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Notes to Accounts of Kirloskar Oil Engines Ltd.

Mar 31, 2023

1 Corporate information

Kirloskar Oil Engines Limited (''the Company'') is a public limited Company domiciled in India and is incorporated under the provisions of the Companies Act, 1956. The registered office of the Company is located at Laxmanrao Kirloskar Road, Khadki, Pune, Maharashtra- 411003. The equity shares of the Company are listed on two recognised stock exchanges in India i.e. Bombay Stock Exchange Limited and National Stock Exchange of India Limited.

The Company is engaged in the business of manufacturing of engines, generating sets, pump sets and power tillers and spares thereof. The Company has manufacturing facilities in the state of Maharashtra.

2 Basis of preparation of financial statements

The Company''s financial statements have been prepared in accordance with the provisions of the Companies Act, 2013 and the Indian Accounting Standards (''Ind AS'') as issued under the Companies (Indian Accounting Standards) Rules, 2015 and amendments thereof issued by the Ministry of Corporate Affairs in exercise of the powers conferred by section 133 read with rule 7 of the Companies (Accounts) Rules, 2014. In addition, the guidance notes/announcements issued by the Institute of Chartered Accountants of India (ICAI) and the guidelines issued by the Securities and Exchange Board of India are also applied.

The financial statements have been prepared on accrual basis following historical cost convention, except for,

(i) certain financial assets and financial liabilities that are measured at fair value or amortised cost in accordance with Ind AS.

(ii) defined benefit plans - plan assets measured at fair value.

(iii) Equity settled share based payments

Amounts in the financial statements are presented in Indian Rupees in crore rounded off to two decimal places as permitted by Schedule III to the Companies Act, 2013 unless otherwise stated.

The financial statements were approved by the Board of Directors and authorized for issue on 19 May 2023.

3 Significant accounting judgements, estimates and assumptions

The preparation of the Company''s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The Company continually evaluates these estimates and assumptions based on the most recently available information. The management believes that the estimates used in preparation of the financial statements are prudent and reasonable.

3.1 Judgements

I n the process of applying the Company''s accounting policies, the management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

1. Employee benefits obligations

a. Gratuity

The Company provides gratuity for employees as per the Gratuity Act, 1972 and Company''s Internal Gratuity Scheme. Employees who are in continuous service for a period of five years are eligible for gratuity. The amount of gratuity is payable on retirement or termination whichever is earlier. The level of benefits provided depends on the member''s length of service and salary at retirement age. The gratuity plan is funded plan.

b. Pension and other retirement benefits

The Company provides certain post-employment medical scheme and long term award benefits to employees (unfunded). For long-term award scheme, the Company has defined certain eligibility criteria and grade-wise benefit available to employees and is payable only at time of separation. Pension and medical benefits are payable to specified category of employees for 15 years after retirement.

c. Compensated absences

The leave obligation cover the Company''s liability for earned leaves. Also refer Note 41.5.9 for detailed disclosure.

2. Others

a. Warranty is provided to customers at the time of sale of products. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

Provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of reporting period. It is expected that majority of these costs will be incurred in the next financial year and balance will be incurred in following years. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest future claims could differ from historical amounts.

b. The Company has preferred an Appeal bearing No. 125 of 2016 before the Chief Controlling Revenue Authority (CCRA) against the Stamp Duty Adjudication Order dated 2 May 2016 bearing ADJ/188/2015 passed by Collector of Stamps, Enforcement - II, Mumbai levying a total stamp duty amount of Rs. 14.94 Crores on the Company for amalgamation of KBIL with the Company. For securing a Stay Order against the said Stamp duty Adjudication being ADJ/188/2015 dated 2 May 2016, the Company has deposited 50% of the stamp duty amount of Rs. 7.47 Crores on protest on 30 June 2016. Considering the payment of 50% of stamp duty amount, through its Order dated 22 September 2016, CCRA has passed an Order granting stay on the effect and operation of said Stamp Duty Adjudication Order bearing ADJ/188/2015 dated 2 May 2016. Company''s Appeal bearing No. 125 of 2016 is still pending and listing for final hearing is awaited. Accordingly, provision for stamp duty of Rs. 14.94 Crores has been made.

c. Provision for liquidated damages pertains to provision arising due to delay in actual delivery of goods/services as against the contractual delivery date.

d. Provision for onerous contracts pertains to the provision for the unavoidable costs of meeting the obligations under the contract which exceeds the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

Commitments are future liabilities for contractual expenditure, classified and disclosed as estimated amount of contracts remaining to be extracted on capital account and not provided for.

4.17 Revenue recognition

Revenue from operations

a Sale of goods & services:

The Company recognises revenue, when or as control over distinct goods or services is transferred to the customer; i.e. when the customer is able to direct the use of the transferred goods or rendering of services and obtains substantially all of the remaining benefits, provided a contract with enforceable rights and obligations exists and amongst others collectability of consideration is probable taking into account our customer''s creditworthiness.

Revenue is the transaction price the Company expects to be entitled to. Variable consideration is included in the transaction price if it is highly probable that a significant reversal of revenue will not occur once associated uncertainties are resolved.

The variable consideration is constrained to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when any uncertainty is subsequently resolved. The amount of variable consideration is calculated by either using the expected value or the most likely amount depending on which it is expected to better predict the amount of variable consideration.

Consideration is adjusted for the time value of money if the period between the transfer of goods or services and the receipt of payment exceeds twelve months and there is a significant financing benefit either to the customer or the Company.

Performance obligations are identified based on individual terms of contract. If a contract contains more than one distinct good or service, the transaction price is allocated to each performance obligation based on relative stand-alone selling prices. The Company reasonably estimates the stand-alone selling prices if such prices are not observable. For each performance obligations identified as above, the revenue is recognised either at a point in time or over time. When the Company''s efforts or inputs are expended evenly throughout the performance period revenue is recognised on straight-line basis over time.

The incremental cost to obtain a contract are recognised as an asset if the Company expects to recover those cost over the period of contract.

Company recognises the incremental costs of obtaining a contract as an expense, when incurred, if the amortisation period of the asset that the entity otherwise would have recognised is one year or less.

In case of bill and hold arrangements, revenue is recognized when the company completes its performance obligation to transfer the control of the goods to the customer in accordance with the agreed upon specifications in the contract for which the customer has accepted the control. Such goods are identified and kept ready for delivery based on which revenue is recognized.

The company completes its performance obligation to transfer the control of the goods to the customer in accordance with the agreed -upon specifications in the contract for which customer accepts the same and confirms to the Company basis which criteria for bill and hold is met.

The company has identified the goods as belonging to the customer and stored them separately in the factory premises until goods are cleared from the factory premises.

The goods are ready for physical transfer to the customer from the factory premises of the Company.

The Company cannot use the goods for any other purpose or to direct it to another customer.

b Contract balances Contract assets

The incremental cost to obtain a contract are recognised as an asset if the Company expects to recover those cost over the period of contract. Company recognises the incremental costs of obtaining a contract as an expense, when incurred, if the amortisation period of the asset that the entity otherwise would have recognised is one year or less. Impairment loss (termed as provision for foreseeable losses in the financial statements) is recognised in Statement of Profit and Loss to the extent the carrying amount of the contract asset exceeds the remaining amount of consideration that the Company expects to receive towards remaining performance obligations (after deducting the costs that relate directly to fulfill such remaining performance obligations).

Trade receivables

The amounts billed on customer for work performed and are unconditionally due for payment i.e. only passage of time is required before payment falls due, are disclosed in the Balance Sheet as trade receivables.

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. Contract liabilities are recognised when the Company performs under the contract.

Other income

a. Interest income from financial assets

Interest income from financial assets is recognised using effective interest rate method.

b. Dividend income

Dividend income is recognised when the Company''s right to receive the amount has been established.

c. Others

Other items of income are accounted as and when the right to receive such income arises and it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.

C In case of bill and hold arrangements, revenue is recognized when the Group completes its performance obligation to transfer the control of the goods to the customer in accordance with the agreed upon specifications in the contract for which the customer has accepted the control. Such goods are identified and kept ready for delivery based on which revenue is recognized.

4.19 Exceptional items

An item of income or expense which by its size, type or incidence requires disclosure in order to improve an understanding of the performance of the Company is treated as an exceptional item.

4.20Government grants

Grants and subsidies from the government are recognised if the following conditions are satisfied,

- There is reasonable assurance that the Company will comply with the conditions attached to it.

- Such benefits are earned and reasonable certainty exists of the collection.

a. Export incentives

Export incentives under various schemes notified by government are accounted for in the year of exports as grant related to income and is recognised as Other operating income in the Statement of Profit and Loss if the entitlements can be estimated with reasonable accuracy and conditions precedent to claim are fulfilled.

b. Industrial promotion subsidy

Government grants received with reference to Industrial promotion subsidy under Packaged Scheme of Incentives, 2001 is treated as grant related income and is recognised as other operating income in the Statement of Profit and Loss as per the appropriate recognition criteria.

c. Export promotion capital goods

Government grants received with reference to export promotion capital goods scheme are initially recognised as deferred revenue and grant in proportion of export obligation achieved during the year is reduced from deferred revenue and recognised as Other operating income in the Statement of Profit and Loss.

4.21 Cash dividend

The Company recognises a liability to make cash distributions to the equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the provisions of the Companies Act, 2013, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity.

Non-cash distributions, if any, are measured at the fair value of the assets to be distributed with fair value remeasurement recognised directly in equity.

Upon distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount of the assets distributed is recognised in the Statement of Profit and Loss.

4.22 Earnings per share

Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares.

4.23 Cash Flow Statement

Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of a non cash nature and any deferral or accruals of past or future cash receipts or payments. The cash flows from regular operating, investing and financing activities of the Company are segregated.

c Information about performance obligation

i The Company is mainly in the business of manufacturing and trading of engines, gensets and related spares. The Company also provides after sales services such as annual maintenance contract, extended warranty etc.

ii The Company generally recognises revenue in case of goods, when the performance obligation is satisfied at a point in time when the control is transferred i.e. either on shipment or upon delivery as per the terms of contracts in domestic and in case of export on the date of bill of lading.

In case of services, where performance obligation is satisfied at a point in time, revenue is generally recognised upon completion of services and on obtaining work completion certificates from the customers. In contracts under which performance obligation satisfied over a period of time, Revenue is generally recognised either according to stage of

completion or on straight line basis depending upon the type of services provided. The stage of completion is determined based on the contractual terms.

When the Company''s efforts or inputs are expended evenly throughout the performance period revenue is recognised on straight-line basis.

The payment is due from the date of invoice and payment terms are generally in the range of 0 days to 90 days depending on product/market segment and market channel excluding some exceptions.

iii The Company provides to its customers warranties in the forms of repairs or replacement warranty under its standard terms and recognises it as warranty provision as per Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets"

d Unsatisfied performance obligations as at the end of reporting period:

As on 31 March 2023, the Company has unsatisfied performance obligation of H 80.09 Crores (31 March 2022 : H 82.95 Crores). The Company expects that H 52.04 Crores will be recognised as revenue in financial year 2023-24 and remaining in subsequent years based on contractual terms.

e Asset recognised for cost incurred to obtain a contract and cost incurred to fulfil Contract

The Company has recognised an asset as on 31 March 2023 of H 5.57 Crores ( 31 March 2022 : H 3.65 Crores ) from cost incurred to obtain and fulfill a contract. Asset is included in Note 15 Other current asset : Prepaid expenses.

