MANAGEMENT DISCUSSION AND ANALYSIS ECONOMY AND MARKETS The global economy during Financial Year 2015-16 remained sombre, growing at a modest 3.1 %, declining from 3.4% registered in 2014. The year also saw continued weakness in most commodity prices, especially crude, which benefited energy importers like India. Financial markets remained turbulent and exchange rates volatile. While the developed economies such as the United States, Eurozone and Japan are still not seeing a sustained revival of growth, economies of commodity exporting countries are also under stress. Emerging economies have witnessed a consistently declining trend since 2010. In spite of global headwinds and a truant monsoon, India's growth story is fundamentally intact with it growing 7.2% in 2014-15 and 7.6% in 2015-16, thus becoming a fastest growing major economy in the world. The global economy-in particular- the global growth powerhouse, China-is rebalancing, leading to an increasing role for India. After the onset of the multiple crises in different parts of the world, India's contribution has become much more valuable to the global economy. India's other macroeconomic indicators like inflation; fiscal deficit and current account balance have shown distinct improvements. Wholesale price index has been in negative territory for over a year and consumer price index has declined to half of what it was a year before. However, the exports have suffered due to weak economic growth in the advanced and emerging economies. Rupee has debrciated against the dollar, although less in magnitude as compared to other currencies. Growth in agriculture has slackened due to multiple structural factors as well as deficit monsoon for successive two years. Savings and investment rates are not showing signs of revival and the capital investment cycle is yet to turn, more acutely in the private sector. Index of Industrial Production has grown by a tepid 3% over brvious period. Robust growth in services sector has been one of the drivers of Indian growth story and it now accounts for more than halfof the Indian economy. The Government has initiated a process of reforms through well intentioned initiatives like 'Make in India' and appears to be conscious of importance of 'ease of doing business' for cementing India's position in the world economy. Given the fact that the government is committed to carrying the reform process forward, aided by the brvailing macroeconomic stability, it appears that conditions do exist for raising the economy's growth momentum and achieving growth rates of 8% or higher in the next couple of years. At the same time, growth in 2016-17 may not pick up dramatically from the levels achieved in 2015-16 as the possibility of slow global economic growth and financial sector uncertainties still loom large. Kirloskar Oil Engines Limited (KOEL) has been one of the pioneers of the 'Made in India' concept since independence. Your Company has developed indigenous engines which have been renowned in the agriculture, power generation and industrial off highway equipment segments. The Company's engineering capabilities are backed by a strong R&D centre which works towards bringing innovative product offerings to the customer at competitive prices. Your Company has developed a niche for itself in the markets it operates by launching new farm mechanization products and highly efficient diesel generator sets in India. Going beyond India, these solutions have reached the markets of Middle East, Africa, Europe, South Asia and the Americas, making the 'Make in India' campaign a reality. This report will provide insights and an update on the Company performance through the Financial Year 2015-16 with brief outlook for the Financial Year 2016-17. INDUSTRY AND COMPANY OVERVIEW A. POWER GENERATION BUSINESS The Diesel Generator (DG) set market can be broadly classified into portable diesel generators (below 5kVA), small diesel generators (15 - 75 kVA), medium diesel generators (75.1 - 375 kVA) and large diesel generators (375.1 - 2000 kVA). In India, low and medium power rating DGs account for majority of the market share. The Indian DG set market growth drivers brdominantly are: Growth in infrastructure and real estate sectors, peak power deficit and overall economic growth. Traditionally, On account of high power outages, improved reliability, rapid response time, fuel availability and high load carrying capacity, DGs are used for power backup besides being used for prime power. The overall DG set market for Financial Year 2015-16 both in quantity and value terms remained at similar levels as the brvious year. An estimated 100,600 units were sold valued at approximately Rs. 5600 crores. Despite several positives in the macro-economic indicators, for most part of the year, the economy remained sluggish and consequently power deficit was at an all-time low. This had a direct bearing on DG set offtakes. Your Company held on to its market share and leadership position in Financial Year 2015-16. In terms of number of DG sets, the Company is the market leader with 30% quantity market share and in terms of value it has 22.5% of market share. Business Overview In continuation of the brand building exercise undertaken in the brvious year, in Financial Year 2015-16, the Company introduced two sub brands under the Kirloskar Umbrella brand - KOEL Green and KOEL Chhota Chilli (KCC), with a wide array of gensets. The brand refresh has been well received in the market and KOEL customers. New Product Development and launches The Company launched a complete range of petrol gensets under the KCC brand that includes the 2.1 kW, 3kW and 4kW petrol sets. With this foray into