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Notes to Accounts of Kirloskar Pneumatic Company Ltd.

Mar 31, 2022

1. Securities Premium is a premium on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.

2. General Reserve is created by setting aside amount from the Retained Earnings and is freely available for distribution.

3. FVTOCI Equity Investments - The Company has elected to recognise changes in the fair value of certain investments in equity in Other Comprehensive Income. These changes are accumulated in Equity Instruments Through Other Comprehensive Income Reserve within equity. The Company transfers amounts from this reserve to Retained Earnings when the relevant equity investments are derecognised.

4. Share Based Payment Reserve is a result of recognition of cost included in Employee Related Expenses relating to Employee Stock Option Scheme 2019 introduced by the Company. Refer Note No. 28.

i Defined Contribution Plans :

Amount of H 56.98 Million (Previous Year H 50.26 Million) is recognised as an expense and included in "Employees benefits expenseâ in Note 23 in the statement of Profit and Loss.

ii Defined Benefit Plans - Gratuity :

The Company operates gratuity plan wherein every employee is entitled to the benefit as per the scheme of the Company, for each completed year of service. The gratuity is payable on termination of service or retirement, whichever is earlier at the rate of 15 days salary for every completed year of service where service is less than 15 years and at one month salary for every completed year of service when the service of an employee exceeds 15 years subject to maximum of 24 to 28 months salary depending upon category of the employee ensuring in any case that the benefit provided is not less than stipulated by the Payment of Gratuity Act, 1972. The benefit vests only after five years of continuous service.

Kirloskar Pneumatic Company Limited

ANNUAL REPORT 2021-22

A Kirloskar Group Company

Notes to the Financial Statements

for the year ended 31^st March, 2022

NOTE 27 : EMPLOYEE BENEFITS : (Contd..)

d) The changes in the present value of defined benefit obligation representing reconciliation of opening and closing balances

thereof are as follows :

H in Million

	31^st March, 2022	31^st March, 2021 Gratuity Plan (Funded)
	Gratuity Plan (Funded)	31^st March, 2021 Gratuity Plan (Funded)
1 Present value of obligation as at the beginning of the period	247.61	232.54
2 Acquisition adjustment	-	-
3 Transfer in/ (out)	-	-
4 Interest expenses	15.08	13.71
5 Past service cost	-	-
6 Current service cost	30.63	21.10
7 Curtailment cost / (credit)	-	-
8 Settlement cost/ (credit)	-	-
9 Benefits paid	(16.36)	(15.27)
10 Remeasurements on obligation - (gain) / loss	13.11	(4.47)
Present value of obligation as at the end of the period	290.07	247.61

e) The changes in the fair value of plan assets representing reconciliation of the opening and closing balances there of are as

follows :

H in Million

	31^st March, 2022	31^st March, 2021 Gratuity Plan (Funded)
	Gratuity Plan (Funded)	31^st March, 2021 Gratuity Plan (Funded)
1 Fair value of the plan assets as at beginning of the period	239.09	200.76
2 Acquisition adjustment	-	-
3 Transfer in/(out)	-	-
4 Interest income	15.31	13.00
5 Contributions	24.44	40.26
6 Mortality Charges and Taxes	(0.40)	(0.28)
7 Benefits paid	(16.36)	(15.27)
8 Amount paid on settlement	-	-
9 Return on plan assets, excluding amount recognized in Interest Income -gain / (loss)	1.51	0.62
10 Fair value of plan assets as at the end of the period	263.59	239.09
11 Actual return on plan assets	16.82	13.62
100% of total plan assets are managed by the insurer - Life Insurance Corporation of India.

f) Net interest (income) / expenses :

H in Million

	31^st March, 2022	31^st March, 2021
	Gratuity Plan	Gratuity Plan
	(Funded)	(Funded)
1 Interest ( income) / expense - obligation	15.08	13.71
2 Interest (income) / expense - plan assets	(15.31)	(13.00)
3 Net interest (income) / expense for the year	(0.23)	0.71

Basis used to determine the overall expected return:

The net interest approach effectively assumes an expected rate of return on plan assets equal to the beginning of the year discount rate. As such expected return of 6.30% has been used for the valuation purpose.

h) General descriptions of defined benefit plans :

i) The Company expects to fund approximately J 55 Million towards its gratuity plan in the year 2022-23.

l) Average Duration :

Weighted average duration of the plan (based on discounted cash flows using mortality, withdrawal rate and interest rate) is 12.24 years ( PY 13.32 years ).

m) Risk Exposure And Asset Liability Matching :

Provision of a defined benefit scheme poses certain risks, some of which are detailed hereunder, as companies take on uncertain long term obligations to make future benefit payments.

1) Liability Risk

a) 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. Hence companies are encouraged to adopt asset-liability management.

b) Discount Rate Risk-

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

c) 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 uncertainties in estimating this increasing risk.

2) Asset Risk

All plan assets are maintained in a trust fund 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. A single account is maintained for both the investment and claim settlement and hence 100% liquidity is ensured and inflation risk are taken care of.

iii Defined Benefit Plan - Compensated Absences :

The company has valued the compensated absences, as specified in Ind AS 19 on actuarial basis. Under the scheme an employee is entitled to maximum of 30 days leave in a year depending upon number of days he works during that year. An employee can accumulate not exceeding 10 days of leave in a year subject to a maximum of 120 days during his tenure. The benefit is payable on termination of service, retirement or death whichever is earlier. The benefit equates to the salary in respect of balance of leave. There is no requirement for funding this liability and as such entire liability continues to remain unfunded.

g) Average Duration :

Weighted average duration of the plan (based on discounted cash flows using mortality, withdrawal rate and availment rate) is 7.76 years ( PY 5.87 years ).

h) Risk Exposure And Asset Liability Matching :

Provision of a defined benefit scheme poses certain risks, some of which are detailed hereunder, as companies take on uncertain long term obligations to make future benefit payments.

1) Liability Risk

a) Asset-Liability Mismatch Risk-

b) Discount Rate Risk-

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

c) Future Salary Escalation And Inflation Risk-

2) 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.

NOTE 28 : EMPLOYEE STOCK OPTIONS SCHEME - IND AS 102 :

The Company, during the year 2019-20, introduced Employee Stock Options ( ESOS ) to its employees. This Scheme is referred as the âKPCL Employee Stock Option Schemeâ (âKPCL ESOS - 2019â or âSchemeâ).

The objective of the KPCL ESOS - 2019 is to reward the Employees of the Company for their performance and to motivate them to contribute to the growth and profitability of the Company. The Company also intends to use this Scheme to retain talent in the organisation. The Company views Employee Stock Options as instruments that would enable the Employees to share the value they create for the Company and align individual objectives of employees with objectives of the Company in the years to come.

The Shareholders by way of special resolution dated July 20, 2019 authorized the Nomination and Remuneration Committee of the Board of Directors ( NRC ) to grant ESOS to the employees of the Company. NRC in its meeting held on October 22, 2019 and April 29, 2021 granted 684,000 (Six lakhs eighty four thousand only) and 104,000 (One lakhs four thousand only) Options respectively to the Employees under the KPCL ESOS - 2019 exercisable in one or more tranches, with each such Option conferring a right upon the employee to apply for one equity share of the Company of face value of H 2 (Indian Rupees two) each fully paid-up, in accordance with the terms and conditions of the Scheme.

Fair value of the options granted:

The company has recorded employee stock-based compensation expense relating to the options granted to the employees based on fair value of options.

The fair value of the options is determined using Black-Scholes-Merton model which takes into account the exercise price, the term of the option (time to maturity), the share price as at the grant date and expected price volatility (standard deviation) of the underlying share, the expected dividend yield and risk-free interest rate for the term of the option.

Employee-benefit expenses to be recognised in the financial statements:

The Company has recognised an amount of H 14.07 Million as employee compensation cost relating to share-based payment (Previous year H 18.14 Million) in the Statement of Profit and Loss.

NOTE 29 : REVENUE FROM OPERATIONS :

The disaggregation of revenue such as sales of products, sale of services, revenue from works contracts & leasing is given in Note No.19 - Revenue from Operations. Further disaggregation of revenue is given in operating segment in Note No. 30. The amount stated therein are net off discount, rebates, price concessions and incentives aggregating to H 234.61 Million ( Previous Year H 165.67 Million ). Most of the contracts are fixed price contracts and revenue is recognised at point in time. The terms of payment varies in relation to class of customer with advance payments, milestone payments, customary credit terms with retention payment getting released as agreed in the contract. The aggregate amount of remaining performance obligations and expected conversion of the same into revenue is H 93.68 Million (Previous year H 120.29 Million ).

C Other Disclosures

1 In terms of provisions of Ind-AS 108 - Operating Segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker (CODM) who evaluates the Company''s performance comprising various business segments. Accordingly, segmental information has been reported under Compression Segment and Other Non-Reportable Segments which includes remaining non-qualifying segments. Figures pertaining to previous periods have been regrouped accordingly.

The Board of Directors of the Company assess the financial performance and position of the Company and make strategic decisions. The Board of Directors, has identified Executive Committee comprising of Executive Chairman and Managing Director as CODM.

There are no entities or relatives of Key Management Personnel who are promoters holding more than 10% of share holding.

Contribution to

Kirloskar Pneumatic Company Limited Employees Gratuity Fund - H 24.44 Million ( Previous Year H 40.26 Million )

Kirloskar Pneumatic Company Limited Officers Superannuation Fund - H 19.75 Million ( Previous Year H 20.16 Million )

Receiving of services includes Remuneration paid / payable to Key Managerial Personnel as per note no 33, and to Relatives of Key Managerial Personnel.

There are no loans and advances given in the nature of loans to above mentioned Related Parties.

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

Transactions entered into with Related Party''s are made on terms equivalent to those that prevail in arms length transactions. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash.

The following methods and assumptions were used to estimate the fair values / amortised cost as applicable :

The fair values of the investments in unquoted equity shares have been estimated using valuation technique unless they approximate to carrying value. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility. The fair values of the remaining FVTOCI & FVTPL financial assets are derived from quoted market prices in active markets.

Carrying values of trade payables, trade receivables, employee loans, cash and cash equivalents, other bank balances, other financial assets & other financial liabilities which are stated at Amortised Cost reasonably approximate their fair value due to the short-term maturities of these instruments.

Loans in the nature of security deposits wherever significant have been stated at amortised cost using market rate of interest.

Long-term fixed-rate and variable-rate receivables are evaluated by the company based on parameters such as interest rates, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected credit losses of these receivables wherever applicable. As of reporting date, the fair value of such receivables, net of allowances, if any, are not materially different from their carrying values.

Borrowings are obtained at market rates of interest available for debt on similar terms, credit risk and remaining maturities. As of reporting date there was no borrowing. In the previous year the fair value of borrowings measured at amortised cost did not vary significantly from its carrying value.

(b) Fair value hierarchy and valuation techniques used

The following table provides the fair value measurement hierarchy of company''s assets and liabilities grouped into Level 1 to Level 3 as described in notes to accounts. Further table describes the valuation techniques used, key inputs to valuations and quantitative information about significant unobservable inputs for fair value measurements. There has been no change in the valuation technique from earlier years.

Financial risk management policy and objectives

The Companyâs principal financial liabilities comprise of borrowings and trade & other payables. The main purpose of these financial liabilities is to finance the Companyâs operations. The Companyâs principal financial assets include trade and other receivables, Cash and Cash equivalents which are derived directly from its operations.

Company is exposed to market risk and credit risk.

