Kirloskar Oil Engines Ltd Management Discussions

Global economic overview

In the wake of mounting inflationary pressures and the geopolitical conflict in Europe, global economies grappled with several challenges in 2022. The sustained rise in interest rates by Central Banks around the world to rein in inflation and the prolonged geopolitical crisis in Europe are impeding economic activity.

The resurgence of COVID in China dampened growth prospects in 2022. However, the recent reopening has set the stage for a faster-than-anticipated rebound. Another silver lining is the fact that global inflation is projected to decelerate from *8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. In the course of 2023, pent-up demand across emerging economies and a sharper decline in inflation are expected. The emerging and developing economies of the world are expected to drive and remain instrumental in accelerating global economic growth, in the years ahead. *Source: IMF World Economic Outlook January 2023

Outlook

There are early signs that indicate a gradual recovery from the pandemic-induced shocks and supply-chain constraints. Growth rates (fourth quarter over fourth quarter) have increased from an expected 2.8% in 2022 to 4.5% in 2023¹, signifying that growth in many emerging markets and developing economies is now witnessing an upswing.

The pace and effectiveness of fiscal and monetary policy measures to support economic expansion would also help shape a promising outlook. Central banks around the world have been tightening monetary policy, but it remains to be seen if these measures will prove to be effective in curbing sticky inflation and promoting long-term growth. Fiscal policies would also play a key role, particularly in assisting businesses and individuals affected by the pandemic.

Structural reforms such as fostering flexible and inclusive labour markets, scaling up productivity, alleviating supply chain bottlenecks, enhancing business dynamism, lowering barriers to cross-border trade and encouraging economic migration are expected to be essential for mitigating supply shortages and building on the gains from digitalisation .¹

Indian economic review

Notwithstanding the gloomy global outlook, the Indian economy remained relatively shielded from global challenges and sustained its position as one of the fastest-growing major economies in FY23. It registered a growth of 7%² in FY23. Employment in the corporate sector is registering growth, as indicated by lowering unemployment rates and an upsurge in net payroll additions under EPFO. The economys corporate sector credit-to-GDP ratio remains below its historical trend, thereby demonstrating that there is ample room for the corporate sector to raise debt to support its growth initiatives. The strong Balance sheets profile of the corporate sector has also been pivotal in driving macroeconomic stability.³

The growth has been propelled by robust domestic demand, especially in private consumption expenditure, rising gross fixed capital formation and the Governments enhanced capital expenditure for FY23. The Union Budget 2023 announced a historic budget estimate of H 10 lakh crore for FY24 which marked a 33.4% increase in capex when compared to the last years Union Budget⁴. The governments capital investments are expected to have a multiplying effect on the economys manufacturing sector and lend Indian goods a competitive edge in the international markets.

Outlook

With sound macroeconomic fundamentals, stronger private sector balance sheets and high tax receipts, India has outperformed many economies. This has helped the Government to mitigate the impact of the impending global economic slowdown.

Several high-frequency indicators, including GST collections, railway and air traffic, electronic toll collections and the volume of E-way bills generated, point towards a strong economic recovery. The countrys sustained growth momentum has made it an attractive destination for pitching in substantial investments.

Going forward, India is expected to remain the fastest-growing nation among the G-20 nations. Also, Indias presidency of the G20 Summit in 2023 has significantly bolstered its stature on the international stage.

Company overview

Kirloskar Oil Engines Limited (‘KOEL/Company) is a part of the Kirloskar Group, an Indian conglomerate with interests in engineering, manufacturing, construction, real estate and financial services. The Company is dedicated to sustainable development and has carried out a number of programmes to promote social welfare, energy efficiency and environmental protection.

The Company produces and sells internal combustion engines, generator sets, industrial solutions, pump sets, farm equipment and other allied products for various applications across business segments. The Company was established in 1946 and has its headquarters in Pune, Maharashtra.

The Company also offers various power solutions, which include designing, engineering and commissioning. The Companys extensive network of GOEMs, service dealers and distributors provides timely and effective services for its clients globally.