5.9 Disclosure pursuant to Employee benefits

A. Defined contribution plans:

The Company has contributed H 12.14 Crores (''31 March 2022: H 11.04 Crores) towards defined contribution plans i.e. Contribution to provident and other funds (refer Note 35 "Employee benefit expense")

B. Defined benefit plans:

The Company has following post employment benefits which are in the nature of defined benefit plans:

(a) Gratuity

(b) Pension, Post retirement medical scheme and Long-term award scheme

Risk Exposure

Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below:

a. Discount rate risk: Variations in the discount rate used to compute the present value of the liabilities may see small,but in practise can have a significant impact on the defined benefit liabilities.

b. Future salary escalation and inflation risk: Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management''s discretion may lead to uncertainities in estimating this increasing risk.

c. Asset risks: Plan assets are maintained in a trust fund partly managed by a public sector insurer viz; LIC of India and partly managed by private sector insurers.

LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years. The company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets. The company has no control over the management of funds but this option provides a high level of safety for the total corpus. Also interest rate and inflation risk are taken care of.

With other private insurers, the company has opted for Mutual Funds which is market linked with options to invest in equity funds. The company has the option to structure the portfolio based on its risk appetite providing an opportunity to earn market linked returns. But there is an investment risk here which is borne by the company.

A single account is maintained for both investment and claim settlement and hence 100% liquidity is ensured.

d. Asset-Liability mismatch risk: Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the company is successfully able to neutralize valuation swings caused by interest rate movements.

e. Unfunded Plan Risk - This represents unmanaged risk and a growing liability. There is an inherent risk here that the company may default on paying the benefits in adverse circumstances. Funding the plan removes volatility from the balance sheet and better manages defined benefit risk through increased returns.

Transactions with related parties are inclusive of indirect taxes, wherever applicable.

The above figures do not include provision for leave encashment and gratuity, as actuarial valuation of such provision for the Key Management Personnel is included in the total provision for Leave encashment and gratuity.

Terms and conditions of transactions with related parties

Transactions entered into with related party are made in ordinary course of business and on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash and cash equivalents. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2023, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2022: H Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

Commitments with related parties

The Company has provided capital commitment of Rs Nil to the related parties as at 31 March 2023 (31 March 2022: H 0.12 crores)

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to Key Management Personnel.

The above figures do not include provision for leave encashment and gratuity, as actuarial valuation of such provision for the Key Managerial Personnel is included in the total provision for Leave encashment and gratuity.

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to Key Management Personnel.

b Significant unobservable inputs used in level 3 fair value measurements and sensitivity of the fair value measurement to changes in unobservable inputs:

i Description of significant unobservable inputs used for financial instruments (Level 3) :

Investment in Equity shares of Kirloskar Management Sevices Private Limited (KMSPL) was valued using the Discounted Cash Flow (Risk adjusted discount rate) valuation method.

ii Relationship of unobservable inputs to level 3 fair values :

Equity investments - Unquoted

5.13 Fair value disclosures for financial assets and financial liabilities

The management believes that the fair values of non-current financial assets (e.g., Investments at FVTPL, loans and others), current financial assets ( e.g., cash and cash equivalents, trade and other receivables, loans), non-current financial liabilities and current financial liabilities (e.g., Trade payables and other payables and others) approximate their carrying amounts.

The Company has performed a fair valuation of its material investment in unquoted ordinary shares other than subsidiary, which are classified as FVOCI (refer Note 3). For non-material investments, the Company believes that impact of change, if any , on account of fair value is insignificant.

Fair value of unquoted investment in Mutual fund is determined by reference to Net Asset Value (‘NAV'') available from respective Assets Management Companies (‘AMC'').

A 50 bps increase/decrease in the Perpetuity growth rate used while keeping all other variables constant, the carrying value of the shares would increase by H Nil (31 March 2022 : H 0.20 Crores ) or decrease by H 0.05 Crores (31 March 2022 : H 0.20 Crores ) and a 50 bps increase/decrease in discounting factor used while keeping all other variables constant, the carrying value of the shares would decrease by H 0.10 Crores (31 March 2022 : H 0.24 Crores) or increase by H 0.05 Crores (31 March 2022 : H 0.24 Crores).

5.15 Financial instruments risk management objectives and policies

The Company''s principal financial liabilities, other than derivatives, comprise borrowings, trade and other payables and other financial liabilities. The main purpose of these financial liabilities is to finance and support the Company''s operations. The Company''s principal financial assets include Investments, loans, trade and other receivables, cash and short-term deposits and other financial assets that have been derived directly from its operations. The Company also enters into derivative transactions.

The company is exposed to market risk, credit risk and liquidity risk. The Company''s senior management oversees the management of these risks. The Audit Committee and Board review financial risks and the appropriate risk governance framework for the Company''s financial risks are identified, measured and managed in accordance with the Company''s policies and risk objectives. It is the Company''s policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below

a Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include borrowings, deposits, Investments, trade and other receivables, trade and other payables and derivative financial instruments.

The sensitivity analysis in the following sections relate to the position as at 31 March 2023 and 31 March 2022

The analysis exclude the impact of movements in market variables on: the carrying values of gratuity, pension and other postretirement obligations and provisions.

The following assumption has been made in calculating the sensitivity analysis:

The sensitivity of the relevant Statement of Profit and Loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2023 and 31 March 2022 including the effect of hedge accounting.

Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the on-going purchase and manufacture of engines and therefore require a continuous supply of copper and steel. However, Company being the indirect user of these commodities, volatility in price of such commodity does not have direct or immediate impact on the profitability of the Company. Hence, the Company does not foresee any direct or immediate risk with respect to such commodity price fluctuation.

Other Price Risk

The Company''s portfolio of investments mainly consists of debt mutual fund with short term maturity. Hence management believes that this portfolio is not significantly susceptible to market risk.

b. Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.

Trade receivables

Receivables are reviewed, managed and controlled for each class of customers separately. Credit exposure risk is mainly influenced by class /type of customers, depending upon their characteristics. Credit risk is managed through credit approval process by establishing credit limits along with continuous monitoring of credit worthiness of customers to whom credit terms are granted. Wherever required, credit risk of receivables is further covered through letter of credit, bank guarantee, business deposits and such other forms of credit assurance schemes. An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are combined into homogenous category and assessed for impairment collectively. The calculation is based on actual incurred historical data. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are spread over vast spectrum.

The Company consistently recognizes provision for any significantly delayed receivables, for accounting of expected credit losses. Provision for doubtful debts and advances for the year ended 31 March 2023 includes a provision of H 28.09 Crores in respect of receivables against sales of Gensets to a customer made during the FY 2021-22. While the company is in active discussions with the customer for the payment, the aforesaid provision has been recognised as per the consistent policy of the company for accounting of expected credit losses.

Financial instruments and cash deposits

Credit risk from balances with banks and financial institutions is managed by the Company''s treasury department in accordance with the Company''s policy. Investments of surplus funds are made as per the approved investment policy. Investment limits are set to minimise the concentration of risks and therefore mitigate financial loss if any.

c Liquidity risk

The Company monitors its risk of a shortage of funds using a liquidity planning tool.

The Company''s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans. The Company has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over with existing lenders.

Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company''s performance to developments affecting a particular industry.

I n order to avoid excessive concentrations of risk, the Company''s policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.

5.16 Capital management

For the purpose of the Company''s capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company''s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2023 and 31 March 2022

5.19 Employee stock option plans (ESOP)

Company provides share based employee benefits to the employees of the Company and its subsidiaries. The relevant details of the schemes and the grant are as below :

Description of share-based payment arrangements

As at 31 March 2023, the Company has the following share based payment arrangements -

KOEL ESOP 2019 - Share option plans (equity settled)

According to the Scheme, the employee selected by the Nomination and Remuneration Committee from time to time will be entitled to options, subject to satisfaction of the prescribed vesting conditions. The Option may be exercised within a specified period.

The Employees Stock Option Plan 2019 - (KOEL ESOP 2019) was approved by the shareholders of the Company in AGM conducted on 9 August 2019 for issue of maximum 14,00,000 options representing 14,00,000 Equity shares of H 2 each. Pursuant to the said approvals and authority delegated by the Board and Shareholders of the Company, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 5 March 2021 had approved the grant of 9,40,000 employee stock options ("Options") to eligible employees of the Company. Each option shall carry the right to be issued one fully paid up equity share of H2/- each.

The Members of the Company at the Annual General Meeting of Kirloskar Oil Engines Limited held on 12 August 2021, passed a resolution amending the Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 in terms of coverage of the KOEL ESOP 2019 to the eligible employees of its subsidiary company, in or out of India except such subsidiary company(ies) which are formed and engaged in financial service business.

During the previous year, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 27 October 2021 had approved the grant of 50,000 employee stock options to the eligible employees of Subsidiary viz. La-Gajjar Machineries Private Limited in terms of ''Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 - Amended ("KOEL ESOP 2019") and the special resolutions passed by the Members of the Company at the Annual General Meeting held on 9 August 2019 and 12 August 2021.Each option shall carry the right to be issued one fully paid up equity share of H2/- each.

During the year, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 18th May 2022 has approved the grant of 275,000 employee stock options to the eligible employees of the Company in terms of ''Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 ("KOEL ESOP 2019") and the special resolutions passed by the Members of the Company at the Annual General Meeting held on 9th August 2019 and 12th August 2021.

5.20 Research and Development ("R&D") expenditure eligible for deduction under section 35(2AB) of Income Tax Act, 1961

The Company has adopted the tax ordinance under section 115BAA during financial year 2019-20. Since provisions of section 115BAA of the Income Tax Act, 1961 are applicable, the company is not entitled to avail weighted deduction u/s 35(2AB) of the Income Tax Act, 1961, for financial year 2022-23. Thus the Company will not avail weighted deduction benefit on in-house R&D expenditure for financial year 2022-23 . However, the Company will continue to maintain a separate set of books for in-house R & D activities.

5.21 During the year 2022-23, the Board of Directors of the Company had given consent to grant unsecured loan to La-Gajjar Machineries Private Limited (LGM) (a wholly owned subsidiary) of upto H 25 Crores for a period not exceeding 3 years from the date when agreement has been executed at a interest rate of 8.725% p.a. and repayable on mutually agreed upon terms. Accordingly, the total amount of H 21.85 Crores loan was disbursed to LGM at interest rate of 8.725% p.a. During the year 2022-23, the Board of Directors of the Company had given consent to grant unsecured loan to Optiqua Pipes and Electricals Private Limited (OPEPL) (a step down subsidiary) of upto H 8 Crores for a period not exceeding 5 years from the date when agreement has been executed at a interest rate of 10.25% p.a.and repayable on mutually agreed upon terms. Accordingly, the total amount of H 8 Crores loan was disbursed to OPEPL at interest rate of 10.25% p.a.

