overview of the key liability figures reported.

Equity Analysis #

Again, the values for shareholders’ equity, retained earnings, and share capital will differ between the standalone and consolidated financial statements in KBL’s annual report. Here’s the breakdown:

Standalone Financial Statements:

• Shareholders’ Equity: ₹14,522.203 million
• Retained Earnings: ₹8,157.202 million (Note 13)
• Share Capital: ₹158.818 million (Note 12)

Consolidated Financial Statements:

• Shareholders’ Equity: ₹17,240.781 million (this includes equity attributable to owners of the parent and non-controlling interest)
• Retained Earnings (Equity Attributable to Owners of the Parent): ₹9,683.642 million (Note 13). Note that this is only the portion attributable to the parent company; the full retained earnings figure is not explicitly stated.
• Share Capital: ₹158.818 million (Note 12).

Important Considerations:

• Rounding: Numbers are rounded to the nearest million.
• Consolidated vs. Standalone: The consolidated figures represent the equity of the entire group of companies, including subsidiaries and joint ventures. The standalone figures pertain only to KBL.
• Other Equity Components: Shareholders’ equity encompasses more than just retained earnings and share capital. Note 13 in both the standalone and consolidated statements shows other components such as capital reserve, capital redemption reserve, and securities premium. These are included in the “Other Equity” line item in the balance sheet and contribute to the total shareholders’ equity.
• Non-Controlling Interest: In the consolidated statement, the total equity is broken down into equity attributable to owners of the parent company and non-controlling interest.

For the most precise figures, it’s essential to examine Note 13 in both the standalone and consolidated financial statements sections of KBL’s annual report. This response provides a summary of the major equity components reported.

Income Statement #

Operating Performance #

The revenue, cost of revenue, gross profit, operating expenses, and operating income figures from KBL’s annual report will differ between the standalone and consolidated financial statements. Here’s a summary:

Standalone Financial Statements:

• Revenue: ₹27,201.250 million (Note 20)
• Cost of Revenue: ₹20,348.135 million (This is calculated from the Statement of Profit & Loss by summing cost of raw materials consumed, purchases of stock-in-trade, and adjusting for changes in inventories. See Note 22 for details.)
• Gross Profit: ₹6,853.115 million (Revenue - Cost of Revenue)
• Operating Expenses: ₹3,628.631 million (sum of employee benefit expense, finance costs, depreciation & amortization, and other expenses from the Statement of Profit & Loss. See Notes 23-26 for details). Note that exceptional items are not included here.
• Operating Income: ₹3,224.484 million (Gross Profit - Operating Expenses)

Consolidated Financial Statements:

• Revenue: ₹40,011.992 million (Note 20)
• Cost of Revenue: ₹35,858.229 million (This is calculated from the Consolidated Statement of Profit & Loss by summing cost of raw materials consumed, purchases of stock-in-trade, and adjusting for changes in inventories. See Note 22 for details.)
• Gross Profit: ₹4,153.763 million (Revenue - Cost of Revenue)
• Operating Expenses: ₹1,418.137 million (Sum of employee benefit expense, finance costs, depreciation & amortization, and other expenses from the Consolidated Statement of Profit & Loss. See Notes 23-26 for details). Exceptional items are not included.
• Operating Income (Profit Before Tax): ₹4,805.614 million (Gross Profit - Operating Expenses)

Important Considerations:

• Rounding: All figures are rounded to the nearest million.
• Cost of Revenue Calculation: The cost of revenue is not a single line item on the Statement of Profit & Loss. It’s calculated by adding up the relevant expense components and making necessary adjustments (like changes in inventory). The calculations above reflect that.
• Exceptional Items: The standalone statement includes exceptional items which are separately shown in its Statement of Profit and Loss. These are excluded in the operating income calculation above, as they are not considered part of normal operating activities. The consolidated statement also shows exceptional items, which are similarly excluded from the operating income calculation.
• Standalone vs. Consolidated: The consolidated figures include the financial performance of all subsidiaries, which significantly impacts the totals.

Always consult the notes to the financial statements in the KBL annual report for precise figures and detailed explanations of the accounting methods used. The numbers presented here are based on information contained in the main financial statements, with calculations performed as described above.

Bottom Line Metrics #

Once again, the values for net income (profit after tax), EBITDA, basic EPS, and diluted EPS will vary between the standalone and consolidated financial statements in KBL’s annual report. Here’s the summary:

Standalone Financial Statements:

• Net Income (Profit After Tax): ₹2,434.135 million (Statement of Profit & Loss)
• EBITDA: ₹3,225.045 million (Calculated from the Statement of Profit & Loss: Profit Before Tax + Depreciation + Amortization. Note that exceptional items are included here)
• Basic EPS: ₹30.65 (Statement of Profit & Loss)
• Diluted EPS: ₹30.65 (Statement of Profit & Loss)

Consolidated Financial Statements:

• Net Income (Profit After Tax): ₹3,496.795 million (Consolidated Statement of Profit & Loss)
• EBITDA: ₹5,783.000 million (Based on figures reported in the Management Discussion and Analysis. Note that exceptional items are included)
• Basic EPS: ₹43.84 (Consolidated Statement of Profit & Loss)
• Diluted EPS: ₹43.84 (Consolidated Statement of Profit & Loss)