Change of reporting segments

On the back of strong demand, the Company has consistently delivered strong results. It has also recently undertaken a transformation journey. As part of this effort, it conducted a thorough review of its organisational structure to ensure that it is capable of supporting its growth aspirations. The Company has actively implemented changes to its business structures to improve effectiveness and business focus and accordingly, the necessary changes to segmental reporting are as follows:

Kirloskar Oil Engines operates in three primary business verticals:

• B2B, which includes businesses related to fuel agnostic internal combustion engine platforms. The businesses include power generation, industrial, distribution & aftermarket and international business;

• B2C, which encompasses water management solutions and agri-related businesses;

• Financial services segment (Arka Fincap under separate entity)

B2B Segment

Industry and business overview

Power Generation Business

Over the next ten years, India is projected to undergo rapid industrialisation and urbanisation, necessitating the development and expansion of adequate power infrastructure to ensure sustained economic growth. As the worlds third-largest producer and consumer of electricity, India has an impressive installed power capacity of 412.21 GW as of February 2023. In the fiscal year 2023 (up to February 2023), the country exhibited an energy deficit of 0.5%, with the peak deficit at 4%⁵. It is expected that the generator set market will grow at a compound annual growth rate (CAGR) of 4% between FY23 and FY28. This growth can be attributed to the rising demand for uninterrupted power supply in various sectors, such as manufacturing, infrastructure, healthcare, data centres and residential areas.

Key trends and prospects for coming years

• Favourable government initiatives aimed at positioning India as a global manufacturing hub necessitate generator sets as a backup power source.

• Rapid urbanisation driving infrastructure growth is also likely to contribute to the demand for generator sets.

• The requirement for generator sets as the primary power source in off-grid areas, particularly for telecom towers in 5G infrastructure, is expected to contribute to the growing demand for generator sets.

• The market for generator sets is likely to be propelled by several factors, including the surge in digitalisation leading to a greater demand for higher kVA-rated generators in data centres.

• Lastly, preference for alternate fuel engines is anticipated to witness an uptick, thereby supporting the Governments green energy initiatives.

Business performance

The market for generator sets has demonstrated a remarkable expansion due to the sustained demand from the manufacturing, realty and infrastructure sectors, including roll out of 5G telecom spectrum, growth in data centres, expansion of healthcare space and other planned power interruptions in different states throughout the year. The value expansion in the generator set industry is projected to remain bullish, indicating strong growth opportunities.

In FY23, the Company reported a revenue of H 1,655 crore from its power generation business, compared to H 1,297 crore in FY22. The Companys firm grip on the low and medium kVA business, owing to its diverse product portfolio, has enabled it to solidify its leadership position, while simultaneously expanding rapidly in the higher kVA segments, surpassing the markets overall growth rate.

Major trends influencing business performance and action plan

Following the Russia-Ukraine conflict, supply chain disruptions, the ban on diesel generators in the NCR and other macroeconomic factors, the business endured numerous hardships. However, the expansion of 5G in the telecom sector, upbeat construction activity, the PLI programme in manufacturing and smart city initiatives, among other factors bolstered the demand for the generator sets resulting in strong tailwinds for the Companys products.

Opportunities

The Company continuously identifies and monitors factors that may impact its growth trajectory. Unreliable power supply and power deficit in rural regions, which are persistent concerns, continue to be opportunities in the power generation sector. Moreover, the digitalisation wave, coupled with the growth of data centres, has presented the Company with new avenues for expansion.

Additionally, the Company is planning to foray into the global market with its upgraded portfolio capable of catering to most emission requirements across key markets. This is expected to strengthen the Companys position in the international market and pave the way for future expansion.

Challenges

The Company is likely to face certain challenges in the near term. The government initiatives towards achieving net-zero emissions, including the ban on diesel generator sets and the preference for battery storage devices, could adversely affect the Companys growth prospects. The Company is actively investing is developing its portfolio to be fuel agnostic and making its products more relevant to the customers usage patterns. The Company will be launching the largest range of CPCB IV+ compliant products across the industry.

Inflation, commodity prices, supply chain constraints, and the adoption of renewable energy sources for sustainable development may hinder the demand for conventional generator sets.

Action plan and new product developments

The Companys unwavering focus on meeting the diverse, evolving needs of its customers has yielded significant dividends. The strategic introduction of segment-specific products, along with consistent value addition and enhancement in the higher kVA range and optimisation of generator accessories, have all had a productive impact on business performance. Additionally, regular and meaningful engagement with key stakeholders has further boosted the Companys market position.

The Company has made great strides in the low and medium kVA segment by introducing innovative products with customer-centric features in FY23. Its flagship Genset 2.0 - R550 series generator set, gas-based generator set, 3000 RPM range inverter technology portable generator and segment-specific generator set

(Rental segment) have been some of the notable launches. Making sustainability & technology its foremost priority, the Company has developed IOT-enabled gas generator across various power nodes with digital monitoring systems. It has also introduced a dual fuelkit that can be retrofitted to existing and future diesel generators, enabling them to operate on a combination of gas and diesel. The Genset 2.0 - R550 series is a compact, IOT-enabled powerhouse generator with features, including remote monitoring, a robust design, automatic mains failure (AMF), aesthetic features, ease of service and accessibility, as well as QR-enabled basic information.