Subsidiary Company a Kirloskar Americas Corporation

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans.

b La-Gajjar Machineries Private Limited (including its subsidiary i.e OPEPL and joint venture of OPEPL i.e ESVA)

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested except to the extent disclosed in the Note No. 4 and Note No. 12 of the Financial Statements.

There are no loans and advances in the nature of loans except to the extent disclosed in the Note No. 4 and Note No. 12 of the Financial Statements.

c Arka Financial Holdings Private Limited (including its subsidiary AFL and AIASPL )

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans.

46 Disclosures for investments and transactions through/ as an intermediary:

(a) No funds have been advanced or loaned or invested either from borrowed funds or share premium or any other sources or kind of funds by the Company to or in any other persons or entities, including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries except investments of H 179.60 crores (31 March 2022 : H 837 crores) in equity share capital of Arka Financial Holdings Private Limited (AFHPL - a wholly owned subsidiary of the Company) for further investment by AFHPL mainly in equity share capital of its subsidiaries and/or in units of its sponsored credit fund.

(b) No funds have been received by the Company from any persons or entities, including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

48 Previous year’s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2022

Capital and other commitments 5.3 Capital commitment

H in Crores

Particulars

As at

As at

31 March 2022

31 March 2021

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances)

42.17

27.05

5.1 Contingent Liabilities

H in Crores

Particulars

As at 31 March 2022

As at 31 March 2021

a. Contingent Liabilities

i Central Excise Demands

20.16

16.41

ii Sales Tax & Octroi Demands

5.53

9.03

iii Customs Duty Demands

0.00

0.86

iv Income Tax Liability

7.32

10.12

v Claims against Company not acknowledged as debts

62.01

61.31

5.4 Other Commitments

a. The Company has given letter of comfort/undertaking to one of the subsidiary''s bankers for credit facilities availed by that subsidiary. As per the terms of letter of comfort/undertaking, the Company undertakes not to divest its ownership interest directly or indirectly in the subsidiary beyond specified percentage.

b. Commitment w.r.t. Acquisitions

The Company, on 21 June 2017 executed definitive share purchase agreement for acquisition of 100% equity shares in La-Gajjar Machineries Private Limited (LGM). On 1 August 2017 the Company acquired 76% of equity shares of LGM as per the terms of share purchase agreement.

Further, the Company has entered into a shareholders agreement on 21 June 2017 to purchase remaining 24% equity shares. The Company has a call option to acquire and simultaneously, shareholders of LGM have put option to sell the remaining 24% equity shares, to be exercised within the holding period of 5 years at a price based on mutually agreed upon formula. However, if the options are not exercised in the given option period, the Company has to purchase remaining equity shares within 60 days from the end of the option period by applying same formula agreed for at the time of exercising options.

b. The Company has imported capital goods under the Export Promotion Capital Goods Scheme of the Government of India, at concessional rates of duty on an undertaking to fulfill quantified exports . Non fulfillment of export obligations, if any, entails options/ rights to the Government to confiscate capital goods imported under the said licenses and other penalties under the above-referred scheme. Minimum Export obligation to be fulfilled by the Company is achieved by the Company under the said scheme in financial year 2019-20. However as the cancellation of letter of undertaking is still under process the same is disclosed as contingent liability.

5.2 Other Contingent Liabilities

H in Crores

Particulars

As at

As at

31 March 2022

31 March 2021

Aggregate amount of such letters of credit outstanding (Charge of hypothecation referred to in Note 24 for working capital facilities extends to letter of credit issued by the Company’s bankers)

0.53

9.15

Aggregate liquidated damages on unexecuted orders

0.66

1.00

c. Information about performance obligation

i The Company is mainly in the business of manufacturing and trading of engines, gensets and related spares. The Company also provides after sales services such as annual maintenance contract, extended warranty etc.

ii The Company generally recognises revenue in case of goods, when the performance obligation is satisfied at a point in time when the control is transferred i.e. either on shipment or upon delivery as per the terms of contracts in domestic and in case of export on the date of bill of lading.

In case of services, where performance obligation is satisfied at a point in time, revenue is generally recognised upon completion of services and on obtaining work completion certificates from the customers. In contracts under which performance obligation satisfied over a period of time, Revenue is generally recognised either according to stage of completion or on straight line basis depending upon the type of services provided. The stage of completion is determined based on the contractual terms.

When the Company’s efforts or inputs are expended evenly throughout the performance period revenue is recognised on straightline basis.

The payment is due from the date of invoice and payment terms are generally in the range of 0 days to 90 days depending on product/market segment and market channel excluding some exceptions.

iii The Company provides to its customers warranties in the forms of repairs or replacement warranty under its standard terms and recognises it as warranty provision as per Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets

d. Unsatisfied performance obligations as at the end of reporting period:

As on 31 March 2022, the Company has unsatisfied performance obligation of H 82.95 Crores (31 March 2021 : H 106.37 Crores). The Company expects that H 51.53 Crores will be recognised as revenue in financial year 2022-23 and remaining in subsequent years based on contractual terms.

e. Asset recognised for cost incurred to obtain a contract and cost incurred to fulfil Contract

The Company has recognised an asset as on 31 March 2022 of H 3.65 Crores (31 March 2021 : H 1.02 Crores) from cost incurred to obtain & fulfil a contract. Asset is included in Note 15 Other current asset : Prepaid expenses.

Risk Exposure

Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below:

a. Discount rate risk: Variations in the discount rate used to compute the present value of the liabilities may see small, but in practise can have a significant impact on the defined benefit liabilities.

b. Future salary escalation and inflation risk: Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management''s discretion may lead to uncertainities in estimating this increasing risk.

c. Asset risks: Plan assets are maintained in a self-managed trust fund mainly managed by investments in leading Mutual Fund companies,special deposits and a small part of fund is managed by a public sector insurer viz; LIC of India.

LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years. The company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets. The company has no control over the management of funds but this option provides a high level of safety for the total corpus. Also interest rate and inflation risk are taken care of.

The company has opted for Mutual Funds which is market linked with options to invest in equity funds. The company has the option to structure the portfolio based on its risk appetite providing an opportunity to earn market linked returns. But there is an investment risk here which is borne by the company.

A single account is maintained for both investment and claim settlement and hence 100% liquidity is ensured.

d. Asset-Liability mismatch risk: Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the company is successfully able to neutralize valuation swings caused by interest rate movements.

e. Unfunded Plan Risk - This represents unmanaged risk and a growing liability. There is an inherent risk here that the company may default on paying the benefits in adverse circumstances. Funding the plan removes volatility from the balance sheet and better manages defined benefit risk through increased returns.

Funding policy:

There is no compulsion on the part of the Company to fully prefund the liability of the Gratuity Plan. The Company’s philosophy is to fund these benefits based on its own liquidity and the level of underfunding of the plan.

5.10 The Company’s operating business predominantly relates to manufacture of internal combustion engines, gensets and parts thereof and hence the Company has considered “Engines” as the single reportable segment. As per Ind AS 108 “Operating Segments”, the company is required to disclose required segment details in Consolidated Financial Statement. Hence, these details are disclosed under Consolidated Financial Statement.

Transactions with related parties are inclusive of indirect taxes, wherever applicable.

The above figures do not include provision for leave encashment and gratuity, as actuarial valuation of such provision for the Key Management Personnel is included in the total provision for Leave encashment and gratuity.

Terms and conditions of transactions with related parties

Transactions entered into with related party are made in ordinary course of business and on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash and cash equivalents. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2022, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2021: H Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

Commitments with related parties

The Company has provided capital commitment of H 0.12 crores to the related party as at 31 March 2022 (31 March 2021: H Nil)

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to Key Management Personnel.

The above figures do not include provision for leave encashment and gratuity, as actuarial valuation of such provision for the Key Managerial Personnel is included in the total provision for Leave encashment and gratuity.

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to Key Management Personnel.

b. Significant unobservable inputs used in level 3 fair value measurements and sensitivity of the fair value measurement to changes in unobservable inputs:

i Description of significant unobservable inputs used for financial instruments (Level 3) :

Investment in Equity shares of Kirloskar Management Sevices Private Limited (KMSPL) was valued using the Discounted Cash Flow (Risk adjusted discount rate) valuation method.

ii Relationship of unobservable inputs to level 3 fair values :

Equity investments - Unquoted

A 50 bps increase/decrease in the Perpetuity growth rate used while keeping all other variables constant, the carrying value of the shares would increase by H 0.20 Crores (31 March 2021 : H 0.03 Crores ) or decrease by H 0.20 Crores (31 March 2021 : H 0.01 Crores) and a 50 bps increase/decrease in discounting factor used while keeping all other variables constant, the carrying value of the shares would decrease by H 0.24 Crores (31 March 2021 : H 0.02 Crores) or increase by H 0.24 Crores (31 March 2021 : H 0.03 Crores).

5.15 Financial instruments risk management objectives and policies

5.13 Fair value disclosures for financial assets and financial liabilities

The management believes that the fair values of non-current financial assets (e.g., investments at FVTPL, loans and others), current financial assets (e.g., cash and cash equivalents, trade and other receivables, loans), non-current financial liabilities and current financial liabilities (e.g., trade payables and other payables and others) approximate their carrying amounts.

The Company has performed a fair valuation of its material investment in unquoted ordinary shares other than subsidiary, which are classified as FVOCI (refer Note 3). For non-material investments, the Company believes that impact of change, if any, on account of fair value is insignificant.

Fair value of unquoted investment in Mutual fund is determined by reference to Net Asset Value (''NAV'') available from respective Assets Management Companies (''AMC'').

The Company’s principal financial liabilities, other than derivatives, comprise borrowings, trade and other payables and other financial liabilities. The main purpose of these financial liabilities is to finance and support the Company’s operations. The Company’s principal financial assets include investments, loans, trade and other receivables, cash and short-term deposits and other financial assets that have been derived directly from its operations. The Company also enters into derivative transactions.

The company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Audit Committee and Board review financial risks and the appropriate risk governance framework for the Company’s financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. It is the Company’s policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below

a. Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include borrowings, deposits, Investments, trade and other receivables, trade and other payables and derivative financial instruments.

The sensitivity analysis in the following sections relate to the position as at 31 March 2022 and 31 March 2021.

The analysis exclude the impact of movements in market variables on: the carrying values of gratuity, pension and other postretirement obligations and provisions.

The following assumption has been made in calculating the sensitivity analysis:

The sensitivity of the relevant Statement of Profit and Loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2022 and 31 March 2021 including the effect of hedge accounting.

Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the on-going purchase and manufacture of engines and therefore require a continuous supply of copper and steel. However, Company being the indirect user of these commodities, volatility in price of such commodity does not have direct or immediate impact on the profitability of the Company. Hence, the Company does not foresee any direct or immediate risk with respect to such commodity price fluctuation.

Other Price Risk

The Company’s portfolio of investments mainly consists of debt mutual fund with short term maturity. Hence management believes that this portfolio is not significantly susceptible to market risk.

b. Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.

Trade receivables

Receivables are reviewed, managed and controlled for each class of customers separately. Credit exposure risk is mainly influenced by class /type of customers, depending upon their characteristics. Credit risk is managed through credit approval process by establishing credit limits along with continuous monitoring of credit worthiness of customers to whom credit terms are granted. Wherever required, credit risk of receivables is further covered through letter of credit, bank guarantee, business deposits and such other forms of credit assurance schemes.