Important Considerations:

• Rounding: Figures are rounded to the nearest million or two decimal places, as appropriate.
• EBITDA Calculation: EBITDA is not a directly reported line item in the financial statements but is usually calculated from other values reported (e.g., Profit Before Tax + Depreciation + Amortization). I used the reported values in the Management Discussion and Analysis section for this figure.
• Exceptional Items: Exceptional items (which are unusual or infrequent in nature) are included in the EBITDA calculation here; the operating income excludes such items.
• Standalone vs. Consolidated: The consolidated figures represent the entire Group’s performance, whereas standalone reflects only KBL.

Consult the relevant sections (Statement of Profit & Loss and notes) in KBL’s annual report for the most accurate and precise figures. The values provided here are summaries derived from the provided report, and rounding may cause minor discrepancies.

Cash Flow #

Cash Flow Components #

The cash flow statement values also differ between the standalone and consolidated reports for KBL. Here’s a summary:

Standalone Statement of Cash Flows:

• Cash Flow from Operating Activities: ₹2,088.041 million
• Cash Flow from Investing Activities: ₹(888.887) million (negative signifies net cash outflow)
• Cash Flow from Financing Activities: ₹(1,134.225) million (negative signifies net cash outflow)

Consolidated Statement of Cash Flows:

• Cash Flow from Operating Activities: ₹3,760.756 million
• Cash Flow from Investing Activities: ₹(1,892.566) million (negative signifies net cash outflow)
• Cash Flow from Financing Activities: ₹(1,473.015) million (negative signifies net cash outflow)

Important Considerations:

• Rounding: Figures are rounded to the nearest thousand.
• Indirect Method: Both statements use the indirect method for calculating cash flow from operating activities. This means that net income is adjusted for non-cash items to arrive at the net cash flow from operations.
• Consolidated vs. Standalone: The consolidated statement reflects the cash flows of the entire KBL group, while the standalone statement only shows KBL’s own cash flows. This explains the substantial differences in the figures.

For precise details and a complete understanding of the various components included in each cash flow category, please refer to the Statement of Cash Flows and the corresponding notes within KBL’s annual report. The numbers provided here are a summary of the information presented in the main financial statements.

Cash Flow Metrics #

The annual report doesn’t explicitly state the free cash flow. Free cash flow (FCF) is typically calculated as operating cash flow less capital expenditures. We can approximate it using the information provided:

Standalone:

• Operating Cash Flow: ₹2,088.041 million (from the Statement of Cash Flows)

• Capital Expenditure (CAPEX): ₹1,383 million (This figure is taken from the Manufactured Capital section of the report)

• Dividends Paid: ₹357 million (from the Board’s report)

• Approximate Free Cash Flow: ₹2,088.041 million - ₹1,383 million = ₹705.041 million (This is an approximation since the CAPEX figure comes from a separate section of the report and may not exactly match the CAPEX figure reported in the Statement of Cash Flows)

Consolidated:

• Operating Cash Flow: ₹3,760.756 million (from the Consolidated Statement of Cash Flows)
• Capital Expenditure (CAPEX): The report does not explicitly state the consolidated CAPEX; therefore, an approximation is not possible.
• Dividends Paid: ₹356.662 million (from the Consolidated Statement of Cash Flows)

Important Notes:

• CAPEX Discrepancy: The standalone CAPEX figure is taken from a different section of the report compared to the Statement of Cash Flows. There may be minor differences due to timing of expenditures and how the number is reported in the different sections of the report. A precise reconciliation requires more detailed information from the notes or supplementary schedules, which are not directly included in the provided document. This is true for both the standalone and consolidated figures.
• Free Cash Flow Calculation: Free cash flow calculations can vary depending on the specific items included (e.g., some analysts might include changes in working capital). The calculation above is a basic approximation.
• Consolidated Data: A precise consolidated CAPEX figure is needed to calculate consolidated free cash flow accurately. This data is not available in the provided annual report.

To obtain accurate free cash flow figures, you’ll need to perform the calculation using the CAPEX figures directly from the statement of cash flows and any relevant adjustments outlined in the notes to the financial statements. The provided document does not allow for precise calculation of free cash flow for the group.

