Kirloskar Oil Engines Ltd:Annual Report 2023-24 Analysis

Kirloskar Oil Engines Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Kirloskar Oil Engines Limited (KOEL) was established in 1946 as a result of the vision of Laxmanrao Kirloskar. He envisioned a self-reliant India through the manufacturing of import substitutes.

Headquarters Location and Global Presence #

The company’s headquarters are located in Pune, India. KOEL has a significant global presence, exporting its products to various countries across Asia, Africa, the Middle East, Europe, and the Americas.

Company Vision and Mission #

While specific statements might vary over time, KOEL’s vision generally revolves around being a leader in the power generation and engine solutions market, driven by innovation, customer focus, and sustainable practices. Their mission focuses on providing reliable, efficient, and technologically advanced products and services that meet the evolving needs of their customers.

Key Milestones in Their Growth Journey #

• 1946: Establishment of Kirloskar Oil Engines Limited.
• Early Years: Focus on manufacturing diesel engines for agricultural pumpsets.
• Diversification: Expansion into power generation, construction equipment, and other industrial applications.
• Globalization: Entry into international markets and establishment of overseas operations.
• Technological Advancements: Adoption of advanced manufacturing technologies and development of innovative engine solutions.

Stock Exchange Listing Details and Market Capitalization #

KOEL is listed on the Bombay Stock Exchange (BSE: 500241) and the National Stock Exchange (NSE: KIRLOSENG). Market capitalization fluctuates based on market conditions.

Recent Financial Performance Highlights #

Recent financial performance highlights can be found on the KOEL website, in their annual reports, and through financial news outlets. Key metrics to look for include revenue growth, profitability (EBITDA, PAT), and order book.

Management Team and Leadership Structure #

KOEL is led by a board of directors and a team of experienced professionals. Typical roles include a Managing Director, CEO, CFO, and heads of various departments such as operations, marketing, and finance.

Their Products #

Complete Product Portfolio with Categories #

KOEL’s product portfolio spans across several categories:

• Diesel Engines: For agricultural, industrial, and power generation applications.
• Gensets (Diesel Generator Sets): Ranging from small portable units to large industrial power plants.
• Pumpsets: For agricultural and industrial water management.
• Construction Equipment: Concrete mixers, compaction equipment, and other construction machinery.
• Marine Engines: For powering boats and other marine vessels.

Flagship or Signature Product Lines #

KOEL is particularly known for its range of diesel engines and gensets, especially those used in the agricultural and power generation sectors.

Key Technological Innovations or Patents #

KOEL invests in research and development to create innovative engine solutions. This includes:

• Development of fuel-efficient and low-emission engines.
• Incorporation of advanced control systems and monitoring technologies.
• Development of engines that can run on alternative fuels.

Manufacturing Facilities and Production Capacity #

KOEL has multiple manufacturing facilities in India, including those in Kagal and Nashik. The combined production capacity is significant, enabling the company to meet domestic and international demand.

Quality Certifications and Standards #

KOEL adheres to international quality standards such as ISO 9001 and relevant environmental standards.

Any Unique Selling Propositions or Technological Advantages #

• Reliability and Durability: KOEL engines are known for their robust construction and long lifespan.
• Fuel Efficiency: KOEL continuously improves its engine designs to enhance fuel efficiency and reduce operating costs.
• Wide Range of Applications: KOEL caters to a diverse range of industries and applications.
• After-Sales Service: KOEL has a strong service network to provide maintenance and support to its customers.

Recent Product Launches or R&D Initiatives #

KOEL regularly introduces new products and upgrades its existing product lines. Recent launches and initiatives could include:

• New generation of fuel-efficient diesel engines.
• Hybrid power solutions.
• Expansion of their range of CNG/Biogas engines.

Primary Customers #

Target Industries and Sectors #

KOEL serves a wide range of industries and sectors, including:

• Agriculture: Supplying engines and pumpsets for irrigation and farming.
• Construction: Providing power solutions for construction sites and equipment.
• Industrial: Powering industrial machinery and processes.
• Telecom: Powering telecom towers and base stations.
• Residential: Providing gensets for backup power in homes and apartments.

Geographic Markets (Domestic vs. International) #

KOEL has a strong presence in the domestic Indian market and also exports its products to international markets across Asia, Africa, the Middle East, Europe, and the Americas.

Distribution Network and Sales Channels #

KOEL utilizes a multi-channel distribution network, including:

• Authorized Dealers: A network of dealers across India and internationally.
• Direct Sales: Direct sales to large industrial customers and government institutions.
• Online Channels: E-commerce platforms.

Major Competitors #

Direct Competitors in India and Globally #

Some of KOEL’s key competitors include:

• Cummins India: A subsidiary of Cummins Inc.
• Escorts Kubota Limited (formerly Escorts Group): A major player in the agricultural machinery sector.
• Greaves Cotton: A diversified engineering company.
• Caterpillar: A global leader in construction and mining equipment.
• MTU Friedrichshafen (Rolls-Royce Power Systems): A global manufacturer of diesel engines and power systems.

Competitive Advantages and Disadvantages #

Advantages:

• Strong brand reputation and legacy in the Indian market.
• Extensive distribution and service network.
• Wide range of products catering to diverse industries.
• Cost competitiveness in certain segments.

Disadvantages:

• May face intense competition from global players in certain segments.
• Susceptible to fluctuations in raw material prices and currency exchange rates.
• Dependent on government policies and regulations related to emissions and fuel efficiency.

Future Outlook #

Expansion Plans or Growth Strategy #

KOEL’s growth strategy may include:

• Expanding its product portfolio into new segments.
• Increasing its market share in international markets.
• Investing in research and development to develop innovative products and technologies.
• Strengthening its distribution and service network.

Upcoming Products or Innovations #

KOEL may be working on:

• Developing engines that run on alternative fuels such as CNG, biogas, and hydrogen.
• Introducing hybrid power solutions that combine diesel engines with renewable energy sources.
• Developing smart engine technologies that can monitor performance and optimize fuel consumption.

Sustainability Initiatives or ESG Commitments #

KOEL is likely focusing on:

• Reducing its carbon footprint through energy efficiency measures.
• Developing engines that meet stringent emission standards.
• Promoting sustainable practices in its operations and supply chain.
• Social initiatives focused on education, healthcare, and community development.

Industry Trends Affecting Their Business #

Key industry trends include:

• Stringent Emission Regulations: Increasingly strict emission standards are driving demand for cleaner engine technologies.
• Shift towards Renewable Energy: The growing adoption of renewable energy sources is impacting the demand for traditional diesel gensets.
• Technological Advancements: The development of new engine technologies, such as hybrid and electric engines, is transforming the power generation market.
• Increasing Demand for Power: Growing economies and urbanization are driving demand for reliable power solutions.

