5.4 Other Commitments
5.4.1 The Company has given letter of comfort/undertaking to one of the step-down subsidiary's bankers for credit facilities availed by that step-down subsidiary. As per the terms of letter of comfort/undertaking, the Company undertakes not to divest its ownership interest directly or indirectly in the step-down subsidiary beyond specified percentage.
5.4.2The Company has incorporated ‘Kirloskar Advanced Systems Private Limited' as a Wholly Owned Subsidiary Company w.e.f. 30 March 2026 wherein the Company have decided to keep the initial investment upto C 9 Crores.
5.4.2 The Board of Directors of the Company at its meeting held on 11 February 2026, has approved the further Investment in 3,200 equity shares of AED 1,000 per share at aggregate consideration of AED 3.20 million (Approx. C 8 Crores) of Kirloskar International ME FZE, UAE ("KIME") a wholly owned subsidiary of the Company. This further investment is to meet working capital requirement of KIME and acquisition of Kirloskar Trading SA (PTY) Limited, Johannesburg, South Africa (KTSPL - a Promoter Group Company of KOEL) by KIME.
i The Company is mainly in the business of manufacturing and trading of engines, gensets and related spares. The Company also provides after sales services such as annual maintenance contract, extended warranty etc.
ii The Company generally recognises revenue in case of goods, when the performance obligation is satisfied at a point in time when the control is transferred i.e. either on shipment or upon delivery as per the terms of contracts in domestic and in case of export on the date of bill of lading.
In case of services, where performance obligation is satisfied at a point in time, revenue is generally recognised upon completion of services and on obtaining work completion certificates from the customers. In contracts under which performance obligation satisfied over a period of time, revenue is generally recognised either according to stage of completion or on straight line basis depending upon the type of services provided. The stage of completion is determined based on the contractual terms.
When the Company’s efforts or inputs are expended evenly throughout the performance period revenue is recognised on straight-line basis.
The payment is due from the date of invoice and payment terms are generally in the range of 0 to 90 days depending on product/market segment and market channel excluding some exceptions.
iii The Company provides to its customers warranties in the forms of repairs or replacement warranty under its standard terms and recognises it as warranty provision as per Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets”.
As on 31 March 2026, the Company has unsatisfied performance obligations of K 172.91 Crores (31 March 2025: K 182.22 Crores). The Company expects that C 103.20 Crores will be recognised as revenue in financial year 2026-27 and remaining in subsequent years based on contractual terms.
As on 31 March 2026, the Company has recognised an asset of K 11.07 Crores (31 March 2025: K 2.99 Crores) for cost incurred to obtain and fulfil the contracts. The asset recognised is included in Note 15 Other current asset: Prepaid expenses.
Risk Exposure
Through its defined benefit plan, the Company is exposed to a number of risks, the most significant of which are detailed below:
a. Discount rate risk: Variations in the discount rate used to compute the present value of the liabilities may see small, but in practise can have a significant impact on the defined benefit liabilities.
b. Future salary escalation and inflation risk: Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management's discretion may lead to uncertainities in estimating this increasing risk.
c. Asset-Liability mismatch risk: Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the company is successfully able to neutralize valuation swings caused by interest rate movements.
d. Asset risks: Plan assets are maintained in a self-managed trust fund managed by a public sector insurer viz. LIC and partly managed by private sector insurers.
LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years. The company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets. The company has no control over the management of funds but this option provides a high level of safety for the total corpus. Also interest rate and inflation risk are taken care of.
With other private insurers, the company has opted for a unit-linked fund which is market linked with options to invest in equity funds. The company has the option to structure the portfolio based on its risk appetite providing an opportunity to earn market linked returns. But there is an investment risk here which is borne by the company. A single account is maintained for both investment and claim settlement and hence 100% liquidity is ensured.
e. Unfunded Plan Risk: This represents unmanaged risk and a growing liability. There is an inherent risk here that the company may default on paying the benefits in adverse circumstances. Funding the plan removes volatility from the balance sheet and better manages defined benefit risk through increased returns.
There is no compulsion on the part of the Company to fully prefund the liability of the Gratuity Plan. The Company’s philosophy is to fund these benefits based on its own liquidity and the level of underfunding of the plan.
