5.11 Related parties have been identified as defined under Clause 9 of Indian Accounting Standard (Ind AS 24) “Related Party Disclosures” and Regulation 34 (3) read with Schedule V of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 including amendments thereunder (Contd..)
Transactions with related parties are inclusive of indirect taxes, wherever applicable.
The above figures do not include provision for gratuity and leave encashment, as actuarial valuation of such provision for the Key Management Personnel is included in the total provision for gratuity and leave encashment.
Terms and conditions of transactions with related parties
Transactions entered into with related party are made in ordinary course of business and on terms equivalent to those that prevail in arm's length transactions. Outstanding balances (other than loans and investments) at the year end are unsecured and interest free and the settlement occurs in cash and cash equivalents. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2025, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2024: J Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Commitments with related parties
The Company has not provided any commitment to the related parties as at 31 March 2025 (31 March 2024: J Nil) except to Kirloskar International ME FZE towards initial investment in Kirloskar International ME FZE upto H 1.50 Crores.
5.13 Fair value disclosures for financial assets and financial liabilities
The management believes that the fair values of non-current financial assets (e.g., Investments at FVTPL, loans and others), current financial assets ( e.g., cash and cash equivalents, trade and other receivables, loans), non-current financial liabilities and current financial liabilities (e.g., Trade payables and other payables and others) approximate their carrying amounts.
The Company has performed a fair valuation of its material investment in unquoted ordinary shares other than subsidiary, which are classified as FVOCI or FVTPL (refer Note 3). For non-material investments, the Company believes that impact of change, if any , on account of fair value is insignificant.
Fair value of unquoted investment in Mutual fund is determined by reference to Net Asset Value ('NAV') available from respective Assets Management Companies ('AMC').
b Significant unobservable inputs used in level 3 fair value measurements and sensitivity of the fair value measurement to changes in unobservable inputs:
i Description of significant unobservable inputs used for financial instruments (level 3) :
Investment in equity shares of Kirloskar Management Sevices Private Limited (KMSPL) was valued using the Discounted Cash Flow (Risk adjusted discount rate) valuation method.
ii Relationship of unobservable inputs to level 3 fair values :
Equity investments - Unquoted
A 50 bps increase/decrease in the Perpetuity growth rate used while keeping all other variables constant, the carrying value of the shares would increase by J 0.02 Crores (31 March 2024 : J 0.05 Crores ) or decrease by J 0.02 Crores (31 March 2024 : J 0.05 Crores ) and a 50 bps increase/decrease in discounting factor used while keeping all other variables constant, the carrying value of the shares would decrease by J 0.04 Crores (31 March 2024 : J 0.05 Crores) or increase by J 0.04 Crores (31 March 2024 : J 0.05 Crores).
5.15 Financial instruments risk management objectives and policies
The Company's principal financial liabilities, other than derivatives, comprise borrowings, trade and other payables and other financial liabilities. The main purpose of these financial liabilities is to finance and support the Company's operations. The Company's principal financial assets include Investments, loans, trade and other receivables, cash and short-term deposits and other financial assets that have been derived directly from its operations. The Company also enters into derivative transactions.
The Company is exposed to market risk, credit risk and liquidity risk. The Company's senior management oversees the management of these risks. The Audit Committee and Board review financial risks and the appropriate risk governance framework for the Company's financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives. It is the Company's policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below :
a Market risk
Market risk Is the risk that the fair value of future cash flows of a financial Instrument will fluctuate because of changes In market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include borrowings, deposits, Investments, trade and other receivables, trade and other payables and derivative financial instruments.
The sensitivity analysis in the following sections relate to the position as at 31 March 2025 and 31 March 2024
The analysis exclude the impact of movements in market variables on: the carrying values of gratuity, pension and other postretirement obligations and provisions.
The sensitivity of the relevant Statement of Profit and Loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2025 and 31 March 2024 including the effect of hedge accounting.
The Company manages its foreign currency risk by hedging transactions related to sales and purchases. This foreign currency risk is hedged by using foreign currency forward contracts. As on 31 March 2025 and 31 March 2024, the Company has hedged the following of its total foreign currency exposure -
The Company has mark to market gain on foreign currency forward contract of J 1.76 Crores (31 March 2024 : J 0.01 Crores). Foreign currency sensitivity on unhedged exposure-
The following tables demonstrate the sensitivity to a reasonably possible change in USD and EUR exchange rates, with all other variables held constant. The impact on the Company's profit before tax is due to changes in the fair value of monetary assets and liabilities. The impact on the Company's pre-tax equity is due to changes in the Company's profit before tax . The Company's exposure to foreign currency changes for all other currencies is not material.