Long-Term Vision and Strategic Goals #

KOEL’s long-term vision likely revolves around becoming a global leader in the power generation and engine solutions market, providing sustainable and innovative solutions that meet the evolving needs of its customers.

Financial Performance Analysis of Kirloskar Oil Engines Limited (KOEL) #

Three-Year Trend Analysis of Key Financial Metrics #

• Overall Assessment: Kirloskar Oil Engines Limited (KOEL) demonstrated robust financial performance in FY 2023-24, with significant growth in sales, profitability, and key financial ratios. The trend over the three years indicates consistent improvement in the Company’s financial health.

Business Segment Performance #

B2B Segment #

• Power Generation: Showed high sales growth, especially in gas Gensets. Successfully transitioned to CPCB IV+ emission norms, being the first in the industry to do so. Launched the OptiPrime series, extending its range up to 3000 kVA. Received a major order from Nuclear Power Corporation India Limited.
• Industrial: Strong performance driven by growth in construction and railway sectors. Achieved record engine deliveries in a single month.
• Distribution and Aftermarket: Significant sales growth, driven by enhanced customer support and a strong service network. Achieved an 18% increase in revenue, reaching ₹ 596 crore.
• International Business: Made strategic moves to expand globally, including the appointment of a GOEM for the MENA region and the acquisition of Wildcat Power Gen in the US. Reported a 32% increase in sales.

B2C Segment #

• Water Management Solutions (WMS): Achieved a 25% growth in pumps and 30% in small engines. La-Gajjar Machineries (LGM), a part of WMS, saw a significant increase in Profit Before Tax.
• Farm Mechanization Solutions (FMS): Reported good growth.
• The B2C segment experienced a 105% increase in the segment profit for the year.

Major Strategic Initiatives and Their Progress #

2X3Y Strategy #

• Objective: Double the FY 2021-22 revenue within three years (by FY 2024-25).
• Progress: Achieved significant double-digit growth across all business segments in FY24, although the CPCB IV+ deadline change affected the top-line growth trajectory.
• Pillars:
  • Growth Strategy: Focus on high-horsepower (HHP) engines, product diversification, and new market expansion (domestic and international).
  • Channel Strategy: Roadmap for product launches, channel expansion, and talent acquisition.
  • Technology Roadmap: Prioritizing new products that meet stringent emission regulations (CPCB4+, BSV), fuel agnostic engines, solar, energy storage, electrification and fuel cells.
  • Operational Excellence: Optimizing efficiency, minimizing costs, and ensuring resilient processes.
  • People & Talent Development: Investing in talent development and building a skilled workforce.

International Expansion: #

• A stated strategy to increase the export share. Achieved through acquisition (Wildcat Power Gen in the US) and appointing GOEMs (Middle East and North Africa).

Risk Landscape Changes #

• Regulatory Changes: The shift in emission norms (CPCB IV+) presented both a challenge and an opportunity. KOEL successfully adapted and became a first mover, but the deadline change created short-term disruption.
• Geopolitical Changes: Mentioned as a continuous challenge, impacting the operating environment.
• Supply Chain Resilience: KOEL prioritizes a resilient supply chain to mitigate disruptions through supplier diversity, regular evaluations, building supplier resilience, monitoring financial health, and proactive risk management.
• Cybersecurity Risk: Implementation of advanced cybersecurity measures and regular security audits.

ESG Initiatives and Metrics #

Environmental #

• Circular Economy: Focus on waste and water management, product stewardship, and life cycle management. Aiming for 100% plastic waste recycling and zero landfill.
• Climate Action: Reducing GHG emissions and increasing the share of renewable energy. Kagal plant is a major focus, with a significant solar power capacity. Plans for additional solar capacity at the Nashik plant.
• Net Zero Target: Working towards net-zero emissions by 2070. Reduction in carbon emissions intensity.
• Water Management: Zero Liquid Discharge across all plants and increased rainwater harvesting.

Social #

• Employee Health & Safety: Comprehensive safety programs and a goal of ‘zero harm’.
• Talent Management: Focus on talent acquisition, development, and retention. Programs like “Campus to Corporate” and “Talent Day”.
• Diversity & Inclusion: Initiatives to foster a diverse and inclusive work culture.
• Stakeholder Relations: Engagement with shareholders, customers, community, and supply chain partners.

Governance #

• Corporate Governance: Strong emphasis on ethical standards, transparency, and accountability.
• ESG Governance Structure: A multi-tiered structure involving the Board, ESG Committee, Sustainability Council, and a Single Point of Contact (SPOC) for each business unit.

Key Metrics #

• Renewable energy usage: 43%
• Reduction in carbon footprint: 10%
• Reduction in PNG consumption for the powder coating process: 50%
• Water recycled: 100%
• Water consumption through harvested water: 18%
• Zero reportable accidents across all plants

Management Outlook #

• Optimistic Outlook: The management expresses an optimistic outlook on growth prospects.
• Continued 2X3Y Focus: Commitment to achieving the 2X3Y strategic goals and delivering sustainable growth.
• Technology Leadership: Aim to excel in internal combustion engine technology, including alternate fuels, hydrogen blends, and hybrid engines.
• Customer Centricity: A sharp focus on Customer Satisfaction.
• B2C Growth: Completing the product portfolio and improving market share in the B2C segment.
• Operational Excellence: Continuous focus on operational excellence and cost optimization.

Overall Assessment #

The Company is well managed, has a strong growth trajectory with plans for diversification in the future.

Detailed Analysis #

Financial Analysis of Kirloskar Oil Engines Limited (KOEL) #

Balance Sheet Analysis (Standalone) #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

(₹ in Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets (Increased by 18.97% in FY24): Driven increased by property, plant and equipment.
• Current Assets (Increased by 21.14% in FY24): Mainly due to increased Inventory and Trade Receivables.
• Non-Current Liabilities (Increased by 59.3% in FY24): A significant jump, primarily due to secured term loan.
• Current Liabilities (Increased by 18.76% in FY24).
• Other Equity (Increased by 9.16% in FY24): Driven by an increase in retained earnings.

Working Capital Trends #

Analysis:

• Working capital has increased, and there is improvement in the current ratio.