petrol, KOEL now offers the widest range of portable gensets for household and commercial applications -7 models from 2.1 kW to 5kVA. Leveraging on a large dealer network, these products are slated to provide good growth opportunities in the coming years In the course of the year, the Company also launched the much awaited 750kVA Genset which further augments the existing High Horse Power range. This now opens new vistas and paves way for larger project orders. This is a complete home grown indigenous product developed by KOEL's R&D team and offers USPs such as best-in-class fuel efficiency, most compact size and web-enabled controls. The market response to the product has been encouraging and this gives us the confidence to surge ahead with the next rating is this category - 1010kVA in the Financial Year 2016-17. In Financial Year 2015-16 the Company also, expanded the product portfolio under the Kirloskar Generator Technologies (KGT) vertical, which now includes batteries, alternators and control panels. The objective is to ensure high product quality and standardization and also offer single-window product availability, support and service to Company's customers. Elecrama is Asia's largest electrical products and technology exhibition. The Company's participation in this Mega electrical domain exhibition at Bengaluru, marked a shift from Genset brand to a Back-up power solution provider, catering to electrical systems in large industrial, building and infra projects. With a total revamp of the supply chain system and related processes over the last two years, the Company is now geared to deliver Gensets within 7 days to their customers. This unique offer makes purchase planning easy and cost efficient for our customers. The Company's revenue in Financial Year 2015-16 from Power Generation Business stood at Rs. 976.2 Crores of which Rs. 220.9 rebrsented revenue from KGT sales, as compared to Rs. 997.3 Crores in Financial Year 2014-15. Future outlook Towards the end of the current fiscal, some positive traction was witnessed in road construction, building and other infrastructure projects. It's expected that the momentum would continue and overall activity level in the manufacturing sector would improve. This undoubtedly will augur well for your Company. We believe that KOELs supply chain is now working like a well-oiled machine and is nimble and quick to respond to surge in market demand. Also, now with an entire range of high performance gensets from 2.1 to 1010 kVA backed by a best in class support team, we are positive of being able to cater to a wide spectrum of market requirements. With the Company's strong brand image and brsence in PSUs, it will be able to contribute more towards many public welfare schemes that government has launched in the year 2015. In many of these schemes focus is on rural growth, where DG set power back up will play an important role in functionality of these projects. B. AGRICULTURE AND ALLIED BUSINESSES India ranks second worldwide in farm output. About one third of Indian population depends on agriculture sector directly or indirectly and agriculture continues to be the mainstay of the Indian economy. However the Company see a steady declining trend with the country's broad-based economic growth. Also, agriculture in India has witnessed some fundamental changes in the past few decades. The share of human power available for carrying out the myriad operations in farming has shrunk to a mere 5%. For diversification of agriculture and to increase the productivity of land and labour the only alternative is to increase mechanization in Indian Agriculture. Now, more than 90% of the farm power is drawn from mechanical sources like tractors and power tillers, electric motors and diesel engines, but yet the overall farm mechanization in India has reached only about 40%. Business overview Crop Irrigation The rural electrification drive has led to shift in demand from conventional diesel engine pumpsets to electrical and solar powered water pumpsets. The Agri Crop Irrigation Business focused on strengthening the distribution channel. The business has more than 550 distributors and over 17,000 retailers. The elaborate service channel with Kirloskar Krishi Seva Kendra takes care of the quick field service requirements. With a wide range of products like conventional diesel engine pumpsets, light weight pumpsets and petrol kerosene pumpsets, the business gained market share by 1 %, as compared to the brvious fiscal and more importantly managed to sustain the business despite an industry decline for diesel engines and pumpsets. Despite, delayed monsoon, deficient rains and drought conditions in key states affecting the business performance, with the entire product basket and the enhanced distribution network the business achieved over 11% growth as compared to the last fiscal. The entire supply chain was revamped to a pull based system, where inventory levels remain dynamic, thus reducing the risk of inventory pile up. The Company's revenue in Financial Year 2015-16 from Agri Crop Irrigation Business stood at Rs. 344.1 Crores, as compared to Rs. 308.9 Crores in Financial Year2014-15. Farm Mechanisation Given the limitation to increase cultivable/ arable land and the scarcity of labour, farm mechanisation i.e. usage of machinery and technology (e.g. tractors, tillers, rotavators, etc.) in farming is the most sought after solution for increasing farm yields. The Farm Mechanisation Business launched the first product in the brvious financial year- MEGA T as a revolutionary product which focuses on catering to the needs of small farmers /landholdings under the brand KMW. This year the business launched