Commodity price risk
The Company is affected by the price volatility of certain commodities. Its operating activities require the on-going purchase and manufacture of engines and therefore require a continuous supply of copper and steel. However, Company being the indirect user of these commodities, volatility in price of such commodity does not have direct or immediate impact on the profitability of the Company. Hence, the Company does not foresee any direct or immediate risk with respect to such commodity price fluctuation.
Other price risk
The Company's portfolio of investments mainly consists of debt mutual fund with short term maturity. Hence management believes that this portfolio is not significantly susceptible to market risk.
b Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.
Trade receivables
Receivables are reviewed, managed and controlled for each class of customers separately. Credit exposure risk is mainly influenced by class /type of customers, depending upon their characteristics. Credit risk is managed through credit approval process by establishing credit limits along with continuous monitoring of credit worthiness of customers to whom credit terms are granted. Wherever required, credit risk of receivables is further covered through letter of credit, bank guarantee, business deposits and such other forms of credit assurance schemes.
An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are combined into homogenous category and assessed for impairment collectively. The calculation is based on actual incurred historical data. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are spread over vast spectrum.
The Company consistently recognizes provision for any significantly delayed receivables, for accounting of expected credit losses. With respect to the provision made for receivables against sales of Gensets to a specific customer made in prior years, the (income) or expense in the Statement of Profit & Loss for the year ending 31 March 2025 was J (41.47) Crores J 13.38 Crores for FY 2023-2024]. The provision for doubtful debts and advances of H 41.47 Crores relating to the aforesaid receivables as at 31 March 2024 was fully reversed on account of receipt of payment from the customer during the current year.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company's treasury department in accordance with the Company's policy. Investments of surplus funds are made as per the approved investment policy. Investment limits are set to minimise the concentration of risks and therefore mitigate financial loss,if any.
c Liquidity risk
The Company monitors its risk of a shortage of funds using a liquidity planning tool.
The Company's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans. The Company has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over with existing lenders.
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company's performance to developments affecting a particular industry.
In order to avoid excessive concentrations of risk, the Company's policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.
For the purpose of the Company's capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2025 and 31 March 2024.
b. Lessor accounting
The Company is a lessor in the operating lease. The subject of these transactions is primarily aircraft leasing. There is definitive binding agreement between lessor and lessee defining rights and obligation with respect to underlying assets which in substance mitigates the Company's risk.
b. No transaction have taken place during the year related to CSR expenditure with the trust/society/Section 8 company which is controlled by related party of the Company as defined in Ind AS 24 "Related Party Disclosures".
c. The Company has undertaken CSR activities relating to promoting education, rural development, livelihood enhancement, ensuring environmental sustainability, and maintaining quality of water, promoting rural sports, preventive health care and sanitation during the current and previous year and had also undertaken activities relating to making available safe drinking water during the previous year.
5.19 Employee stock option plans (ESOP)
The Company provides share based employee benefits to the employees of the Company and its subsidiaries. The relevant details of the schemes and the grant are as below :
Description of share-based payment arrangements
As at 31 March 2025, the Company has the following share based payment arrangements -KOEL ESOP 2019 - Share option plans (equity settled)
According to the Scheme, the employee selected by the Nomination and Remuneration Committee from time to time will be entitled to options, subject to satisfaction of the prescribed vesting conditions. The Option may be exercised within a specified period.
The Employees Stock Option Plan 2019 - (KOEL ESOP 2019) was approved by the shareholders of the Company in AGM conducted on 9 August 2019 for issue of maximum 14,00,000 options representing 14,00,000 equity shares of H 2/- each. Pursuant to the said approvals and authority delegated by the Board and Shareholders of the Company, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 5 March 2021 had approved the grant of 9,40,000 employee stock options ("Options") to eligible employees of the Company. Each option shall carry the right to be issued one fully paid up equity share of H 2/- each.