Asset Quality Metrics #

• Impairment Loss Allowance on Trade Receivables: The company maintains a provision for expected credit losses. This is crucial.
• Inventory Write-Downs: The document mentions write-downs/reversals of inventory, indicating the company is actively managing inventory obsolescence.
• Trade Receivable Aging: As at 31st March,2024, trade receivable aging is as follows:

  	Not due	Less than 6 months	6 months -1 year	1-2 years	2-3 years	More than 3 years
  Undisputed Trade Receivables	439.58	162.68	9.50	0.00	0.00	9.20

• Capital work-in progress: As at 31st March 2024, Capital work-in-progress (CWIP) aging schedule as follows:

  	Less than 1 year	1-2 years	2-3 years	More than 3 years
  Project in progress	191.71	6.97	3.6	-

Debt Structure and Maturity Profile #

• Debt-to-Equity Ratio:
  • 2024: 0.18
  • 2023: 0.08 The increase in Debt-to-Equity reflects the loan taken for a new office premises.
• Non-current Borrowings: Increased significantly due to a new secured term loan.
• Current Maturities of Long-Term Debt: Shows the portion of long-term debt due within the next year.
• Maturity Profile:
  • KOEL’s long-term borrowing is a term loan to be repaid in monthly installments.
  • The short-term borrowings are primarily for working capital.

Off-Balance Sheet Items #

• Contingent Liabilities: These include excise duty, sales tax, customs duty demands, and income tax liabilities under dispute. These are potential obligations that may arise depending on the outcome of the disputes. The total amount for FY24 is ₹108.73 crores.
• Capital Commitments: ₹158.61 crores as of March 31, 2024, representing unexecuted contracts for capital expenditures.
• Letters of Credit: Outstanding letters of credit represent commitments by the Company’s bankers.
• Other Contingent Liabilities: Aggregate liquidated damages on unexecuted orders.

Kirloskar Oil Engines Limited (KOEL) Financial Analysis #

Revenue Breakdown by Segment/Geography with Growth Rates #

• B2B Segment:
  • Power Generation: ₹1,905 crore (FY24), up 15% from ₹1,655 crore (FY23).
  • Industrial: ₹1,008 crore (FY24), up 18% from ₹852 crore (FY23).
  • Distribution and Aftermarket: ₹749 Crore, showing growth
• B2C Segment:
  • Water Management Solutions (WMS): ₹537 crore (FY24), up 23% from ₹435 crore (FY23). Pump and Small engines are growing at 25% and 30% respectively.
  • Farm Mechanization Solutions (FMS): ₹87 crore (FY24), down from ₹107 crore(FY23).
• International Business: ₹520 Crore, up 32%
• Consolidated Revenue (FY24): ₹5,898.32 crore, up 17.4% from ₹5,023.80 crore (FY23).
• Geographical Breakdown (FY24):
  • Domestic: ₹5,151.38 crore.
  • Exports: ₹746.94 crore (12.66% of total revenue). The company is expanding footprint in international geographies, specifically in Middle East and North Africa Region, along with North America.

Cost Structure Analysis #

• Cost of Raw Materials and Components Consumed: A significant expense, representing a major portion of the cost of goods sold.
• Employee Benefits Expense: Includes salaries, wages, bonuses, and contributions to provident and other funds.
• Finance Costs: Interest and discounting charges constitute the finance costs.
• Manufacturing Expenses: Includes Store consumed, Power and fuel, Machinery Spares, Repairs to Machinery, Job work charges, labour charges, other manufacturing expenses.
• Depreciation and Amortization: A non-cash expense reflecting the allocation of the cost of tangible and intangible assets.
• Other Expenses: A broad category encompassing various costs, including selling expenses (commission, freight, warranty), administrative expenses, and other miscellaneous costs.

Margin Analysis (Gross, Operating, Net) with Trends #

• Standalone Financials:
  • Operating Profit Margin (FY24): 9.7% (excluding exceptional items), improved from 8.4% in FY23.
  • Net Profit Margin (FY24): 7.52% (excluding provision/(reversal) for overdue receivables), increased from 6.63% in FY23.
  • EBITDA Margin: 11.6%
• Key Observation: Both operating and net profit margins (on a standalone basis, excluding exceptionals) have shown improvement year-over-year, indicating better cost control and operational efficiency.

Operating Leverage #

• The significant increase in EBITDA (26% growth) on an 18% revenue growth (standalone) suggests a degree of operating leverage. This means that a percentage increase in sales is leading to a larger percentage increase in operating income.

EPS Analysis (Basic/Diluted) #

• Standalone:
  • Basic EPS (FY24): ₹25.02 (up from ₹18.77 in FY23).
  • Diluted EPS (FY24): ₹24.95 (up from ₹18.72 in FY23).
• Consolidated
  • Basic EPS (FY24): ₹30.34
  • Diluted EPS (FY24): ₹30.25

The increase in both basic and diluted EPS demonstrates improved profitability on a per-share basis.

Quarterly Trends #

• The documents provided states that there were 4 consecutive quarters of over 1000 crore revenue.

Financial Analysis of Kirloskar Oil Engines Limited (KOEL) #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components #

The report provides a consolidated statement of cash flows.

• Operating Cash Flow (OCF):

  • Profit before tax: ₹610.53 crore (FY24), ₹448.93 crore (FY23)
  • Adjustments were made for non-cash items (depreciation, finance costs, etc.) and changes in working capital.
  • Net cash generated from operations: ₹477.69 Cr (FY24), (253.61) Cr (FY23).
  • Income Tax Paid: (132.38) FY24, (132.99) FY23.
  • Net OCF: ₹345.31 crore (FY24), ₹(386.60) crore (FY23). Major improvement is due to the large increase of profit before tax and an increase in other payables.

• Investing Cash Flow (ICF):

  • Purchase of property, plant and equipment, and intangible assets: ₹(154.92) crore (FY24), ₹(89.12) crore (FY23)
  • Payment towards acquisition of a subsidiary: (2.98) crore (FY24), ₹(109.36) crore (FY23)
  • Proceeds from sale of property, plant and equipment & other intangible assets: 1.32(FY24) crore, 0.61(FY23) crore.
    • Investment/Proceeds,net from Mutual Funds: ₹ 20.70(FY24), (6.91) FY23. *Fixed Deposits Placed: (204.45) Crores (FY24), (225.46) Crores(FY23). *Dividend: 0.50(FY24), 0.44(FY23) *Interest:31.85(FY24), 16.34(FY23).
  • Net ICF: ₹(307.98) crore (FY24), ₹(403.94) crore (FY23)

• Financing Cash Flow (FCF):

  • Proceeds/Repayments from bill discounting & borrowings (net): 91.30 Crore, FY24, (29.85) Cr (FY23).
  • Proceeds from long term borrowing: 107.21 FY24, 0.37 (FY23).
  • Repayment of long term borrowing: (34.25) (FY24), (0.37) FY23.
  • Final and interim dividend paid: ₹(72.44) crore (FY24), ₹(72.37) crore (FY23) *Finance Cost: (56.07) Cr (FY24), (41.19) Cr (FY23).
  • Net FCF: ₹130.90 crore (FY24), ₹(25.65) crore (FY23). Significant increase mainly is on account of proceeds from bill discounting and borrowings.