1) 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 namely foreign currency risk, interest rate risk, and other price risk such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, FVTOCI investments.

a) Foreign currency risk

Foreign currency risk is the risk that fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rate. Company transacts business in local currency INR and in different foreign currencies. Company is exposed

to currency risk to the extent that there is a mismatch between the currencies in which sales and purchases are denominated. Companyâs forex exposure is partly covered by natural hedge. For unhedged exposure refer note 35 - foreign currency sensitivity analysis.

b) Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has Nil borrowing as on 31^st March 2022, but has an exposure of H 1,265.69 Million in its current investments.To minimise this exposure Company spreads its investment portfolio into short term and medium term maturities.

c) Price risk Equity price risk

The Companyâs investment in quoted and unquoted equity investments are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Companyâs Board of Directors reviews and approves all equity investment decisions. At the reporting date, the exposure to quoted equity securities at fair value is H 590.35 Million. A decrease/ increase of 5% in the active market could have an impact of approximately H 29.52 Million on the OCI or equity attributable to the Company. These changes would not have a material effect on profit and loss.

2) 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 investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The Company has a large customer base and thus has no concentration of credit risks on a single customer.

a) Trade receivables

The management has established a credit policy under which each new customer is analysed individually for creditworthiness, before offering the payment and delivery terms and conditions.

- Company has different types of credit terms depending upon the type and credit worthiness of the customer. They are either on open terms or backed by Letter of Credit / Bank Guarantees.

The Companyâs capital includes issued equity capital, share premium and free reserves.

The Companyâs policy is to meet the financial covenants attached to the interest-bearing borrowings by maintaining a strong capital base. The company aims to sustain investor, creditor and market confidence so as to be able to leverage such confidence for future capital/debt requirements.

Management monitors the return on capital, the capital/debt requirements for various business plans under consideration and determines the level of dividends to equity shareholders.

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

NOTE 37 : LEASES - IND AS 116 :

A The Company as a Lessee :

has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per Ind AS 116 with regard to the above is as under.

i ) Where the Lease arrangements are not recognised as '' Right-of-Use Asset '' and covered under paragraph 6 of Ind AS 116

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year H 9.34 Million ( H 5.22 Million )

2) Later than 1 year but not later than 5 years H 7.56 Million ( H 6.86 Million )

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised as Rent in the Statement of Profit and Loss for the year ended 31^st March, 2022 amounts to H 13.38 Million (H 10.58 Million).

d. Period of Agreement is generally for Eleven Months, in some cases extending up to five years and renewable at the option of Lessee. The lease agreements do not have any variable lease payments nor there is any residual value guarantee. There are no leases to which the company has committed and are yet to commence.

ii) Where the Lease arrangements are recognised as '' Right-of-Use Asset '' under Ind AS 116

a. Depreciation charge for right-of-use assets amounts to H 3.33 Million ( Previous Year H 3.29 Million ) Refer Note No.1 -Property, Plant & Equipment.

b. Interest Expenses on Lease Liability H 0.44 Million ( Previous Year H 0.29 Million ) . Refer Note No.24 - Finance Cost

c. The expense relating to leases accounted by applying paragraph 6 are given in Note 37 A above.

d. The Company has not entered into any transaction in the nature of Sub Lease or sale & lease back.

e. The aggregate amount of cash outflow on account of leases covered including that of Note 37 A is H 15.89 Million (Previous Year H 12.98 Million).

f. The carrying amount of right-of-use assets at the end of the reporting period amount to H 17.06 Million ( Previous Year H 2.73 Million ) Refer Note No.1 - Property, Plant & Equipment.

g. For maturity profile of lease liability Refer Note No.34 (2) (C).

B The Company as a Lessor :

has entered into agreements with various customers for providing Vehicles and Compression Facility on Operating Lease basis. It recognises its income generally on a straight line basis unless differential payment terms are applicable. The Company has disclosed these details in Note No. 1 - Property, Plant & Equipment. The corresponding lease income has been disclosed in Note No. 19 - Revenue From Operations. The Company has not entered into any agreements on variable lease payments.

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration.

The Arbitration proceedings have been stayed by the Honourable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honourable Supreme Court. Further the Honourable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable and therefore management does not anticipate any financial impact on this account.

As on the Balance Sheet date Company does not have any debt. As such debt equity ratio is zero and variance to previous period is not applicable. Similarly debt service coverage ratio also results in significant positive variance.

As the % growth in turnover is higher than the % growth in Net Current Assets, Net Capital Turnover ratio has improved favourably.

NOTE 49 : Impact of COVID-19 on Financial Reporting :

The Company has assessed the impact of pandemic on its financial position based on the internal and external information available up to the date of approval of these financial results and does not expect impairment of the carrying value of any class of its assets.

NOTE 50 : Property, Plant and Equipment to the extent of 1.25 times has been provided as security by way of a first charge for availing Term Borrowings from ICICI Bank Ltd. The said charge has been satisfied in full on 10^th January, 2022.

Working capital facilities ( fund based & non fund based ) are secured by way of first charge on book debts and other tangible assets ( comprising of inventory etc. ) and second charge on Property, Plat and Equipment in favour of consortium of banks.

Quarterly returns or statements of current assets filed by the Company with banks are in agreement with the books of accounts.

NOTE 51 : Previous Years figures have been regrouped, rearranged or reclassified wherever necessary to correspond to Current Year''s figures.

NOTE 52 These financial statements were authorised for issue by the Board of Directors on 28^th April, 2022.

Mar 31, 2019

1. Corporate Information

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 1, Hadapsar Industrial Estate, Pune 411 013. The equity shares of the Company are listed on Bombay Stock Exchange Limited (BSE Limited).

The Company is engaged in the business of Compression & Transmission segments, primarily serving sectors of oil & gas, engineering, steel, cement, food & beverage by offering engineered products and solutions. The Compression segment is engaged in design, manufacture, supply, and erection / commissioning of wide range of air, gas and refrigeration compressors, packages & systems. The Transmission segment is engaged in design, manufacture and supply of railway traction gears and customized gearboxes for windmill, industrial and marine applications. The Company has also started RoadRailer operations providing logistic services using rail network of Indian Railways with first and last mile operations carried on road.

2. Basis of preparation of Financial Statements

The financial statements have been prepared in accordance with Indian Accounting Standards (âInd ASâ) as issued under the Companies (Indian Accounting Standards) Rules, 2015.

These financial statements have been prepared to comply in all material respects with Accounting Standards specified under Section 133 of the Act, read with Rules of the Companies (Accounts) Rules, 2014 and the relevant provisions of the said Act.

The financial statements have been prepared on a historical cost basis, except for the financial instruments wherever significant which are stated at amortised cost and investments which have been measured at fair value and stated as fair value through profit and loss (FVTPL) or fair value through other comprehensive income (FVTOCI).

3. Significant account judgements, estimates and assumptions

The preparation of the Companyâs financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods.

3.1. Judgement

In the process of applying the Companyâs accounting policies, the management has made the following judgements, which have the most significant effects on the amounts recognised in the financial statements:

Operating lease

The Company, for its vehicle leases, has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the vehicle and the fair value of the asset, that it retains all the significant risks and rewards of ownership of these vehicles and accounts for the contracts as operating leases.

3.2. Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumption about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

Defined benefit plans

The cost of the defined benefit plans and other post employment benefits and the present value of the obligations are determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and expected rate of return on plan assets. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate, actuary considers the interest rates of government bonds and extrapolates as needed along the yield curve to correspond with the expected term of the defined benefit obligation.

The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at intervals in response to demographic changes. Future salary increases are based as per the policy of the Company.

Further details about defined benefit obligations are provided in Note 27.

Deferred Tax

Deferred tax assets are recognised for all deductible temporary differences including the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.

3.3 Functional and presentation currency

These financial statements are presented in Indian Rupees, which is the companyâs functional currency. All amounts disclosed in the financial statements and notes have been rounded off to nearest millions as per the requirements of Schedule III, unless otherwise stated.

Rights attached to Equity Shares :

The Company has only one class of share capital, namely, equity shares. During the year the Company subdivided 1 Equity Share of face value of Rs. 10/- per share, fully paid-up into 5 Equity Shares of face value of Rs 2/- per share, fully paid up with effect from 27th September, 2018.

Each holder of equity share is entitled to one vote per share.

1. Securities Premium is a premium on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.

2. General Reserve is created by setting aside amount from the Retained Earnings and is freely available for distribution.

4: Employee benefits

I. Defined Contribution Plans:

Amount of Rs. 47.48 Million (Previous Year Rs. 44.21 Million) is recognised as an expense and included in âEmployees benefits expenseâ in Note 23 in the statement of Profit and Loss

II. Defined Benefit Plans - Gratuity :

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

Basis used to determine the overall expected return:

The net interest approach effectively assumes an expected rate of return on plan assets equal to the beginning of the year discount rate. As such expected return of 8% has been used for the valuation purpose.

h) General descriptions of defined benefit plans:

The Company expects to fund approximately Rs.34 Million towards its gratuity plan in the year 2019-20.

Sensitivity analysis

Sensitivity analysis indicates the influence of a reasonable change in certain significant assumptions on the outcome of the Present value of obligation(PVO). Sensitivity analysis is done by varying (increasing/ decreasing) one parameter by 100 basis points (1%)

iii Defined Benefit Plan - Compensated Absences:

The company has valued the compensated absences, as specified in Ind AS 19 on actuarial basis. There is no requirement for funding this liability and as such entire liability continues to remain unfunded.

e) Sensitivity analysis

C Other Disclosures

1 Operating segments are reported in a manner consistent with the internal reporting to Chief Operating Decision Maker ( CODM ).

2 Composition of Operating Segment

Name of the Segment : Comprises of :

a) Compression Systems Air & Gas Compressors, Airconditioning &

Refrigeration Compressors and Systems etc.

b) Transmission Equipments Power Transmission Equipments ( Torque Convertor ) , Reverse

Reduction Gears for Marine Gear Engines, Industrial & Mobile application etc.

3 The Segment Revenue, Results , Assets and Liabilities include the respective amounts identifiable to each of the segment and amounts allocated on reasonable basis.

4 During the year there is no single customer ( PY Rs 819.61 Million ) who has contributed more than 10% of Revenue of the Company in any of the Segments whether in India or outside.

Receiving of services includes Remuneration paid / payable to Key Managerial Personnel as per note no 31 and to Relatives of Key Managerial Personnel.

There are no loans and advances given in the nature of loans to above mentioned Related Parties.

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

* Represents Short Term Employee Benefits

# Represents Post Employment Benefits

Note :

1. As the employee wise breakup of contribution to gratuity fund is not ascertainable, the same has been included on the basis of entitlement in gross remuneration.

2. As the employee wise breakup of liability of leave entitlement, based on actuarial valuation, is not ascertainable, the same has not been included in gross remuneration.

b) Computation of net profit under Section 197 read with Section 198 of the Companies Act, 2013.

(a) Accounting classifications and fair values

The following table shows the carrying amounts of financial assets and financial liabilities which are stated at fair value/ amortised cost as applicable

The following methods and assumptions were used to estimate the fair values / amortised cost as applicable:

Loans in the nature of security deposits wherever significant have been stated at amortised cost using market rate of interest.

Borrowings are obtained at market rates of interest available for debt on similar terms, credit risk and remaining maturities. As of reporting date the fair value of borrowings measured at amortised cost does not vary significantly from its carrying value.

(b) Fair value hierarchy and valuation techniques used

The following table provides the fair value measurement hierarchy of companyâs assets and liabilities grouped into Level 1 to Level 3 as described in notes to accounts. Further table describes the valuation techniques used, key inputs to valuations and quantitative information about significant unobservable inputs for fair value measurements.

Financial risk management policy and objectives

Company is exposed to market risk and credit risk.

1) Market Risk

a) Foreign currency risk

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rate. Company transacts business in local currency INR and in different foreign currencies. Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales and purchases are denominated. Companyâs forex exposure is partly covered by natural hedge and partly by forward contracts. For unhedged exposure refer note 34 - foreign currency sensitivity analysis.

b) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. While Company has insignificant exposure to the borrowing as on 31^st March, 2019 impacting its interest cost, the yield on its current investments is exposed to the fluctuations in the market rate.