An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are combined into homogenous category and assessed for impairment collectively. The calculation is based on actual incurred historical data. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are spread over vast spectrum.

Financial instruments and cash deposits

Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made as per the approved investment policy. Investment limits are set to minimise the concentration of risks and therefore mitigate financial loss if any.

c. Liquidity risk

The Company monitors its risk of a shortage of funds using a liquidity planning tool.

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans. The Company has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over with existing lenders.

Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company''s performance to developments affecting a particular industry.

In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.

The Ministry of Corporate affairs (MCA) through the notification issued on 24 July 2020 amended Ind AS 116, “Leases”, which provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification. The amendments allowed the expedient to be applied to COVID-19-related rent concessions to payments originally due on or before 30 June 2021 and also require disclosure of the amount recognised in profit or loss to reflect changes in lease payments that arise from COVID-19 related rent concessions. Accordingly, the Company recognised H 0.02 Crores as a reversal of lease liability in the Statement of Profit and Loss statement under the head "Other income” for the year ended 31 March 2021.

b. Lessor accounting

The Company is a lessor in the operating lease . The subject of these transactions is primarily aircraft leasing and, to a small extent plant and machinery. There is definitive binding agreement between lessor and lessee defining rights and obligation with respect to underlying assets which in substance mitigates the company''s risk.

5.16 Capital management

For the purpose of the Company’s capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2022 and 31 March 2021

b No transaction have taken place during the year related to CSR expenditure with the trust/society/section 8 company which is controlled by related party of the company as defined in Ind AS 24 "Related Party Disclosure”.

c The Company has undertaken CSR activities relating to Promoting Education, Rural Development, Livelihood enhancement and Preventive health care and sanitation.

5.19 Employee stock option plans (ESOP)

Company provides share based employee benefits to the employees of the Company and its subsidiaries. The relevant details of the schemes and the grant are as below :

Description of share-based payment arrangements

As at 31 March 2022, the Company has the following share based payment arrangements -KOEL ESOP 2019 - Share option plans (equity settled)

According to the Scheme, the employee selected by the Nomination and Remuneration Committee from time to time will be entitled to options, subject to satisfaction of the prescribed vesting conditions. The Option may be exercised within a specified period.

The Employees Stock Option Plan 2019 - (KOEL ESOP 2019) was approved by the shareholders of the Company in Annual General Meeting conducted on 9 August 2019 for issue of maximum 14,00,000 options representing 14,00,000 Equity shares of H 2 each. Pursuant to the said approvals and authority delegated by the Board and Shareholders of the Company, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 5 March 2021 had approved the grant of 9,40,000 employee stock options ("Options") to eligible employees of the Company. Each option shall carry the right to be issued one fully paid up equity share of H 2/- each.

The Members of the Company at the Annual General Meeting of Kirloskar Oil Engines Limited held on 12 August 2021, passed a resolution amending the Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 in terms of coverage of the KOEL ESOP 2019 to the eligible employees of its subsidiary company, in or out of India except such subsidiary company(ies) which are formed and engaged in financial service business.

Further during the year, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 27 October 2021 has approved the grant of 50,000 employee stock options to the eligible employees of Subsidiary viz. La-Gajjar Machineries Private Limited in terms of ''Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 - Amended ("KOEL ESOP 2019") and the special resolutions passed by the Members of the Company at the Annual General Meetings held on 9 August 2019 and 12 August 2021. Each option shall carry the right to be issued one fully paid up equity share of H 2/- each.

5.20 Research and Development ("R&D") expenditure eligible for deduction under section 35(2AB) of Income Tax Act, 1961

The Company has adopted a new tax ordinance under section 115BAA during financial year 2019-20. Since provisions of section 115BAA of the Income Tax Act, 1961 are applicable , the company is not entitled to avail weighted deduction u/s 35(2AB) of the Income Tax Act, 1961, for Financial Year 2021-2022.

Thus the Company will not avail weighted deduction benefit on in-house R&D expenditure for financial year 2021-2022 . However, the Company will continue to maintain a separate set of books for in-house R & D activities.

5.21 During the previous year 2020-2021, the Board of Directors of the Company had given consent to grant unsecured short term loan to Arka Fincap Limited (AFL - a wholly owned subsidiary company) of upto H 25 Crores for a period not exceeding 90 days for each occassion upto 31 March 2021 at interest rate based on 200 basis above Repo rate prevailing at the time of drawdown of the demand loan. Accordingly, the total amount of H 40 Crores loan granted to AFL (including 2 occasions) at Interest Rate based on 200 basis above Repo rate prevailing at the time of drawdown, which was repaid as on 31 March 2021.

44 Disclosure required as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, including amendments thereunder is as follows:

Subsidiary Company

a. Kirloskar Americas Corporation

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans.

b. La-Gajjar Machineries Private Limited (including its subsidiary i.e OPEPL and joint venture of OPEPL i.e ESVA)

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans.

c. Arka Financial Holdings Private Limited (including its subsidiary AFL w.e.f. 4 March 2022 and AIASPL w.e.f. 30 March 2022)

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans.

d. Arka Fincap Limited (upto 3 March 2022)

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans.

or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries except investments of H 837 crores in equity share capital of Arka Financial Holdings Private Limited (AFHPL - a wholly owned subsidiary of the Company) and investment by AFHPL in equity share capital of H 833.96 crores in Arka Fincap Limited (AFL - a step down subsidiary of the Company), subsequent to purchase of all equity shares of AFL from the Company by AFHPL at consideration of H 753.96 crores (refer note 39).

(b) No funds have been received by the Company from any persons or entities, including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

46 Disclosures for investments and transactions through/ as an intermediary:

(a) No funds have been advanced or loaned or invested either from borrowed funds or share premium or any other sources or kind of funds by the Company to or in any other persons or entities, including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons

48 Previous year’s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2018

1. STANDARDS ISSUED BUT NOT YET EFFECTIVE

The Ministry of Corporate Affairs (MCA) notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 on 28 March 2018. The Rules shall be effective from reporting period beginning on or after 1 April 2018 and cannot be early adopted.

a. Ind AS 115 - Revenue from contracts with customers

Ind AS 115, Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity''s contracts with customers. Revenue is

recognised when a customer obtains control of a promised goods or services and thus has the ability to direct the use and obtain the benefits from the goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard replaces Ind AS 18 Revenue and Ind AS 11 Construction contracts and related appendices.

A new five-step process must be applied before revenue can be recognised:

(i) Identify contracts with customers.

(ii) Identify the separate performance obligation.

(iii) Determine the transaction price of the contract.

(iv) Allocate the transaction price to each of the separate performance obligations, and

(v) Recognise the revenue as each performance obligation is satisfied.

The new standard is mandatory for financial years commencing on or after 1 April 2018 and early application is not permitted. The standard permits either a full retrospective or a modified retrospective approach for the adoption.

There are consequential amendments to other Ind AS due to notification of Ind AS 115. The Company is in the process of evaluating the impact on the financial statements in terms of the amount and timing of revenue recognition under the new standard.

b. Ind AS 21 - The Effects of changes in foreign exchange rates

The MCA has notified Appendix B to Ind AS 21, Foreign currency transactions and advance consideration. The appendix clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts.

For a single payment or receipt, the date of the transaction should be the date on which the entity initially recognises the non-monetary asset or liability arising from the advance consideration (the prepayment or deferred income/contract liability). If there are multiple payments or receipts for one item, date of transaction should be determined as above for each payment or receipt.

The appendix can be applied:

(i) Retrospectively for each period presented applying Ind AS 8;

(ii) Prospectively to items in scope of the appendix that are initially recognized

- On or after the beginning of the reporting period in which the appendix is first applied (i.e. 1 April 2018); or

- From the beginning of a prior reporting period presented as comparative information (i.e. 1 April 2017).

The Company is in the process of evaluating the impact on the financial statements in terms of the amount and timing of revenue recognition under the new standard.

c. Ind AS 40 - Investment property

The amendments clarify that transfers to, or from, investment property can only be made if there has been a change in use that is supported by evidence. A change in use occurs when the property meets, or ceases to meet, the definition of investment property. A change in intention alone is not sufficient to support a transfer. The list of evidence for a change of use in the standard was re-characterized as a non-exhaustive list of examples and scope of these examples have been expanded to include assets under construction / development and not only transfer of completed properties.

The amendment provides two transition options. Entities can choose to apply the amendment:

(i) Retrospectively without the use of hindsight; or

(ii) Prospectively to changes in use that occur on or after the date of initial application (i.e. 1 April 2018). At that date, an entity shall reassess the classification of properties held at that date and, if applicable, reclassify properties to reflect the conditions that exist as at that date.

There is no impact of this amendment to the Company.

d. Ind AS 12 - Income taxes

The amendments clarify the accounting for deferred taxes where an asset is measured at fair value and that fair value is below the asset''s tax base. They also clarify certain other aspects of accounting for deferred tax assets set out below:

A temporary difference exists whenever the carrying amount of an asset is less than its tax base at the end of the reporting period.

The estimate of future taxable profit may include the recovery of some of an entity''s assets for more than its carrying amount if it is probable that the entity will achieve this. For example, when a fixed-rate debt instrument is measured at fair value, however, the entity expects to hold and collect the contractual cash flows and it is probable that the asset will be recovered for more than its carrying amount.

Where the tax law restricts the source of taxable profits against which particular types of deferred tax assets can be recovered, the recoverability of the deferred tax assets can only be assessed in combination with other deferred tax assets of the same type.

Tax deductions resulting from the reversal of deferred tax assets are excluded from the estimated future taxable profit that is used to evaluate the recoverability of those assets. This is to avoid double counting the deductible temporary differences in such assessment.

An entity shall apply the amendments to Ind AS 12 retrospectively in accordance with Ind AS 8. However, on initial application of the amendment, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity.

There is company is in process of evaluation the impact on financial statements.

e. Ind AS 28 - Investment in Associates and Ind AS 112 - Disclosure of Interest in other entities Amendment clarifies that:

(i) Disclosure requirements of Ind AS 112 are applicable to interest in other entities classified as held for sale except for summarized financial information.

(ii) The option available with venture organizations, mutual funds, unit trusts and similar entities to measure their investments in associate or joint ventures at fair value through profit or loss (FVTPL) is available for each investment in an associate or joint venture.

There is no impact of this amendment to the Company.

2. Disclosure required as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is as follows:

Subsidiary Company 1. KOEL Americas Corp.

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no loans and advances in the nature of loans to Subsidiary companies.

There are no Investments in the firms/companies in which Directors are interested except as disclosed in Note 4(i) and (iii).

3. La-Gajjar Machineries Private Limited

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no loans and advances in the nature of loans to Subsidiary companies.

There are no Investments in the firms/companies in which Directors are interested except as disclosed in Note 4(i) and (iii).

4. Previous year’s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2017

1. Aggregate number of bonus shares issued, share issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

The Board of Directors in its meeting held on 25 January 2012, had approved a buyback of fully paid up equity shares of the Company by way of open market purchase through stock exchange route at a maximum price of Rs, 170/- per share and the cumulative buyback value not exceeding Rs, 73.625 Crs. which represents 10% of total paid up capital and free reserves computed as per the latest available audited balance sheet as on 31 March 2011. The buyback commenced on 5 March 2012.