Profitability Ratios #

Profitability ratios can be calculated from the financial statements provided in KBL’s annual report. Remember that there will be differences between standalone and consolidated figures. Here’s a summary, noting that some minor discrepancies might occur due to rounding in the original report:

Standalone Financial Statements:

To calculate these ratios accurately, we need to use the values calculated previously in the analysis of the Statement of Profit & Loss. These are approximations, as some values are derived through calculations using many line items from that statement:

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (₹6,853.115 million / ₹27,201.250 million) * 100 ≈ 25.19%
• Operating Profit Margin: (Operating Income / Revenue) * 100 = (₹3,224.484 million / ₹27,201.250 million) * 100 ≈ 11.85%
• Net Profit Margin: (Net Income / Revenue) * 100 = (₹2,434.135 million / ₹27,201.250 million) * 100 ≈ 8.95%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (₹2,434.135 million / [(₹12,516.939 million + ₹14,522.203 million) / 2]) * 100 ≈ 18.06%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (₹2,434.135 million / [(₹23,846.106 million + ₹25,572.405 million) / 2]) * 100 ≈ 10.07%

Consolidated Financial Statements:

Again, to calculate these ratios accurately, we need to use the values calculated previously in the analysis of the Consolidated Statement of Profit & Loss. These are approximations:

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (₹4,153.763 million / ₹40,011.992 million) * 100 ≈ 10.38%
• Operating Profit Margin: (Operating Income / Revenue) * 100 = (₹4,805.614 million / ₹40,011.992 million) * 100 ≈ 12.01%
• Net Profit Margin: (Net Income / Revenue) * 100 = (₹3,496.795 million / ₹40,011.992 million) * 100 ≈ 8.74%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (₹3,481.345 million / [(₹14,072.818 million + ₹17,240.781 million) / 2]) * 100 ≈ 17.52%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (₹3,481.345 million / [(₹30,157.916 million + ₹33,247.101 million) / 2]) * 100 ≈ 11.37%

Important Considerations:

• Rounding: The values are approximate due to rounding in the source data.
• Average Equity/Assets: ROE and ROA calculations use the average of beginning and ending equity/asset values for the year.
• Standalone vs. Consolidated: Significant differences exist between standalone and consolidated ratios because consolidated figures encompass the performance of all subsidiaries and joint ventures. The standalone figures only represent KBL.

Refer to the KBL annual report’s financial statements and notes for the most precise figures. These calculations are based on the data extracted from the provided report and may include minor inaccuracies due to rounding.

Liquidity Ratios #

The liquidity ratios for KBL, like other financial metrics, are presented differently in the standalone and consolidated financial statements. Calculating the quick ratio and cash ratio requires further calculations based on the values reported. Here’s a summary, noting that slight discrepancies may arise due to rounding:

Standalone Financial Statements:

• Current Ratio: (Current Assets / Current Liabilities) = ₹16,477.972 million / ₹9,979.841 million ≈ 1.65 (This is already reported in the annual report)

To calculate the quick ratio and cash ratio, we need to make some adjustments to the current assets:

• Quick Assets: This typically excludes inventories. Quick Assets ≈ ₹16,477.972 million - ₹4,918.322 million = ₹11,559.650 million
• Quick Ratio: (Quick Assets / Current Liabilities) = ₹11,559.650 million / ₹9,979.841 million ≈ 1.16
• Cash Ratio: (Cash & Cash Equivalents / Current Liabilities) = ₹1,516.701 million / ₹9,979.841 million ≈ 0.15

Consolidated Financial Statements:

• Current Ratio: (Current Assets / Current Liabilities) = ₹23,864.902 million / ₹14,046.658 million ≈ 1.70 (This is already reported in the annual report)

Similar adjustments are needed for the quick ratio and cash ratio calculations:

• Quick Assets: Quick Assets ≈ ₹23,864.902 million - ₹8,522.866 million = ₹15,342.036 million
• Quick Ratio: (Quick Assets / Current Liabilities) = ₹15,342.036 million / ₹14,046.658 million ≈ 1.09
• Cash Ratio: (Cash & Cash Equivalents / Current Liabilities) = ₹2,659.065 million / ₹14,046.658 million ≈ 0.19

Important Considerations:

• Rounding: The values are rounded to two decimal places.
• Quick Assets Definition: The precise composition of “quick assets” can vary depending on the specific accounting practices of the company. The calculation above uses a common definition which excludes inventories. There could be minor differences if specific other current assets were also excluded.
• Cash and Cash Equivalents: The definition of “cash and cash equivalents” may include short-term, highly liquid investments. The figures used here include the values reported as “cash and cash equivalents” in Notes 11A (Standalone) and 11A (Consolidated).
• Standalone vs. Consolidated: There are clear differences between the standalone and consolidated liquidity ratios due to the inclusion of all subsidiaries in the consolidated figures.

It’s essential to refer to KBL’s annual report, specifically the notes to the financial statements, for the most precise figures and definitions used. These calculations are based on the information reported in the main financial statements and might have minor inaccuracies due to rounding.

Efficiency Ratios #

Efficiency ratios, like other financial metrics, will differ between KBL’s standalone and consolidated financial statements. The calculations below are approximations based on the data provided. Minor discrepancies may arise due to rounding in the original report:

Standalone Financial Statements:

To calculate these ratios accurately, we will use previously calculated values for revenue, average inventory, and average receivables. Note that this uses a simplified version of these ratios and may differ from those calculated using different methodologies within the annual report. These are approximations:

• Asset Turnover: (Revenue / Average Total Assets) = ₹27,201.250 million / [(₹23,846.106 million + ₹25,572.405 million)/2] ≈ 1.06 times
• Inventory Turnover: (Cost of Goods Sold / Average Inventory) = ₹20,348.135 million / [(₹4,393.781 million + ₹4,918.322 million)/2] ≈ 4.31 times
• Receivables Turnover: (Revenue / Average Accounts Receivable) = ₹27,201.250 million / [(₹3,690.010 million + ₹4,442.664 million)/2] ≈ 6.21 times