Working Capital Management Efficiency #

• The report provides details on changes in working capital components (inventories, trade receivables, trade payables, etc.) within the cash flow statement. A thorough analysis would require comparing these changes against revenue growth. The Consolidated Balance Sheet shows Current Assets grew by 9.9% and Current Liabilities grew by 16.9%. This divergence can mean that efficiency of working capital management is lower.

Dividend and Share Buyback Trends #

• Dividends:

  • FY24: Interim dividend of ₹2.50 per share (125%) and a proposed final dividend of ₹3.50 per share (175%), totaling a 350%.
  • FY23: Interim dividend of ₹2.50 per share (125%) and final of H 2.50 (125%).
  • The trend indicates a consistent dividend payout, with an increase in the proposed final dividend for FY24.

• Share Buyback: The report does not mention any share buyback programs during the FY23-24 or the prior year.

Debt Service Coverage #

• Debt Service Coverage ratio is 3.44 in FY24, lower than the one from FY23(4.91)
• The increase in Debt, and associated costs can be seen as the cause.

Liquidity Position and Cash Conversion Cycle #

• Liquidity Position:

  • The company has a strong, positive net cash position, excluding debt, of ₹269 crore, which includes treasury investments.
  • The current ratio (Current Assets / Current Liabilities) for the consolidated entity is 1.48, and 1.57 on standalone basis. It is showing good liquidity.

• Cash Conversion Cycle: However, the days of accounts payable can be calculated, and it equals 59.52 days.

Financial Analysis of Kirloskar Oil Engines Limited (KOEL) #

Profitability Ratios (3-Year Trends - Standalone) #

Liquidity Metrics (Standalone) #

Efficiency Ratios (Standalone) #

Leverage Metrics (Standalone) #

Working Capital Ratios (Standalone) #

Key Observations and Deviations #

• Improving Profitability: KOEL shows a generally positive trend in profitability, with increases in ROE, ROA, ROIC, and Operating & Net Profit Margins.
• Strong Liquidity: The Current Ratio remains decent.
• Leverage: The Debt-to-Equity ratio has increased, indicating higher debt levels. However, the Interest Coverage Ratio, though decreased, remains very high, suggesting that KOEL is still comfortably able to meet its interest obligations.
• Segment Analysis: B2B segment reported highest recorded yearly numbers across the businesses with consistent, high volume delivery of engines, while B2C has shown 105% increase in profit for the FY.

Kirloskar Oil Engines Limited (KOEL) Analysis #

Revenue and Profitability #

• Standalone Revenue: ₹4,806 crore (FY24), up 18% from ₹4,073 crore (FY23).
• Consolidated Revenue: ₹5,898.32 Crore.
• Standalone EBITDA: ₹564 crore (FY24), up 26% excluding provision/reversal for overdue receivables. Margin of 11.9%.
• Consolidated EBITDA: ₹610.53 crore.
• Standalone Net Profit: ₹362 crore (FY24), up 34% from ₹270.25 crore (FY23).
• Consolidated Net Profit: ₹439.70 crore.
• Standalone PAT Margin: 7.7%.
• Standalone Earnings Per Share (EPS): ₹25.03 (FY24), up from ₹18.74 (FY23).
• Standalone Return on Equity (ROE): 14.60% (FY24).
• Standalone Return on Operating Capital Employed (ROCE): 56.65%.
• La-Gajjar Machineries PBT Increased from 11 crore to 25 crore.
• 105% increase in segment profit for B2C Business FY24.

Market Share and Competitive Position #

• KOEL is stated to be one of the world’s largest selling Genset brands.
• It has the highest number of IoT-connected DG sets.
• KOEL was the first company in India to have its entire engine range certified for the CPCB IV+ emission norms.
• KOEL has the largest CPCBIV+ certified genset portfolio in the Indian Industry.

Key Products/Services Performance #

B2B Segment #

• Power Generation: Strong demand for CPCBII and CPCBIV+ Gensets; high growth in gas Gensets (>150 YTD numbers).
  • Introduction of the OptiPrime series, expanding the range up to 3000 kVA.
• Industrial: Delivered a single, large order of 100 DV Gensets and the highest number of DV Engines (313) in a single month. 53% increase in BS IV category engines compared to FY23.
• Distribution and Aftermarket: 18% growth in revenue, reaching ₹596 crore.

B2C Segment #

• La-Gajjar Machineries: Profit Before Tax (PBT) increased.
• Water Management Solutions: Pumps and small engines growing at 25% and 30%, respectively.
• Farm Mechanisation: Continued growth, although specific figures are less detailed.

Geographic Distribution and Market Penetration #

• Domestic: Presence across India, with manufacturing facilities in Pune, Nasik, Kagal, and Rajkot. Focus on deepening and broadening the export strategy in the B2C segment.
• International: Expanding footprint, with a stated strategy of improving export share.
  • Kirloskar Americas Corporation acquired a 51% stake in Wildcat Power Gen.
  • Appointed a GOEM (General Original Equipment Manufacturer) for the Middle East and North Africa (MENA) region.
  • Approximately 32% of the production at the LGM plant is exported.

CAPEX #

• A CAPEX of ₹1.3 crore approved for water harvesting, water-efficient technologies, and water recycling.
• Capex was spent for installation of waste heat recovery, fuel subsitution, integration of renewable energy and the adoption of energy-efficient processes.
• CAPEX for installation of a 2.4 MWp captive solar power plant in addition to the existing 5.5 MWp solar power plant.
• A 40kWp solar plant at vehicle charging area.
• Planned CAPEX for a 250 KW Solar capacity for Nasik.

Operational Efficiency Metrics #

• Kagal Plant:
  • Line efficiency: Over 85%.
  • First-time/straight pass rate: 99.4% for both domestic and international customers.
  • Zero reportable accidents for over 3,800 days.
• Nasik Plant: Honoured as the ‘Most Energy Efficient Unit’ by CII.
• Implemented Quality 4.0 initiatives.
• Digital Transformation: Implementing a three-phased plan to convert the Kagal plant into a SMART manufacturing facility by 2025.
  • Connected Kagal plant with customers and supply chain partners through digital portals.
  • Connected core manufacturing functions with internal support functions.
  • Implementing an Operational Technology (OT) Private 5G network and an Edge Server.
  • Plans to establish a Digital Twin.
• Automation: Implemented robotics for parts washing and deburring, Auto Guided Vehicles (AGV) for material movement, and automated loading/unloading at machining lines.
• Quality Assurance: Implemented Integrated Management System (IMS), Six Sigma, Quality Circles, and digital checklists.