To minimise this exposure Company spreads its investment portfolio into short term and medium term maturities.

c) Price risk Equity price risk

At the reporting date, the exposure to quoted equity securities at fair value is Rs 316.57 Million. A decrease/ increase of 5% in the active market could have an impact of approximately Rs 15.83 Million on the OCI or equity attributable to the Company. These changes would not have an effect on profit and loss.

2) Credit Risk

2) Credit Risk - contd.

a) Trade receivables

The management has established a credit policy under which each new customer is analysed individually for creditworthiness, before offering the payment and delivery terms and conditions.

- Company has different types of credit terms depending upon the type and credit worthiness of the customer. They are either on open terms or backed by Letter of Credit / Bank Guarantees.

- Based on analysis of individual cases, the management considers the impairment of receivables, if any.

b) Cash and cash equivalents and bank and other deposits

The cash and cash equivalents are held with Banks with an external short term rating of âA1 â. Thus, the Company considers that its cash and cash equivalents have low credit risks.

5. Capital management

The Companyâs capital includes issued equity capital, share premium and free reserves.

Management monitors the return on capital, the capital/debt requirements for various business plans under consideration and determines the level of dividends to equity shareholders.

No changes were made in the objectives, policies or processes for managing capital during the financial years ended on 31^st March, 2019 and 31^st March, 2018.

6. Leases:

The Company has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per Ind AS 17 with regard to the above is as under.

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year Rs 10.42 Million ( Rs 9.72 Million )

2) Later than 1 year but not later than 5 years Rs 10.37 Million ( Rs 10.87 Million )

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised as Rent in the Statement of Profit and Loss for the year ended 31^st March, 2019 amounts to Rs 12.97 Million ( Rs 12.55 Million )

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

B. Claim for US $ 10 Million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honourable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honourable Supreme Court. Further the Honourable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable and therefore management does not anticipate any financial impact on this account.

7. The information as required to be disclosed under the âMicro, Small and Medium Enterprises Development Act,2006â has been determined to the extent such parties have been identified on the basis of information available with the company. Based on disclosure, total outstanding of Micro, Small and Medium Enterprises to whom the company owes money is as under :

8. Joint Venture :

During the year the Company subscribed Rs. 1.6 Million to the share capital of â Kirloskar AECOM Pvt Ltd.â, a 50:50 Joint Venture Company with AECOM India Pvt. Ltd., ( JV Partner ) a group company of AECOM USA, persuant to a Joint Venture Agreement to undertake business of Air Quality Control System ( AQCS ). As JV Partner decided to exit from AQCS business worldwide, sold its share holding in the JV company terminating the JV agreement. As a result Company also sold its entire share holding in the JV company. Therefore as on the date of the Balance Sheet, Company does not have any Joint Venture.

9. Property, Plant and Equipment, other tangible assets and book debts have been charged to consortium of banks for availing fund based & non fund based credit facilities. A vehicle hypothecated as a security for outstanding borrowings.

10. Previous Years figures have been regrouped, rearranged or reclassified wherever necessary to correspond to Current Yearâs figures.

11. These financial statements were authorised for issue by the Board of Directors on 4^th May, 2019.

Mar 31, 2018

C Other Disclosures

1 Operating segments are reported in a manner consistent with the internal reporting to Chief Operating Decision Maker (CODM).

2 Composition of Operating Segment

Name of the Segment : Comprises of :

a) Compression Systems Air & Gas Compressors, Air-conditioning & Refrigeration

Compressors and Systems etc.

b) Transmission Equipmentâs Power Transmission Equipmentâs (Torque Convertor), Reverse

Reduction Gears for Marine Gear Engines, Industrial & Mobile application etc.

3 The Segment Revenue, Results, Assets and Liabilities include the respective amounts identifiable to each of the segment and amounts allocated on reasonable basis.

4 Revenues of approximately Rs.819.61 Million (Rs. Nil) are derived from a single external customer. These revenues pertain to Compression Segment and are earned in India.

The following methods and assumptions were used to estimate the fair values I amortised cost as applicable:

Loans in the nature of security deposits wherever significant have been stated at amortised cost using market rate of interest.

(b) Fair value hierarchy and valuation techniques used

1 Financial risk management

Financial risk management policy and objectives

Company is exposed to market risk and credit risk.

1) Market Risk

a) Foreign currency risk

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rate. Company transacts business in local currency INR and in different foreign currencies. Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales and purchases are denominated. Companyâs forex exposure is partly covered by natural hedge and partly by forward contracts. For unheeded exposure refer Note No. 33 - foreign currency sensitivity analysis.

b) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. While Company has insignificant exposure to the borrowing as on 31^st March 2018 impacting its interest cost, the yield on its current investments is exposed to the fluctuations in the market rate.

To minimise this exposure Company spreads its investment portfolio into short term and medium term maturities.

c) Price risk Equity price risk

The Companyâs investment in quoted and unquoted equity investments are susceptible to market price risk arising from uncertainties about future values of the investment securities.

The Companyâs Board of Directors reviews and approves all equity investment decisions.

At the reporting date, the exposure to quoted equity securities at fair value is Rs.275.91 Million. A decrease / increase of 5% in the active market could have an impact of approximately Rs.12.75 Million on the OCI or equity attributable to the Company. These changes would not have an effect on profit and loss.

2) Credit Risk

a) Trade receivables

The management has established a credit policy under which each new customer is analysed individually for creditworthiness, before offering the payment and delivery terms and conditions.

- Company has different types of credit terms depending upon the type and credit worthiness of the customer. They are either on open terms or backed by Letter of Credit / Bank Guarantees.

3 Capital management

The Companyâs capital includes issued equity capital, share premium and free reserves.

Management monitors the return on capital, the capital / debt requirements for various business plans under consideration and determines the level of dividends to equity shareholders.

No changes were made in the objectives, policies or processes for managing capital during the financial years ended on 31^st March, 2018 and 31^st March, 2017.

4 Leases

The Company has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors I Licensors for the purpose of establishment of office premises I residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per Ind AS 17 with regard to the above is as under.

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year Rs. 9.72 Million (Rs.7.25 Million)

2) Later than 1 year but not later than 5 years Rs. 10.87 Million (Rs. 13.75 Million)

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised as Rent in the Statement of Profit and Loss for the year ended 31^st March, 2018 amounts to Rs.12.55 Million (Rs.10.98 Million)

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honourable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honourable Supreme Court. Further the Honourable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable and therefore management does not anticipate any financial impact on this account.

43 The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act, 2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on disclosure, total outstanding of Micro, Small and Medium Enterprises to whom the company owes money is as under :

46 Business Combination of Kirloskar RoadRailer Limited and Pneumatic Holdings Limited with the Company :

Pursuant to the Scheme of Arrangement and Amalgamation of Kirloskar RoadRailer Limited (KRL), Pneumatic Holdings Limited (PHL), the Company (Kirloskar Pneumatic Company Limited - KPCL) and their respective Shareholders, sanctioned by the Honourable National Company Law Tribunal, Mumbai Bench on 19^th April 2017, the Assets and the Liabilities of KRL and PHL were transferred to and vested in the Company with effect from 1^st April, 2016, being the Appointed Date of the Scheme. The Scheme was accordingly given effect to in the Accounts.

Effective date of the Scheme was 28^th April, 2017 being the date on which certified copy of the order of Honourable National Company Law Tribunal was filed with the Registrar of Companies by KRL, PHL & the Company.

Pursuant to the said Scheme on the Record Date fixed by the Board of Directors of the Company, 53 (Fifty Three) Equity Shares of Rs.10 each fully paid-up of KPCL for every 40 (Forty) Equity Shares of Rs.10 each fully paid-up of PHL were issued to the shareholders of erstwhile PHL.

Further the Board of Directors of the Company consolidated fractional entitlements that resulted from the aforesaid issue of shares and issued such consolidated Equity Shares to persons nominated as Trustees in this behalf. The Trustees have sold these shares in the market and have arranged to distribute the net sale proceeds (after deduction of the expenses incurred) to shareholders of PHL, in proportion to their respective fractional entitlements along with pro-rata dividend which was declared for the year 2016-17.

The Business Combination has been accounted for under the "Pooling of Interests" method.

In accordance with the said Scheme all costs, charges and expenses of Business Combination are debited to the General Reserve of the Company.

As per Appendix C of Ind AS 103 ''Business Combination'' in respect of common control business combinations, the financial information in the financial statement of prior periods should be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination. As such balances as of 1^st April 2016 includes balances of KRL.

47 Joint Venture:

During the year the Company has formed a new company, ''Kirloskar AECOM Pvt. Ltd.'' registered in India, a 50:50 Joint Venture Company ( JV Company ) with AECOM India Pvt. Ltd., a group company of AECOM USA, to undertake business of Air Quality Control System ( AQCS ). The JV Company was incorporated on 10^th February, 2018. Pursuant to provisions of Section 2 (41) of The Companies Act, 2013, JV Company shall have its first Financial Year ending on 31^st March, 2019 for which the financial statements shall be made up. In view of this the Consolidated Financial statements of the Company incorporating financials of the JV Company shall be prepared first time for the financial year ending 31^st March, 2019.

As of 31^st March, 2018 the Company is yet to subscribe to the share capital of the JV Company. Expenditure incurred by the Company for formation of the JV Company has been disclosed in related party transaction in Note No. 29 as receivable from the JV Company. The Company has since subscribed Rs.1,600,000/- to the share capital of the JV Company.

48 Property, Plant and Equipment, other tangible assets and book debts have been charged to consortium banks for availing credit facilities. A vehicle hypothecated as a security for outstanding borrowings.

49 Previous Years figures have been regrouped, rearranged or reclassified wherever necessary to correspond to Current Year''s figures.

50 These financial statements were authorised for issue by the Board of Directors on 26^th April, 2018

51 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31st MARCH 2018.

1. Corporate Information

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 Hadapsar Industrial Estate, Pune 411 013. The equity shares of the Company are listed on Bombay Stock Exchange Limited (BSE Limited).

2. Basis of preparation of Financial Statements

The financial statements have been prepared in accordance with Indian Accounting Standards ("Ind ASâ) as issued under the Companies (Indian Accounting Standards) Rules, 2015.

The financial statements up to year ended 31^st March 2017 were prepared in accordance with the Accounting Standards notified under accounting principles generally accepted in India (Indian GAAP), including Accounting Standards notified under the Companies Act 2013, read together with rules of the Companies (Accounts) Rules, 2006 (as amended) and other relevant provisions of the Act. Financial statements for the year ended 31^st March 2018 are the first financial statements that the Company has prepared in accordance with Ind AS. An explanation giving effects of the transition from Indian GAAP to Ind AS on the Company''s Balance Sheet, Profit or Loss and Cash Flows for the year ended 31st March 2017 and opening Balance Sheet as of 1^st April 2016 is provided in Note No. 52.

3. Significant account judgements, estimates and assumptions

3.1. Judgement

Operating lease

The Company has entered into vehicle leases. The company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the vehicle and the fair value of the asset, that it retains all the significant risks and rewards of ownership of these vehicles and accounts for the contracts as operating leases.

3.2. Estimates and assumptions

Defined benefit plans

The cost of the defined benefit plans and other post-employment benefits and the present value of the obligations are determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and expected rate of return on plan assets. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

Further details about defined benefit obligations are provided in Note No. 27 Deferred Tax

3.3 Functional and presentation currency

4. Significant Accounting Policies

4.1 Current Vs Non-Current Classification

The company presents assets and liabilities in the Balance Sheet based on current / noncurrent classification

An asset is current when it is :

a. Expected to be realised or intended to be sold or consumed in normal operating cycle

b. Held primarily for the purpose of trading

c. Expected to be realised within twelve months after the reporting period or

d. Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when it is :

a. Expected to be settled in normal operating cycle

b. Held primarily for the purpose of trading

c. Due to be settled within twelve months after the reporting period or

d. There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

All other liabilities are treated as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

4.2 Fair value measurement

The Company measures financial instruments such as Investments etc. at fair value at each Balance Sheet date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

- In the principal market for the asset or liability Or

- In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the assets in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the company has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. The Companyâs management determines the policies and procedure for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value.