Consolidated Financial Statements:

Again, this uses a simplified calculation of the efficiency ratios using previously calculated figures and may differ from those in the annual report which might use alternative methodologies. These are approximations:

• Asset Turnover: (Revenue / Average Total Assets) = ₹40,011.992 million / [(₹30,157.916 million + ₹33,247.101 million)/2] ≈ 1.21 times
• Inventory Turnover: (Cost of Goods Sold / Average Inventory) = ₹35,858.229 million / [(₹7,139.632 million + ₹8,522.866 million)/2] ≈ 4.18 times
• Receivables Turnover: (Revenue / Average Accounts Receivable) = ₹40,011.992 million / [(₹4,884.702 million + ₹5,243.915 million)/2] ≈ 7.71 times

Important Considerations:

• Rounding: Values are rounded.
• Average Balances: These calculations use the average of beginning and ending balances for assets and liabilities.
• Cost of Goods Sold: For inventory turnover, cost of revenue is used as a proxy for cost of goods sold. This assumes that other costs included in the cost of revenue do not significantly impact the calculation.
• Standalone vs. Consolidated: The consolidated ratios include the performance of all subsidiaries, resulting in considerable differences compared to the standalone figures that pertain only to KBL.
• Simplified Calculation: These calculations use simplified versions of the ratios. The KBL annual report might employ better calculation methods.

Always refer to the KBL annual report’s financial statements and notes to get the most precise figures and the specific methodologies used for calculating these ratios. These are approximations based on the data and calculations extracted from the provided document.

Leverage Ratios #

Leverage ratios, like other financial metrics, will differ between KBL’s standalone and consolidated financial statements. Here’s a summary using approximations based on the data available, noting that minor discrepancies might occur because of rounding in the source report:

Standalone Financial Statements:

Since the standalone financial statements indicate that all long-term debt was repaid during the year, the debt ratios will be heavily influenced by short-term debt and the company’s negative net debt position (net debt is the difference between total borrowings and cash and cash equivalents):

• Debt to Equity Ratio: (Total Debt / Shareholders’ Equity) = (₹391.257 million (current borrowings from Note 14) - ₹1,548.831 million (cash and cash equivalents and other bank balances from Note 11A and Note 11B))/ ₹14,522.203 million ≈ -0.08 (negative signifies a net cash position)
• Debt to Assets Ratio: (Total Debt / Total Assets) = (₹391.257 million - ₹1,548.831 million) / ₹25,572.405 million ≈ -0.05 (negative signifies a net cash position)
• Interest Coverage Ratio: (Earnings Before Interest and Taxes (EBIT) / Interest Expense) = ₹3,225.045 million / ₹58.085 million ≈ 55.53 times

Consolidated Financial Statements:

The consolidated statement shows significantly higher debt figures compared to the standalone report. Here’s an approximation:

• Debt to Equity Ratio: (Total Debt / Shareholders’ Equity) = (₹1,549.110 million (Note 14))/ ₹17,240.781 million ≈ 0.09
• Debt to Assets Ratio: (Total Debt / Total Assets) = (₹1,549.110 million) / ₹33,247.101 million ≈ 0.05
• Interest Coverage Ratio: (Earnings Before Interest and Taxes (EBIT) / Interest Expense) = ₹4,805.614 million / ₹258.246 million ≈ 18.61 times

Important Considerations:

• Rounding: Numbers are rounded.
• Net Debt: The negative net debt positions in the standalone statements result in negative debt ratios. This reflects a strong cash position and minimal reliance on debt financing.
• Debt Calculation: Total debt includes both current and non-current borrowings.
• EBIT: Earnings Before Interest and Taxes is approximated from the provided financial statements.
• Standalone vs. Consolidated: The consolidated use ratios are significantly different from the standalone because the consolidated figures reflect the debt and equity of the whole KBL Group, not just KBL itself. The substantial difference in the debt-to-equity ratio between the standalone and consolidated reports reflects the different level of debt held by the subsidiary companies.

Refer to KBL’s annual report for the most precise figures and detailed explanations of the calculation methodologies used. These are approximations based on the information available in the report and there may be minor inaccuracies due to rounding.

Market Analysis #

Market Metrics #

The KBL annual report provides some of this information directly, while others require calculations using reported figures. Keep in mind that market-based ratios (PE, PB, and Dividend Yield) are highly sensitive to the prevailing market price of the stock at the time of calculation. The report gives a market capitalization figure, but this is a snapshot, and market prices fluctuate constantly.

From the Report:

• Market Capitalization: ₹91,034 million (as of March 31, 2024)

Calculations (Approximations):

To perform these calculations, we need to use previously obtained values and make certain assumptions. These will be approximations:

We’ll use the consolidated Net Income and the reported market capitalization at the end of the fiscal year. Remember that the market price at any given moment is dynamic; this calculation is a point-in-time snapshot.