The Genset 2.0 - offers a volumetric size reduction of 30% and has garnered an overwhelming response from customers across various segments.

Future outlook

In the upcoming year, the Company intends to modify its products to comply with the latest CPCB IV+ norms. In response to the strong demands of the market, the Company has earmarked the development of segment-specific products as the cornerstone of its business strategy. To support the Governments ‘Atmanirbhar Bharat initiative, the Company has prioritised local production and sourcing of materials and components. The Company remains steadfast in its commitment to contribute to a sustainable future through the development of alternative fuel engines to facilitate the attainment of net-zero carbon emission targets. The Companys objective to exceed market growth in the high horsepower segment will be driven by product refinement to encompass a range over 3000 kVA. The Company is aspiring to transition from a mere product supplier to an end-to-end turnkey solution provider for backup power, composite electrical, firefighting and exhaust management.

Industrial Business

In 2023, it is predicted that the global market for industrial engines will generate USD 175 billion in revenue. With a consistent growth rate of 6.2%, the industrial engine market is expected to reach USD 319 billion by 2033. The primary reason for the markets expansion is the greater need for power generation equipment in emerging markets, including China, India and Brazil ⁶.

The Company nurtured enduring relationships with key stakeholders, including OEMs, end-users across various operational segments, suppliers and communities, throughout the year. It is a leading independent engine manufacturer in India and a preferred choice for major construction equipment OEMs. Furthermore, the Company is also a supplier of Diesel Alternator (DA) sets for power cars and auxiliary power units to the Indian Railways.

The Companys unique position in dealing with the majority of project businesses offering customised products and service solutions for niche markets has helped it gain a significant presence in the Defence and Marine segments.

The Companys growth in the industrial business can be attributed to the provision of market-specific products that are competitively priced and delivered on time, supported by Kirloskar CAREs robust aftersales service network across India. The Company has been successful in enhancing its market share across operating categories in the industrial business by providing the proper fit for market product.

Business overview

The Company experienced strong demand for its BSIV emission-compliant engines from segments such as Earth moving, Construction and Material Handling due to improved fuel consumption and prompt aftersales service PAN-India. The demand for firefighting engines also increased due to growing safety awareness and heightened safety regulations imposed by local authorities in various residential and other segments of the country. The Company reached a major milestone in its recently started fishery business by having supplied and commissioned over 1000+ fishing boat engines, with over 50 engines having crossed 10,000 hours of operation.

The Companys industrial engines unit recorded a revenue of J 852 crore, registering a sales growth of 22% over the previous year.

To widen its presence in diverse sectors such as Rail and Defence, KOEL has entered into strategic partnerships with organisations that complement its strengths. The Company has emerged as a system integrator and packager, offering turnkey solutions for projects of strategic interest, such as the Airfield Integrated Security System and communication systems for the Air Force and as a propulsion system provider in the Marine industry. The Company has also started manufacturing the new K43 series of high-horsepower engines at its Nasik plant.

Recognising its outstanding performance, the Bureau of Energy Efficiency awarded the Companys Nasik plant the first prize for energy conservation and it was also felicitated by the President of India. The organisations focus on quality was demonstrated by the accolades it won at international quality forums such as the International Convention for Quality Control Circles (ICQCC) held in Indonesia in November 2022.

Future outlook

The Company been a preferred partner with major equipment manufacturers both domestically and globally and it consistently leverages its technological prowess to sustain its position as a market leader. The Company remains steadfast in its commitment to developing new products by collaborating with OEMs. It also looks forward to catering to the OEMs requirements for machines currently under development as well as the upcoming BSV emission norms.

Furthermore, the Company is committed to ensuring that the Diesel Alternator (DA) sets supplied to Railways comply with the latest emissions norms as they are implemented. In an effort to augment its global footprint and bolster exports of machines powered by Kirloskar engines, the Company aims to collaborate with construction OEMs, given the rapidly evolving macroeconomic climate.

Distribution & Aftermarket Business

In FY23, the Company reported a revenue of H 630 crore from its distribution and aftermarket business, compared to H 535 crore in FY22 a growth of 18%. Enhancing service penetration, new product launches and channel optimisation, have been key growth enablers.

The following are the segments that make up the newly created distribution and aftermarket business unit of the Company:

• Customer support and service channel – Revenue and service organisations

• Retail channel – spare parts, oil and allied products including Electric Motors and Organic Waste Composter.

Customer support and service channel

The Kirloskar CARE brand is renowned for its dedicated after-sales services for Kirloskar Powergen and Industrial products. The Company has an extensive network of over 400 service outlets throughout India, all of which are connected through a digital platform. Additionally, the Company has a team of 3000+ trained service personnel, setting an industry benchmark for customer service.