External valuation experts are involved for valuation of significant unquoted financial assets and liabilities.

4.3 Property, Plant and Equipment

a. The Company has elected to continue with the carrying value of all of its Property, Plant and Equipment measured as per the Indian GAAP as at 31^st March 2016 and use those values as deemed cost as at the date of transition to Ind AS being 1^st April 2016.

Property, plant and equipment; and capital work in progress are stated at cost of acquisition or construction net of accumulated depreciation and / or accumulated impairment losses, if any. Such cost includes the cost of replacing parts of the Property, Plant and Equipment and borrowing costs for long term construction projects if the recognition criteria are met. When significant parts of Property, Plant and Equipment are required to be replaced at intervals, the Company recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the Property, Plant and Equipment if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the Statement of Profit and Loss as incurred.

b. Capital work-in-progress comprises of cost of Property, Plant and Equipment that are not yet installed and ready for their intended use at the Balance Sheet date.

c. Own manufactured assets are capitalised at cost including an appropriate directly allocable expenses.

Depreciation

- With the commencement of the Companies Act, 2013, depreciation is being provided on straight line method according to the useful life prescribed on single shift working basis in Schedule II of the Act on the carrying amount of the asset over the remaining useful life of the asset as per the said schedule, except as stated below. Where the asset is used any time during the year in double or triple shift, depreciation is being calculated on the basis of Note No. 6 of the said schedule.

- Depreciation on Vehicle other than leased vehicles is being provided over a period of five years, being the estimated useful life of the asset to the company.

- Depreciation on Additions to Property, Plant and Equipment is being provided on pro-rata basis from the month of acquisition or installation of the said Asset, as per Note No. 2 of Schedule II to Companies Act, 2013 in a manner stated above.

- Depreciation on Leased Assets is being provided over their useful lives as prescribed by Schedule II to Companies Act, 2013 on written down value method.

- Depreciation on Assets sold, discarded or demolished during
the year is being provided at their respective rates up to the preceding month in which such Assets are sold, discarded or demolished.

- Technical assessment of assets is carried out annually to identify cost of part of asset which is significant to total cost of asset and where useful life of that part of asset is significantly different than useful life of remaining part of asset. Parts are depreciated as per useful life so determined.

- Foreign exchange fluctuation gain / loss on imported plant and equipment was capitalized in the cost of the respective fixed asset up to transition date of Ind AS. Depreciation on such additions is provided over the remaining useful life of the underlying plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the caring amount of the asset) is included in the Statement of Profit and Loss when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial yearend and adjusted prospectively, if appropriate.

4.4 Intangible Assets

The Company has elected to continue with the carrying value of all of its Intangible Assets measured as per the Indian GAAP as at 31^st March 2016 and use those values as deemed cost as at the date of transition to Ind AS being 1^st April 2016.

Intangible assets are recognised when it is probable that the future economic benefits that are attributable to the assets will flow to the Company and the cost of the asset can be measured reliably.

Expenditure on acquiring Technical Know-how (intangible asset) is amortised equally over a period of five years or usage period whichever is lesser, after commencement of commercial production. Depreciation on additions to Software is provided on pro-rata basis from the month of installation, over a period of one year.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Profit and Loss when the asset is derecognised.

Intangible assets are recorded at the consideration paid for acquisition.

4.5 Borrowing Cost

Borrowing Costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized till the month in which the asset is ready to use, as part of the cost of the asset. Other borrowing costs are recognized as expenses in the period in which these are incurred.

4.6 Impairment of Assets

The Company assesses at each Balance Sheet date whether there is any indication due to internal or external factors that an asset or a group of assets comprising a Cash Generating Unit (CGU) may be impaired. If any such indication exists, the Company estimates the recoverable amount of the assets. If such recoverable amount of the assets or the recoverable amount (economic value in use) of the CGU to which the asset belongs is less than the carrying amount of the assets or the CGU as the case may be, the carrying amount is reduced to its recoverable amount and the reduction is treated as an impairment loss and is recognised in the Profit and Loss account. If at any subsequent Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at recoverable amount subject to a maximum of depreciated historical cost and is accordingly reversed in the Profit and Loss account.

4.7 Financial Instruments - initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

a) Financial assets

(i) Initial recognition and measurement of financial assets

All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial assets.

(ii) Subsequent measure

measurement of financial assets

For purposes of subsequent measurement, financial assets are classified in three categories:

- Financial assets at amortised cost

- Financial assets at fair value through other comprehensive income (FVTOCI)

- Financial assets at Fair value through profit and loss (FVTPL)

- Financial assets at amortised cost :

A financial asset is measured at amortised cost if:

- The financial assets is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and

- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

After initial measurement, such financial assets are subsequently measured by applying the effective interest rate (EIR) to the gross carrying amount of a financial asset if applicable. The EIR amortisation is included in finance income in the Statement of Profit and Loss. The losses arising from impairment are recognised in the Statement of Profit and Loss.

- Financial assets at fair value through other comprehensive income

A financial asset is measured at fair value through other comprehensive income if:

- The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

After initial measurement, such financial assets, until they are derecognised or reclassified, are subsequently measured at fair value with unrealised gains or losses recognised in Other Comprehensive Income except for interest income, impairment gains or losses for foreign exchange gains and losses which are recognised in the Statement of Profit and Loss.

- Financial assets at fair value through profit or loss

A financial asset is measured at fair value through profit and loss unless it is measured at amortised cost or at fair value through other comprehensive income.

In addition, the Company may elect to classify a financial asset, which otherwise meets amortized cost or fair value through other comprehensive income criteria, as at fair value through profit and loss. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatchâ).

After initial measurement, such financial assets are subsequently measured at fair value with unrealised gains or losses recognised in the statement of profit and loss.

(iii) De-recognition of financial assets

A financial asset is derecognised when:

- The contractual rights to the cash flows from the financial asset expire, Or

- The Company has transferred its contractual rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

(iv) Reclassification of financial assets

The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made from financial assets which are equity instruments and financial liabilities. For financial assets a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Companyâs senior management determines change in the business model as a result of external or internal changes which are significant to the Companyâs operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.

(v) Impairment of financial assets

The company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the assets carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables only, the company applies the simplified approach permitted by Ind AS 109 Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

b) Financial Liabilities

(i) Initial recognition and measurement of financial liabilities

All financial liabilities are recognised initially at fair value minus, in the case of financial liabilities not recorded at fair value through profit or loss, transaction costs that are attributable to the issue of the financial liabilities.

(ii) Subsequent measurement of financial liabilities

For purposes of subsequent measurement, financial liabilities are classified and measured as follows:

- Financial liabilities at fair value through profit and loss

- Amortised Cost

- Loans and Borrowings at amortised Cost

After initial recognition, interest-bearing borrowings are subsequently measured at amortised cost using the Effective Interest Rate (EIR) method. Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit and loss.

(iii) De-recognition of financial liabilities

A financial liability (or a part of a financial liability) is derecognised from Balance Sheet when, and only when, it is extinguished i.e. when the obligation specified in the contract is discharged or cancelled or expired.

When an existing financial liability is replaced by the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Statement of Profit and Loss.

4.8 Derivatives

Company uses derivative contracts to hedge its exposure against movements in foreign exchange rates. The use of derivative contracts is intended to reduce the risk to the Company. Derivative contracts are not used for trading or speculation purposes.

All derivatives are measured at fair value through the Profit and Loss. Derivatives are carried as assets when their fair values are positive and as liabilities when their fair values are negative. Hedging activities are explicitly identified and documented by the Company.

4.9 Foreign Currency Transactions

a. Initial Recognition

Foreign currency transactions are recorded in Indian currency, by applying the exchange rate between the Indian currency and the foreign currency at the date of the transaction.

b. Conversion

Current assets and current liabilities, secured loans, being monetary items, designated in foreign currencies are revalorized at the rate prevailing on the date of Balance Sheet.

c. Exchange Differences

Exchange difference arising on the settlement and conversion of foreign currency transactions are recognised as income or as expenses in the year in which they arise, except in cases where they relate to the acquisition of qualifying assets, in which cases they were adjusted in the cost of corresponding asset up to the date of transition to Ind AS. Further, exchange difference on foreign currency loans utilized for acquisition of assets, is adjusted in the cost of the asset up to transition date of Ind AS only.

4.10 Leases

The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

For arrangements entered prior to 1st April 2016, the company has determined whether the arrangement contains lease based on facts and circumstances existing on the date of transition.

- Company as a lessee

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the company is classified as a finance lease.

Finance leases are capitalised at the commencement of the lease at the inception date at fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit and loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognised as an expense in the statement of profit and loss on a straight-line basis over the lease term unless the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases or another systematic basis is available.

- Company as lessor

Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer from the company to the lessee. Amounts due from lessees under finance leases are recorded as receivables at the companyâs net investment in the leases. Finance lease income is allocated to accounting periods to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.

Leases in which the company does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income from operating lease is recognised on a straight-line basis over the term of the relevant lease unless the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases or another systematic basis is available. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

4.11 Inventories

Cost of inventories have been computed to include all costs of Purchase, Cost of Conversion and other costs incurred in bringing inventories to their present location and condition.

I. The Stocks of Raw Materials and Components, Stores and Spares are valued at cost calculated on Weighted Average basis.

II. The Stocks of Work-in-Progress (including factory-made components) and Finished Goods are valued on the basis of Full Absorption Cost of attributable factory overheads or net realisable value, whichever is lower.

III. Goods in Transit are stated at actual cost to the date of Balance Sheet.

IV. Jigs & Fixtures, Patterns and Dies are valued at Full Absorption Cost of attributable factory overheads and written off equally, over an estimated effective life of three years.

V. Unserviceable and Obsolete Raw Materials are valued at an estimated realisable value.

VI. Imported Materials lying in Bonded Warehouse are valued at cost to the date of Balance Sheet.

4.12 Cash and cash equivalents

Cash comprises of cash on hand and demand deposits with banks. Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash which are subject to an insignificant risk of changes in value.

4.13 Taxes Current Income Tax

Current income tax assets and liabilities are measured at the amounts expected to be recovered from or paid to the taxation authorities; on the basis of the taxable profits computed for the current accounting period in accordance with Income Tax Act, 1961. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.

Current income tax relating to items recognised in other comprehensive income or directly in equity is recognised in other comprehensive income or in equity, respectively and not in the statement of profit and loss.

Deferred Tax

Deferred tax is provided using the Balance Sheet method on temporary difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences except:

- In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences including, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside the statement of profit and loss, is recognised outside the statement of profit and loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

4.14 Employee Benefits

a) Short Term Employee Benefits

The distinction between short term and long term employee benefits is based on expected timing of settlement rather than the employeeâs entitlement benefits. All employee benefits payable within twelve months of rendering the service are classified as short term benefits. Such benefits include salaries, wages, bonus, short term compensated absences, awards, excreta, performance pay etc. and are recognised in the period in which the employee renders the related service.

b) Post-Employment Benefits

(i) Defined contribution plan

The Company makes payment to approved superannuation schemes, state government provident fund scheme and employee state insurance scheme which are defined contribution plans. The contribution paid / payable under the schemes is recognised in the statement of profit and loss during the period in which the employee renders the related service.

The Company has no further obligations under these schemes beyond its periodic contributions.

(ii) Defined benefit plan

The employeeâs gratuity fund scheme is Companyâs defined benefit plan. The present value of the obligation under such defined benefit plan is determined based on the actuarial valuation using the Projected Unit Credit Method as at the date of the Balance Sheet. In case of funded plans, the fair value of plan asset is reduced from the gross obligation under the defined benefit plan, to recognise the obligation on the net basis.

Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Measurements are not reclassified to the profit and loss in subsequent periods.