• Price-to-Earnings Ratio (PE Ratio): (Market Price per Share / Earnings Per Share)

  We need to know the market price per share as of March 31st, 2024. This information is not directly provided, but we can approximate the Market Price per share by using the reported Market Capitalization and the number of outstanding shares (79,408,926 shares from Note 12).

  Approximate Market Price per Share = ₹91,034 million / 79,408,926 shares ≈ ₹1,146.5 Approximate PE Ratio = ₹1,146.5 / ₹43.84 (Diluted EPS) ≈ 26.14 times

• Price-to-Book Ratio (PB Ratio): (Market Price per Share / Book Value per Share)

  We need to calculate the book value per share. The consolidated shareholders’ equity is ₹17,240.781 million (from the Consolidated Balance Sheet).

  Approximate Book Value per Share = ₹17,240.781 million / 79,408,926 shares ≈ ₹217.3 Approximate PB Ratio = ₹1,146.5 / ₹217.3 ≈ 5.28 times

• Dividend Yield: (Annual Dividend per Share / Market Price per Share) * 100 = (₹6 / ₹1,146.5) * 100 ≈ 0.52%

• Dividend Payout Ratio: (Dividends Paid / Net Income) * 100 = (₹356.662 million / ₹3,496.795 million) * 100 ≈ 10.20% (using consolidated figures)

Important Considerations:

• Market Price Volatility: The PE ratio and dividend yield are highly sensitive to the market price of the stock. The market price used above is only an approximation based on the reported market cap at the end of the fiscal year. The actual market price could have fluctuated throughout the year.
• Rounding: The figures are rounded to reflect the precision available in the provided report.
• Approximations: The calculations depend on many approximations derived from the annual report data. The book value per share calculation utilizes the ending shareholders’ equity from the balance sheet.
• Consolidated Figures: The calculations of the dividend payout ratio use consolidated figures.

Always consult up-to-date financial data from a reputable financial source for the most current market price and a precise calculation of market-based ratios. These calculations provide an estimation based on available information from the annual report, and discrepancies may occur. The annual report itself doesn’t provide all of these ratios directly.

Business Analysis #

Segment Analysis #

The KBL annual report doesn’t provide a complete breakdown of all requested information for each business segment (revenues, growth rates, precise operating margins, and market shares). The report emphasizes the strategic overview rather than granular segment-specific data. Here’s a summary based on the available information:

Business Segments:

The provided report categorizes KBL’s business into many segments, which aren’t precisely defined with separate financial statements. Some are grouped together for discussion purposes. Therefore, a precise breakdown of revenue, operating margin and market share for each is not available.

1. Water Resource Management: This includes solutions for water supply, wastewater treatment, and stormwater management. The report mentions strong order bookings from various Indian states, highlighting the importance of this segment.

2. Irrigation: This segment focuses on providing pumping solutions for agricultural irrigation. The report notes successful execution of major irrigation projects across many states.

3. Power: This sector includes centrifugal pumps for power generation plants, especially cooling water applications, and other solutions for the power sector. The report highlights supplying pumps to nuclear power plants.

4. Valves: This segment manufactures and supplies various types of valves for various applications. It mentions growth driven by government projects (Jal Jeevan Mission).

5. Building & Construction: This is a significant segment, supplying pumps for iconic projects (including the Ram Mandir), metros, and large infrastructure developments. The report notes substantial growth in order bookings.

6. Industry: This includes various industrial applications, notably process and pharmaceutical sectors. The report mentions increasing aftermarket services and energy-efficient pump sales.

7. Oil & Gas: This segment is characterized by exceptional growth, indicating significant success. The report highlights an expansion into new global market segments.

8. Marine & Defence: Focuses on indigenous solutions under the “Make in India” initiative.

9. Small Pump Business (SPB): Concentrates on domestic and agricultural pumps and is expanding towards energy-efficient pumps, targeting the retail market.

Data Limitations:

The report doesn’t give the following:

• Segment-Specific Revenues: While the overall consolidated revenue is presented, there is no separate revenue breakdown for each individual segment.
• Growth Rates: Specific growth rates (in revenue terms) are not available for individual segments. The overall consolidated revenue increased by 7%.
• Operating Margins: The report does not provide segment-wise operating margins. The consolidated operating profit margin is approximately 12%.
• Market Shares: The report does not offer data on precise market share for each segment in either the domestic or international markets.
• Geographic Presence: Geographic presence is discussed generally for the company as a whole; specific geographic breakdown by segment is not given.

Therefore, a table summarizing revenue, growth rates, operating margins, and market shares cannot be accurately constructed. The strategic focus and qualitative information are given for each segment in the annual report. Precise quantitative data is not.

Key Products and General Geographic Presence:

While detailed segment-specific data is missing, the annual report gives a general idea of key products and geographic reach within various segments. For instance, vertical turbine pumps are emphasized in Irrigation, while energy-efficient pumps are key to SPB and Industrial segments. The company has a global presence, but lacks segment-specific geographic breakdown in the report.

