1) Security Premium

The amount in the security premium account represents the additional amount paid by the shareholders for the issued shares in excess of the face value of equity shares.

2) General reserve

General reserve is created from time to time by transferring profits from retained earnings and can be utilised for purposes such as dividend payout, bonus issue, etc.

3) Share options outstanding account

The share option outstanding account is used to recognise the fair value of options to the employees of the Company and its Wholly Owned Subsidiary, under the employee stock option plans of the Company, which are unvested or unexercised as on the reporting date (Refer Note No. 46).

4) Equity instruments through other comprehensive income

This reserve represents the cumulative gains and losses arrising on the fair valuation of equity instruments measured through other comprehensive income, net of amounts reclassified to retained earnings when these equity instruments are disposed off.

5) Surplus / (Deficit) in the Statement of Profit and Loss

This comprise of the undistributed profit after taxes.

NOTE 38: EARNINGS PER SHARE

Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.

Diluted EPS amounts are calculated by adjusting profit or loss attributable to ordinary equity holders of the entity, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares.

NOTE 39: BUSINESS COMBINATION

During the Previous Year, the Company transferred the ‘Real Estate Business Undertaking at Kothrud’ (a business under common control) to its Wholly Owned Subsidiary, ‘Avante Spaces Limited (ASL) (Formerly known as Wellness Space Developers Limited) , as a going concern on a ‘Slump Sale’ basis vide Business Transfer Agreement dated 19 December, 2020, for consideration of H 7,500/- Lakhs. During the year purchase consideration of H 7,500/- Lakhs is discharged by ASL by way of allotment of 6,00,00,000 non-interest bearing Unsecured Optionally Convertible Debentures (OCD) of H 10 each, for a consideration other than cash amounting to H 6,000 Lakhs. The balance consideration of H 1,500 Lakhs has been settled in cash.

(b) Defined benefit plans

Gratuity : The Company has an unfunded defined benefit Gratuity plan. Every employee who has completed five years or more of service is eligible for a gratuity on separation at 15 days basic salary (last drawn salary) for each completed year of service. Where service is in excess of 15 years, full month’s basic salary is considered for the calculation of gratuity.

The above sensitivity analyses have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the reporting date. In practice, generally it does not occur. When we change one variable, it affects the other variables. In calculating the sensitivity, project unit credit method at the end of the reporting period has been applied.

The method and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year.

Risk exposure

Through its defined benefit plans, the entity is exposed to a number of risks, the most significant of which are detailed below:

(A) Changes in bond yields

A decrease in bond yields will increase plan liabilities.

(B) Legislative risk

The Government may amend the Payment of Gratuity Act thus requiring the companies to pay higher benefits to the employees. This will directly affect the present value of the defined benefit obligation and the same will have to be recognised immediately in the year when any such amendment is effective.

(C) Liability risks

(i) 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 neutralise valuation swings caused by interest rate movements. Hence companies are encouraged to adopt asset-liability management.

(ii) 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.

(iii) 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.

(iv) 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 inadverse circumstances. Funding the plan removes volatility in Company’s financials and also benefit risk through return on the funds made available for the plan.

NOTE 46: STOCK OPTION SCHEMEKirloskar Industries Limited - Equity Settled Stock Appreciation Rights Plan 2019 (KIL ESARP 2019)

The Company had passed Special Resolution through Postal Ballot and approved - ‘Kirloskar Industried Limited - Employees Stock Aprreciation Rights Plan 2019’ (‘KIL ESARP 2019’) on 29 December 2019 and authorised the Board to create, offer and grant from time to time, in one or more tranches, to employees of the Company and its subsidiary Company 4,85,000 equity shares of H 10 each fully paid up. The Company had granted an aggregate of 4,70,898 ESARs exercisable into not more than 4,85,000 equity shares of the Company face value of H 10 each fully paid up.

In terms of the KIL ESARP 2019, the vested ESARs upon exercise shall be settled by way of allotment of equity shares. The number of equity shares allotted would be the product of the number of ESARs exercised and the proportion of appreciation in each ESAR as compared to the market price on the date of exercise. The appreciation would be the excess of market price of the equity share over the ESAR Price in terms of the KIL ESARP 2019. No shares shall be allotted in case there is no appreciation in the price of the shares. Upon the exercise of the options, the amount equivalent to the face value of the shares allotted would be payable by the employees to the Company.