As per the terms of the Public Announcement dated 16 February 2012, the corrigendum to the said Public Announcement dated 1 March 2012 and the Post Offer Public Advertisement dated 24 January 2013 issued in relation to the completion of buyback, the buyback was closed on 24 January 2013.

The Company has bought back and extinguished 10,15,424 equity shares of Rs, 2/-each for R s, 15.67 Crs, at an average price of Rs, 154.34 under the Buyback Scheme, up to 24 January 2013.

2 Scheme of Arrangement and amalgamation

Hon''ble High Court of Judicature at Bombay vide its order dated 30 April 2015 had approved the Composite Scheme of Arrangement and Amalgamation (The Composite Scheme) between Kirloskar Brothers Investments Limited (''KBIL''-Transferor Company), Pneumatic Holdings Limited (PHL- Resulting Company) and Kirloskar Oil Engines Limited (''KOEL'' - Transferee Company) and their respective shareholders and creditors under Sections 391 to 394 and other relevant Sections of the Companies Act, 1956, and the relevant Sections of the Companies Act, 2013, to the extent applicable. The said Scheme has been effective from 30June 2015.

Pursuant to the said Composite Scheme, 8,03,88,514 equity shares held by KBIL in the Company were cancelled on account of Cross holdings and same number of equity shares were allotted to the shareholders of KBIL on 14 July 2015. In view of the same there is no change in the paid-up capital of the Company pre and post the Composite Scheme.

1. Capital redemption reserve is created out of General reserve being nominal value of shares bought back in terms of erstwhile section 77Aof the Companies Act, 1956 for equity shares buy back in the year 2012-13.

2. General reserve is created by setting aside amount from the Retained Earnings of the Company for general purposes which is freely available for distribution.

Proposed dividend on equity shares are subject to approval of the shareholders of the Company at the annual general meeting and are not recognized as a liability (including taxes thereon) as at 31 March.

3. The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

4. During the year ended 31 March 2016 and 31 March 2015, the Company has paid dividend to its shareholders. This has resulted in payment of dividend distribution tax (DDT) to the taxation authorities. The Company believes that dividend distribution tax represents additional payment to taxation authority on behalf of the shareholders. Hence dividend distribution tax paid is charged to equity.

5. There is no change in the applicable tax rate of 34.608 % compared to the previous year (31 March 2016: 34.608%)

6. The unused tax losses were incurred by the company on sale on Long term units of Mutual Fund in which company is not likely to generate taxable income in the foreseeable future. The losses can be carried forward as per the provisions of Income Tax Act.

1. Borrowings are measured at amortized cost.

2. Company''s fund and non-fund based working capital facilities aggregating to Rs, 410 Crs. are secured to the extent of Rs, 410 Crs. by way of hypothecation (First Charge) on the whole of the current assets of the Company both present and future in favour of the consortium of banks (SBI Consortium) comprising of State Bank of India, Pune (Lead Bank), Bank of Maharashtra, ICICI Bank Limited, HDFC Bank Limited, and The Hongkong and Shanghai Banking Corporation Limited (HSBC).

3. For explanations on the company''s Interest risk, foreign currency risk and liquidity risk management processes, refer to Note 40.6.16

1. Trade and other payables are measured at amortized cost.

2. For terms and conditions with related parties, refer to Note 40.6.12

3. For explanations on the Company''s Foreign currency risk and liquidity risk management processes, refer to Note 40.6.16

1. Employee benefits obligations

a. Gratuity

The Company provides gratuity for employees as per the Gratuity Act, 1972. Employees who are in continuous service for a period of five years are eligible for gratuity. The amount of gratuity is payable on retirement or termination whichever is earlier. The level of benefits provided depends on the member''s length of service and salary at retirement age. The gratuity plan is funded plan.

b. Pension, post retirement medical benefit and long term award benefits

The Company provides certain post-employment medical scheme and long term award benefits to employees (unfunded). For long-term award scheme, the Company has defined certain eligibility criteria and grade-wise benefit available to employees and is payable only at time of separation. Pension and medical benefits are payable to employees for 15 years after retirement.

c. Compensated absences

The lease obligation cover the Company''s liability for earned leaves.

Also refer Note 40.6.10 for detailed disclosure.

3. Others

a. Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 yearto4years.

Provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of reporting period. It is expected that majority of these costs will be incurred in the next financial year and balance will be incurred in following years. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest future claims could differ from historical amounts.

b. The Company has preferred an Appeal bearing No.125 of 2016 before the Chief Controlling Revenue Authority (CCRA) against the Stamp Duty Adjudication Order dated 2 May 2016 bearing ADJ/188/2015 passed by Collector of Stamps, Enforcement - II, Mumbai levying a total stamp duty amount of Rs, 14.94 Crs. on Company for amalgamation of KBIL with Company. For securing a Stay Order against the said Stamp duty Adjudication being ADJ/188/2015 dated 2 May 2016, the Company has deposited 50% of the stamp duty amount of Rs, 7.47 Crs. on protest on 30 June 2016. Considering the payment of 50% of stamp duty amount, through its Order dated 22 September 2016, CCRA has passed an Order granting stay on the effect and operation of said Stamp Duty Adjudication Order bearing ADJ/188/2015 dated 2 May 2016. Company''s Appeal bearing No. 125 of 2016 is still pending and listing for final hearing is awaited. Accordingly, provision for Stamp duty of Rs, 14.94 Crs. has been made. Refer Note 38 Exceptional Items.

1. Government grant income accrued for the year relates to the Industrial Promotion Subsidy under the Packaged Scheme of Incentives, 2001.

2. Sale of products includes excise duty collected from customers of Rs, 204.73 Crs. (Previous year Rs, 180.98 Crs.). Sale of products net of excise duty is 12,556.95 Crs. (Previous year Rs, 2,356.76 Crs.).

3. Export incentives includes incentive under EPCG scheme amounting to Rs, Nil (Previous year Rs, 0.52 Crs.)

1. During the year ended 31 March 2016, the Company had introduced Voluntary Retirement Scheme (VRS)for certain category of its workers. The total VRS compensation, amounting to Rs, 10.54 Crs. has been charged to the Statement of Profit and Loss and the same is shown as an Exceptional Item of expense.

2. Refer Note 27 Short Term Provisions

NOTE4: INCOME TAX

The note below details the major components of income tax expenses for the year ended 31 March 2017 and 31 March 2016. The note further describes the significant estimates made in relation to company''s income tax position and also explains how the income tax expense is impacted by non-assessable and non-deductible items.

5. Standards issued but not yet effective

The company has applied all the relevant Indian Accounting Standards which have been notified and effective under the Rules. In 31 March 2017, the Ministry of Company Affairs issued the Companies ( Indian Accounting Standards) (Amendments) Rules 2017, notifying amendments to lndAS7,''Statementof cash flows'' and Ind AS 102, ''Share-based payment. These amendments are in accordance with the recent amendments made by International Accounting Standards Board (lASB)to IAS 7,''Statement of cashflows'' and IFRS 2,Shared-based payments, respectively. Amendment related Statement of cash flows is applicable from 1 April 2017. Amendment to Share-based payments is not applicable to company.

Amendment to Ind AS 7:

The amendment to Ind AS 7 requires the entities to provide disclosure that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.

The Company is evaluating the requirements of the amendment and the effect on the financial statements is being evaluated

6. Salient features of the financial statements of subsidiary for the year ended 31 March 2017

7. Disclosure required as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is as follows:

Subsidiary Company

KOEL Americas Corp.

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no loans and advances in the nature of loans to Subsidiary companies.

There are no Investments in the firms/companies in which Directors are interested except as disclosed in Note 4(i) and (iii).

8. Previous year''s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2014

1. Additional Notes to the Financial Statements

1.1 In FY 2012-13, after approval of Reserve Bank of India, Company had pre-paid entire outstanding ECB loan balance of JPY1,890.15 Million i.e. Rs.112.14 Crs on 4th March 2013. Resulting from re- payment of all ECBS, the Company has decided to dissolve the Security Trustee arrangements and sought no objection on 4 April 2013, from The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC), the Security Trustee, for release of the charge secured by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune, Nasik, Kagal and Rajkot forRs.750 Crs. The Company has filed Form 17 with Registrar of Companies, Pune for satisfaction of aforesaid charge on 3 May 2013. The Company has received certificate of satisfaction of charge from Registrar of Companies, Pune, on 3 May 2013.

2. Contingent Liabilities in Crs

As at As at

31 Mar 2014 31 Mar 2013

2.1(A) Contingent Liabilities not provided for

a. Disputed Central Excise Demands 4.58 3.32

b. Disputed Sales Tax &Octroi Demands 6.21 6.21

c. Disputed Customs Duty Demands 0.86 1.08

d. Disputed Income Tax Liability - matter under appeal 10.42 22.70

e. Claims against Company not acknowledged as debts 83.68 82.86

f. Bills discounted not matured 37.84 -

143.59 116.17

3. (B) The Company has imported Capital Goods under the Export Promotion Capital Goods Scheme of the Government of India, at concessional rates of duty on an undertaking to fulfill quantified exports against which, remaining future obligations aggregates USD 36.19 million (previous year USD 66.46 million). Non fulfillment of the balance of such future obligations, if any, entails options / rights to the Government to confiscate capital goods imported under the said licenses and other penalties under the above-referred scheme. Minimum Export obligation to be fulfilled by the company under the said scheme, by March 31, 2014 - has been fulfilled.

4. Prior period expenses for the year (net of income) is Rs. 0.58Crs. (PY Rs. 0.30Crs.)

5. The Sales for the current year includes an amount of Rs. 211.62Crs. (PY Rs. 62.15 Crs) on account of deemed exports of goods.

6. The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended vide G.S.R. 378(E) dated 11 May 2011, G.S.R. 913(E) dated 29 December 2011, & clarification provided vide circular 25 / 2012 dated 9 August 2012, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company had long term foreign currency loans during the previous year, which were categorized as long-term foreign currency monetary items as mentioned in the notification. The aforesaid loans were utilized for the acquisition of assets. Accordingly company had capitalised exchange difference loss of Rs.NIL (P.Y. loss Rs. 3.41Crs.) for the current financial year in respect of its foreign currency loans.

7. Disclosure pursuant to Accounting Standard (AS15) – Revised 2005 "Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

(A) Defined Contribution Plans:

Amount of Rs. 9.32 Crs. (P.Y. Rs. 8.39Crs.) is recognised as expenses and included in Note No. 26 "Employee Cost"

vi. Experience Adjustments on plan assets (Loss) / Gain Rs. (0.11) Crs. (P.Y. Rs. 0.52 Crs.)

vii. General Description of the plans :

The Company operates gratuity plan wherein every employee is entitled to the benefit as per scheme of the company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

8. The Company had in the previous year identified two separate reportable segments namely "Engines" and "Other". The "Other" comprised of Bearings business and revenue related to non- engine activity. In view of the disposal of Bearings business and with due consideration given to the criteria for reportable business segments as per AS 17 ("Segmental Reporting"), the requirement of Segmental disclosure is not applicable.