Growth Initiatives and Challenges #

Growth Initiatives #

• 2X3Y Strategy: Aiming to double FY22 revenue in three years. Double digit growth across business verticals was observed.
• Technology Roadmap: Focus on fuel-agnostic engines, solar and energy storage solutions, electrification, and fuel cells.
• Channel Strategy: Deepening and widening in the B2C segment.
• International Expansion: Focus on entering new geographies with the right product portfolio and service network.
• Operational Excellence: Focus on resilient processes, optimizing efficiency, and minimizing costs.

Challenges #

• Changes in emission norms (CPCB IV+ deadline shift).
• Adapting to changes in a nimble and swift manner.
• Maintaining flexibility in production and supply chain to manage deadline shifts.
• Managing the transition from mechanical governing to electronic governing in product technologies.
• Trade-off between energy security and economic growth versus energy transition.

Risk Analysis Report: Kirloskar Oil Engines Limited (KOEL) - FY 2023-24 #

Strategic Risks #

• Risk Description: Risks related to KOEL’s overall business strategy, market position, and long-term goals, including competition, and changing customer preferences, government policies. The main stated strategy is the “2X3Y” plan to double FY22 revenue within three years.
• Severity: High. Failure to achieve strategic goals can significantly impact market share, profitability, and shareholder value. The CPCB IV+ deadline change illustrates this.
• Likelihood: Medium. The Indian economy is growing, but competition and technological shifts are constant threats.
• Trend: Increasing. The power generation sector is undergoing rapid transformation with a focus on cleaner technologies and alternative fuels, requiring significant adaptation.
• Mitigation Strategies:
  • Diversifying product portfolio (e.g., OptiPrime, expansion into high horsepower segments, and alternate fuel engines).
  • Focusing on R&D for in-house product development (e.g., CPCB IV+ compliant Gensets).
  • Expanding international presence (e.g., acquisition of Wildcat Power Gen, GOEM in MENA region).
  • Continuous monitoring of market trends, and government policies.
  • Strengthing relationship with stakeholders.
• Control Effectiveness: Partially Effective. KOEL has demonstrated agility in adapting to regulatory changes (CPCB IV+), but long-term success of diversification and expansion is yet to be proven.
• Potential Financial Impact: High. Failure to adapt could lead to significant revenue loss and reduced profitability. Success in new ventures could lead to substantial revenue growth (as per 2X3Y target).
• Quantitative Risk Metrics:
  • Revenue growth vs. 2X3Y target (FY24 growth was 18%, below target).
  • Market share in key segments (data not fully provided, but stated to be the highest number of IoT Connected DG Sets).
  • R&D expenditure as a percentage of revenue (FY24: 3.6%, increased from 2.1% in FY23, indicating commitment).
• Year-over-Year Change: Risk profile is likely increasing due to the accelerating pace of change in the industry, but mitigation efforts are also intensifying.

Operational Risks #

• Risk Description: Risks related to KOEL’s internal processes, production, supply chain, and day-to-day operations. Include risks of catastrophic events, employee retention.
• Severity: Medium to High. Disruptions to manufacturing or supply chain can lead to production delays and increased costs.
• Likelihood: Medium. The document highlights supply chain resilience, but external factors like geopolitical changes are always a threat.
• Trend: Stable. KOEL’s focus on operational excellence and digital transformation suggests a proactive approach to managing operational risks.
• Mitigation Strategies:
  • Implementation of robust project management practices.
  • Supply chain diversification (sourcing from multiple suppliers).
  • “Zero Defect” and “Zero WIP” initiatives with suppliers.
  • Digital transformation initiatives (SMART manufacturing, IoT, AI, Digital Twin at Kagal plant).
  • Automation in manufacturing processes.
  • Implementation of Quality 4.0.
  • Business Continuity Plan.
  • Employee retention and satisfaction to reduce attrition.
• Control Effectiveness: Good. The Kagal plant’s achievements (zero reportable accidents, high straight-pass rate) and implementation of digital tools suggest strong operational controls.
• Potential Financial Impact: Medium to High. Production delays or quality issues can lead to increased costs, lost sales, and reputational damage.
• Quantitative Risk Metrics:
  • Production output vs. targets (Kagal plant delivered the highest number of DV Engines in a single month).
  • Line efficiency and first-time pass rates (Kagal plant: >85% efficiency, 99.4% straight pass rate).
  • Accident rates (zero reportable accidents at Kagal plant for over 3800 days).
  • Employee attrition rate (12.5%, reduced by 3.3% in FY24).
• Year-over-Year Change: Risk profile is likely stable or slightly decreasing due to ongoing improvement initiatives.

Financial Risks #

• Risk Description: Risks related to KOEL’s financial stability, including credit risk, liquidity risk, currency fluctuations, and interest rate changes.
• Severity: Medium.
• Likelihood: Medium. The Indian economy’s growth provides opportunities, but also exposes KOEL to economic fluctuations.
• Trend: Stable.
• Mitigation Strategies:
  • Maintaining a strong balance sheet (positive credit rating, net cash position).
  • Hedging against currency fluctuations (using derivative instruments).
  • Monitoring macroeconomic indicators.
  • Establishing relationships with financial institutions.
  • Robust financial risk management framework.
• Control Effectiveness: Good. KOEL’s financial ratios (e.g., Return on Equity, Return on Operating Capital Employed) and credit ratings indicate sound financial health.
• Potential Financial Impact: Medium. Currency fluctuations or interest rate hikes could impact profitability.
• Quantitative Risk Metrics:
  • Debt-to-equity ratio (0.08:1 in FY24, increased due to a secured term loan).
  • Interest coverage ratio (14.8 in FY24, improved from 11.2 in FY23).
  • Current ratio (1.3 in FY24, stable).
  • Net cash position (₹269 crore).
  • Credit ratings (CRISIL AA/Positive, CRISIL A1+).
• Year-over-Year Change: Debt-equity ratio increased, but overall financial risk remains moderate.