For options granted under KIL ESOP 2017 Plan, the cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised as employee benefits expenses together with a corresponding increase in Stock Options Outstanding reserves in equity, over the period in which the vesting conditions are fulfilled by the employees. Consequent to modification in KIL ESOP 2017 with KIL ESARP 2019, for unvested options of KIL ESOP 2017, the Company has recognised incremental fair value of ESAR which shall be amortised over the vesting period as per KIL ESARP 2019 in addition to fair value of original options which will be amortised over the remaining vesting period of original options, in compliance with ‘IND AS 102: Share Based Payment’. For options already vested, incremental fair value shall be recognised over the vesting period of KIL ESARP 2019. Further, fair value of new ESARs granted shall be recognised over the vesting period of KIL ESARP 2019.

$ Weighted average share price disclosure is not applicable since share options are not exercised during the Previous Year.

*Represents the base price with reference to which the appreciation per share shall be computed to determine the number of shares eligible for exercise.

III Fair value of the options granted

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

The fair value of the options granted is mentioned below as per vesting period. 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.

V Rationale for the variables used

The variables used for calculating the fair values and their rationale are as follows:

a. Stock Price

The closing market price on the National Stock Exchange of India Limited (NSE) on the date of grant has been considered for the purpose of valuation.

b. Volatility

Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black-Scholes-Merton option pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volaitility of stock prices on NSE, over a period prior to the grant date, corresponding with the expected life of the options has been considered.

The period to be considered for volatility has to be adequate to represent a consistent trend in the price movements. It is also important that movements due to abnormal events get evened out. The period considered for the working is commensurate with the expected life of the option.

The fair value of an option is very sensitive to this variable. Higher the volatility, higher is the fair value. The rationale being,

the more volatile a stock is, the more is its potential to go up (or come down), and the more is the probability to gain from the movement in the price. Accordingly, an option to buy a highly volatile stock is more valuable than the one to buy a less volatile stock, for the probability of gaining is lesser in the latter case.

c. Risk - free interest rate

The risk-free interest rate being considered for the calculation is the interest rate applicable for maturity equal to the expected life of the options based on the zero-coupon yield curve for government securities.

d. Exercise price

Exercise Price of each specific grant has been considered.

e. Time to maturity / expected life of options

The Company has estimated the expected life of the options on the basis of average of minimum and maximum life of the options. Historical data is not considered in expected life calculations.

f. According to IND AS 102, the expected life of an award of stock options shall take into account the following factors

The expected life of an award of stock options considers the following factors:

a) The expected life must at least include the vesting period.

b) The average lengths of time of similar grants have remained outstanding in the past. If the Company does not have sufficiently long history of stock option grants, the experience of an appropriately comparable peer group has been taken into consideration.

c) The expected life of stock options should not be less than half of the exercise period of the stock options issued until and unless the same is supported by historical evidences with respect to stock options issued by the Company earlier.

The fair value of each award has been determined based on different expected lives of the options that vest each year, as if the award were several separate awards, each with a different vesting date.

The time to maturity has been estimated as illustrated by the following example. In case of the options granted on 1 April 2017, the earliest date of exercise for the first vesting is one year from the date of grant that is 1 April 2018. Hence, the minimum life of the option is 1 year. The exercise period is three years from the date of vesting as per the KIL ESOP 2017; hence the maximum life is 4 years. The expected life is the average of minimum and maximum life, i.e. 2.5 years [(1 4) /2]. The time to maturity for the remaining vests has been calculated in a similar manner.

g. Expected dividend yield

The dividend yield for each year has been derived by dividing the dividend per share for that year by the average market price per share of the respective period. The expected dividend yield of the Company over the life of the option is estimated considering the Company’s past dividend policy.