9. Related parties, as defined under Clause 3 of Accounting Standard (AS 18) "Related Party Disclosures" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, have been identified on the basis of representation made by the Key Management Persons and taken on record by the Board. Disclosures of transactions with Related Parties are as under:

(A) Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

(B) Expected Timing of resulting Outflow

Majority of warranty claims will be incurred in the next financial year and balance will be incurred in the following years.

10. Disclosure required as per clause 32 of the Listing Agreement is as follows: Holding Company

Kirloskar Brothers Investments Limited

There are no loans and advances in the nature of loans to firms / companies in which Directors are interested.

There are no Investment in the firms / companies in which Directors are interested.

11. Previous year''s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2013

1 Terms/Rights attached to the equity shares

The Company has only one class of equity shares having par value of Rs. 2/- each. Each equity shareholder is entitled to one vote per share and has a right to receive dividend as recommended by Board of Directors subject to the necessary approval from the shareholders.

The Board of Directors has recommended a dividend of 250% (Rs. 5/- per share) for the financial year.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

2 Aggregate number of bonus shares issued, share issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

Hon''ble High Court of Judicature at Bombay vide its order dated 31 July 2009 read with its order dated 19 March 2010 had approved the Scheme of Arrangement between Kirloskar Oil Engines Limited (now known as Kirloskar Industries Limited - Demerged Company) and Kirloskar Engines India Limited [now known as Kirloskar Oil Engines Limited - Resulting Company ("Company")] and their respective shareholders and creditors. The appointed date was 1 April 2009 and the Scheme has become effective from 31 March 2010. The Engines and Auto Components business of Demerged Company was transferred and vested with the Company i.e. Kirloskar Oil Engines Limited on the Scheme of Arrangement becoming effective retrospectively with effect from 1 April 2009.

14,56,29,750 Equity Shares of Rs. 2 each were issued and allotted on April 30, 2010 (out of which 465 equity shares of Rs. 2/- each were kept in abeyance) for consideration other than cash under the said Scheme becoming effective from 31 March 2010, sanctioned by the Hon''ble High Court of the Judicature of Bombay.

3 Buyback of shares

The Board of Directors in its meeting held on 25 January 2012, had approved a buy back of fully paid up equity shares of the Company by way of open market purchase through stock exchange route at a maximum price of Rs. 170/- per share and the cumulative buyback value not exceeding Rs. 73.625 Crs which represents 10% of total paid up capital and free reserves computed as per the latest available audited balance sheet as on 31 March 2011. The buyback commenced on 5 March 2012.

As per the terms of the Public Announcement dated 16 February 2012, the Corrigendum to the said Public Announcement dated 1 March 2012 and the Post Offer Public Advertisement dated 24 January 2013 issued in relation to the completion of buyback, the buyback was closed on 24 January 2013.

The Company has bought back and extinguished 10,15,424 equity shares of Rs. 2/- each for Rs. 15.67 Crs, at an average price of Rs. 154.34 under the Buyback Scheme, upto 24 January 2013.

Subsidy for setting up new industrial unit

The Company''s manufacturing facility at Kagal has been granted "Mega Project Status" by Government of Maharashtra and hence is eligible for Industrial Promotion Subsidy (IPS) under Packaged Scheme of Incentive (PSI) 2001. This scheme is for intensifying and accelerating the process of dispersal of industries to the less developed regions and promoting high tech industries in the less developed areas of the State coupled with the object of generating employment opportunities. The Company has been granted Eligibility Certificate issued by the Directorate of Industries, Government of Maharashtra, which stipulates that the eligible unit needs to invest Rs. 500.00 Crs in prescribed area for availing the "Mega Project Status" and the maximum fixed capital investment be restricted to Rs. 598.57 Crs. Additionally, the Eligible Investment should be incurred within a period from 13 April 2006 to 31 March 2013. As at 31 March 2013, the company has complied with the conditions stipulated for being considered "Mega Project Status". IPS consists of following entitlement available for a period of 9 years from the date of commencement of commercial production, i.e., from 1 April 2008 to 31 March 2017:

IPS equivalent to 100% of "Eligible Investments"; or Amount of MVAT and CST payable to the State Government (before adjustment of Set-off) on sales made from Kagal plant, less the amount of benefits availed by way of electricity duty exemption and stamp duty exemption whichever is lower.

In terms of the Accounting Standard (AS 12) "Accounting for Government Grants" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, eligible incentive is considered to be in the nature of promoters'' contribution. Therefore, incentive of Rs. 22.74 Crs for the year (P.Y. Rs. 19.14 Crs) has been credited to the Capital Reserve. Subsidy Receivable as at 31 March 2013 is Rs. 37.36 Crs (P.Y. Rs. 43.42 Crs)

Buyback ofShares

Pursuant to the approval of the Board of Directors in its meeting held on 25 January 2012, the Company had bought back and extinguished 10,15,424 equity shares of Rs. 2/- each by way of open market purchases through stock exchange route for Rs. 15.67 Crs, at an average price of Rs. 154.34 under the Buyback Scheme, upto 24 January 2013.

Capital Redemption Reserve created out of General Reserve for Rs. 0.20 Crs, being the nominal value of shares bought back in terms of Section 77A of The Companies Act, 1956 is included in the amount utilized for equity shares buyback

Nature of Security and Terms of Repayment

1. The Company had availed Foreign Currency Term Loan i.e. External Commercial Borrowings ("ECB") of JPY 3,420.15 Million (equivalent to USD 30.00 Million) i.e. Rs. 124.48 Crs from BNP PARIBAS, Singapore at the rate of interest equal to six months'' JPY London Inter-bank Offer Rate i.e. "LIBOR" plus a Margin of 0.585% p.a. [balance outstanding as on 31 March 2013: Rs. NIL]. [P.Y. Rs. 117.30 Crs]

As per the original repayment schedule, this loan was to be repaid in five six-monthly installments starting from 2 March 2012. On 31 January 2013, the Company received approval from Reserve Bank of India, for pre-payment of entire outstanding balance of JPY 1,890.15 Million of the said ECB. Accordingly, on 4 March 2013, the Company has paid the entire outstanding balance of JPY 1,890.15 Million i.e. Rs. 112.14 Crs.

2. The Company had availed ECB of JPY 2,336.32 Million i.e. Rs. 79.70 Crs from ICICI Bank Limited, Hongkong at a rate of interest equal to six months'' JPY LIBOR plus a Margin of 0.84% p.a. [balance outstanding as on 31 March 2013: Rs. NIL].[P.Y. Rs. 18.12 Crs]

As per the repayment schedule, this loan was to be repaid in eight six-monthly equal installments starting from 31 October 2008. Accordingly, final installment of JPY 292.04 Million i.e. Rs. 19.01 Crs was paid on 27 April 2012.

3. The Company had availed ECB of JPY 405.28 Million i.e. Rs. 13.30 Crs from ICICI Bank Limited, Hongkong at a rate of interest equal to six months'' JPY LIBOR plus a Margin of 0.84% p.a. [balance outstanding as on 31 March 2013: Rs. NIL]. [P.Y Rs. 25.15 Crs].

As per the original repayment schedule, this loan was to be repaid in a single tranche on 20 June 2012. Based on approval received from ICICI Bank ("Authorised Dealer"), the loan was prepaid in a single tranche of JPY 405.28 Million i.e., Rs. 26.39 Crs on 27 April 2012.

ECB, to the extent repayable within one year from the balance sheet date, are grouped under ''Other current liabilities'' (Refer note 9)

ECBs were secured by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune, Nasik, Kagal and Rajkot, in favour of The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC), the Security Trustee for Rs. 750.00 Crs.

Resulting from re-payment of all ECBs, the Company decided to dissolve the Security Trustee arrangement and sought no objection from the Security Trustee for release of the aforesaid charge of Rs. 750.00 Crs. On 4 April 2013 the Company has received No Objection Certificate from the Security Trustee and is in the process of completing the formalities related to the registration for the satisfaction of charge with Registrar of Companies.

Company''s fund and non-fund based working capital facilities aggregating to Rs. 310.00 Crs. are secured to the extent of Rs. 310.00 Crs. by way of hypothecation (First Charge) on the whole of the current assets of the Company both present and future and to the extent of Rs. 60.00 Crs. by way of second charge on the whole of the movable fixed assets of the Company together with all its movable plant and machinery, machineryspares, tools, accessories and other movables both present and future, in favour of the consortium of banks (SBI Consortium) comprising of State Bank of India, Pune (Lead Bank), Bank of Maharashtra, ICICI Bank Limited, HDFC Bank Limited, and The Hongkong and Shanghai Banking Corporation Limited (HSBC).

4.1 Contingent Liabilities

Rs. in Crs. As at As at 31 March 2013 31 March 2012

4.1 (A) Contingent Liabilities not provided for

(a) Disputed Central Excise demands 3.32 1.04

(b) Disputed Sales Tax & Octroi demands 6.21 6.09

(c) Disputed Customs Duty demands 1.08 1.08

(d) Disputed Income-Tax Liability - matter under appeal 22.70 13.06

(e) Claims against Company not acknowledged as debts 82.86 82.18

(f) Guarantees given on behalf of third parties - 14.38

116.17 117.83

4.2 Prior period expenses for the year (net of income) is Rs. 0.30 Crs. (PY Rs. 0.01 Crs.)

4.3 The Sales for the current year includes an amount of Rs. 62.15 Crs. on account of deemed export of goods.

4.4 The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended vide G.S.R. 378(E) dated 11 May 2011, G.S.R. 913(E) dated 29 December 2011, & clarification provided vide circular 25/2012 dated 9 August 2012, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The Effects of Changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company had outstanding long term foreign currency loans during the year, which were categorized as long-term foreign currency monetary items as mentioned in the notification. The aforesaid loans were utilized for the acquisition of assets. Accordingly company has capitalised exchange difference loss of Rs. 3.41 Crs. (P.Y. loss Rs. 13.68 Crs.) for the current financial year in respect of its foreign currency loans.

4.5 Disclosure pursuant to Accounting Standard (AS15) - Revised 2005 "Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

(A) Defined Contribution Plans:

Amount of Rs. 8.39 Crs. (P.Y. Rs. 9.27 Crs.) is recognised as expense and included in Note No. 27 "Employee Cost"

i. Experience Adjustments on plan assets ( Loss ) /Gain Rs. 0.52 Crs. (P.Y. Rs. (0.34) Crs.)

ii. General Description of the plans

The Company operates gratuity plan wherein every employee is entitled to the benefit as per scheme of the company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

4.6 Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed hereto.

(A) Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

(B) Expected Timing of resulting Outflow

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

4.7 Disclosure required as per clause 32 of the Listing Agreement is as follows:

Holding Company

Kirloskar Brothers Investments Limited

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no Investments in the firms/companies in which Directors are interested.

4.8 Previous year''s figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2012

Rs in Crs.