three new variants of Mega T to suit the market needs. The business has created a channel of about 140 exclusive dealers for focussed delivery and service. In order to establish the brand and increase the product awareness in the market the business conducts many BTL activities like road shows, exhibition participation etc. The Company's revenue in Financial Year 2015-16 from Agri Farm Mechanisation Business stood at Rs. 77.9 Crores, as compared to Rs. 56.4 Crores in Financial Year 2014-15. Future outlook Agriculture business is primarily focused on transforming the lives of Indian farmers through innovative products, technology and delivery. While the business cannot eliminate the inherent risk of climate dependency, your company is taking several steps to minimize the risk. Some of these include: •Diversification of product portfolio in Farm Mechanisation by introducing products in sub 20 HP mechanisation products segment. •Diversification of product portfolio in Crop Irrigation Business with new variants in portable pumpset range and consumables range. Utilising and earning extra mileage with the extensive distribution and service network. C. INDUSTRIAL ENGINES BUSINESS The Company's revenue in Financial Year 2015-16 from Industrial Engine Business stood at Rs. 350.1 Crores, as compared to Rs. 330.3 Crores in Financial Year2014-15. After year on year decline in industrial growth for last 3 consecutive years, Off highway construction equipment market saw marginal growth in Financial Year 2015-16 of 2% as compared to brvious fiscal. This growth was seen majorly from second half of Financial Year 2015-16. Tractor market however continued to be sluggish due to uneven rainfall across country. Business overview The Industrial business revenues were directly impacted by the above factors. However, resulting from focus on new business, your Company achieved an overall growth of 7% as compared to the brvious fiscal. The Company retained all customers as well as application segments. New Product Development and launches During the fiscal year, the Industrial business introduced higher HP engine for firefighting pump set application. New business was generated through existing/new OEMs product launch. Future outlook With the Government's commitment to focus on infrastructure, road construction and mining business, the Industrial Business is expected to show an improvement in coming quarters. Industry is optimistic that current upward growth trend will continue in Financial Year 2016-17. The business will continue to focus on developing new applications, maintaining optimum inventory levels with OEMs, effectively using the centralized customer CARE Centre and improving working capital cycle. D. CUSTOMER SUPPORT The Company's revenue in Financial Year 2015-16 from Customer Support Business stood at Rs. 328.0 Crores, as compared to Rs. 329.9 Crores in Financial Year 2014-15. Sale of spares was impacted as a result of low DG set usage across the Country and also substantially low construction equipment usage. Coupled with this, Telecom companies changed their 'Annual Maintenance Contract' model to 'Integrated Maintenanc Engagement' type where they stringently controlled their costs. This impacted the Company's Sales. •CDI (Customer Delight Index) score further improved from 60 to 65. •15 new service outlets added in FY16 and ensuring that the entire country is adequately covered •Specific categories like overhauling kits revenue, coolant, Battery chargers and oil sales were specifically focused throughout the year. •Introduced new brand for service segment "KOELCARE" •Substantially increased customer connects campaign and reached out to more than 30,000 customers directly during the year. •Opened up new training centers in East and South. Customer Mela Touch based large base of customers through various Customer Connect and Engagement Programs like Customer Mela, Van Campaign and Customer and Operators training program. The Company has undertaken many actions I initiatives to become one stop solution provider for the customers. By April 2017, the Company's service will be full fledge single window solution provider to all customers for all electro-mechanical needs. E. INTERNATIONAL BUSINESS The global economic recovery after the 2008 financial crisis has been slow. The European economy continues to remain subdued, while the Middle East and African markets have witnessed immense volatility and instability on the political front. However, it is expected that emerging markets and developing countries will show stronger growth. With the Vision of KOEL touching the world by 2025, Your Company's International operations remain one of the key strategic focus areas and growth drivers. The Company's International business supplies engines and gensets to over 40 countries across the world. These cover a wide range of Industrial, Agricultural and power generation applications. Business overview Revenue from exports in Financial Year 2015-16 was Rs. 230.7 crores as against Rs. 205.7 crores in the brvious fiscal, thus registering a growth of 11.7% in a challenging macroeconomic environment. Power Generation business in export markets has shown a significant growth of 33% during the year, while agricultural business and Industrial business declined. International business contributed 9% of KOELs total revenues in Financia1Year2015-16. Middle-east and Africa continues to be the largest geographies for the Company, accounting for a significant portion of export revenues. Competition from multinational companies has intensified in export markets while the company faces severe price competition from Chinese and other domestic players in the