Past service costs are recognised in the statement of profit and loss on the earlier of:

- The date of the plan amendment or curtailment and

- The date that the Company recognises related restructuring costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognises the following changes in the net defined benefit obligation as an expense in the statement of profit and loss:

- Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements and net interest expense or income.

c) Other long term employment benefits

The employeeâs long term compensated absences are Companyâs other long term benefit plans. The present value of the obligation is determined based on the actuarial valuation using the Projected Unit Credit Method as at the date of the Balance sheet.

In regard to other long term employment benefits, the Company recognises the net total of service cost; net interest on the net defined benefit liability (asset); and re-measurements of the net defined benefit liability (asset) in the statement of profit and loss.

Termination Benefits

Termination Benefits are recognised in the statement of profit and loss in the year in which termination benefits become payable or when the Company determines that it can no longer withdraw the offer of those benefits, whichever is earlier.

4.15 Provisions and Contingencies

Necessary provisions are made for the present obligations that arise out of past events entailing future outflow of economic resources. Such provisions reflect best estimates based on available information.

However a disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

4.16 Revenue Recognition

a) Revenue from sale of goods is recognised when significant risks and rewards of ownership of the goods are passed on to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing effective control over, or managerial involvement with, the goods, and the amount of revenue can be measured reliably. Sales are stated net of discounts, rebates and returns.

b) Government grant in the nature of export incentives under various schemes notified by government are accounted for in the year of exports as grant related to income and is recognized 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.

c) Export Sales are accounted for on the basis of date of Bill of Lading.

d) Income from dividend on investments is accrued in the year in which it is authorized, whereby right to receive is established.

e) Profit / Loss on sale of investments is recognized on the contract date.

f) Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms except the cases where incremental lease reflects the inflationary effect and rental income is accounted in such case by actual rent for the period.

4.17 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 Companies Act, 2013, a distribution is authorised when it is approved by the shareholders except in case of interim dividend which is approved by the Board. A corresponding amount is recognised directly in equity.

4.18 Earnings Per Share

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.

4.19 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 and increase & decrease in current assets and current liabilities. The cash flows from regular operating, investing and financing activities of the Company are segregated.

5 Standards issued but not yet effective

Ind AS 115 is effective for annual periods beginning on or after 1 April 2018. Ind AS 115 establishes a five-step model that will apply to revenue earned from a contract with a customer, regardless of the type of revenue transaction or the industry (with limited exceptions). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligation; changes in contract asset and contract liability balances between periods and key judgments and estimates.

The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the requirements of Ind AS 115.

52 First-time adoption of Indian Accounting Standards (âInd AS-101â)

These financial statements, for the year ended 31^st March 2018, are the first financial statements, the Company has prepared in accordance with Ind AS. For periods up to and including the year ended 31^st March 2017, the Company prepared its financial statements in accordance with Indian GAAP.

Accordingly, the Company has prepared financial statements which comply with Ind AS for the year ended 31^st March 2018, together with the comparative data for the year ended 31^st March 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Companyâs opening Balance Sheet was prepared as at 1^st April 2016, being the date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, for the year ended 31^st March 2017 and the Balance Sheet as at 1^st April 2016.

Exemptions and exceptions availed In preparing these financial statements, the company has applied the below mentioned optional exemptions and mandatory exceptions:

A. Optional exemptions

1 Deemed Cost

The Company has elected to continue with carrying value for all of its Property, Plant and Equipment and Intangible Assets as recognised in its Indian GAAP financial statements as at date of transition as deemed cost.

2 Designation of previously recognised financial instruments

The Company has opted to designate the quoted and unquoted equity instruments held at transition date as fair value through Other Comprehensive Income (FVTOCI).

3 Business combination

The company has elected to apply Ind AS 103, prospectively to business combinations occurring on or after its transition date. Business combinations that occurred before transition date, have not been restated.

B. Mandatory exceptions

1. De-recognition of financial assets and liabilities

The Company has applied the de-recognition requirement for financial assets under Ind AS 109 "Financial Instrumentsâ, prospectively for transactions occurring on or after transition date.

2. Estimates

The estimates made under Ind As as at transition date and at 31^st March 2017 are consistent with the estimates made for the same dates in accordance with Indian GAAP.

3. Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the transition date.

Explanation of transition to Ind AS

An explanation giving effects of the transition from Indian GAAP to Ind AS on the company''s financial position and financial performance is given by way of reconciliation and notes that accompany it.

The reconciliations include -

- reconciliation of equity as at 1^st April 2016;

- reconciliation of equity as at 31^st March 2017;

- reconciliation of total comprehensive income for the year ended 31^st March 2017;

There are no material adjustments to cash flow for the year ended 31^st March 2017

Notes to the reconciliation of equity as at transition date 1^st April 2016, 31^st March 2017 and total comprehensive income for the year ended 31^st March 2017

a) Business Combination

Under Ind AS, for common control business combinations, the financial information in respect of prior periods is required to be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination.

b) Investments in Mutual Funds

Under Ind AS, investment in mutual funds classified as ''Fair value through profit and loss'' are measured at fair value at each reporting date. The subsequent changes in the fair value of such investments are recognised in statement of profit and loss.

c) Equity Investments

Under Ind AS, investment in equity shares classified as ''Fair value through other comprehensive income'' are measured at fair value at each reporting date. The subsequent changes in the fair value and realised gains / losses if any of such investments are recognised in other comprehensive income. Further, gains or losses recognised in other comprehensive income are never reclassified from equity to statement of profit and loss.

d) Actuarial gains and losses and return on plan assets on defined benefit plan

Under Ind AS, re-measurements which comprise of actuarial gains and losses, return on plan assets and changes in the effect of asset ceiling, if any, with respect to post-employment defined benefit plans are recognised in other comprehensive income. Further, re-measurements thus recognised in OCI are never reclassified to statement of profit and loss.

e) Interest-free security deposits paid

Under Indian GAAP, interest-free security deposits paid are reported at their transaction values. Under Ind AS, interest-free security deposits are measured at fair value on initial recognition and at amortised cost on subsequent recognition. The difference between the transaction value and fair value of the lease deposit at initial recognition is treated as prepaid rentals. This amount is recognised in statement of profit and loss on a straight line basis over the lease term.

f) Sale of goods

Under Indian GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is separately presented on the face of statement of profit and loss. Thus sale of goods under Ind AS has increased with a corresponding increase in expenses.

Under Indian GAAP, revenue is recorded at gross amount of consideration and turnover discounts / fixed incentive offered are recorded as expenditure in the statement of profit and loss. Under Ind AS turnover discounts / fixed incentive are netted against revenue and not charged to statement of profit and loss separately.

g) Deferred Taxes

Indian GAAP permits deferred taxes to be accounted using the income statement approach, which focuses on timing differences between taxable profits and accounting profits for the period. Under Ind AS, deferred taxes are recognised using balance sheet approach i.e. reflecting the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes using the income tax rates enacted or substantively enacted at reporting date. Also, deferred taxes are recognised on account of the above mentioned changes explained in notes (a) to (f), wherever applicable.

Mar 31, 2017

1 Amalgamation of Kirloskar RoadRailer Limited and Pneumatic Holdings Limited with the Company.

Pursuant to the Scheme of Arrangement and Amalgamation of the Kirloskar RoadRailer Limited (KRL), Pneumatic Holdings Limited (PHL), the Company (Kirloskar Pneumatic Company Limited - KPCL) and their respective Shareholders, sanctioned by the Honourable National Company Law Tribunal, Mumbai Bench on 19^th April 2017, the Assets and the Liabilities of KRL and PHL are transferred to and vested in the Company with effect from 1^st April, 2016, being the Appointed Date of the Scheme. The Scheme has accordingly been given effect to in these Accounts.

( a ) Names and general nature of business of the Amalgamating Companies:

Kirloskar RoadRailer Limited, (CIN: U35990PN2008PLC132445), a Wholly Owned subsidiary of KPCL, incorporated under the Companies Act,1956 having its registered office at Hadapsar Industrial Estate, Pune 411013, is in the process of setting up business of carrying on multimodal transport business using RoadRailer technology of the Company.

Pneumatic Holdings Limited, (CIN: L65993PN2014PLC152566), a Holding Company of KPCL, incorporated under the Companies Act, 2013 having its registered office at Survey No 13, 156 Kothrud, Pune 411038. The main operations of the Company are that of Investment and leasing. The source of revenue of PHL therefore, is in the form of dividends and lease rentals. The shares of PHL are listed on BSE Limited and National Stock Exchange of India Limited.

( b ) Sailent features of the scheme :

Appointed date of Amalgamation of the scheme is 1^st April, 2016.

Effective date of the Scheme is 28^th April, 2017 being the date on which certified copy of the order of Honourable National Company Law Tribunal is filed with the Registrar of Companies by KRL, PHL & the Company. This date shall be a date of the Scheme becoming effective.

The entire Share Capital of KRL is held by KPCL, and hence pursuant to the Amalgamation, no shares of KPCL shall be allotted in respect of its holding in KRL. Upon the Scheme becoming effective, the entire Share Capital of KRL shall be cancelled.

Upon the Scheme becoming effective, the Equity Shares held by PHL in the Company shall stand cancelled as an integral part of the Scheme.

Upon the Scheme becoming effective, in respect of the amalgamation of PHL, the Company shall without any further application or deed, issue and allot shares, credited as fully paid-up, to the extent indicated below, to the shareholders of PHL, whose names appear in the Register of Members of PHL, on the Record Date to be fixed by the Board of Directors of the Company in the following proportion:

53 (Fifty Three) Equity Shares of Rs. 10 each fully paid up of KPCL for every 40 (Forty) Equity Shares of Rs. 10 each fully paid-up of PHL.

No fractional certificates shall be issued by the Company in respect of fractional entitlements, if any, to which the Equity Shareholders of PHL may be entitled. Instead the Board of Directors of the Company shall consolidate such fractions and issue consolidated Equity Shares to separate Trustees nominated by the Company in that behalf, who shall sell such shares in the market at such price and at such time, as the Trustees may deem fit, and distribute the net sale proceeds (after deduction of the expenses incurred) to shareholders of PHL, in proportion to their respective fractional entitlements.

The Scheme, upon becoming effective and w.e.f. the Appointed Date provides for the transfer to KPCL from KRL & PHL of the following :

Entire Undertaking(s).

All assets & properties.

Contracts, deeds, bonds, agreements, arrangements, assurances and other instruments of whatsoever nature.

All debts, liabilities, duties, obligations and encumbrances.

All legal proceedings whether by or against.

The Authorized Capital.

The Scheme also provides for debiting all costs, charges and expenses of Amalgamation to General Reserve.

( c ) Accounting treatment :

The amalgamation has been accounted for under the "Pooling of Interests" method as per Accounting Standard (AS-14) on "Accounting for Amalgamation" issued by the Institute of Chartered Accountants of India. Accordingly, the Accounting treatment has been given as under :

(i) The Assets and Liabilities as at 1st April, 2016, have been incorporated in the Accounts of the Company at Book Value.

(ii) The difference between the value of New Equity Shares to be issued by KPCL to the members of PHL and the value of Share Capital of PHL before the scheme coming into effect is debited to Capital Reserve Account. ( Refer Note 2 )

(iii) The difference in the book value of investments of PHL held in KPCL and the face value of shares cancelled pursuant to Amalgamation is adjusted against Capital Reserve to the extent available and balance against General Reserve. ( Refer Note 2 )

(iv) Income accruing and expenses incurred by KRL and PHL, during the period from 1st April, 2016 to 31st March, 2017, have been incorporated in these Accounts. All inter Company transactions and balances eliminated / extinguished. During this period, KRL and PHL carried on their existing businesses in trust for and on behalf of the Company.

(v) Pursuant to the Scheme referred above, 7,007,551 Equity Shares of Rs. 10/- each fully paid of KPCL held by PHL get cancelled and reduced from Share Capital of the Company. ( Refer Note 1 )

(vi) Pursuant to the Scheme referred above, 7,007,551 Equity Shares of Rs. 10/- each fully paid are to be allotted to the shareholders of PHL. The amount has been included in the "Share Capital Suspense" in Note 1.