5.10 The Company mainly operates in the business of manufacturing of Engines wherein two customer based reportable segments have been identified namely - Business to Business ("B2B") and Business to Customer ("B2C") (upto 10 October 2025 - refer Note 39A). However, post transfer of net assets of B2C business segment, the Company operates in a segment of B2B only at standalone level. Further, as per para 4 of Ind AS 108 “Operating Segments”, the Company is required to disclose segment information only in the Consolidated Financial Statements. Accordingly, disclosure of this information has been included under Consolidated Financial Statements.
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
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 2026, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2025: K 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
(i) The Company has not provided any commitment to the related parties as at 31 March 2026 (31 March 2025: K Nil) except to Kirloskar Advanced Systems Private Limited towards initial investment in Kirloskar Advanced Systems Private Limited upto C 9 Crores.
(ii) The Board of Directors of the Company at its meeting held on 11 February 2026, has approved the further Investment in 3,200 equity shares of AED 1,000 per share at aggregate consideration of AED 3.2 million (Approx. C 8 Crore) of Kirloskar International ME FZE, UAE ("KIME") a wholly owned subsidiary of the Company. This further investment is to meet working capital requirement of KIME and acquisition of Kirloskar Trading SA (PTY) Limited, Johannesburg, South Africa (KTSPL - a Promoter Group Company of KOEL) by KIME.
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').
i Description of significant unobservable inputs used for financial instruments (level 3):
I nvestment in equity shares of Kirloskar Management Sevices Private Limited (KMSPL) and Kirloskar Proprietary Limited (KPL) 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 K 0.03 Crores (31 March 2025: K 0.02 Crores) or decrease by K 0.03 Crores (31 March 2025 : K 0.02 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 K 0.04 Crores (31 March 2025: K 0.04 Crores) or increase by K 0.04 Crores (31 March 2025: K 0.04 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.
5.15 Financial instruments risk management objectives and policies (Contd..)
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:
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 2026 and 31 March 2025
The analysis exclude the impact of movements in market variables on: the carrying values of gratuity, pension and other postretirement obligations and provisions.
The following assumption has been made in calculating the sensitivity analysis:
The sensitivity of the relevant Statement of Profit and Loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2026 and 31 March 2025 including the effect of hedge accounting.
Commodity price risk
The Company is affected by the price volatility of certain commodities. Its operating activities require the on-going purchase and manufacture of engines and therefore require a continuous supply of copper and steel. However, Company being the indirect user of these commodities, volatility in price of such commodity does not have direct or immediate impact on the profitability of the Company. Hence, the Company does not foresee any direct or immediate risk with respect to such commodity price fluctuation.
Other Price Risk
The Company’s portfolio of investments mainly consists of debt mutual fund with short term maturity. Hence management believes that this portfolio is not significantly susceptible to market risk.
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 ronsistenntly reoognizes provision for any significantly delayed receivables, for accounting of expected credit loss, with respect to the provision made for the receivables against sales of Gensets to a specific customer in prior years, the (income) or expense in the Statement of Profit and loss for the year ended 31 March 2026 was K Nil and K (41.47) Crores in FY 2024-2025.
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.
The Company monitors its risk of a shortage of funds using a liquidity planning tool.
The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans. The Company has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over with existing lenders.
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company's performance to developments affecting a particular industry.
In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.
The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:
5.16 Capital management
For the purpose of the Company’s capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2026 and 31 March 2025.
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".
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.
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.
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:
As at 31 March 2026, 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 C 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 C 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, 10 August 2023 and 07 August 2024 had approved the grant of 50,000 employee stock options, 275,000 employee stock options, 1,35,000 employee stock options and 4,63,367 employee stock options to the eligible employees of the Company/the subsidiary company (viz. KOEL Fluid Dynamics Private Limited, wherever applicable) 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 C 2/- each.
The Nomination and Remuneration Committee of the Board of Directors of the Company in its meeting held on 6 August 2025 has approved the grant of 21,219 employee stock options to the eligible employee of the Company in terms of 'Kirloskar Oil Engines Limited - Employee Stock Option Plan 2019 ("KOEL ESOP 2019") and the special resolutions passed by the Members of the Company at the Annual General Meeting held on 9 August 2019 and 12 August 2021.
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. KOEL Fluid Dynamics Private Limited (formerly known as La-Gajjar Machineries Private Limited)
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.
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 Company to the subsidiary.
d. Kirloskar International ME FZE (wholly owned subsidiary w.e.f. 7 January 2025)
e. Kirloskar Advanced Systems Private Limited (wholly owned subsidiary w.e.f. 30 March 2026)
(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:
48 Previous year’s figures have been regrouped wherever considered necessary to make them comparable with those of the current year.