agriculture export segment. Currently the company exports its products to over 40 countries including the USA, Europe, Middle East, Africa and South Asia/South East Asia through a network of three regional offices in UAE, South Africa and Kenya and channel partners and OEM customers. Through close monitoring in various markets and course corrections wherever required, efforts were made to align actions with market expectations along with service as a differentiator, resulting in sustenance and growth. In Financial Year 2015-16 your Company carried out expansion of the Power Generation product range further in existing markets and has pursued emission certification to advanced emission regulation norms for entry to the American and European markets in Financial Year 2016 and Financial Year 2017. Some of the highlights in the International Business for the Financial Year 2015-16 include: •Repeat bulk business in the Telecom segment in South Africa with MTN, the leading telecom utility, ordering 40 kVA DG sets • Breakthrough in telecom segment and retail market in West African countries contributed to 3% growth in Power Generation segment. •Made an entry into the two markets in Americas- Nicaragua and Peru, followed by repeat orders •The company's business in dewatering and Agri Pump set segment in MENA Region grew more than 100% in the current fiscal over the brvious year •Achieved a breakthrough in FMUL firefighting engines in Middle East •Entry into the Russian market with OEM partner for Backhoe Loader. •Made an entry into the UK market with a new channel partner for industrial Segment, followed by repeat orders Future outlook The focus in Financial Year 2016-17 will be to increase market shares through penetration in the existing markets and also increase the market sbrad by entering new markets in Africa, South East Asia and America. Although USA is one of the largest Genset markets in the world, KOEL's brsence has been negligible. With a view to bring in greater focus and establish our products in this market, the Company has incorporated a 1 00% subsidiary company "KOEL AMERICAS Corp." in USA, which has become functional in Financia1Year2015-16. Specific engines have been identified for EPA certification, thus making them eligible for sale in the USA. This Company will also focus on expansion in Latin American market as well as FMUL fire pump OEM business. International Channel Partner meet F. LARGE ENGINES BUSINESS The Company's revenue in Financial Year 2015-16 from Large Engines Business stood at Rs. 111 crores, as compared to Rs. 242 crores in Financial Year 2014-15. The large engine business caters to a niche segment where demand is based on the launch of large government projects and defense power and propulsion requirements which includes energy systems for radars, communication systems, repowering of vehicles, gensets and propulsion engines for defense and commercial marine segment. In Financial Year 2014-15, with intent to bring greater focus in the Marine and Defense segment, this segment which was earlier catered to by the Power Generation Business Group was transitioned to the Large Engine Business Group. Business overview Innovation and new product development remained the prime focus areas to fuel growth. During the year, several initiatives for development were undertaken that included enhanced understanding of customer requirements and development of light weight and compact generating sets. Seven sets of new Light weight Compact Defence DG were developed and displayed at Defence exhibition DEFEXPO 2016 at Goa. Also two Marine applications viz. Firefighting Pump and Combrssor were developed with Air cooled HA series Engines and supplied for Projects Coast Guard Offshore Patrolling Vessel and SRILANKAN Offshore Patrolling Vessel. The Company successfully commissioned 4 nos. of 12 cylinder engines on-board INS Kadmat (Project ASW Corvette - 2No ship) and also retrofit Control system on-board Naval Survey Vessel INS Darshak, which was indigenously designed and developed by the Company to replace original system supplied by foreign supplier. The Large Engine Business bagged a brstigious order for Design, Development, Supply and Commissioning of two Submarine DG Sets (490 KWe). With this order, it has created one more market segment for Supply of Specialized Submarine DG Sets both within and outside India. During the year, with a view to enter the Propulsion Market the Company has developed propulsion variants in Medium Engine's DV and SL series. These engines are expected to undergo Type certification by IRS and will be formally launched in Financial Year 16-17 for propulsion of small and mid-size ships. Also, the Large Engines Business booked its first order for Air Cooled Engine (HA series) for Propulsion of ferry craft. The first export order for supply 12 numbers of 250 kVA and 6 numbers of 87.5 kVA Marine DG sets, to be used for six ships, was received from Western Marine Shipyard, Bangladesh, in the current financial. These sets will be delivered in Financia1Year2016-17. In line with its strategy of promoting green fuel, the Company has entered into a license agreement with BioCube Corporation Limited, Vancouver, for manufacture, sale and service Biodiesel Plant. The Company signed a MOU with Anglo Belgian Corporation (ABC) for supply of engines manufactured by ABC on exclusive basis for Indian Railways traction requirements. Additionally, the Company also received its first order for supply of five sets of Auxiliary Power units for Railways. Future outlook The Large Engines business will continue to drive its growth in the stationary power plants, defense and marine power and propulsion