(vii) Pursuant to the Scheme referred above, Investment of the Company in Share Capital of KRL stands cancelled being wholly owned subsidiary.

2 Disclosure pursuant to Accounting Standard - 15 ( Revised ) " Employee Benefits" :

a. Defined Contribution Plans:

Amount of Rs. 44,718,809 /- (Previous Year Rs. 39,554,538/-) is recognized as expense and included in âEmployee Benefits Expensesâ in Note 24 in the Profit and Loss Account.

v Broad Categories of plan assets as at 31.03.17

The plan assets are with Life Insurance Corporation of India and the Trust''s Investments are in State Government Securities.

The estimates of future salary increases considered in actuarial valuation takes into account inflation, seniority, promotion and other relevant factors.

vii General Descriptions of significant Defined Benefit plans:

Gratuity Plan:

viii The company has valued the compensated absences, as specified in AS 15 (Revised) on actuarial basis. Further 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 or incidence that its disclosure is relevant under other accounting standards. In the opinion of the management, the expense resulting from compensated absences is not significant and hence no disclosures are prepared under various paragraphs of AS 15 ( Revised 2005).

C Other Disclosures

3. Segments have been identified in line with the Accounting standard, AS-17 "Segment Reporting" (AS -17), taking into account the organization structure as well as the differing risks and returns.

4. Company has disclosed Business Segment as the primary segment.

5. The Segment Revenue, Results, Assets and Liabilities include the respective amounts identifiable to each of the segment and amounts allocated on reasonable basis.

6. The Accounting Policies of the Segments are the same as those described in the Significant Accounting Policy as referred in Note 52 to the Financial Statement.

Note : Related Party relationship is as identified by the Company based on the available information and relied upon by the Auditors.

* Ceases to be holding company wef 1^st April, 2016 in terms of Amalmagation of the Company with Kirloskar Pneumatic Company Limited while pursuant to the Scheme of Arrangement & Amalgamation sanctioned by Honourable National Company Law Tribunal, Mumbai Bench on 19^th April, 2017.

** Ceases to be subsidiary company wef 1^st April, 2016 in terms of Amalmagation of the Company with Kirloskar Pneumatic Company Limited while pursuant to the Scheme of Arrangement & Amalgamation sanctioned by Honourable National Company Law Tribunal, Mumbai Bench on 19^th April, 2017.

Transactions entered into with Holding & Subsidiary Company during the year have got nullified upon giving effect to the order of Amalgamation.

Receiving of services includes Remuneration paid / payable to Key Managerial Personnel as per note no 32 and to Relatives of Key Managerial Personnel.

There are no loans and advances given in the nature of loans to above mentioned Related Parties.

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

7 Managerial Remuneration :

Government of India, Ministry of Corporate Affairs has accorded its approval for waiver of recovery of Rs. 154.56 Lacs out of excess remuneration of Rs. 200.39 Lacs paid to the Executive Chairman during the years 2012-13, 2013-14 & 2014-15. Balance amount of Rs. 45.83 Lacs has been recovered and same is included in Miscellaneous Receipts in Note No. 21.

a) Profit and Loss Account includes payments and provisions on account of Remuneration to the Executive Directors as under :

Note :

8. As the employee wise breakup of contribution to gratuity fund is not ascertainable, the same has been included on the basis of entitlement in gross remuneration.

9. As the employee wise breakup of liability of leave entitlement, based on actuarial valuation, is not ascertainable, the same has not been included in gross remuneration.

b) Computation of net profit under Section 197 read with Section 198 of the Companies Act, 2013.

10. Leases:

a. Payment under Lease / Leave and License for period :

11. Not later than 1 year Rs. 7,248,326/- ( Rs. 7,495,301/- )

12. Later than 1 year but not later than 5 years Rs. 13,746,232/- ( Rs. 3,504,060/-)

b. There are no transaction in the nature of Sub Lease.

c. Payments recognized in the Profit and Loss Account for the year ended 31^st March, 2017 amounts to Rs. 10,979,382/- (Rs. 9,636,670/-)

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

13. Intangible assets:

In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation is amortized on commencement of commercial production. Software is being amortized on pro rata basis from the month of installation, over a period of one year.

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration.

The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Further the Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable and therefore management does not anticipate any financial impact on this account.

(C) Exchange differences on account of settlement / revalorization of foreign currency transactions in current account are included in Miscellaneous Receipts (Rs. 9,364,061/-, Previous Year Rs. 2,905,259/-) since such differences are in the nature of gain.

14 Miscellaneous expenses includes prior period items of Rs. 1,885,701 /- ( PY Rs.1,173,426/-).

15 The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act, 2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information total outstanding of Micro, Small and Medium Enterprises to whom the company owes dues as at 31^st March,2017 is Rs. 4,484,101/-. Estimated amount of interest calculated as per the provisions of the said Act which is accrued but not paid in respect of dues which are outstanding for more than 45 days is Rs. 70,000/-.

16 A. Deferred tax asset / liability :

As required by Accounting Standard 22, âAccounting for taxes on Incomeâ, prescribed by Companies (Accounting Standards) Amendment Rules, 2009, the Company has recognized Deferred Taxes which result from the timing difference between the Book Profits and Tax Profits aggregating Rs. 13,410,577/- in the Profit and Loss Account, The details of which are as under.

B. Current Tax includes credit of Rs. 8,408,463/- ( PY credit of Rs. 720,360/- ) in respect of earlier years.

17 Gross amount required to be spent by the Company on Corporate Social Responsibility during the year was Rs. 8,399,178/- ( PY Rs. 9,866,086/- ).

18 Tangiable Fixed Assets have been mortgaged to consortium of the banks as a security for working capital limits.

19 Disclosure of Specified Bank Notes (SBN) held and transacted during the period from 08 November 2016 to 30 December 2016 (As per the amendments notified under the Companies Act, 2013 by Ministry of Corporate Affairs dated 30 March 2017) :

20 Previous years figures are not comparable with those of the current year as current year figures includes effects of Amalgamation of Kirloskar RoadRailer Limited and Pneumatic Holdings Limited with the Company.

Mar 31, 2016

1. Disclosure pursuant to Accounting Standard - 15 ( Revised ) " Employee Benefits" :

a. Defined Contribution Plans:

Amount of Rs. 39,554,538/- (Previous Year Rs. 46,555,211/-) is recognised as expense and included in "Employee Benefits Expenses" in Note 24 in the Profit and Loss Account.

vii General Descriptions of significant Defined Benefit plans:

Gratuity Plan:

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

viii The company has valued the compensated absences, as specified in AS 15 ( Revised) on actuarial basis. Further 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 or incidence that its disclosure is relevant under other accounting standards. In the opinion of the management, the expense resulting from compensated absences is not significant and hence no disclosures are prepared under various paragraphs of AS 15 ( Revised 2005).

2. Managerial Remuneration :

During the year Company had made an application to Central Government (The Ministry of Corporate Affairs) seeking approval for the remuneration payable to the Executive Chairman due to inadequacy of profits for the year 2014-15. The Ministry of Corporate Affairs vide its letter dated 15th January, 2016 rejected the application on the ground that Company had paid remuneration exceeding 5% of net profits to the Executive Chairman during the financial years 2012-13 & 2013-14 without obtaining prior approval of the Central Government and further directed recovery of excess remuneration paid amounting to Rs.200.39 lacs (Rs.131.04 lacs net of tax). Company was advised to make an application to the Central Government for seeking waiver of recovery of this amount and accordingly, Company has made the requisite application to the Central Government. The said application is pending for approval and therefore Company has not recovered any amount nor accounted it as recoverable in the books of accounts as on 31st March 2016.

3. Leases:

The Company has entered into agreements in the nature of Lease/Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per accounting standard 19 with regard to the above is as under:

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year Rs.7,495,301/- (Rs. 9,010,167/-)

2) Later than 1 year but not later than 5 years Rs. 3,504,060/- (Rs. 9,365,596/-)

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2016 amounts to Rs. 9,636,670/- (Rs. 10,533,341/-)

d. Period of Agreement is generally for eleven months, in some cases extending upto five years and renewable at the option of Lessee.

4. Intangible assets:

In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation is amortized on commencement of commercial production. Software is being amortized on pro rata basis from the month of installation, over a period of one year.

5. Miscellaneous expenses includes prior period items of Rs.1,173,426/- (PY Rs.3,656,754/-)

6. The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act, 2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information there are no Micro, Small and Medium Enterprises to whom the company owes dues, which are outstanding for more than 45 days as at 31st March, 2016.

7. Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

Mar 31, 2015

1 Leases

The Company has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per accounting standard 19 with regard to the above is as under.

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year Rs. 9,010,167/- ( Rs. 8,361,680/- )

2) Later than 1 year but not later than 5 years Rs. 9,365,596/- ( Rs. 15,589,445/-)

b. There are no transactions in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2015 amounts to Rs. 10,533,341/- ( Rs. 10,649,404/-)

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

2 Intangible assets

In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation is amortized on commencement of commercial production. Software is being amortized on pro rata basis from the month of installation, over a period of one year.

3 A. Contingent Liabilities not provided for in respect of :

2014-15 2013-14 Rs. Rs.

Claims against the Company not acknowledged as Debts, estimated at 402,618,329 330,385,104

Income Tax Matters 712,247 712,247

Disputed Central Excise Matters 1,844,298 2,400,872

Disputed Customs Matters 1,454,000 1,454,000

Disputed Sales Tax Demands 69,615,414 1,157,000

Guarantees given by Company to Customers for the

contracts undertaken in usual course of business 6,407,829 11,947,143

B.Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Further the Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable and therefore management does not anticipate any financial impact on this account.

(C) Exchange differences on account of settlement / revalorization of foreign currency transactions in current account are included in Miscellaneous Expenses ( Rs.2,072,300/- Previous Year Rs.848,235/-) if such differences are in the nature of expenses & in Miscellaneous Receipts ( Rs. Nil, Previous Year Rs. Nil ) if such differences are in the nature of gain.

4.Miscellaneous expenses includes prior period items of Rs. 3,656,754/- ( PY Rs. 2,911,175/-)

5.The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act,2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information there are no Micro, Small and Medium Enterprises to whom the company owes dues, which are outstanding for more than 45 days as at 31 st March,2015.

6 Company has incurred an expenditure of Rs. 16,988,775 /- on Corporate Social Responsibility activities in terms of Section 135 of the Companies Act, 2013, comprising of an amount of Rs.15,000,000/- as contribution by way of donation and balance Rs. 1,988,775/- as direct CSR expenditure, included in other expenses covered in Note no. 27.

7 During the year the company has given donation to two political parties viz. Bharatiya Janata Party Rs. 750,000/- and Aam Aadmi Party Rs.750,000/-.

8 Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

Mar 31, 2014

1 Effects of changes in foreign exchange rates :

The company, in terms of Notification issued by Ministry of Corporate Affairs on 31st March, 2009, had exercised the option of implementing the provisions of newly inserted Paragraph 46 of Accounting Standard 11, ''Accounting for the Effects of Changes in Foreign Exchange Rates'', prescribed by Companies (Accounting Standards) Amendment Rules, 2009. The exchange fluctuation on account of Fixed Assets has accordingly been added to / deleted from the respective Fixed Assets.

2 Disclosure pursuant to Accounting Standard - 15 (Revised) " Employee Benefits" :

a. Defined Contribution Plans:

Amount of Rs. 48,159,022/- (Previous Year Rs. 46,980,069/-) is recognised as expense and included in "Employee Benefits Expenses" in Note 24 in the Profit and Loss Account.

b. Defined Benefit Plans:

i. Reconciliation of opening and closing balances of the Present Value of the Defined Benefit Obligation :

iii. Amount Recognised in the Balance Sheet including a reconciliation of the present value of the defined obligation in (i) and the fair value of the plan assets in (ii) to the assets and liabilities recognised in the Balance Sheet:

vii General Descriptions of significant Defined plans:

Gratuity Plan:

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

viii The company has valued the compensated absences, as specified in AS 15 (Revised) on actuarial basis. Further 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 or incidence that its disclosure is relevant under other accounting standards. In the opinion of the management, the expense resulting from compensated absences is not significant and hence no disclosures are prepared under various paragraphs of AS 15 (Revised 2005).