As at As at 31-Mar-12 31-Mar-11

1 (A) Contingent Liabilities not provided for

(a) Disputed Central Excise demands 1.04 0.98

(b) Disputed Sales Tax & Octroi Demands 6.09 7.09

(c) Disputed Customs Duty demands 1.08 1.08

(d) Disputed Income-Tax Liability - matter under appeal 13.06 17.22

(e) Claims against Company not acknowledged as debts 82.18 79.06

(f) Guarantees given on behalf of third parties 14.38 48.89

117.82 154.32

2. The company, as per Ministry of Corporate Affairs notification dated 31 March 2009 as amended vide G.S.R. 378(E) dated 11 May 2011, had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company has outstanding long term foreign currency loans which are categorized as long-term foreign currency monetary items utilized for the acquisitions of assets as referred in the said notification. Accordingly company has capitalised exchange difference loss of Rs 13.68 Crs. [P.Y. loss Rs 14.27 Crs.] is pertaining to the current financial year in respect of its foreign currency loans.

vii. Experience Adjustments on plan assets ( Loss ) /Gain Rs 0.34 Crs. (P.Y. Rs (0.62) Crs.)

viii. General Description of the plans

The Company operates gratuity plan wherein every employee entitled to the benefit as per scheme of the company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

3. Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed to the schedule.

* Chairman & Managing Director up to close of working hours of 25 January 2012 and appointed as the Executive Chairman with effect from 26 January 2012

** Joint Managing Director upto close of working hours of 25 January 2012 and appointed as the Executive Vice Chairman with effect from 26 January 2012 *** Whole Time Director upto close of working hours of 21 January 2012 and continues as Non Executive Director **** Managing Director with effect from 26 January 2012

i. Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

ii. Expected Timing of resulting Outflow

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

4. Pursuant to the approval of shareholders, obtained through postal ballot results of which were announced on 31 March 2011 and consent of the lenders, the Company has completed the hive off of Bearings Business Division (BBD) on 30 September 2011.

The information regarding comparison of sales, profitability and assets of the BBD against corresponding figures of the Company in respect of the year ended 31 March 2012 is given in the table below. Considering the insignificant scale of operations of the BBD compared to the Company's total operations, the hive off of the BBD does not have a material impact on the Company's financials. Hence, the management of the Company is of the view that the disclosure requirements under Accounting Standard (AS-24) relating to Discontinuing Operations will not apply.

5. Disclosure required as per clause 32 of the Listing Agreement is as follows:

A. Holding Company

Kirloskar Brothers Investments Limited.

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no Investments in the firms/companies in which Directors are interested.

6. Previous year's figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2011

Rs. In 000s As at As at 31 March 31 March 2011 2010

4 (A) Contingent Liabilities not provided for

(a) Disputed Central Excise demands 9,832 13,166

(b) Disputed Sales Tax & Octroi demands 70,906 65,897

(c) Disputed Custom Duty demands 10,799 10,799

(d) Disputed Income Tax liability - matter under appeal 172,247 143,321

(e) Claims against the Company not acknowledged as debts 790,583 743,595

(f) Guarantees given on behalf of third parties 488,875 152

1,543,242 976,930



4 (B) The Company has imported Capital Goods under the Export Promotion Capital Goods Scheme of the Government of India, at concessional rates of duty on an undertaking to fulfill quantified exports against which, remaining future obligations aggregates USD 110.09 million (Previous year USD 97.40 million). Non fulfillment of the balance of such obligations, if any, entails options/rights to the Government to confiscate capital goods imported under the said licenses and other penalties under the above-referred scheme. Minimum Export obligation to be fulfilled by the company under the said scheme, by March 31 2011, has been fulfilled.

7. Security

A. Term Loans

1. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 1,417.46 Million (USD 12 Million) i.e. INR 526 Million availed from HSBC Bank plc, London [balance outstanding as on 31 March 2011: Rs. 190,729,012/-] [P.Y.Rs. 341,219,141/-]. This loan is to be repaid in eight six- monthly equal installment starting from 02 June 2008. Accordingly two installments of JPY 177.17 Million each i.e. Rs. 81,909,146/- were repaid on 01 June 2010 and Rs.87,077,897/- on 01 December 2010 respectively.

2. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 3,420.15 Million (USD 30 Million) i.e. INR 1245 Million availed from BNP PARIBAS, Singapore [balance outstanding as on 31 March 2011: Rs. 1,609,470,072/-] [P.Y.Rs. 1,496,792,974/-]. This loan is to be repaid in five six- monthly installments starting from 02 March 2012. However, JPY 430 Million i.e. Rs. 240,026,000 /- was prepaid on 03 September 2010.

3. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of c 2,336.32 Million i.e. INR 797 Million availed from ICICI Bank Limited, Hongkong [balance outstanding as on 31 March 2011: Rs. 471,577,988/-] [P.Y.Rs. 637,054,965/-]. This loan is to be repaid in eight six-monthly equal installments starting from 31 October 2008. Accordingly two installments of JPY 292.04 Million each i.e. Rs. 139,799,548/- were repaid on 30 April 2010 and Rs. 159,074,188/- on 30 October 2010 respectively.

4. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 405.28 Million i.e. INR 133 Million availed from ICICI Bank Limited, Hongkong [balance outstanding as on 31 March 2011: Rs. 218,144,919] [P.Y.Rs. 183,077,382/-]. This is to be repaid in a single tranche on 20 June 2012.

The above ECBs are secured by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune (except Auto Components Division), Nasik, Kagal and Rajkot. The Security Trustee Agreement entered into between Kirloskar Oil Engines Limited (now known as Kirloskar Industries Limited) and The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC) on 30 April 2008 has been suitably vested pursuant to the Scheme of Arrangement and resultantly the security created as above in favour of HSBC, the Security Trustee upto Rs. 7,500,000,000/- has been reorganized as created by the Company. The Company has received certificate of registration of charge from Registrar of Companies, Pune on 13 July 2010.

B. Working Capital

In respect of the working capital facilities sanctioned by the consortium of banks (SBI Consortium) comprising of State Bank of India, Mumbai (Lead Bank), Bank of Maharashtra, Pune, ICICI Bank Limited, Pune, HDFC Bank Limited, Pune and The Hongkong and Shanghai Banking Corporation Limited, Pune, have been transferred to the Company pursuant to the said Scheme. The Company has received certificate of registration of charge from Registrar of Companies, Pune on 13 July 2010.

Further the said consortium banks have reduced the working capital facilities from Rs. 350 Crores to Rs. 310 Crores on 25 March 2011. Accordingly, the first charge by way of hypothecation on the whole of the current assets of the Company (other than its Bearing Division) both present and future was reduced from Rs. 350 Crores to Rs. 310 Crores and also the second charge on the whole of the movable fixed assets of the Company (other than its Bearing Division) both present and future was reduced from Rs. 100 Crores to Rs. 60 Crores in favour of SBI Consortium as security for fund based working capital facilities. The Company has filed Form 8 for modification of charge with Registrar of Companies, Pune, on 19 April 2011.

13. Details of licensed and installed capacity, production, stock and turnover :

a Licenced capacity is given on the basis of IEM ( Industrial Entrepreneurs Memorandum) received by the company till FY 2010-11.

b Most of the plant and machinery being common for different products manufactured by the company and installed capacity being dependent on product mix, which in turn is decided by the actual demand for various products from time to time and also on availing of subcontracting facilities, it is not feasible for the Company to indicate the exact installed capacity. The Company has, however,indicated the installed capacity on the basis of years Product mix as certified by the Technical Personnel and accepted by Auditors, as correct, being technical matter.

c Includes 3,756 MT for internal consumption. (Previous year - 3,530 MT)

d Unit Closed.

e Production quantity represents number of components "meant for sale only" and includes components produced and kept on hold due to technical reason in earlier years and released after inspection which being a technical matter, is certified by technical personnel and accepted by auditors as correct.

f Includes 4,389 Nos.(000s) for internal consumption. (Previous year 4,203 Nos. (000s).

g Includes 2,325 Nos. for Internal consumption. (Previous year 2,235 Nos.).

17. The Company, as per Ministry of Corporate Affairs notification dated 31 March 2009 had exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company has outstanding long term foreign currency loans which are categorised as long-term foreign currency monetary Items utilised for the acquisitions of assets as referred in the said notification. Accordingly company has capitalised exchange difference loss of Rs.142, 653,475/- [P.Y. gain Rs. 243,517,627/-] pertaining to the current financial year in respect of its foreign currency loans.

18. Disclosure pursuant to Accounting Standard ( AS 15 ) – Revised 2005 " Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

a. Defined Contribution Plans :

Amount of Rs. 82,566,827/- (P.Y. Rs. 65,233,826/-) is recognised as expense and included in Schedule No.17 "Employee Cost".

(vii) Experience Adjustments on plan assets (Loss) / Gain Rs. (6,234,765/-), PY Rs. 49,742,481/-

(viii) General Description of the plans:

The Company operates gratuity plan wherein every employee entitled to the benefit as per scheme of the Company , for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

19. Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed to the schedule.

20. Related parties, as defined under Clause 3 of Accounting Standard (AS 18) "Related Party Disclosures" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, have been identified on the basis of representation made by the Key Management Persons and taken on record by the Board. Disclosure of transactions with Related Parties are as under:

(A) Name of the Related Party and nature of relationship where control exists :

1. Associate Companies

Kirloskar Integrated Technologies Limited

2. Companies Controlled by Key Management Personnel :

Cess Investments and Consultants Private Limited

Navsai Investments Private Limited

Kirloskar Consultants Limited

Kirloskar Chillers Private Limited

Kirloskar Integrated Technologies Limited (with effect from 06 December 2010)

Achyut and Neeta Holding and Finance Private Limited

Alpak Investments Private Limited

Green Tek Systems ( India) Limited

3. Key Management Personnel and their relatives:

Key Management Personnel Relatives Relationship

Name Designation

Atul C. Kirloskar Chairman & Managing Director Arti A. Kirloskar Wife

Gauri A. Kirloskar (Kolenaty) Daughter

Aditi A. Kirloskar Daughter

Sanjay C. Kirloskar Brother

Rahul C. Kirloskar Brother

Suman C. Kirloskar Mother

Gautam Kulkarni Joint Managing Director Jyostna G. Kulkarni Wife

Nihal G. Kulkarni Son

Ambar G. Kulkarni Son

Ashwini H. Parulkar Sister

Neeta A. Kulkarni Mother

Rahul C. Kirloskar Whole time Director Alpana R. Kirloskar Wife

Aman R. Kirloskar Son

Alika R. Kirloskar Daughter

Atul C. Kirloskar Brother

Sanjay C. Kirloskar Brother

Suman C. Kirloskar Mother

R. R. Deshpande Executive Director Veena R. Deshpande Wife

Kaustubh R. Deshpande Son

Sourabh R. Deshpande Son

D. R. Deshpande Brother

P. R. Deshpande Brother

* Kirloskar Industries Limited ceased to be a Holding Company w.e.f. 31 March 2010.

** KOEL has material inter company transactions with Kirloskar Integrated Technologies Ltd. As such transactions from 01 April 2010 to 31 March 2011 are included in associate company. These have been made at arms length basis.

Earnings per share is calculated in accordance with Accounting Standard (AS 20) "Earnings Per Share" prescribed by Companies (Accounting Standards) Amendment Rules, 2006.