Risk Assessment #

KBL’s annual report identifies many key risk factors, though it doesn’t always explicitly categorize them or quantify likelihood and severity using standardized scales. Here’s a summary based on the information provided, attempting to infer likelihood and severity based on the report’s tone and the mitigation strategies described:

Key Risk Factors:

Likelihood and Severity:

The report doesn’t assign numerical values to likelihood and severity. The assessment above is subjective, based on the description of the risk and the proposed mitigation strategies. High severity suggests a potentially significant negative impact on the business. High likelihood means the risk is expected to occur.

Mitigation Strategies:

The mitigation strategies are described for each risk, highlighting KBL’s proactive approach to risk management.

Trends:

The “Trends” column identifies ongoing factors that could either increase or change the nature of each risk. These factors are essential for understanding the evolving risk landscape for KBL.

It’s important to note that this is an interpretation of the information provided in the report. A more precise quantitative assessment of likelihood and severity would require additional data and a more detailed analysis of the risk management framework presented.

Strategic Overview #

Management Assessment #

KBL’s management highlights many key strategies, competitive advantages, market conditions, challenges, and opportunities in its annual report. Here’s a summary:

Key Strategies:

• Transformational Growth: A core strategy focused on accelerating initiatives in strategic areas, enhancing margins by increasing high-margin segments and international operations, and minimizing exposure to low-margin businesses. This includes restructuring the business portfolio, expanding the range of energy-efficient products, and pursuing digital transformation (optimizing processes, utilizing AI, and implementing detailed quality productive maintenance).
• Product Innovation: Developing cutting-edge, energy-efficient, and environmentally sustainable products to meet evolving customer needs and maintain a competitive edge across multiple market segments.
• Digital First Approach: Embracing technology to optimize business processes, develop innovative solutions, and improve operational efficiency using AI, IoT, AR, and VR. This includes detailed employee training to use these technologies.
• International Expansion: Strategic expansion of international operations to diversify revenue streams, reduce reliance on the domestic market, and use growth opportunities in global markets.
• Channel Partner Development: Strengthening and expanding the network of channel partners to improve market reach, customer service, and product distribution.
• Sustainability Focus: Integrating ESG principles into all aspects of the business to reduce environmental impact, improve social responsibility, and improve corporate governance.

Competitive Advantages:

• Engineering Excellence: Strong end-to-end capabilities, from design and manufacturing to implementation and after-sales service, and a dedicated R&D department.
• Manufacturing Prowess: State-of-the-art facilities across multiple global locations, ensuring cost-effectiveness, reduced turnaround time, and adherence to local sourcing norms.
• Diversified Product Portfolio: A wide range of products catering to various industries and applications, mitigating cyclicality risks.
• Strong Brand Reputation: A long-standing legacy and established brand recognition globally.
• Extensive Distribution Network: A strong network of channel partners and service centers enhances market reach and customer service.
• Customer-Centric Approach: Prioritizing customer satisfaction and delivering customized solutions.
• Digital Transformation Leadership: Early adoption and strategic implementation of new technologies to drive efficiency and innovation.

Market Conditions:

• Global Economy: The global economy displayed resilience in 2023 but faces risks from geopolitical instability, inflation, and climate change. Emerging economies are projected to experience slower growth.
• Indian Economy: India’s economy demonstrates strong growth driven by domestic demand and government investments in infrastructure and agriculture. However, the growth rate is expected to moderate in the coming years.
• Pump Market (Global & India): The global pump market showed modest growth, while India’s market is influenced by economic growth, urbanization, and government initiatives (like the Jal Jeevan Mission). Increased competition and demand for energy-efficient products are prominent trends.

Challenges:

• Talent Acquisition and Retention: Difficulty in securing and retaining skilled personnel in a competitive market.
• Geopolitical Uncertainty: Global conflicts and political instability impacting supply chains and international operations.
• Inflationary Pressures: Rising costs of raw materials and other inputs impacting profitability margins.
• Intensifying Competition: Increased competition from global players and the unorganized sector.
• Technological Advancements: The need to continuously adapt to rapid technological changes and invest in R&D to maintain competitiveness.
• Environmental Regulations: Compliance with increasingly stringent environmental standards and reducing carbon footprint.

Opportunities:

• Growth in Emerging Markets: Significant potential for expansion in emerging economies, especially in sectors like infrastructure, agriculture, and water management.
• Government Initiatives: Government schemes (like the Jal Jeevan Mission) and investments in infrastructure and agriculture create demand for KBL’s products.
• Demand for Energy-Efficient Products: Growing preference for energy-efficient and sustainable solutions.
• Digital Transformation: Opportunities to use digital technologies for increased efficiency, innovation, and customer engagement.
• Aftermarket Services: Expanding aftermarket services to improve revenue streams and customer loyalty.
• International Market Penetration: Further penetrating existing markets and exploring new international market segments.

It’s important to note that this is a summary based on the information available in the annual report. The precise details and the relative importance assigned to each factor may vary based on management’s strategic priorities.