The Members of the Company at the Annual General Meeting of Kirloskar Oil Engines Limited held on 12 August 2021, passed a resolution amending the Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 in terms of coverage of the KOEL ESOP 2019 to the eligible employees of its subsidiary company, in or out of India except such subsidiary company(ies) which are formed and engaged in financial service business.
During the earlier years, the Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 27 October 2021, 18 May 2022 and 10 August 2023 had approved the grant of 50,000 employee stock options, 275,000 employee stock options and 1,35,000 employee stock options to the eligible employees of subsidiary company viz. La-Gajjar Machineries Private Limited and to the eligible employees of the Company respectively in terms of 'Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 - Amended ("KOEL ESOP 2019") and the special resolutions passed by the Members of the Company at the Annual General Meeting held on 9 August 2019 and 12 August 2021. Each option shall carry the right to be issued one fully paid up equity share of H 2/- each.
The Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 7 August 2024 has approved the grant of 463,367 employee stock options to the eligible employees of the Company and the subsidiary company viz. La-Gajjar Machineries Private Limited in terms of 'Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 ("KOEL ESOP 2019") and the special resolutions passed by the Members of the Company at the Annual General Meeting held on 9 August 2019 and 12 August 2021.
5.20 Research and Development ("R&D") expenditure eligible for deduction under section 35(2AB) of Income Tax Act, 1961
The Company had adopted the new tax ordinance under section 115BAA during financial year 2019-20. Since provisions of section 115BAA of the Income Tax Act, 1961 are applicable , the Company is not entitled to avail weighted deduction u/s 35(2AB) of the Income Tax Act, 1961. Thus the Company has not availed weighted deduction benefit on in-house R&D expenditure for financial year 2024-25 as well. However, the Company will continue to maintain a separate set of books for in-house R & D activities.
5.21 Details of loans granted
During the earlier years, the Company had advanced a total loan amount of H 21.85 Crores and H 8 Crores to LGM and erstwhile OPEPL at an interest rate of 8.725% p.a. and 10.25% p.a. respectively. The total loan amount outstanding as at 31 March 2024 i.e. H 10.72 Crores was fully repaid during the year. Also refer Note 43 for details of amalgamation of LGM and OPEPL.
Note 44 : Disclosure required as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 including amendments thereunder is as follows:
Subsidiary Companies
a Kirloskar Americas Corporation (including its subsidiary Engines LPG, LLC dba Wildcat Power Gen)
There are no loans and advances in the nature of loans granted/advanced by the subsidiary company to firms/companies in which directors are interested except to the extent disclosed in Note 46 of the Financial Statements.
There are no loans and advances in the nature of loans granted/ advanced by the Company to the subsidiary.
b La-Gajjar Machineries Private Limited (including its joint venture ESVA upto 28 September 2024)
There are no loans and advances in the nature of loans granted/ advanced by the subsidiary company to firms/companies in which directors are interested.
There are no loans and advances in the nature of loans granted/advanced by the Company to the subsidiary except to the extent disclosed in Note 12 of the Financial Statements.
c Arka Financial Holdings Private Limited (including both of its subsidiary AFL and AIASPL )
There are no loans and advances in the nature of loans granted/ advanced by the subsidiary company to firms/companies in which directors are interested.
There are no loans and advances in the nature of loans granted/advanced by the Company to the subsidiary.
d Kirloskar International ME FZE (wholly owned subsidiary of the Company w.e.f 7 January 2025)
There are no loans and advances in the nature of loans granted/ advanced by the subsidiary company to firms/companies in which directors are interested.
There are no loans and advances in the nature of loans granted/advanced by the Company to the subsidiary.
Note 45 : Relationship with struck off companies
The Company did not enter into any transaction with Companies strucked off from Registrars of Companies (ROC) records for the year ended 31 March 2025 and 31 March 2024 except as reported below -
Note 46 : Disclosures for investments and transactions through/ as an intermediary to ultimate beneficiary
(a) No funds have been advanced or loaned or invested either from borrowed funds or share premium or any other sources or kind of funds by the Company to or in any other persons or entities, including foreign entities (“intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“ultimate beneficiaries”) or provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries except the following :
(b) No funds have been received by the Company from any persons or entities, including foreign entities (“funding parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (“ultimate beneficiaries”) or provide any guarantee, security or the like on behalf of the ultimate beneficiaries.
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