VI Employee-benefit expenses recognised in the Standalone Financial Statements

The Company has recorded employee stock-based compensation of H 238 Lakhs (Previous Year: H 747 Lakhs) out of which H 64 Lakhs (Previous Year: H 263 Lakhs) has been recognised in the Statement of Profit and Loss after reversal of H 34 Lakhs and H 128 Lakhs (Previous Year : H 109 Lakhs) after reversal of H 12 Lakhs has been recognised as deemed investment in Wholly Owned Subsidiary relating to the options granted to the employees of the Company and its Wholly Owned Subsidiary for the year ended 31 March 2022.

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

i) The fair values of equity instruments are measured using Level 1 hierarchy. There have been no transfers among Level 1, Level 2 and Level 3 during the year.

ii) The management assessed that the fair value of cash and cash equivalents, other bank balances, trade receivables, trade payables, deposits and other financial assets and liabilities approximate their carrying amounts.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

(iii) The fair value of the quoted equity shares are based on the price quotations at reporting date.

(iv) The fair value of unquoted instruments - The Company has carried out fair valuation of investments in equity shares of unquoted instruments based on discounted cash flow method under income approach based on valuation carried out by an independent valuer. The unquoted instruments are measured using Level 3 hierarchy.

(v) The fair value of other financial liabilities as well as other financial assets is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

vi) The fair value of debt component of unsecured OCDs is computed by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

NOTE 49: FINANCIAL RISK MANAGEMENT

The Company’s activities exposes it to market risk, liquidity risk and credit risk. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk.

The Company has in place a mechanism to identify, assess, monitor and mitigate various risks to key business objectives. Major risks identified are systematically addressed through risk mitigation actions on a continuing basis.

(A) Market risk

Market risk is the risk of any loss in future earnings, in realisable fair values or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity price fluctuations, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy.

The Company does not have any foreign currency obligation nor does it have any borrowings. Accordingly, the Company does not perceive any foreign currency risk or interest rate risk.

(B) Equity price risk

Equity price risk is related to the change in market reference price of the investments in equity securities. The fair value of the Company’s investments measured at fair value through other comprehensive income and fair value through profit and loss exposes the Company to equity price risks. These investments are subject to changes in the market price of securities.

(C) Credit risk

The Company is exposed to credit risk from its operating activities (primarily trade receivables).

I. Trade receivables

Credit risk is the risk that one party to financial instrument will cause a financial loss for the other party by failing to discharge an obligation. To manage this, the Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts, ageing of accounts receivable and forward looking information. Individual credit limits are set accordingly. The credit period offered to customers is 30 days from the date of invoice.

Ageing analysis of trade receivables / Unbilled receivables / Unbilled contract assets Refer Note No. 8

(D) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. The flexibility in funding requirements is met by ensuring availability of adequate inflows.

The Company had no outstanding bank borrowings as of 31 March 2022 and 31 March 2021. The working capital of the Company is positive as at each reporting date.

The Company’s objectives when managing capital are to :

- safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and

- Maintain an optimal capital structure to reduce the cost of capital.

The Company’s capital structure completely comprises of equity component. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares etc.

No changes were made in the objectives, policies or processes for managing capital during the year and during the Previous Year.

NOTE 51: RATIO

The Company is termed as an Unregistered Core Investment Company (CIC) as per Reserve Bank of India Guidelines dated 13 August 2020 and is not exposed to any regulatory imposed capital requirements. Thus, the following analytical ratios are not applicable to the Company.

1) Capital to Risk-Weighted Assets ratio (CRAR)

2) Tier I CRAR

3) Tier II CRAR

4) Liquidity Coverage Ratio

NOTE 52: RELATIONSHIP WITH STRUCK OFF COMPANIES

During the year the Company has not made any transactions with companies struck off under Section 248 of the Companies Act, 2013 or Section 560 of Companies Act, 1956.

NOTE 53: EVENT AFTER REPORTING PERIOD

According to the management’s evaluation of events subsequent to the Balance Sheet date, there were no significant adjusting events that occurred other than those disclosed / given effect to, in these Financial Statements as of 31 March 2022.

NOTE 54: DIVIDEND

The Board of Directors has proposed Final Dividend of H 10 per equity share for FY 2021-22. (Previous year Final dividend H 10 per equity share i.e. 100%).

NOTE 55:

Previous year’s figures have been regrouped wherever considered necessary to make them comparable with those of the current year.