Compliance/Regulatory Risks #

• Risk Description: Risks related to changes in laws, regulations, and industry standards that could impact KOEL’s operations, profitability. Including risks of non compliance.
• Severity: High. The transition to CPCB IV+ emission norms is a prime example of regulatory impact.
• Likelihood: Medium to High. Environmental regulations are becoming increasingly stringent globally.
• Trend: Increasing.
• Mitigation Strategies:
  • Regularly updating compliance policies.
  • Conducting Internal audits.
  • Providing training to employees on legal and regulatory requirements.
  • Maintaining relationships with government and regulatory bodies.
  • Proactive adaptation to new emission norms (e.g., CPCB IV+, BSV).
  • Developing products compliant with global emission standards.
• Control Effectiveness: Good. KOEL was the first company in India to have its entire engine range certified for CPCB IV+ norms, demonstrating proactive compliance.
• Potential Financial Impact: High. Non-compliance can lead to fines, penalties, and reputational damage. Adaptation to new regulations can require significant investments.
• Quantitative Risk Metrics:
  • Number of compliance violations (not fully disclosed, but implications of CPCB IV+ transition are discussed).
  • Investment in compliance-related activities (R&D for emission-compliant engines).
• Year-over-Year Change: Risk profile likely increasing due to the evolving regulatory landscape.

Emerging Risks #

• Risk Description: Risks related to new and evolving technologies, geopolitical changes, and other unforeseen events. Specifically, the transition to cleaner energy sources and non-ICE power generation technologies (fuel cells, batteries, microgrids).
• Severity: Medium to High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies:
  • Investing in R&D for non-ICE technologies (fuel cells, hybrid products, batteries, microgrids).
  • Developing fuel-agnostic engines (Hythane, Natural Gas, Ethanol, Methanol, Hydrogen).
  • Monitoring geopolitical developments and adapting business strategies accordingly.
  • Focus on Hydrogen Internal Combustion Engines (H2ICE) and Hydrogen Fuel Enhanced Combustion (HFEC) technologies.
• Control Effectiveness: Early Stage. KOEL is actively researching and developing these technologies, but commercial viability and market adoption are still uncertain.
• Potential Financial Impact: High. These technologies could disrupt KOEL’s existing business model, but also present significant growth opportunities.
• Quantitative Risk Metrics:
  • R&D expenditure on non-ICE technologies (data not fully provided, but stated as a priority).
  • Number of patents and innovations in emerging technology areas.
• Year-over-Year Change: Risk profile increasing due to the accelerating pace of technological change.

Overall Summary #

KOEL faces a complex risk landscape, with significant strategic and operational risks stemming from industry transformation and regulatory changes. However, the Company demonstrates a proactive approach to risk management, with strong operational controls, a sound financial position, and ongoing investments in innovation and adaptation. The emerging risks related to new energy technologies represent both a challenge and an opportunity for KOEL’s long-term success. Continued monitoring of key risk metrics and effective execution of mitigation strategies will be crucial for sustainable growth.

Strategic Analysis of KOEL #

Long-Term Strategic Goals and Progress #

• 2X3Y Strategy: Goal to double FY 2021-22 revenue by FY 2025 while maintaining double-digit EBITDA margins.
• Progress: 18% top-line growth, double-digit growth in both business segments, 11.6% EBITDA margin, consecutive quarters of over 1000cr revenue.
• Future Focus: Expanding product ranges in power and fuels, forays into High Horse Power segment, ICE products running on alternative fuels, research in non-ICE power generation.
• Sustainability Commitment: Achieve net-zero emissions by 2030, carbon footprint reduction.
• Technology Tracks: Fuel agnostic engines, Solar and Energy Storage Solutions, Electrification and Fuel Cells.

Competitive Advantages and Market Positioning #

• Market Leader: Leading manufacturer of gensets, industrial engines, water management solutions, and farm mechanization equipment in India.
• Extensive Product Portfolio: Wide range of engines (2.5 HP to 1500 HP) and fuel-agnostic gensets (2.8 kVA to 3000 kVA).
• Strong R&D: In-house R&D capabilities and entire range certified by CPCB IV+.
• Extensive Distribution Network: Nation-wide network of operations, over 400 service outlets and 3,000+ trained personnel.
• First Mover Advantage: First company in India to have its entire engine range certified for the CPCB IV+ norms.

Innovation Initiatives and R&D Effectiveness #

• Focus on Technology: Emphasizing in-house R&D and engineering capabilities.
• CPCB IV+ Compliance: Successfully transitioned its entire engine range to meet the stringent CPCB IV+ emission norms.
• Alternate Fuel Engines: Development of engines running on cleaner fuels.
• High Horsepower Segment: Foray into the HHP segment with products like OptiPrime.
• Digital Integration: SMART manufacturing facility implementation by 2025.
• R&D Expenditure: H172 crore expenditure.

M&A Strategy and Execution #

• International Expansion: Acquired stake in Engines LPG, LLC dba Wildcat Power Gen, to expand in the North American market.
• Completed of LGM acquisition.
• Strategic Acquisitions: Acquisitions are part of KOEL’s strategy to expand its product portfolio and enter new markets.

Management’s Track Record in Execution #

• 2X3Y Strategy: Demonstrates a strong track record with double digit growth.
• Operational Excellence: Achieved record production, operational efficiencies, and maintained a resilient supply chain.
• Financial Performance: Achieved highest annual sales to date, with significant growth in revenue, EBITDA, and net profit.
• Successful transition of CPCB IV+ emission norm changes.

Capital Allocation Strategy #

• Core Business Focus: Prioritizes capital allocation to its core business, particularly in technology advancements related to internal combustion engine technology and alternate fuels.
• R&D Investment: Significant investment in R&D.
• Strategic Acquisitions and Expansions:Acquisition of Engines LPG LLC.
• Operational Efficiency: Investments in operational excellence.

Organizational Changes and Their Impact #

• Leadership Development: Investment in leadership development programs.
• Talent Management: Focus on talent acquisition, retention, and development.
• Employee Engagement Initiatives: Initiatives to foster engagement and improve employee experience.
• CFO Transition: Change in CFO.

ESG Analysis of Kirloskar Oil Engines Limited (KOEL) - FY 2023-24 #

Environmental Metrics and Targets #

Energy Management #

• 10% reduction in carbon footprint.
• 43% of energy usage from renewable sources.
• 50% reduction in PNG consumption for the powder coating process.
• Specific Energy Consumption (SEC) of 2.19 kWh/BHP.
• Captive solar plants with significant capacity (8.2 MWp at Kagal, 250 kWp at Nasik).
• Future plans include increasing renewable energy share, exploring third-party renewable energy options.

Water Management #

• 100% water recycled.
• 18% water consumption met with through harvested water.
• Zero Liquid Discharge across all plants is a target.
• Future CAPEX of ₹1.3 crore allocated for water harvesting and recycling.

Waste Management #

• Adoption of the 6R principle (reduce, reuse, recycle, recover, redesign, remanufacture).
• Transitioning to water-based paints to reduce VOC emissions.
• Goal of zero waste to landfill and zero liquid discharge by 2030.
• Plastic-to-fuel conversion plant and use of plastic residue in road construction.