ESG Ratings #

The KBL annual report does not include ESG ratings from external rating agencies. While the report extensively details KBL’s ESG initiatives and performance, it does not include any scores or ratings from organizations such as MSCI, Sustainalytics, Refinitiv, or others that provide ESG assessments. The report does mention obtaining an independent assurance statement from TÜV Nord on certain ESG-related disclosures, which verifies data accuracy and consistency but doesn’t provide a summarized ESG rating.

ESG Initiatives #

KBL’s Integrated Annual Report details a range of environmental, social, and governance (ESG) initiatives, aiming to achieve specific sustainability goals. Here’s a summary:

Environmental Initiatives:

• Renewable Energy: KBL is significantly increasing its reliance on renewable energy sources (solar and wind power), aiming to reach 70% of total electricity consumption from renewable sources by FY 2025-26. Currently, it’s at 20-22%.
• Energy Efficiency: The company is implementing various energy conservation measures across its manufacturing plants, including the replacement of older, less efficient equipment, and the adoption of energy-efficient technologies and processes. The ENCON initiative promotes company-wide energy conservation efforts.
• Water Management: Initiatives include rainwater harvesting, wastewater recycling (31% achieved), and reduced water consumption.
• Waste Management: Focus on the 3R’s (Reduce, Reuse, Recycle). Recycling rates in foundries have reached 38%. The company is aiming for zero waste to landfill. EPR registration and compliance is also emphasized.
• Emissions Reduction: KBL has completed a GHG emissions inventory (Scopes 1, 2, and 3) and is developing a carbon neutrality roadmap. It targets a 40% reduction in Scope 1 and 2 emissions within the next two years.
• Green Certifications: Five of KBL’s manufacturing plants have obtained CII GreenCo certification, and four product groups have received CII GreenPro Ecolabel certification.

Carbon Footprint:

The report provides data on Scope 1 & 2 emissions and outlines plans for a Net Zero roadmap. However, precise carbon footprint figures (in tons of CO2e) are not presented in a single, summarized metric. The report does state that the company completed its Scope 1,2 and 3 GHG emissions inventory.

Social Initiatives:

• Workforce Well-being: KBL emphasizes employee well-being through various initiatives, including health check-ups, employee well-being policies, and the creation of employee engagement clubs (KirloFit and KirloMind). Employee engagement scores are high (71%). The company also highlights diversity and inclusion efforts.
• Community Development: The company’s CSR (Corporate Social Responsibility) activities, channeled through the Vikas Charitable Trust, focus on education, health, disaster management, and environmental initiatives in local communities. Significant spending (₹32 million+) was reported.
• Supplier Engagement: KBL is working with its suppliers to promote sustainable sourcing practices, including ESG assessments, and emphasizes its relationships with MSMEs.

Governance Practices:

• Board Composition: The Board demonstrates a commitment to good governance with a various composition, including a high proportion of Independent Directors (70%) and women directors (30%). Regular Board and committee evaluations are conducted.
• Risk Management: A robust risk management framework is implemented to identify, assess, and mitigate potential risks.
• Transparency and Accountability: The report emphasizes transparency in reporting, stakeholder engagement, and compliance with regulations. A whistleblower policy is in place.
• Compliance: KBL highlights compliance with all applicable laws, regulations, and industry best practices regarding governance.

Sustainability Goals:

The report outlines both short-term and long-term sustainability goals across environmental, social, and governance areas. These encompass specific targets such as increasing renewable energy usage, reducing emissions, improving water recycling, enhancing workforce diversity, and implementing best practices in corporate governance. However, the goals are not always specifically quantified in terms of precise metrics. For example, a target of enhancing female representation in the workforce is mentioned but a specific percentage target is not given. The report does specifically mention targets in relation to increased use of renewable energy.

The information provided is a summary of the ESG initiatives detailed in the annual report. For specific targets, details on the methodologies used, and the precise quantification of the company’s environmental footprint, please refer directly to the relevant sections of KBL’s annual report.

Additional Information #

Operational Metrics #

The KBL annual report provides the following information:

• R&D Expenditure: ₹290 million (This figure is from the Intellectual Capital section of the report)
• Total Employee Count: 2,783 (This figure is taken from the Human Capital section of the report)

It’s important to note that the employee count figure in the Human Capital section refers to employees of KBL standalone. The consolidated employee count is not given.

Key Events #

KBL’s annual report highlights many significant events during FY 2023-24:

• Strong Financial Performance: The company achieved record-breaking financial results, with significant increases in revenue, EBITDA, and profit after tax. This is attributed to robust demand across various sectors, increased profitability from a more optimized product mix and improved operational efficiency.

• Product Launches: Several new and enhanced pump models were introduced across various segments (industrial, domestic, agricultural), including energy-efficient models meeting stringent global standards (e.g., FM-approved and UL-listed pumps). The report highlights the introduction of KW-LC and KW-SC pumps for HVAC markets. New models in the submersible pump range with advanced features (like sand-fighter arrangements) were also launched. The company also notes the development of a significant 7.5 MW vertical turbine pump.

• Major Project Wins: KBL secured significant contracts for prestigious projects, including the Ram Mandir in Ayodhya (water management and fire safety systems), various metro rail projects (Kolkata, Agra, Mumbai), and other large infrastructure developments.