In light of evolving market trends, including the wide use of industrial engines and shifting diesel generator set usage patterns, the Company is striving to restructure its service channel. This restructuring aims to ensure optimal service reach for long-term customer retention by offering assured service packages. This will also widen the Companys customer outreach as well as help it achieve a positive Net Promoter Score (NPS) and revenue growth.

The Companys innovative service offerings, such as Bandhan and Anubandh (AMCs) and Extended Warranty, are underscored by a strong Customer Retention Index (CRI) measurement process. This allows the Company to develop enduring relationships with individual customers and differentiate itself from competitors.

Despite soaring inflation and a volatile market, the Companys robust systems and processes, coupled with proactive service support, enabled the customer support business to generate revenues worth H 505 crore in FY23, representing a 15% increase over the previous year.

Future outlook

The power generation sector is currently undergoing a significant shift as the CPCB IV+ emission standards. These new regulations entail a major departure from the current emission technologies, with the introduction of electronic components, emission control devices, on-board diagnostics and a change in the generator sets architecture.

To cater to these changing emission norms, the Company has devised a service strategy that encompasses a four-corner transformation approach, considering the shift from mechanical to electronic engines with complex after-treatment systems. This approach focuses on ensuring a capable structure including people, tools, channel and systems.

The service teams are actively working to ensure the availability of the following critical elements before the CPCB IV+ launch: the deployment of adequate and trained manpower across India; ensuring spare parts availability across all channels; testing and deployment of fit-for-market tools and processes; setting up an infant care and rapid response team; and establishing a control tower to monitor product performance while enabling digital data for proactive service delivery.

Kirloskar Powergen also intends to develop novel service solutions as part of its enhanced assured service penetration programme, which will be backed by solid digital procedures and measurement systems, as well as a strong CRM, to foster customer loyalty with Kirloskar CARE.

Retail channel

Originally named Tractor Parts and Oil (TPO), this retail distribution channel has experienced a decline in spare parts revenue contribution and has been mostly reliant on the oil business. To provide a more comprehensive solution to customers and leverage the channel, the Company aims to introduce agriculture and construction parts and other allied products including Electric Motors and Organic Waste Composter.

Currently, the retail channel consists of over 300 networks spanning rural and urban areas, with access to local retail counters.

In FY23, this business generated revenue of J 125 crore, marking a 30%increasefromthepreviousyear.

Future outlook

To further expand this business, the Company has undertaken several initiatives for FY24. These include realigning channels based on the core businesses of agriculture solutions and construction, as well as introducing agricultural equipment parts, and construction equipment parts. Additionally, the Company plans to diversify its channels in weaker markets such as Andhra Pradesh, Telangana, Kerala and Rajasthan. It will also implement digitalisation solutions for retail sales visibility and launch loyalty programmes to boost sales.

International Business

 

Business overview

The Companys international business saw mixed demand across various segments during FY23. While there was growth in the power generation, industrial and firefighting sectors, there was a drop in the agriculture sector. The Company faced challenges due to raw material availability and inflated raw material costs, which led to several measures being implemented to reduce costs and partially curb inflation through price hikes. Despite these challenges, the Company was successful in maintaining uninterrupted and on-time supplies to international markets, contributing to a healthy top line and bottom line at the end of the financial year.

The power generation market saw strong demand from the Southern Africa region due to extended power cuts in South Africa, contributing to a growth rate of 153%.

In the firefighting market, the Company continued to expand through the addition of new OEMs and an increase in market share with existing OEMs. It maintained its leading position in the FM/UL segment in the Middle East and also gained traction in other regions such as the USA, Europe and the Asia-Pacific. The Company also augmented its product offering in the non-listed firefighting space to increase its business share in the Asia-Pacific region and Europe.

The limited availability of forex in many countries due to adverse economic conditions, soaring inflation and currency fluctuations led to reduced demand in various segments and affected the Companys channels and businesses in Latin America, Africa, the Middle East and Southeast Asia.

The Companys revenue in FY23 from the international business was around H 429 crore, as against H 298 crore in FY22, registering a growth of over 44%.

Future outlook

While continuing to focus on key markets such as the USA, South Africa and the UAE, the Company aspires to expand its market share in these regions. With the CPCB IV+ & CEV BSV norms being implemented in India, the Companies entire portfolio will be technologically compliant with the emission norms across key global market that will help enable growth in the US market with the introduction of EPA-certified engines and gas long blocks. Additionally, the Company plans to expand its business in the firefighting market in the USA, Europe and the Asia-Pacific region and also develop new products for the mining industry in South Africa. In the power generation sector, the Company expects significant growth with the introduction of its new R550 series engines.