24. i. Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 year to 4 years.

ii. Expected Timing of resulting Outflow:

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

25. Company has outstanding currency option contracts (hedging instruments) which are bought by the company to hedge a part of its highly probable forecast export transactions. These currency option contracts are designated as cash-flow hedges in terms of Accounting Standard (AS 30) "Financial Instruments – Recognition and Measurement" prescribed by Companies (Accounting Standards) Amendment Rules,2006. These currency option contracts are ineffective, on applying the principles of hedge accounting as set out in AS-30 and as per an expert opinion cannot be designated for hedge accounting. Consequently, the Mark to Market Losses recognized at the close of the previous year in the Hedging Reserve has been transferred to the profit & loss account during the current financial year. The Mark to Market (MTM) loss (as per the computation provided by the Forex consultant) in respect of these outstanding currency option contracts as at 31 March 2011 aggregating Rs. 114,302,441/- (P.Y. Rs. 162,355,976/-) has been reflected as an exceptional item.

26. The Board of Directors approved the hive off of the Bearing Business Division (BBD) consisting of two units located at Pune and Ahmednagar (except for land and buildings at Khadki and Ahmednagar) at its meeting held on 21 October 2010.

Pursuant to the aforesaid Board resolution, the management of KOEL held negotiations with the management of KSPG Automotive India Private Limited (KSPG India) and agreed on the terms of the Business Transfer Agreement (BTA). The Board of Directors approved the draft BTA for the slump sale of the BBD on a going concern basis for a lumpsum consideration of Rs. 87 crores payable on Completion Date, subject to obtaining approval of shareholders, lenders and other third party consents. The Company has obtained shareholder approval through postal ballot. The results of the postal ballot were announced on 31 March 2011. The Company has also obtained approval of its lenders for the hive off of the BBD. The Company expects to complete the transaction during the financial year 2011- 12, after obtaining other third party approvals and consents and complying with the requirements of the BTA.

27. The Company has from the current year changed the method of providing depreciation in respect of Electrical Installation and Aircraft from Written Down Value basis to Straight Line Method with retrospective effect. The change has been brought about to ensure that all class of assets for providing Depreciation are on Straight Line Method basis.

As a result of change in the method of computing, the charge for Depreciation is lower by Rs. 77,048,847/- and the profit for the period is higher by an equivalent amount and reserves are higher by Rs. 54,939,904/- net of deferred tax.

28. Interest includes an amount of Rs. 149,611,002/- (P.Y. Rs. Nil) which represents exchange differences adjusted as borrowing costs.

29. Disclosure required as per clause 32 of the Listing Agreement are as follows:

A. Associate Company

Kirloskar Integrated Technologies Limited

There are no loans and advances in the nature of loans to firms/companies in which Directors are interested.

There are no Investment in the firms/companies in which Directors are interested.

30. Previous years figures have been re-grouped wherever considered necessary to make them comparable with those of the current year.


Mar 31, 2010

Rs in 000s

As at 31 March 2010

1 Contingent Liabilities not provided for

(a) Disputed Central Excise demands 13,166

(b) Disputed Sales Tax & Octroi demands 65,897

(c) Disputed Custom Duty demands 10,799

(d) Disputed Income Tax liability - matter under appeal 143,321

(e) Claims against the Company not acknowledged as debts 739,689

(f) Guarantees given on behalf of third parties 152

973,024

2. Security

A. Term Loans

1. Term Loan of INR 300 Million availed from HDFC Bank Limited was prepaid 31 August 2009. It was secured by hypothecation by way of first charge of Specific movable Plant and Machinery. The Charge is satisfied during the period.

2. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 1,417.40 Million (USD 12 Million) i.e. INR 526 Million availed from HSBC Bank pic, London [balance outstanding as at 31 March 2010: Rs. 341,219,141/-]. This loan is to be repaid in eight six-monthly equal installment starting from 2 June 2008. Accordingly two installments of JPY 177.17 Million each i.e. Rs. 84,836,092/- were repaid on 2 June 2009 and Rs. 85,674,728/- on 1 December 2009 respectively.

3. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 3,420.15 Million (USD 30 Million) i.e. INR 1,245 Million availed from BNP PARIBAS, Singapore [balance outstanding as at 31 March 2010: Rs. 1,496,792,974/-]. This loan is to be repaid in five six-monthly installments starting from 2 March 2012.

4. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 2336.32 Million i.e. INR 797 Million availed from ICICI Bank Limited, Hongkong [balance outstanding as at 31 March 2010: Rs. 637,054,965/-].This loan is to be repaid in eight six-monthly equal installments starting from 31 October 2008. Accordingly two installment of JPY 292.04 Million i.e Rs. 149,227,755/- was repaid on 30 April 2009 and JPY292.04 Million i.e Rs. 150,546,620/-was repaid on 31 October 2009.

5. Foreign Currency Term Loan i.e. External Commercial Borrowings (ECB) of JPY 405.28 Million i.e. INR 133 Million availed from ICICI Bank Limited, Hongkong [balance outstanding as at 31 March 2010: Rs. 183,077,382/-]. This is to be repaid in a single tranche on 20 June 2012.

The Security Trustee Agreement entered into between Kirloskar Oil Engines Limited (now known as Kirloskar Industries Limited) and The Hongkong and Shanghai Banking Corporation Limited, Mumbai (HSBC) on 30 April 2008 has been transferred pursuant to the Scheme of Arrangement to the Company and resultantly the security by way of hypothecation (First Charge) on all movable plant and machinery both present and future, located at Khadki, Pune (except Auto Components Division), Nasik, Kagal and Rajkot in favour of HSBC Bank, the Security Trustee upto Rs. 7,500,000,000/- has been transferred to the Company.

B. Working Capital

In respect of the working capital facilities sanctioned by the consortium of banks (SBI Consortium) comprising of State Bank of India, Mumbai (Lead Bank), Bank of Maharashtra, Pune, ICICI Bank Limited, Pune, HDFC Bank Limited, Pune and The Hongkong and Shanghai Corporation Limited, Pune, the first charge by way of hypothecation on the whole of the current assets of the Company (other than its Bearing Division) both present and future for Rs. 350 Crores and also the second charge on the whole of the movable fixed assets of the Company (other than its Bearing Division) both present and future for Rs. 100 Crores in favour of SBI Consortium as security for fund based working capital facilities have also been transferred to the Company pursuant to the said Scheme.

The Company is under process of completion of formalities with respect to transfer of charges in respect of Terms Loans and Working Capital facilities with Registrar of Companies, Pune, Maharashtra.

3. The company, as per Ministry of Corporate Affairs notification dated 31 March, 2009 has exercised the option of implementing the provisions of paragraph 46 of Accounting Standard (AS 11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. The Company has outstanding long term foreign currency loans which are categorised as long-term foreign currency monetary items as referred in the said notification. Accordingly company has de-capitalised exchange difference gain of Rs 243,517,627/-pertaining to the current financial year in respect of its foreign currency loans.

Further, exchange difference so de-capitalized is amortised over the balance life of the asset and credit for the period is Rs 28,609,486/-included in depreciation.

As a result, profit for the period is lower by Rs 214,908,141/-.

4. In case of long term Investments made by the Company, diminution in the value of quoted investments, if any, are not considered to be of a permanent nature. However provision of estimated diminution in the value wherever considered necessary by the Management has been made in the Financial Statements.

5. Disclosure pursuant to Accounting Standard (AS 15) - Revised 2005 "Employee Benefits" prescribed by Companies (Accounting Standards) Amendment Rules, 2006

a. Defined Contribution Plans:

Amount of Rs 65,233,826/- is recognised as expense and included in Schedule No 17 "Employee Cost".

b. Defined Benefit Plans:

(vii) The liability for the compensated absences as defined in AS 15 (revised 2005) has been provided on actuarial basis. Para 132 of AS 15 (revised 2005) does not require any specific disclosure except where the expense resulting from compensated absences is of such size, nature of incidence that its disclosure is relevant under other accounting standard. In the opinion of the management, the expenses resulting from compensated absences is not significant and hence no disclosure is prepared under various paragraph of AS 15 (revised 2005). Unfunded liability as at 31 March 2010 is Rs 298,070,195/-.

(viii) General descriptions of Significant Defined plans:

The Company operates gratuity plan wherein every employee is entitled to the benefit as per scheme of the Company, for each completed year of service. The same is payable on retirement or termination whichever is earlier. The benefit vests only after five years of continuous service.

6. Segment information as required by Accounting Standard (AS 17) "Segment Reporting" prescribed by Companies (Accounting Standards) Amendment Rules, 2006 is set out in a separate statement annexed to the schedule.

7. Related parties, as defined under Clause 3 of Accounting Standard (AS 18) "Related Party Disclosures" prescribed by Companies (Accounting Standards) Amendment Rules, 2006, have been identified on the basis of representation made by the Key Management Persons and taken on record by the Board. Disclosure of transactions with Related Parties are as under.

(A) Name of the related party and nature of relationship where control exists:

1. Holding Company

Kirloskar Industries Limited

2. Associate Company

Kirloskar Integrated Technologies Limited

(Formerly Known as Kirloskar Kisan Equipment Limited)

3. Companies controlled by Key Management Personnel

Cess Investments & Consultants Private Limited #

Navsai Investments Private Limited #

Kirloskar Consultants Limited

Achyut & Neeta Holding & Finance Private Limited

Alpak Investments Private Limited

* Refer Note No 2

i. Nature of Obligation

Warranty is given to customers at the time of sale of engines and generating sets manufactured. Warranty cost includes expenses in connection with repairs, free replacement of parts / engines and after sales services during warranty period which varies from 1 yearto4years.

ii. Expected Timing of resulting Outflow:

Majority of warranty cost will be incurred in the next financial year and balance will be incurred in the following years.

8. Company has outstanding currency option contracts (hedging instruments) which are bought by the company to hedge a part of its highly probable forecast export transactions. These currency option contracts are designated as cash-flow hedges in terms of Accounting Standard (AS 30) "Financial Instruments - Recognition and Measurement" prescribed by Companies (Accounting Standards) Amendment Rules, 2006. These currency option contracts are effective hedges on applying the principles of hedge accounting as set out in AS-30. As detailed in Note No 2, the debit balance in Hedging Reserve is transferred and vested with the Company. Balance in this account of Rs 162,355,976/- represents mark to market (MTM) loss (as per the computation provided by the Forex consultant) in respect of these currency option contracts as at 31 March, 2010. Actual gain or loss on exercise of these currency option contracts or any part thereof is recognised in the profit & loss account. Hedge accounting will be discontinued if the hedging instrument is sold, terminated or no longer qualifies for hedge accounting.

9. Disclosure required as per clause 32 of the Listing Agreement are as follows:

A. Holding Company Kirloskar Industries Limited

B. Associate Company

Kirloskar Integrated Technologies Limited There are no loans and advances in the nature of loans to firms/companies in which Directors are interested. There are no Investment in the firms/companies in which Directors are interested.

10. The financial statements of the Company are prepared for the first time since incorporation for the extended financial year i.e. 12 January 2009 to 31 March 2010. Consequently,

i. Statement of cash flows has not been drawn up under the Indirect Method adopted by the Company.

ii. There are no previous years figures.

11. Information required in terms of Part IV of Schedule VI of the Companies Act, 1956 is attached.

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