segments. With the MTU MOU in place, your Company remains geared and capable to take on all future NPCIL orders. With development of new light weight and compact DG sets, your company is gearing up in creating new category of DG sets for defense. The Nashik plant will continue to be the main manufacturing and assembly hub for the business especially with all defense and marine engines and DG sets assembly operating out of the plant. RESEARCH AND APPLICATION ENGINEERING Research is a key component that helps KOEL remain relevant and competitive and drive growth through innovative solutions and enhanced product offerings. Over the years, your Company has set up an excellent R&D facility, operated by a very competent team, which works closely with our businesses to deliver high value to customers. We believe that spends on R&D are investments towards expanding product range and solutions for sustainable future growth. In pursuit of excellence in product performance and enhancing value to customers through new and improved products, the research team is working towards achieving benchmarked parameters both in the domestic and global markets to offer the most advanced and combrhensive range of products. During the year, the team supported the launch of several innovative products that enabled your Company fortify its market leadership position. The 12 HP power tiller and Ultralight portable diesel pumpset in the Agri market and 750 kVA and whole range of portable petrol generating sets in DG market were some of the key products launched. Enhancing existing product lines High Horse Power Products have been offered in Fire Pump application. FM/UL engines have been launched in European market. Tier Ill engines have been offered for Backhoe and Forklift application for European market. BSIII emission solution with lnline fuel pump was developed for 4 cylinder and 6 cylinder engines. For meeting export market requirement, flat pack canopy has been added to product portfolio. The R&D team ensured smooth and successful transition and upgrades for the following: •Bharat Stage Ill {BS Ill) emission compliant engines for construction equipment •Entire range of Diesel and Petrol Genset models upgraded to meet CPCB stage II emission norms •Bharat {TREM) Stage Ill A emission norm compliant engines for tractor application •A major project of upgradation product life cycle management is underway Innovating for a sustainable future Some of the specific focus areas of R&D efforts in the current fiscal were: •Cost effective emission solution for Tier 4 Final norms •Design of a new engine platform •Design optimization methodology based on Three Dimensional Analysis • Development of special marine application Future Outlook The R&D focus will continue towards modernizing and upgrading existing product development facilities and development of new technologies for cost effective emission. New application development, development for new market and value engineering will form part of the short term goals. Your Company also plans to further enhance the High Horse Power (HHP) range through development of new products. New applications like marine genset and marine propulsion engines for export to developed countries will also be developed. The R&D business strategy will continue to focus on increasing efficiency, enhancing customer satisfaction and strengthening business brsence in key strategic growth markets. QUALITY ASSURANCE The Company's senior leaders personally interacted with customers gaining valuable insights and accordingly implemented various projects towards improving our product offerings. Top ten issues were acted upon in all our major product platforms. Initiatives like Mr. Customer and Six Sigma ensured focus on specific quality improvement projects. As a result, Customer perception on quality of KOEL products has improved significantly. TheA.C. Neilson Customer Satisfaction Survey confirms "EXCELLENT" rating across all KOEL products offered in the Power Generation and Industrial segments. The Customer complaints show a continuously declining trend and the internal PPM level is also well in control. Supplier Quality Improvement initiatives are further strengthened towards achieving reduced nonconformance levels. SUPPLY CHAIN The Company's supply chain objective has been to be a proactive and agile value adding partner to the businesses. Over the last couple of years, the entire supply chain, which includes, material procurement, inbound logistics, subcontracting, material handling and storage of finished product has undergone a sea change. From a forecasting model, the Company has transitioned to a pull based system, modelled along the lines of 'Theory of Constraints". This methodology adopted by your company in Supply Chain planning has won accolades from no less than the Association of Management consulting Firms, at a function held in New York, last year. The net result is that the entire supply chain now works as a seamless, well-oiled machine with greater agility and adaptability, thereby rendering itself more amicably to cater to demand fluctuations. This change over has helped the organisation in multiple ways, amongst them following are some of the noteworthy outcomes: • Improved Customer and Supplier satisfaction • Substantial improvement in OTI F orders • Delivery to Market in 7 days •Stable Raw Material inventories throughout the operating period • Remarkable improvement in Cash-to-cash cycle •Reduction in working capital requirements A great deal of work has also been done in the area of supplier integration. A structured approach has been adopted to capitalize on the capabilities of our vendor partners and ensure