GHG Emissions #

• Actively working on reducing GHG emissions.
• Conducting Life Cycle Assessment (LCA) analyses and Scope 3 inventories.
• Developing fuel-efficient products and exploring cleaner fuel sources.
• Investigating retrofitting emission control devices.

Biodiversity Conservation #

• 550 Saplings Planted
• 35% increase in species

Social Responsibility Programs #

CSR Pillars #

• Education (Competency-Based Education in Rural Schools, NTTF)
• Health and Hygiene (Water Supply project with Navikarna Trust)
• Sustainable Livelihood (Women empowerment programs, vocational training)
• Environment (Kirloskar Vasundhara Eco Rangers, Plastic waste collection project)

Key Highlights #

• CSR activities in 15+ villages, benefiting over 50,000 people.
• Environment-related activities in colleges and Kolhapur city.
• Emphasis on women’s empowerment through a holistic approach.

Stakeholder Engagement #

• Actively engages with employees, shareholders, customers, technical collaborators, dealers, distributors, banks, suppliers, vendors, local communities, and regulators.

Specific Program Details #

• Competency based education in 400+ Clusters covering around 20000 Teachers
• Water supply project supporting 22 Villages
• Sustainable livelihood programs for 1750 Benificiaries
• Environment programs covering waster management, plastic waste collection

Governance Structure and Effectiveness #

Group Governance Policy #

• KOEL has a Group Governance Policy designed to enhance organizational effectiveness by integrating Governance, Risk, and Compliance (GRC) processes. This policy applies to all material subsidiaries (except those in financial services).

Board Composition and Diversity #

• The Board includes Executive, Non-Executive, and Independent Directors.
• Emphasis on diversity of thought, experience, knowledge, education, skills, perspective, geography, culture, age, and gender.
• Succession planning is a priority for the Nomination and Remuneration Committee (N&RC).

Board Committees #

• The Board has several committees (Audit, Nomination and Remuneration, Stakeholders Relationship, Risk Management, Corporate Social Responsibility) with defined roles and responsibilities.

Risk Management #

• A structured Risk Management policy is in place, covering strategic, business, operational, compliance, economic, sustainability, cyber security, and business continuity risks. The Risk Management Committee, Audit Committee, and Board of Directors periodically review enterprise risks and mitigation plans.

ESG Governance #

• KOEL has a sustainable governance structure overseen by a Board of Directors and sub-committees (Strategy, Operations, and Regional), with Single Point Of Contact (SPOC) for each area. This structure aims to build investor confidence, meet customer expectations, and attract talent.

Sustainability Investments #

• The report highlights several investments in sustainability, primarily in renewable energy (solar and wind), water conservation infrastructure, and waste management technologies.
• CAPEX of ₹1.3 Crore to develope new water harvesting structures.
• The emphasis is on long-term sustainability and operational efficiency, which implicitly suggests cost savings and risk reduction over time.

Regulatory Compliance and Future Preparations #

Compliance #

• The company affirms compliance with applicable laws and regulations, including environmental regulations, and highlights its Integrated Management System (IMS) adhering to quality, environment, and safety standards.

Future Preparations #

• Transitioning product technology from BS IV to BS V.
• Developing engines compatible with alternative fuels (Natural Gas, Ethanol, Methanol, Hydrogen).
• Exploring energy storage solutions, fuel cells, and electrolyzers.
• Working towards net-zero emissions by 2030.

Future Projections and Guidance #

Management Guidance and Assumptions #

• Overall Guidance: Management is pursuing a “2X3Y” strategy, aiming to double the FY 2021-22 revenue within three years (by FY 2024-25), while maintaining a double-digit EBITDA margin. They emphasize a customer-centric approach, technological innovation, and operational excellence.
• Key Assumptions:
  • Continued strong Indian economic growth (capex cycle).
  • Successful expansion into international markets, particularly in the Middle East and North America.
  • Increased demand for power generation solutions due to infrastructure growth, data center expansion, and 5G rollout.
  • Ability to adapt to changing emission norms (CPCB IV+) and develop fuel-agnostic engine technologies.
  • Growing market share in high horsepower engine segments.
  • Growing demand for water management solutions, driven by the increase in the domestic and agriculture pumps segments.
• Focus on Core: Being technology first, then product company, developing and maintaining a competitive edge by leveraging progressive growth opportunities in various sectors.

Market Growth Forecasts #

• Indian Economy: The document cites Crisil’s India Outlook 2024 Report, anticipating the Indian economy to cross the $5 trillion mark and approach $7 trillion in the next seven fiscal years.
• Global economic growth: gradual growth in the US, Europe and other emerging economies. Geopolitical conflicts disrupt supply chain, but also an opportunity for KOEL.
• Power Generation (India): Increased power consumption leads to greater demand for gensets, evidenced by 15% growth in the power generation market from FY23 to FY24.
• Industrial Engines (India): Strong growth of 18% YOY due to construction and manufacturing.
• Power Generation (Global): Advanced economies showed declining electricity consumption in 2023, but Southeast Asia (including India and China) showed strong growth. Global electricity demand is projected to grow, with the power generation market expanding by 7.4% in 2024.
• Industrial Engines (Global): Key growth markets include the Middle East, North Africa, and Asia Pacific. Global market expected to grow at a CAGR of 6.7% by 2028.
• Pump Industry (India): Fragmented market with around 900 players. Submersible pumpsets lead demand. Industrial applications drive 37% of demand, agriculture 31%, and domestic 21%.
• Farm Mechanization (India): Sector driven by favorable government policies, rising farm incomes, and private sector innovation. Mechanization rate less than China and Brazil currently, but longterm adoption is expected.
• International Business: Approximately 32% of the production at the LGM plant is exported.

Planned Strategic Initiatives #

• 2X3Y Framework: Doubling revenue from FY22 base within three years, maintaining double-digit EBITDA margins. Five strategic pillars:
  • Growth Strategy: Expand market share, especially in high-horsepower (HHP) engines; product diversification; new market opportunities (domestic and international).
  • Channel Strategy: Roadmap for product launches, channel expansion, and talent acquisition.
  • Technology Roadmap: Focus on meeting emission regulations (CPCB4+, BSV), fuel efficiency, and cost-effectiveness. Alternate fuel engines (CNG, ethanol, methanol, dual-fuel).
  • Operational Excellence: Resilient processes, efficiency optimization, cost minimization.
  • People & Talent Development: Investing in a skilled and motivated workforce.
• Long Term Strategy Fuel agnostic engines, Solar and Energy Storage Solutions, Electrification and Fuel Cells.