C Other Disclosures

1. Segments have been identified in line with the Accounting standard, AS-17 "Segment Reporting" (AS - 17),taking in to account the organisation structure as well as the differing risks and returns.

2. Company has disclosed Business Segment as the primary segment.

3. Composition of Business Segment

Name of the Segment : Comprises of :

a) Compression Systems Air and Gas Compressors, Air-conditioning and Refrigeration Compressors and Systems etc.

b) Transmission Equipments Power Transmission Equipments (Torque Convector), Reverse Reduction Gears for Marine Gear Engines, Industrial and Mobile application etc.

4. The Segment Revenue, Results , Assets and Liabilities include the respective amounts identifiable to each of the segment and amounts allocated on reasonable basis.

5. The Accounting Policies of the Segments are the same as those described in the Significant Accounting Policy as referred in Note 47 to the Financial Statement.

3 Leases:

The Company has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per accounting standard 19 with regard to the above is as under.

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year Rs. 8,361,680/- (Rs. 4,400,731/-)

2) Later than 1 year but not later than 5 years Rs. 15,589,445/- (Rs. 6,438,810/-)

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2014 amounts to Rs.10,649,404/- (Rs. 7,154,960/-)

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

4 Intangible assets:

In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation is amortized on commencement of commercial production. Software is being amortized on pro rata basis from the month of installation, over a period of one year.

5 A. Contingent Liabilities not provided for in respect of :

Claims against the Company not acknowledged as Debts, estimated at 330,385,104 310,188,849

Income Tax Matters 712,247 30,968,912

Disputed Central Excise Matters 2,400,872 2,400,872

Disputed Sales Tax Demands 1,157,000 1,157,000

Guarantees given by Company to Customers for the contracts undertaken in usual course of business 11,947,143 14,941,901

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Further the Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable.

(c) Exchange differences on account of settlement / revalorization of foreign currency transactions in current account are included in Miscellaneous Expenses (Rs. 848,235/- Previous Year Rs.2,279,378/-) if such differences are in the nature of expenses & in Miscellaneous Receipts (Rs. Nil, Previous Year Rs. Nil) if such differences are in the nature of gain.

6 The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act,2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information there are no Micro, Small and Medium Enterprises to whom the company owes dues, which are outstanding for more than 45 days as at 31st March,2014.

7 Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

Mar 31, 2013

1 Effects of changes in foreign exchange rates:

The company, in terms of Notification issued by Ministry of Corporate Affairs on 31 st March, 2009, had exercised the option of implementing the provisions of newly inserted Paragraph 46 of Accounting Standard 11, ''Accounting for the Effects of Changes in Foreign Exchange Rates'', prescribed by Companies (Accounting Standards) Amendment Rules, 2009. The Company had outstanding long term foreign currency loan which was categorized as Long Term Foreign Currency Monitory Item as referred in the said notification. Outstanding foreign currency loan is stated at the rate at which it is fully swaped and therefore no effects of change in foreign exchange rates are required to be considered.

2 Disclosure pursuant to Accounting Standard -15 (Revised)" Employee Benefits" :

a. Defined Contribution Plans:

Amount of Rs.46,980,069/- (Previous Year Rs. 41,727,896/-) is recognised as expense and included in "Employee Benefits Expenses" in Note 25 in the Profit and Loss Account.

b. Defined Benefit Plans:

i. Reconciliation of opening and closing balances of the Present Value of the Defined Benefit Obligation:

3 Leases

The Company has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per accounting standard 19 with regard to the above is as under.

a. Payment under Lease / Leave and License for period:

1) Notlaterthan 1 year Rs. 4,400,731/-

2) Later than 1 year but not later than 5 years Rs. 6,438,810/-

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2013 amounts to Rs.7,154,960/-

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

4 Intangible assets

In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation is amortized on commencement of commercial production. Expenditure on Technical Know-how, in respect of which commercial production has been started, is amortised over a period of three years based on its usage. Current Year Nil (Previous year Rs.4,166,668/-). Software is being amortized on pro rata basis from the month of installation, over a period of one year.

5 A. Contingent Liabilities not provided for in respect of:

Claims against the Company not acknowledged as Debts, estimated at 310,188,849 305,226,955

Income Tax Matters under Dispute 30,968,912 712,247

Disputed Central Excise Matters 2,400,872 2,394,872

Disputed Sales Tax Demands 1,157,000 1,157,000

Guarantees given by Company to Customers for the contracts undertaken in usual course of business 14,941,901 3,418,814

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Further the Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable.

6 The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act,2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information there are no Micro, Small and Medium Enterprises to whom the company owes dues, which are outstanding for more than 45 days as at 31 st March,2013.

7 A. Deferred tax asset/liability:

As required by Accounting Standard 22, "Accounting for taxes on Income", prescribed by Companies (Accounting Standards) Amendment Rules, 2009, the Company has recognised Deferred Taxes which result from the timing difference between the Book Profits and Tax Profits aggregating Rs. 3,217,696/- in the Profit and Loss Account, The details of which are as under.

B. Current Tax includes Rs.24,203,021/-(PYRs. Nil) in respect of earheryears.

8 Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

Mar 31, 2012

(a) External Commercial Borrowing of US$ 5,500,000 from Bank of India, UK, is secured by hypothecation of Plant and Machinery amounting to Rs.402,854,000/- purchased out of the said loan.

(b) Terms of repayment-Eight equal half yearly installments w.e.f June 2010

$ Included in market value at face value/paid up value, whichever is lower, as the quotations are not available.

Note : Investments made by the Company being of long term nature, diminution in the value of Quoted investments are generally not considered to be a permanent nature. However, provision for such diminution as considered necessary by the Management has been made in the Financial statements.

1 Effects of changes in foreign exchange rates:

The company, in terms of Notification issued by Ministry of Corporate Affairs on 31st March, 2009, had exercised the option of implementing the provisions of newly inserted Paragraph 46 of Accounting Standard 11, 'Accounting for the Effects of Changes in Foreign Exchange Rates', prescribed by Companies (Accounting Standards) Amendment Rules, 2009. The Company has outstanding long term foreign currency loans which are categorized as Long Term Foreign Currency Monitory Item as referred in the said notification. Accordingly Rs.2,763,750/- being loss for the year (Previous year gain Rs 1,897,500/-) has been adjusted against the cost of Fixed Assets.

2 Disclosure pursuant to Accounting Standard -15 (Revised) "Employee Benefits" :

a. Defined Contribution Plans:

Amount of Rs.41,727,896/- (Previous Year Rs.36,602,648/-) is recognised as expense and included in "Employee Benefits Expenses" in Note 25 in the Profit and Loss Account.

iii. Amount Recognised in the Balance Sheet including a reconciliation of the present value of the defined obligation in (i) and the fair value of the plan assets in (ii) to the assets and liabilities recognised in the Balance Sheet:

v. Broad Categories of plan assets as a percentage of total assets as at 31.03.12

The plan assets are with Life Insurance Corporation of India and the Trust's Investments are in State Government Securities.

vii General Descriptions of significant Defined plans:

Gratuity Plan:

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

viii The company has valued the compensated absences, as specified in AS 15 (Revised) on actuarial basis. Further 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 or incidence that its disclosure is relevant under other accounting standards. In the opinion of the management, the expense resulting from compensated absences is not significant and hence no disclosures are prepared under various paragraphs of AS 15 (Revised 2005).

Details of Remuneration paid / payable to Key Managerial personnel are as per note no.33 Transactions with fellow subsidiary are only with Kirloskar Oil Engines Ltd.

Transactions with relatives of key management personnel is only with Mrs. Suman C. Kirloskar.

Note:

1. As the employee wise breakup of contribution to gratuity fund is not ascertainable, the same has been included on the basis of entitlement in the above figures for the purpose of computation of net profit in terms of Section 349 of Companies Act, 1956, as per rules of the company.

2. As the employee wise breakup of liability of leave entitlement, based on actuarial valuation, is not ascertainable, the same has not been included in the above figures, for the purpose of computation of Net Profit in terms of Section 349 of the Companies Act, 1956.

3 Leases

The Company has entered into agreements in the nature of Lease / Leave and License agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and License and disclosure required as per Accounting Standard 19 with regard to the above is as under.

a. Payment under Lease I Leave and License for period:

1) Not later than 1 year Rs.5,865,048/-

2) Later than 1 year but not later than 5 years Rs.6,366,335/-

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2012 amounts to Rs.4,850,225/-

d. Period of Agreement is generally for Eleven Months, in some cases extending upto five years and renewable at the option of Lessee.

4 Intangible assets

In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation will be amortized on commencement of commercial production. Expenditure of Rs. 12,500,000/- on Technical Know-how, in respect of which commercial production has been started, has been amortised over a period of three years Software is being amortized on pro rata basis from the month of installation, over a period of one year.

5 A. Contingent Liabilities not provided for in respect of:

Claims against the Company not

acknowledged as Debts, estimated at 305,226,955 278,648,095

Income Tax Matters under Dispute 712,247 712,247

Disputed Central Excise Matters 2,394,872 3,970,702

Disputed Sales Tax Demands 1,157,000 1,157,000

Guarantees given by Company to Customers for the contracts undertaken in usual course of business 3,418,814 2,458,566

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Further the Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable.

(C) Exchange differences on account of settlement / revalorization of foreign currency transactions in current account are included in Miscellaneous Expenses (Rs. 10,239,299/- Previous Year Rs.6,368,018/-) if such differences are in the nature of expenses and in Miscellaneous Receipts (Rs.Nil, Previous Year Rs.Nil) if such differences are in the nature of gain.

6 The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act, 2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information there are no Micro, Small and Medium Enterprises to whom the company owes dues, which are outstanding for more than 45 days as at 31 st March, 2012.

7 Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

Mar 31, 2011

As at As at 31st March, 2011 31st March, 2010 Rs. Rs.

1 Significant Accounting Policies followed by the Company are as stated in the statement annexed to the Schedule. (Annexure A)

2. A Contingent Liabilities not provided for in respect of:

(a) Claims against the Company not 278,648,095 71,486,111 acknowledged as Debts, estimated at

(b) Income Tax Matters under Dispute 712,247 712,247

(c) Disputed Central Excise Matters 3,970,702 10,270,425

(d) Disputed Sales Tax Demands 1,157,000 1,310,000 (e) Guarantees given by Company to Customers for the contracts undertaken 2,458,566 2,575,082 in usual course of business

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Further the Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable.

8. Details of Licensed and Installed Capacity, Production, Stocks and Turnover:

* Note: Installed Capacity Most of the Plant & 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 ascertainable for the Company to indicate the exact installed capacity. The Company has, however, indicated the installed capacity on the basis of years Products Mix as certified by the Executive Director of company and being a technical matter, accepted by the Aud itors as correct.

9 Managerial Remuneration:

Note:

1. As the employee wise breakup of contribution to gratuity fund is not ascertainable, the same has been included on the basis of entitlement in the above figures for the purpose of computation of net profi/in terms of Section 349 of Companies Act, 1956, as per rules of the company.

2. As the employee wise breakup of liability of leave entitlement, based on Actuarial valuation, is not ascertainable, the same has not been included in the above figures, for the purpose of computation of Net Profit in terms of Sec 349 of the Companies Act

10. The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act,2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Accordingly there are no Micro, Small and Medium Enterprises Medium Enterprises identified to whom the company owes dues., which are outstanding for more than 45 days as at 31st March, 2011.

11. Foreign Exchange Derivatives & Exposures not hedged at close of the year

(C) Exchange Differences on account of settlement/ revalorisation of foreign currency transactions in currant account are included in Miscellaneous Expenses (Rs. 6,368,018/- Previous year Rs. Nil) if such differences are in the nature of expenses & in Miscellaneous Receipts (Rs. Nil, Previous year Rs.16,827,643/-) if such differences are in the nature of gain.