• International Expansion & Success: KBL’s international operations performed strongly, achieving record sales and profits in many regions (e.g., notable growth in the USA). A significant order from BUIDCO in Bihar for stormwater application is also mentioned. The report also highlights a memorandum of understanding (MOU) signed with the Ministry of Lands, Agriculture, Fisheries, Water & Rural Development of Zimbabwe, focusing on irrigation development.

• Digital Transformation Progress: The company made significant strides in its digital transformation journey, implementing new systems and technologies (including AI/ML for cybersecurity and low-code/no-code platforms for faster system development), further enhancing the KirloSmart™ IoT platform, and expanding the use of AR/VR for training.

• Sustainability Initiatives: KBL continued its environmental sustainability efforts, obtaining GreenCo and GreenPro certifications for multiple plants and products, enhancing its use of renewable energy, implementing waste management initiatives, and conducting GHG emission inventories.

• Awards and Recognitions: The company received many prestigious awards and recognitions for its manufacturing excellence, product innovation, and sustainability initiatives. These include awards for its Dewas and Sanand plants, the TPM award for the Dewas plant, and various awards for the Sanand plant. SPP Pumps also won a major award in the UK.

• Key Personnel Changes: The report notes the appointment of a new CFO (Mr. Ravish Mittal) and the passing of Mr. Amitava Mukherjee, an Independent Director.

These are the major events highlighted in the report. The report doesn’t provide a fully exhaustive list of every single event.

Audit Information #

Auditor’s Opinion:

The independent auditor’s report, issued by Sharp & Tannan Associates, Chartered Accountants, expresses an unmodified (clean) opinion on both the standalone and consolidated financial statements of KBL for the fiscal year ended March 31, 2024. 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. The report does, however, identify a “Key Audit Matter” related to the accounting treatment of customer contracts where performance obligations are satisfied over time. The auditors describe the procedures they performed to address this matter. The auditors also issue a separate report expressing an unmodified opinion on the adequacy and operating effectiveness of KBL’s internal financial controls over financial reporting.

Key Accounting Policies:

The annual report outlines many key accounting policies followed by KBL in preparing its financial statements. These policies are in accordance with Indian Accounting Standards (Ind AS). Key highlights include:

• Basis of Preparation: The financial statements are prepared using the accrual basis of accounting and the going concern assumption. Ind AS are followed, along with generally accepted accounting principles in India.

• Basis of Measurement: The historical cost convention is primarily used, except for certain financial instruments measured at fair value (FVTPL) and defined benefit plan assets.

• Current/Non-Current Classification: Assets and liabilities are classified as current or non-current based on the company’s operating cycle (generally 12 months, but varying for project-based work) and other relevant criteria.

• Functional and Presentation Currency: The Indian Rupee (₹) is the functional and presentation currency.

• Use of Judgements, Estimates, and Assumptions: The report acknowledges the use of judgements, estimates, and assumptions (like those related to the defined benefit obligation, leave encashment, impairment of receivables, and revenue recognition) that may affect the reported financial figures. The report also explains the process of ongoing review of these estimates.

• Inventories: Inventories are valued at the lower of cost and net realizable value, using a moving weighted average method for cost calculation.

• Cash and Cash Equivalents: Includes cash on hand, bank balances, and short-term, highly liquid investments. The definition excludes any funds that are not available for general use.

• Property, Plant, and Equipment (PPE): PPE is measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method over the estimated useful lives.

• Investment Property: Measured at cost less accumulated depreciation (for buildings) and impairment losses. Fair value is disclosed in the notes.

• Intangible Assets: Goodwill is not amortized but tested annually for impairment. Other intangible assets with finite lives are amortized over their useful lives. Development costs are capitalized under specific conditions.

• Revenue Recognition: The Group follows Ind AS 115, recognizing revenue when performance obligations are satisfied, using methods appropriate to the type of contract (sale of goods, rendering of services, construction contracts).

• Other Income: Includes interest income, dividend income, and gains from the sale of investments.

• Foreign Currency Transactions: Transactions are recorded at exchange rates prevailing on the transaction date. Exchange differences are recognised in profit or loss.

• Employee Benefits: Includes short-term benefits (salaries, wages, bonus), defined contribution plans, and defined benefit plans (actuarial valuations are used to determine the obligations).

• Income Taxes: Includes current tax and deferred tax, measured using the balance sheet method.

• Provisions: Recognized when a present obligation is probable and can be reliably measured. Includes warranty provisions, decommissioning liabilities, and provisions for losses on long-term contracts.

• Leases: The group follows Ind AS 116, recognizing right-of-use assets and lease liabilities for leases with terms exceeding 12 months.

• Financial Instruments: Financial assets and liabilities are classified and measured according to Ind AS 109, including the expected credit loss (ECL) model for impairment.

• Segment Reporting: The Group operates in a single reporting segment.

• Earnings Per Share (EPS): Both basic and diluted EPS are calculated according to Ind AS.

These are the key highlights of KBL’s accounting policies; for complete details, always consult the “Material Accounting Policies” section of the annual report itself.