B2C Segment

Industry and business overview

Water management solutions (WMS)

The domestic and agriculture segments of the electric pump industry experienced a decline of 5% in terms of value compared to the previous year. This was due to unseasonal rainfall in peak selling months of October and November, which negatively affected sales. Additionally, the cost of ownership increased due to higher raw material prices earlier in the year, which further impacted the purchasing behaviour of customers, especially in the agriculture sector.

The diesel engine pumpset market declined, with an overall decrease of 10%. This can be attributed to the increasing trend of replacing diesel pump sets with electric pumpsets. However, the construction segment showed strong demand, which led to an improved growth rate of 17% for diesel engines.

Business overview

In FY23, the Water Management Solutions Business Unit contributed _400 crore to the total revenue, a significant increase from _352 crores in FY22. Despite an industry-wide decline, both diesel engine and electric pumps showed good growth. The Company increased its market share in the engines area to 55%, with electric pumps at 3%. WMS also expanded its product portfolio with the addition of column pipes and 3 phase induction motors.

New Product Development

The Company has developed sewage and cutter pumps at its Coimbatore plant, which are ready to be introduced in April 2023. In addition, single-phase induction motors are currently in development at Coimbatore and Ahmedabad plants.

Rajkot Plant

With a significant improvement in product quality, the Company successfully completed a full year of operation after the supply chain transformation of the manufacturing business in Rajkot. The cost of manufacture per cylinder also decreased. In order to increase its market share for small diesel engines and pump sets, the plant created a number of low-cost products. Additionally, the Company relocated the assembly line for petrol pump sets from Pune to Rajkot, which is now operational.

Concerns and Threats

For the diesel segment, the trend of conversion from diesel pump sets to electric pump sets is expected to continue. Despite this, strong demand for diesel engines from OEM manufacturers of concrete mixture machines is expected due to sustained infrastructure push by the government and rapid urbanization.

Future outlook

The demand for electric pumps is expected to regain its normal growth rate of 5-7% aided by good demand from the agriculture segment as PVC prices have come down. However, in the domestic segment, growth may be muted due to the expansion of the Har Ghar Jal Yojana program, which provides tap water to homes and reduces dependency on borewell pumps. Additionally, high construction costs may deter standalone house construction, which requires water pumps. The market will continue to be very price sensitive, with newer players pushing products based on price. However, the Company is confident in its strategies and is focused on improving margins and market share in all the segments it competes in.

Farm mechanisation solutions

In FY23, the market for power tillers experienced a plateau in comparison to the previous fiscal year. In contrast, the power weeder division witnessed rapid growth. The sales of both power tillers and weeders were significantly influenced by government subsidies and seasonal trends throughout India. With the Government promoting local manufacturing, the power tiller market observed a complete disappearance of import players. However, imports of power weeders from China continued.

Business overview

The farm mechanisation business expanded further to include export markets and original equipment manufacturer (OEM) partnerships in addition to its domestic business.

The Companys revenue in FY23 from farm mechanisation business stood at H 107 crore, as compared to H 88 crore in FY22.

New products launched

During FY23, the Company executed its innovation-driven strategy and released a new range of KCool products that catered to the market demand in the 15HP and 12HP space, as well as the power weeder one. This was achieved through the implementation of an effective enquiry management system and channel finance facility.

In the farm mechanisation business, the Company released its latest KCool engine-based MEGA 15, MEGA T12 and their respective variants, which were widely accepted in the market. Additionally, the Companys 2 HP offerings in the weeder segment were well received. The localisation of various components required for the above product range is currently on the brink of commercialisation.

Furthermore, the Companys power tillers have been certified by Southern Region Farm Machinery Training and Testing Institute (SRFMTTI). To increase their utility for small and marginal farmers, the Company has introduced a power tiller with a mini harvester attachment to benefit the farmers. This attachment can be used in a multi-crop scenario with minimal changes, thus maximising its efficiency. It is anticipated that this attachment would significantly reduce harvesting costs as it requires only one-third of the initial investment when compared to conventional harvesters. Moreover, this innovation will enable farmers to mechanise harvesting in smaller plots, difficult-to-reach terrains and areas of individual ownership, as it requires minimum operational skills.

Future outlook

Agriculture and related industries are expected to receive top priority from the Government, with favourable policies likely to benefit the farm mechanisation sector as a whole. With a near-normal monsoon forecast, the peak Kharif season in June-July would be critical for the farm mechanisation business.