that they are totally aligned and integrated in our new product development and improvement processes. Towards this, several vendor training programs like Six Sigma, Value Stream Mapping and SMED were conducted to enhance their skill sets and enable them handle complex situations. In addition, regular programs on PPAP, cutting tools, energy cost optimisation, GD& T, MSAetc. were imparted to augment supplier skillsets. Supplier partnership is very important to build a strong supply chain. Having identified the need of hand holding the suppliers in our growth journey, special emphasis was laid on developing the entrebrneurial skill of a select group. A customized program for MSME Suppliers under the aegis of the "Samwardhan" was launched along with SPJIMR Mumbai. This program which had been designed to transform the owner's perspective from a technocrat to that of an entrebrneur. The initiative and program has been well received by the Supplier fraternity. As a practice of Share, Learn and Apply, as in brvious years, the annual Supplier Quality Improvement contest was organised. This is now a well-accepted and apbrciated platform amongst the supplier fraternity to Share, Learn and Apply the prowess's of the participating Supplier Partners and eventually improving the Supply Chains adeptness. In the quest for remaining competitive and relevant the supply chain team constantly innovates and works extensively on VAVE projects. This is now a well engrained process that goes through an elaborate stage gate process to ensure that while costs are optimized, it's never at the expense of quality. Many green sourcing initiatives were taken forward in last year which were focused on recycle and reuse. Projects on Supplier awareness and reduction on use of natural resources were deployed. ENVIRONMENT, OCCUPATIONAL HEALTH AND SAFETY (EHS) During the year, numbers of initiatives were undertaken in your Company's plants and offices in the areas of Environment, Occupational Health and Safety (EHS). Some of the key initiatives are listed below- PunePiant Environment initiatives •Air Pollution stacks (16 nos.) were removed as per statutory requirements due to change in manufacturing layout •Treatability Study of Effluent Treatment Plant •Generated waste sent to Maharashtra Enviro Power Limited (Central Hazardous Waste Treatment Storage and Disposal Facility) Occupational Health initiatives •Blood donation camp •Eye check-up camp for employees with refraction correction and vision test •Lecture on diet and weight control •Periodical Medical examination of all employees •Women's Health Check-up Camp Safety Initiatives •Conducted Fire Extinguisher Adequacy Survey Kagai Plant •Environment initiatives •Solar LED Lighting system installation at Effluent Treatment Plant •Additional storage ponds for rain water harvesting system •Use of harvested Rainwater for new mass plantation area •Use of returnable plastic bins instead of corrugated boxes for packing for finish components •Modification in Effluent Drainage and Distribution system for smooth distribution of effluent •Canteen waste water pipeline connected toETP at KMW plant •Installation of mist collector for crankcase line •Renovation to Paint Booth trench and chamber to avoid land contamination due to overflow of paint effluent •Extension of Vermi-compost system to consume vegetable waste Occupational Health initiatives •Blood donation camp where, 429 employees donated blood •Ongoing Tool Box Talk covering health related topics viz. Swine Flu, High Blood Pressure, Diabetes, Heart Attack, Cholesterol, Hepatitis A and B, Effects of Alcohol, Ill Effects of Smoking and HIV/AIDS, effects ofTobacco Chewing etc. •Annual medical check-up for all employees Safety Initiatives •Annual Safety Audit •Safety Awareness for visitors •On-going Tool Box Talk covering safety related topics such as manual material handling and brvention of finger injuries Nashik Plant Environment initiatives •PUC checkup Camps •Workshop on Recycling and Degradation of Bio-medical waste at MVP's Medical College, Nashik. •Workshop on 'Green Career' for 10111 Std. Students •Tree Plantation at Municipal Corporation School, Factory brmises etc. on World Environment Day Occupational Health initiatives •Eye Checkup Camp for all employees •Annual Medical Checkup •Lecture on "Disorders and Issues of Digestive System" •Blood donation Camp where 71 employees donated blood Safety Initiatives •First Aid and Fire Fighting awareness training Rajkot Plant Environment initiatives •Implementation of oil trays to collect waste oil and recycle •Installation electromagnetic base flow meters at ETP inlet and outlets •Installed Heavy duty microprocessor based switch gears for electrical distribution •Auto Mains Failure (AMF) Panel for emergency lighting system Occupational Health initiatives •Blood donation camps organised •Awareness Session on Diabetes, Hypertension and Obesity •Annual Medical Checkup Safety Initiatives •On the Job Safety training for Nail gun operators in Packaging section •Safety awareness program for safety managers HUMAN RESOURCES AND INDUSTRIAL RELATIONS The Company's Human Resource (HR) agenda continued to focus on strengthening the four identified key areas: building a robust talent pipeline, enhancing individual and organisational capabilities for future readiness, driving employee engagement and strengthening employee relations further through progressive people partnerships. To build a competent workforce, Individual Development Plans were made based upon skill gap analysis and necessary inputs were imparted to individual managers to ensure that your organisation is future ready. With a view to bring about and sustain