12 Disclosure pursuant to Accounting Standard -15 (Revised)" Employee Benefits":

a. Defined Contribution Plans: Amount of Rs. 36,602,648 /- (Previous Year Rs. 33,956.061/-) is recognised as expense and included in "Employee Emoluments" in Schedule 17 in the Profit and Loss Account,

b. Defined Benefit Plans:

v. Broad Categories of plan assets as a percentage of total assets as at 31.03.2011

The plan assets are with Life Insurance Corporation of india and the Trusts Investments are in State Government Securities.

vi. Actuarial Assumptions at the Balance Sheet date:

The estimates of future salary increases considered in actuarial valuation takes into account inflation, seniority, promotion and other relevant factors.

vii. General Descriptions of significant Defined plans:

Gratuity Plan:

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

viii. The company has valued the compensated absences, as specified in AS 15 (Revised) on acturial basis. Further 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 or incidence that its disclosure is relevant under other accounting standards. In the opinion of the management, the expense resulting from compensated absences is not significant and hence no disclosures are prepared under various paragraphs of AS 15 (Revised 2005).

C Other Disclosures

1 Segments have been identified in line with the Accounting standard, AS-17 "Segment Reporting" (AS - 17), taking in to account the organisation structure as well as the differing risks and returns.

2 Company has disclosed Business Segment as the primary segment.

3 Composition of Business Segment

Name of the Segment: Comprises of:

a) Compression Systems Air & Gas Compressors, Air conditioning & Refrigeration Compressors and Systems etc.

b)Transmission Equipments Power Transmission Equipments (Torque Converter), Reverse Reduction Gears for Marine Gear Engines, Industrial & Mobile application etc.

4 The Segment Revenue, Results, Assets and Liabilities include the respective amounts identifiable to each of the segment and amounts allocated on reasonable basis.

5 The Accounting Policies of the Segments are the same as those described in the Significant Accounting Policy as referred in Note 1 of Schedule 20 to the Accounts.

14 Disclosure of Transactions with Related Parties as required bytheAS-18 (A) Name of the related party and nature of relationship where control exists

Names of Related parties

1) Subsidiary Company NIL 2) Associate Company Kirloskar Chillers Pvt. Ltd.

3) Key Management Personnel Mr.Aditya Kowshik

4) Relatives of

Key Management Personnel Mrs. Kavita Kowshik Wife

Mr. Karn Kowshik Son

Ms. Meera Kowshik Daughter

Ms. Laxmi Chalapathi Mother

Ms. Sarayu Sister of Mr. Aditya Kowshik

Note : Related Party relationship is as identified by the Company based on the available information and relied upon by the Auditors.

15. The Company has entered into agreements in the nature of Lease / Leave and Licence agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and Licence and disclosure required as per accounting standard 19 with regard to the above is as under.

a. Payment under Lease / Leave and License for period :

1) Not later than 1 year Rs. 2,105,6607/-

2) Laterthan 1 year but not laterthan 5 years Rs. 1,666,366/-

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2011 Rs.4,090,196/-

d. Period of Agreement is generally for Eleven Months and renewable at the option of Lessee.

17 In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation will be amortized on commencement of commercial production. Expenditure of Rs. 12,500,0007- on Technical Know-how, in respect of which commercial production has been started, is being amortised over a period of three years.

18 The company, in terms of Notification issued by Ministry of Corporate Affairs on 31st March, 2009, had exercised the option of implementing the provisions of newly inserted Paragraph 46 of Accounting Standard 11, Accounting for the Effects of Changes in Foreign Exchange Rates, prescribed by Companies (Accounting Standards) Amendment Rules, 2009 . The Company has outstanding long term foreign currency loan which is categorized as Long Term Foreign Currency Monitory Item as referred in the said notification. Accordingly Rs.1,897,500/- being gain for the year (Previous year gain Rs 14,584,5217-) has been adjusted against the cost of Fixed Assets.

19 Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

Mar 31, 2010

As at As at 31stMarch, 2010 31st March, 2009 Rs. Rs.

1 Significant Accounting Policies followed by the Company are as stated in the statement annexed to the Schedule (Annexure A)

2. A Contingent Liabilities not provided for in respect of:

(a) Claims against the Company not acknowledged as Debts, estimated at 71,486,111 54,009,661

(b) Income Tax Matters under Dispute 712,247 19,282,704

(c) Disputed Central Excise Matters 10,270,425 9,380,960

(d) Disputed Sales Tax Demands 1,310,000 1,227,000

(e) Guarantees to Housing Development Finance

Corporation Limited for housing loans to employees - 1,187

(f) Guarantees given by Company to Customers for the contracts undertaken in usual course of business 2,575,082 2,447,723

B. Claim for US $ 10 million has been filed against the Company in the International Court of Arbitration. The Arbitration proceedings have been stayed by the Honorable High Court of Delhi. The Special Leave Petition filed by the plaintiff against the Order of High Court has been dismissed by the Honorable Supreme Court. Furtherthe Honorable High Court of Delhi has transferred the matter to District Courts, Tis Hazari, Delhi on the grounds of pecuniary jurisdiction. Company has obtained an opinion from Senior Counsel stating that claim made by the plaintiff is not tenable.

3 The Company has imported Capital Goods under the Export Promotion Capital Goods Scheme, of the

Government of India, at concessional rates of Duty with an obligation to fulfill quantified exports. The export obligation is fulfilled completely and there is no pending export obligation against Export Promotion Capital Goods Scheme.

4. As the employee wise breakup of liability of leave entitlement, based on actuarial valuation, is not ascertainable, the same has not been included in the above figures, for the purpose of computation of Net Profit in terms of Sec 349 of the Companies Act.

b) Computation of net profit under section 349 of the Companies Act, 1956.

5. The information as required to be disclosed under the "Micro, Small and Medium Enterprises Development Act,2006" has been determined to the extent such parties have been identified on the basis of information available with the company. Based on this information there are no Micro, Small and Medium Enterprises to whom the company owes dues, which are outstanding for more than 45 days as at 31 st March, 2010.

6. Foreign Exchange Derivatives & Exposures not hedged at close of the year

7 Disclosure pursuant to Accounting Standard -15 (Revised )" Employee Benefits":

a. Defined Contribution Plans:

Amount of Rs. 33,956,061 /- ( Previous Year Rs. 33,366,525/-) is recognised as expense and included in "Employee Emoluments" in Schedule 17 in the Profit and Loss Account,

b. Defined Benefit Plans:

i Reconciliation of opening and closing balances of the Present Value of the Defined Benefit Obligation:

iii Amount Recognised in the Balance Sheet including a reconciliation of the present value of the defined obligation in (i) and the fair value of the plan assets in (ii) to the assets and liabilities recognised in the Balance Sheet:

v. Broad Categories of plan assets as a percentage of total assets as at 31.03.2010

The plan assets are with Life Insurance Corporation of India and the Trusts Investments are in State Government Securities.

vii General Descriptions of significant Defined plans:

Gratuity Plan:

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

viii The company has valued the compensated absences, as specified in AS 15 (Revised) on acturial basis. Further 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 or incidence that its disclosure is relevant under other accounting standards. In the opinion of the management, the expense resulting from compensated absences is not significant and hence no disclosures are prepared under various paragraphs of AS 15 (Revised 2005).

C Other Disclosures

1 Segments have been identified in line with the Accounting standard, AS-17 "Segment Reporting" (AS -17), taking in to account the organisation structure as well as the differing risks and returns.

2 Company has disclosed Business Segment as the primary segment.

3 Composition of Business Segment

Name of the Segment: Comprises of:

a) Compression Systems Air & Gas Compressors, Air conditioning &

Refrigeration Compressors and Systems etc.

b) Transmission Equipments Power Transmission Equipments (Torque Convertor),

Reverse Reduction Gears for Marine Gear Engines, Industrial & Mobile application etc.

4 The Segment Revenue, Results, Assets and Liabilities include the respective amounts identifiable to each of the segment and amounts allocated on reasonable basis

5 The Accounting Policies of the Segments are the same as those described in the Significant Accounting Policy as referred in Note 1 of Schedule 19 to the Accounts.

8 Disclosure of Transactions with Related Parties as required bytheAS-18

(A) Name of the related party and nature of relationship where control exists Names of Related parties

1) Subsidiary Company Khosla Indair Ltd. Ceased to be Subsidiary during theYear and now an Associate company.

2) Associate Company Kirloskar Chillers Pvt. Ltd.

3) Key Management Personnel Mr.H.R.Mustikar Upto 5th July 2009

Mr.Aditya Kowshik

4) Relatives of

Key Management Personnel Mrs. Snehlata H. Mustikar Wife

Mr. Milind H. Mustikar Son

Mr. Mukul H. Mustikar Son

Mrs. Kanchan M Mustikar Sons Wife

Mrs. Gauri M Mustikar Sons Wife

Master Pranav M Mustikar Sons Son

Master Aditya M Mustikar Sons Son

Miss Madhura M Mustikar Sons Daughter

Miss Mrunal M Mustikar Sons Daughter

Mr. Yeshwant P Kulkarni Brother

Mrs. Premlata Y Kulkarni Brothers Wife

Mr. Mohan R Mustikar Brother

Mrs. Anjaii M Mustikar Brothers Wife

Mrs. Usha S. Kale Sister of Mr. H. R. Mustikar

Mr. Shyamkant P Kale Sisters husband

Mrs. Kavita Kowshik Wife

Mr. Karn Kowshik Son

Ms. Meera Kowshik Daughter

Ms. Laxmi Chalapathi Mother

Ms. Sarayu Sister of Mr. Aditya Kowshik

Mr. H. L. Narasimha Sisters husband

Note: Related Party relationship is as identified by the Company based on the available information and relied upon by the Auditors.

9 The Company has entered into agreements in the nature of Lease / Leave and Licence agreement with different Lessors / Licensors for the purpose of establishment of office premises / residential accommodations and assets. These are generally in nature of operating Lease / Leave and Licence and disclosure required as per accounting standard 19 with regard to the above is as under.

a. Payment under Lease / Leave and License for period:

1) Not laterthan 1 year Rs. 1,955,522/-

2) Laterthan 1 year but not laterthan 5 years Rs. 507,630/-

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 201 ORs. 4,147,910/-

d. Period of Agreement is generally for Eleven Months and renewable at the option of Lessee.

10 As required by Accounting Standard 22, "Accounting for taxes on Income ", prescribed by Companies (Accounting Standards) Amendment Rules, 2009, the Company has recognised Deferred Taxes which result from the timing difference between the Book Profits and Tax Profits aggregating Rs. 5,972,078/- in the Profit and Loss Account, The details of which are as under.

11 In accordance with the Accounting Standard 26, "Intangible Assets" expenditure on Technical Know-how on Project under implementation will be amortized on commencement of commercial production. Expenditure of Rs. 12,500,000/- on Technical Know-how, in respect of which commercial production has been started, is being amortised over a period of three years.

12 The company, in terms of Notification issued by Ministry of Corporate Affairs on 31st March, 2009, had exercised the option of implementing the provisions of newly inserted Paragraph 46 of Accounting Standard 11, Accounting for the Effects of Changes in Foreign Exchange Rates, prescribed by Companies (Accounting Standards)Amendment Rules, 2009. The Company has outstanding long term foreign currency loans which are categorized as Long Term Foreign Currency Monitory Item as referred in the said notification. Accordingly Rs. 27,750,189/- being gain for the year ended 31 st March 2010 (Rs 13,721,930/- being loss for the year ended 31st March 2009) has been adjusted against the cost of Fixed Assets.

13 Information required in terms of Part IV of Schedule VI to the Companies Act, 1956, as compiled by the Company, is attached.

14 Previous years figures have been regrouped wherever necessary to make them comparable with those of the current year.

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