Capital Expenditure Plans #

• Capex is earmarked for new processes in waste heat recovery, fuel substitution, renewable energy integration, and energy-efficient processes.
• Planned investment for new water harvesting structures, water-efficient technologies, water recycling, and reuse initiatives (₹1.3 crore).
• Server upgrades for IoT-driven energy management and energy-efficient compressors.
• Nasik Facility: Additional 250 KW Solar capacity planned.

Efficiency Improvement Targets #

• Operational Excellence: Focus on optimizing efficiency and minimizing costs.
• Energy Efficiency: Achieved a Specific Energy Consumption (SEC) of 2.19 kWh/BHP at the Kagal plant.
• SMART Manufacturing: The Kagal manufacturing facility is in the process of being converted to a Smart Manufacturing facility by 2025.
• Digitalization: Digital checklists, Digital engine history cards, implementation of an Operational Technology (OT) Private 5G network, implementation of Digital Twin.
• Automation: parts washing/deburring, Auto Guided Vehicles (AGV), Automated Loading/unloading.
• Sustainability: Targets for renewable energy usage (50% at group level), carbon footprint reduction, and waste management.

Potential Challenges and Opportunities #

• Challenges:
  • Managing the transition to new emission norms (CPCB IV+) and the impact of deadline shifts.
  • Competition in various product segments.
  • Technological disruptions and the need to stay ahead of the curve.
  • Supply chain resilience in the face of global uncertainties.
  • Geopolitical risks.
  • Cybersecurity risks.
• Opportunities:
  • Transition to clean power by leveraging technology to produce cleaner engines.
  • Clean manufacturing.
  • Strategic partnerships.

Scenario Analysis and Sensitivity #

• Interest Rate Sensitivity: The company provided a sensitivity analysis for interest rate changes (+/- 50 basis points) and their effect on profit before tax.
• Foreign Currency Sensitivity: Sensitivity analysis for changes in USD and EUR exchange rates (+/- 5%) and their impact on profit and equity.
• CPCB Deadlines: The deadlines for emissions have been pushed, impacting topline growth and requiring adjustments to the production line.

Audit and Compliance Analysis of Financial Documents #

Auditor’s Opinion and Qualifications #

• Opinion: G.D. Apte & Co. issued an unmodified opinion on both standalone and consolidated financial statements, indicating a true and fair view in accordance with Indian Accounting Standards (Ind AS).
• Emphasis of Matter (Consolidated): An “Emphasis of Matter” paragraph highlights the company’s provision for investments in Alternate Investment Funds (AIFs) per RBI circulars.
• Key Audit Matters (KAMs):
  • Revenue Recognition: Due to judgements and estimations.
  • Testing of impairment of Goodwill: Due to the significance of goodwill in consolidated financials.
• Qualifications: Secretarial Audit Report mentions non-compliance of Regulation 26A of SEBI regarding the timely appointment of a new CFO.
• Adverse Remarks: The Secretarial Audit Report (Annexure D-1) notes non-compliance with Regulation 26A of SEBI (LODR) regarding the CFO vacancy.
• No Other Qualifications: Auditors report “nothing to report” in terms of significant deficiencies or material weaknesses in internal controls.

Key Accounting Policies and Changes #

• Financial statements are prepared under the historical cost convention, on an accrual basis, and in accordance with Ind AS.
• Key Policies:
  • Revenue Recognition: Recognized when control of goods/services transfers to the customer at the transaction price, using output methods.
  • Property, Plant & Equipment (PPE): Stated at cost less accumulated depreciation and impairment. Depreciation is on a straight-line basis.
  • Intangible Assets: Amortized over their estimated useful lives on a straight-line basis.
  • Impairment of Non-Financial Assets: Assessed at each balance sheet date; impairment loss recognized if recoverable amount is less than carrying amount.
  • Financial Instruments: Initially recognized at fair value; subsequently measured based on classification (amortized cost, FVOCI, FVTPL).
  • Employee Benefits: Defined contribution plans expensed as incurred; defined benefit plans actuarially valued.
  • Leases: Right-of-use assets and lease liabilities recognized, with depreciation and interest expense recorded.
  • Inventories: Valued at lower of cost or net realizable value, cost generally determined on a weighted average basis.
  • Provisions: Recognized for present obligations from past events where outflow of resources is probable and can be reliably estimated.
  • Government Grants: Recognize based on reasonable assurance to complying with the grant conditions.
  • Cash dividend: Recognized when the shareholders approve it.
• Changes: No significant changes in accounting policies during the year (Note 4).
• Material Accounting Policies: Compliance with Section 134(3)(m) of the Companies Act, 2013, regarding energy conservation, technology absorption, and foreign exchange, is significant.

Internal Control Effectiveness #

• Auditor’s Opinion: Unmodified opinion on internal financial controls over financial reporting, stating adequate and effective controls (Annexure B).
• Management’s Responsibility: Management is responsible for establishing and maintaining these controls.
• Framework: Internal Control includes Digital Feedback Torque tools and ‘No Fault Forward’ process.

Regulatory Compliance Status #

• Generally Compliant: Company generally complies with the Companies Act, 2013, SEBI Listing Regulations, and other applicable laws.
• Secretarial Audit: Non-compliance with Regulation 26A of SEBI (LODR) regarding the CFO vacancy (Annexure D-1).
• Compliance Management System: Online tool to ensure adherence to applicable laws.

Legal Proceedings and Potential Impact #

• Pending Litigations: Disclosed in Note No. 24 (standalone) and Contingent Liabilities in Note 41 (standalone), and Note 43.6.1 (consolidated).
• Materiality: Disclosure indicates potential financial implications.

Related Party Transactions #

• Disclosure: Disclosed in Note 40.5.11 (standalone) and Note 43.6.9 (consolidated).
• Arm’s Length: Transactions are stated to be on an arm’s length basis and in the ordinary course of business.
• Significant Transactions: Includes revenue recognition, expense reimbursements, investments in subsidiaries, and loans.

Subsequent Events #

• On April 19, 2024, the company allotted 41,689 equity shares of INR 2 each.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:
  • Positive Indicators:
    • Unmodified audit opinion.
    • Use of Ind AS.
    • Detailed disclosures.
    • Existence of internal control systems.
    • Use of external valuation experts.
  • Areas for Consideration:
    • Level of detail on estimates (e.g., actuarial valuations) could be expanded.
    • The extent to which the company reviews and updates the estimates used in warranty provisions.
• Regulatory Risk Assessment:
  • Key Risk: Non-compliance with Regulation 26A of SEBI (LODR) concerning the CFO position.
  • Other Risks:
    • Compliance with Environmental Regulations.
    • Changes in Tax Laws.
    • Labor Laws.
  • Mitigating Factors:
    • Comprehensive compliance management system.
    • Commitment to robust internal controls.
    • Board’s and Audit Committee’s oversight.