the required cultural transformation, leadership programs like KOEL Way of Management which aims at improving the emotional quotient (EQ) were conducted for Senior Managers and above. The other major developmental intervention was doing a sales leadership program (Project Velocity) for all the Sales Managers of Power Generation business by renowned and respected consultants. In order to enhance employee motivation and build a performance driven culture, the HR team pursued various employee engagement programs and cultural and sports initiatives through the year. Rewards and Recognition has been getting more importance with the business dynamism increasing day by day. Your Company introduced three more programs - Extra Mile Sprinter, Above and Beyond and KOEL Care Star to recognize employees who stretched themselves to surpass their targets. The Company carries out an Employee Engagement survey every alternate year through an independent assessing agency. Based on the gaps that emerge, teams are formed to address specific areas of concern. In addition to an external engagement survey, HR got additional insights by meeting people and conducting interviews in a structured manner. This was called RAG Tag survey and depending on the feedback, necessary actions were initiated. Through a systematic process of periodic review of our HR Policies, HR introduced Special Leave Types like Paternity Leave, Bereavement Leave and Transfer Leaves. The Management Trainee Program gained further momentum with next batch of Management Trainees being hired from brmier institutes like IIMs, ISB, ICWAI, NID and the IITs. These trainees were successfully put through a rigorous induction program, post which they were I are placed in key positions. To promote gender diversity and further to enactment of 'Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013', a series of sessions were conducted by an external agency to cover all employees. These measures reaffirm your Company's commitment to creating and fostering the right environment for its employees. The Company continues to maintain healthy and harmonious industrial relations across all its manufacturing plants and offices. As on 31 March 2016, there were 2427 employees on the Company's roll. Some of significant events which took place during the year include: •Signing of 8th wage settlement agreement for plant located at Pune, prior to expiry of the earlier settlement, without losing a single man-day •The company's continued endeavour to identify several thrust areas for continuously enhancing technical, professional and functional capabilities of employees towards fostering a performance driven work culture in all areas of operations particularly at shop floors. The whole-hearted involvement of employees in various initiatives like Kaizens, ENCON, Quality, Safety and WASH are few examples • Health and wellbeing through health check-up of all employees CORPORATE SOCIAL RESPONSIBILITY Your Company strongly believes in 'Enriching Lives' of the people surrounding the communities in which it operates. The key identified focus areas remain as: Health, Education, Environment and Livelihood. Most CSR activities are carried out through employee volunteering programs across our plants and offices. Few of the initiatives mentioned below are carried out in each of the plant locations. Health Health Awareness Programs like the HIV/Aids awareness drive •'Sanvedana Rally' carried out in Sangali and Kolhapur district to create awareness on HIV/Aids •Support for Kirloskar Foundation's WASH initiatives such as clean drinking water, use of toilets and hand wash where 121 employees worked as volunteers in 30 schools over 3297 man hours • Health Check-up camps and spraying and fogging in village and communities to brvent diseases like malaria and dengue Education •'Disha' career guidance workshop for students of standards 1 0 •Sponsorship of Akanksha Center at Sangvi, Pune. •Sponsorship of 80 orphans I deprived children •ComputerTraining programs •Distribution of school material viz. bags, boxes, pens and pencils etc. to needy primary school children from the community Teachers training programs Environment •Tree plantations in all communities •PUC Check-up camps in communities •'Hasat Khelat Paryavaran', a program for school children in Pune and Kagal •Energy Conservation (ENCON) Initiatives for school children at all locations •Kirloskar Vasundhara International Film Festival at all locations •Workshops on Environment Awareness and Waste Management Livelihood •Income Generation Activities for capability building and livelihood. •Vocational Training Program for Youth. •Farmers' Awareness Program at Kagal on farm-prosperity measures Capability building through specially designed ITI training to 22 educated unemployed youths in the communities around Kagal Plant. Your Company works with a number of agencies and NGO partners to implement these projects. Some of the groups are: Symbiosis Community College, Vasundhara Club, District Aids Prevention and Control Unit, Kolhapur, Bhartiya Samaj Seva Kendra Community Scope, Dr. V. T. Patil Foundation, Sham Swayamsevi Sanstha, Swayamsidha Training Institute etc. FINANCE, ACCOUNTS, LEGAL AND SECRETARIAL Over the last couple of years, while overall economic climate has not been very conducive and this is reflected in the slow pace of your Company's growth, several initiatives have been taken cutting across the length and breadth of the organization to ensure that your Company is future ready and geared to accelerate its growth strategy with prospects of a better economic and industrial climate. With zero debt and excellent working capital management, coupled