In FY24, subsidies from the Government would remain a key driver for power tiller sales. Farm mechanisation products are already part of the national subsidy programme for FY23. Concurrently, farm mechanisation continues to focus on developing product variants and technology for the future.

In the coming year, the farm mechanisation business will be concentrating more on power tillers, power weeders and harvesting attachments to maximise its potential growth in FY24.

New products

The Company has released new products across all its business verticals in an effort to meet diverse customer needs. At the Company, the creation of new products is facilitated through strategic alliances with top organisations in the industry and in house research and development.

[For more details on new products, refer to the intellectual capital section of the report on page 46]

Supply chain

The Company is focusing on a resilient supply chain to withstand future demands and disruptions. Despite the global macroeconomic challenges, the Company has managed to mitigate the effects of supply chain constraints by establishing a collaborative relationship with its supplier base.

To further improve its supply chain management, the Company is highly focused on implementing the Internet of Things (IoT) and Artificial Intelligence (AI) in its supplier operations, which are expected to be integrated into its connected supply chain in the future.

Sustainability is a significant priority for the Company, and it is continually striving to enhance its procurement and supply chain processes. It has established a proficient team to deliver exceptional service to its customers and has placed great emphasis on building long-lasting relationships with its supply chain partners.

By maintaining a positive relationship with its suppliers, the Company has been able to ensure a steady production process during unstable situations. Additionally, the Company is leveraging its business through forward and backward integration of its supply chain, which has enabled it to have better control over its operations. These efforts have resulted in significant improvements in the Companys business.

Human resources

The Company has implemented several initiatives aimed at improving employee engagement, health and safety, recognising their crucial role in the success of the organisation. The Company maintains positive and harmonious employee relations throughout its offices and production facilities.

The Company manages its entire employee life cycle through its Human Resource Management System (HRMS). In order to enhance the managerial workforces skills, the Company has established leadership development programs, including Passport to Leadership. Furthermore, the Company has identified its campus hiring requirements and implemented a comprehensive onboarding program called "Campus to Corporate" to integrate college hires into the Company.

To acknowledge employees contributions and motivate them, the Company has a Recognition and Rewards (R&R) policy in place, including SPOT Awards, BU Awards and MD Awards, which are given quarterly. Additionally, to promote a culture of appreciation, the Company has introduced recognition cards that any employee can give to anyone across the Company.

Furthermore, to remain competitive in the talent market, the Company continuously reviews its compensation and benefits practices.

2,292

Total no of employees on payroll

[For more details on learning and development, health, safety and wellbeing of employees, rewards and recognition, refer to the human capital section of the report on page 52].

Environment, Health and Safety (EHS)

The Company consistently strives to comply with EHS standards. The Company is cognisant of its environmental footprint and is continually striving to reduce it through deliberate actions. Hence, utilising low-carbon solutions (like biogas plant, solar pumping system, solar steam generator, solar lighting, water turbine) and optimising energy use in its manufacturing operations are the Companys primary objectives. Its sensible energy policy aims to lower energy use while promoting the use of green energy.

The Company implemented various calibrated measures throughout the year to maintain a safe workplace for its workforce. The Company diligently worked to mitigate negative effects on the environment and society, including conducting creative energy conservation programmes and undertaking eco-friendly disposal of hazardous materials.

The Company continues to have positive working relationships with all its employees, including contract workers, in all its manufacturing facilities. All the workers operate in a secure atmosphere and are regularly educated on safety procedures. One of the key focus areas has been formal occupational health and safety courses and training. There is a clear framework in place to help the Companys personnel to understand the current manuals, which cover safety and machine handling topics at all plant sites.

During the year under review, the Companys plants and offices focused on various initiatives to promote Environment, Occupational Health and Safety (EHS). Across all plants, the Company undertook environmental initiatives such as celebrating World Environment Day to raise awareness among employees and neighbouring communities. In addition, the Company celebrated the Kirloskar Vasundhara International Film Festival to promote environmental awareness and planted trees in various locations.

To prioritise Occupational Health, the Company organised Blood donation camps, Eye check-up camps and conducted health awareness sessions and periodical medical check-ups for employees. With regards to safety, the Company conducted programs such as Behavioural Based Safety awareness, road safety awareness, mock drills for safety awareness and provided Firefighting Training for employees.

Furthermore, to ensure efficient control of all processes related to quality management, environmental protection, occupational health and safety, the Company has implemented an Integrated Management System (IMS) that combines ISO 9001, ISO 14001 and OHSAS 45001 management systems. The successful implementation of IMS has led to the Companys IMS certification by ABS QE. By implementing these initiatives, the Company has demonstrated its commitment to promoting sustainable practices and ensuring a safe work environment for all employees.

