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

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

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

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

i Defined Contribution Plans :

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

ii Defined Benefit Plans - Gratuity :

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

Kirloskar Pneumatic Company Limited

A Kirloskar Group Company

Notes to the Financial Statements

for the year ended 31^st March, 2022

NOTE 27 : EMPLOYEE BENEFITS : (Contd..)

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

thereof are as follows :

H in Million

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

follows :

H in Million

f) Net interest (income) / expenses :

H in Million

Basis used to determine the overall expected return:

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

h) General descriptions of defined benefit plans :

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

l) Average Duration :

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

m) Risk Exposure And Asset Liability Matching :

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

1) Liability Risk

a) Asset-Liability Mismatch Risk-

Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the company is successfully able to neutralize valuation swings caused by interest rate movements. Hence companies are encouraged to adopt asset-liability management.

b) Discount Rate Risk-

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

c) Future Salary Escalation And Inflation Risk-

Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management's discretion may lead to uncertainties in estimating this increasing risk.

2) Asset Risk

All plan assets are maintained in a trust fund managed by a public sector insurer viz; LIC of India. LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years.

The company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets .The company has no control over the management of funds but this option provides a high level of safety for the total corpus. A single account is maintained for both the investment and claim settlement and hence 100% liquidity is ensured and inflation risk are taken care of.

iii Defined Benefit Plan - Compensated Absences :

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

g) Average Duration :

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

h) Risk Exposure And Asset Liability Matching :

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

1) Liability Risk

a) Asset-Liability Mismatch Risk-

Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the company is successfully able to neutralize valuation swings caused by interest rate movements. Hence companies are encouraged to adopt asset-liability management.

b) Discount Rate Risk-

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

c) Future Salary Escalation And Inflation Risk-

Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management's discretion may lead to uncertainties in estimating this increasing risk.

2) Unfunded Plan Risk

This represents unmanaged risk and a growing liability. There is an inherent risk here that the company may default on paying the benefits in adverse circumstances.

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

The Company, during the year 2019-20, introduced Employee Stock Options ( ESOS ) to its employees. This Scheme is referred as the “KPCL Employee Stock Option Scheme” (“KPCL ESOS - 2019” or “Scheme”).

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

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

Fair value of the options granted:

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

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

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

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

NOTE 29 : REVENUE FROM OPERATIONS :

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

C Other Disclosures

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

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

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

Contribution to

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

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

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

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

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

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

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

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

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

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

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

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

(b) Fair value hierarchy and valuation techniques used

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

Financial risk management policy and objectives

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

Company is exposed to market risk and credit risk.

1) Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk namely foreign currency risk, interest rate risk, and other price risk such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, FVTOCI investments.

a) Foreign currency risk

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

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

b) Interest rate risk

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

c) Price risk Equity price risk

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

2) Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The Company has a large customer base and thus has no concentration of credit risks on a single customer.

a) Trade receivables

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

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

The Company’s capital includes issued equity capital, share premium and free reserves.

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

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

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

NOTE 37 : LEASES - IND AS 116 :

A The Company as a Lessee :

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B The Company as a Lessor :

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

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

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

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

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

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

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

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

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

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

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

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