with prudent deployment of surplus funds, the Company's Balance Sheet remains strong. The transformation agenda embarked upon by the finance department a couple of years ago now renders itself to partnering the business with a lean and efficient structure. IT enablement of erstwhile manual systems have ensured speed with accuracy at reduced cost. Adherence to statutory and regulatory compliance has always been given the highest importance. Your Company uses a work flow based legal compliance software tool that monitors and ensures compliance of all applicable regulations across all factories and offices. INTERNAL CONTROLS AND RISK MANAGEMENT The Company has a strong and independent internal audit function which works on a co-sourced model together with a leading audit firm to perform internal audits based on combrhensive risk based audit plan. The audit plan is approved by the Audit Committee. Significant observations made by the internal audit team and the follow up actions thereon are reported to the Audit Committee. The Audit Committee reviews the adequacy and effectiveness of the Company's internal control environment and monitors the implementation of audit recommendations. The Company's IT enabled internal audit process is commensurate with the nature of its business, size and complexity of its operations. The IT enabled system facilitates effective internal control testing, reporting and tracking remediation. The Company uses the control self-assessment (CSA) as a key tool for assessing the robustness of controls. The Company's Enterprise Risk Management process (ERM) operates on a framework which addresses business and enterprise risks faced by the Company. The framework, through its activities of risk identification and assessment, mitigation and reporting, ensures that risks are evaluated in the context of all significant internal and external environments, systems, circumstances and stakeholders. The Internal Audit Department facilitates periodic review of key risks faced by the Company and assesses its impact on strategic decisions and mitigation measures. Based on these reviews, certain risks are revised and mitigation plans are reviewed. The Company's ERM process is IT enabled and supports risk assessments, maintains risk registers with mitigation plans. AWARDS, RECOGNITIONS AND CERTIFICATIONS The Company's strive towards excellence continued unabated. Some of the recognitions received for our relentless efforts of quality delivery and operational excellence included: •'Star Performance Award' conferred by the Engineering Export Promotion Council (EEPC) for the seventh consecutive year. The award was brsented by Mr. Suresh Prabhu, Union Minister for Railways •Recognized as the Top 25 innovative organization in India, in Farm Mechanization Sector, by the Confederation of Indian Industry (CII) "Green Co Gold" rating received from Cll for the Kagal plant •16th National Award for "Excellence in Energy Management 2015" from Cll • Global Spotlight Award for Supply Chain Excellence received by the Power Generation Division, from The Association of Management Consulting Firms - AMCF 2015atan award function held in New York •Quality Excellence in ProcurementAward" received at the 9th Exbrss, Logistics and Supply Chain Conclave held in Mumbai •Second winner of National Level Award in General Category received from Bureau of Energy Efficiency, New Delhi •First Prize winner of State Level ENCON Competition by Maharashtra Energy Development Agency (MEDA), consistently for 3 years at state level •'Breakthrough Product Innovation in R&D' received for the MEGA T at the AlMA Innovation Practitioner Summit 2015 •Pragati and Akshay Quality Circle won "Par Excellent Award" at NCQC National Level and also bagged Gold Award at QCFI PUNE Chapter in Quality Circle. RISKS, OPPORTUNITYAND THREATS The Company endeavors to address risks and opportunities as part of its overall strategic planning process rather than as a standalone exercise. While this is a dynamic exercise, some of the risks, opportunities and threats in the Company radar are detailed below: Risks •Product portfolio having high dependence on favourable external environment and economy for top line growth likely to result in severe top and bottom line brssure in a recessionary market situation •Delayed or prolonged monsoon will hamper Farm Irrigation and Farm Mechanization products •Currency devaluation in several countries across the globe will put pricing brssure on exports •Alternate forms of energy like solar and wind could hamper traditional Power Generation sales Opportunities •GOP growth is expected to rise to 7.6 per cent in Financial Year 2016 as compared with the revised estimates of 7.2 per cent in the brvious year, aided largely by growth in the manufacturing sector •The Make in India campaign with its objective of raising the growth rate in the manufacturing sector has begun to make an impact •The manufacturing sector is healthy and could be ascribed to the significant fall in inputs costs following the collapse of global commodity prices •Government's commitment to speed up implementation of projects in infra- structure, road construction and mining businesses will have direct bearing on Industrial segment sales •Mechanisation opportunities in theAgri and allied business Threats •Low entry barriers in domestic and International markets, rendering itself vulnerable to price brdation •Technology related disruptions may hamper long term growth with respect to existing product line. Government providing support to non-conventional sources of energy will also have an impact •Chinese players delivering low cost products will affect domestic market share |