Environment initiatives

Kagal Plant

The Company implemented several environmental initiatives, including the utilisation of recycled water from the Effluent Treatment Plant (ETP) for toilets and urinal flushing of all Genset section toilets. It has installed an Organic Waste Composter (OWC) to convert garden and kitchen waste into organic compost and installed a rain gauge for monitoring rainfall.

The Company also installed a new above-ground Fire Hydrant line for EP1, Powerhouse and Fabrication shop, as well as a pipeline for Piped Natural Gas (PNG) to replace HSD and LPG. Additionally, it has conducted tree plantation and participated in a cleaning drive organised by MIDC and MPCB.

Khadki Plant

The Company used treated water for toilet flush and gardening and replaced the roof sheets of stores shed with GI sheets. These initiatives showcase the Companys dedication to sustainable practices and their commitment to environmental preservation.

Safety initiatives

Sustainability management in the Company is an ongoing process. To ensure that effective safety measures are in place, the Company endeavours to strike a balance between the demands of various stakeholders, the Sustainable Development Goals (UN SDGs) and business expansion.

The Company has implemented safety initiatives to ensure the protection of its employees and equipment. This includes the installation of flameproof lights for Test beds, which helps prevent fires and explosions. In addition, the Company has installed Railings and walkways on the rooftops of Genset, EP1 and EP2 to provide safe access to equipment and reduce the risk of falls or accidents. These initiatives demonstrate the Companys commitment to prioritising safety in its operations and protecting its workforce.

[For more details on EHS, refer to the human capital and natural capital sections of the report on page 52 and page 62]

Finance, Legal and Secretarial

The Company has automated the compliance management process and developed a robust compliance management system. Compliance with laws and regulations has always been prioritised above everything else at the Company. The financial, legal and secretarial departments have acted as corporate partners and have spearheaded various digital projects that have assured increased productivity. These functions are taking focussed initiatives in terms of Business Partnering, Digitization and Governance towards value creation for internal and external customers.

Awards, recognitions and certifications

Some of the awards and accolades received by the Company for its unwavering commitment to providing impeccable services are listed below:

ICQCC-2022 – International Level Convention on Quality Circle & Allied concept

The Indonesian Quality Management Association organised the ICQCC-2022 event focused on Quality Circles & Allied Concepts. One of the teams from the Company participated in this convention and was awarded the Silver award for their outstanding performance.

NCQC-2022 – National Level Convention on Quality Circle & Allied concept

The Quality Circle Forum of India (QCFI) organised the NCQC-2022 event focused on Quality Circles & Allied Concepts. The Companys three teams participated in this convention and were successful in achieving one Excellent award and two Distinguish awards.

CCQC-2022 – State Level Convention on Quality Circle & Allied concept

The QCFI Pune chapter organised the 37^th State Level convention focused on Quality concepts. The Company sent three teams to participate in this convention and was successful in achieving three Gold awards.

ENCON

• The Companys Nasik plant participated in the 23^rd National Award for Excellence in Energy Management organised by the Confederation of Indian Industry (CII) in 2022. The Company was successful in achieving the National Award for "Energy Efficient Unit" for its exceptional performance in energy management.

• The Nasik Plant of Company was honoured with the "First Prize for National Energy Conservation Award 2022", organised by the Bureau of Energy Efficiency under the Ministry of Power, Government of India. The award was presented by the Honourable President of India, Smt. Droupadi Murmu, in the presence of Shri R K Singh, Union Minister for Power & Renewable Energy, and Shri Krishan Pal, Minister of State & Heavy Industries.

National Awards for Manufacturing Competitiveness 2022-23

These accolades serve as a testament to the quality of work, innovation and dedication of the Company. Whether its a prestigious industry award, a certification from a regulatory body or recognition from a customer, each of these is a significant achievement and reinforces the Companys commitment to excellence. These awards and certifications also provide the Company with a competitive edge, distinguishing it from its industry peers and instilling confidence in its customers. These awards, recognitions and certificates demonstrate the Companys consistent pursuit of excellence and its tireless efforts to deliver the best products to its clients while adhering to the highest quality standards.

Risks, opportunities and threats

Risks

• Regulatory changes

A greater push towards green initiatives and the subsequent changes in regulations regarding the same could impact the Companys ability to market products that emit carbon. It may also raise the costs associated with compliance and technological upgrades.

• Employee safety and retention

Employee safety and retention risk are crucial considerations for any company. Ensuring the well-being and security of employees is not only an ethical responsibility but also a strategic business imperative. Employee retention risk refers to the potential for an organization to lose its valuable employees. The Company is focused on creating a positive work environment, offering competitive compensation packages, providing career development opportunities, fostering a culture of recognition and appreciation and promoting work-life balance.

• Economic downturns

A recession or economic slowdown could impact the demand for the Companys products.

• Cybersecurity breaches

If the Companys data is compromised, it could halt business operations, cause reputational harm and impact customer trust.

Opportunities

• Product and technological innovation

Owing to recent technological advancements, innovative machines are being developed, helping farmers reap more benefits while enhancing productivity. Farmers now seek contemporary equipment to assist them in increasing their revenue. Hence, the Company can introduce best-in-class products that guarantee top-notch performance and greater efficiency.

• Market growth

With government initiatives such as Atmanirbhar Bharat, India is expected to record strong growth in the power generator market in the upcoming years. This growth can be attributed to increased domestic manufacturing and it is likely to open doors to new revenue streams in the future.

• Government initiatives

Governmentschemes,includingPromotionandStrengthening of Agricultural Mechanisation through Training, Testing and Demonstration, Financial Assistance for Procurement of Agriculture Machinery and Equipment, Jal Jivan mission to ensure access of piped water and Promotion of Farm Machinery and Equipment in the North-Eastern Region, aim to mechanise the agriculture sector by distributing various subsidies. It presents a significant opportunity for the Company to expand its market reach.

Threats

• Technological advancements

Technological advancements could render the Companys products obsolete, or competitors could develop superior products using advanced technology.

• Competition and price

Despite the excellent quality of the Companys products, some customers would be willing to replace them when a less expensive alternative is available. The Company faces the risk of losing its market share to low-cost alternatives if it does not adopt value-based promotion. Due to the vast array of brands available, the Company is compelled to compete on price, which has a negative effect on its bottom line.

• Supply chain disruptions

Disruptions in the supply chain could impact the Companys ability to obtain raw materials or deliver products on time to customers.

Outlook

The Company outlook is cautiously optimistic about future outlook, with the Government providing enhanced impetus to the infrastructure and defence sectors and the domestic markets potential expansion. Domestic demand is anticipated to be high considering the current electricity deficit caused by geopolitical and climate conditions. The company does take note of the potential impacts of global recession, rapidly evolving emission norms and inflation that may have short term impacts on the demand. As a part of its plan for global expansion, the Company consistently explores ways to grow in key international markets with a particular emphasis on Middle East, Africa and Asia Pacific.

Endeavouring to lead the industry, the Company continues to prudently invest in research and development to better recognise the shifting market dynamics and client needs. Additionally, it is concentrating on maintaining a strong liquidity position. Supply chain constraints could result from the present geopolitical unrest, but the Company is geared to deal with them as they arise and ensure business continuity and operational excellence.

In its recent announcement, the Company introduced its 2X 3Y strategy, acknowledging the positive macroeconomic tailwinds that are favorably impacting its business. However, the Company recognizes that a favorable environment alone does not guarantee success. It understands that achieving ambitious goals requires focused strategic efforts. To that end, the Company has identified five key growth pillars: driving core growth, optimization of channel and path to market, investing in R&D and technology advancement, operational excellence, and nurturing its people. By prioritizing these pillars and aligning its strategies accordingly, the Company anticipates positive results to follow.

On the macro level, the Company continues to benefit from strong tailwinds.Thegovernmentemphasisoninfrastructuredevelopment and the evolving emission norms present significant opportunities. These trends align perfectly with the Company core competencies. Its robust in-house research and development capabilities enable the company to develop products that are tailored to the market needs. Furthermore, its manufacturing expertise and unparalleled service network provide a competitive advantage, especially as product complexity increases. The introduction of new emission norms creates a natural pathway to export markets, as the Company products automatically meet global emission standards. Although there is work to be done in terms of certification, network building and brand development, the Company is confident in its teams; abilities to achieve success. Moreover, the adoption of the China +1 strategy by many Original Equipment Manufacturers (OEMs) presents a significant export opportunity for the company to capitalize on. Overall, the Company believes that by capitalizing on the favorable macroeconomic conditions, leveraging its core competencies and staying committed to its growth pillars, it is well-positioned for a promising outlook in the coming year.

Cautionary statement

Some forward-looking statements about potential business and economic developments might be found in this report. Although the Companys assessments and expectations for the future are reflected in these forward-looking statements, a number of variables could cause actual events and results to materially diverge from expectations. The Company makes no commitment to update any forward-looking statements in the public domain to reflect new information or events. Investors are also urged to use their own discretion when evaluating the Companys various risks and the success of the Companys mitigation efforts, as the risks listed in this report are just those that the Management believes exist.