1. General Information

Elgi Equipments Limited ("the Company") CIN:L29120TZ1960PLC000351 is engaged in manufacturing of air compressors. The Company has manufacturing plants and its registered office in Coimbatore. The Company is a public limited company and listed on both the Bombay Stock Exchange and the National Stock Exchange.

2.1. Basis of preparation

(i) Compliance with Ind AS

The standalone financial statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act. This financial statement has been approved by the Board of Directors in their meeting held on May 27, 2024.

(ii) Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following:

a) certain financial assets and liabilities (including derivative instruments) that are measured at fair value,

b) defined benefit plans — plan assets measured at fair value and,

c) share based payments.

(iii) New and amended standards adopted by the Company

The Ministry of Corporate Affairs vide notification dated 31 March 2023 notified the Companies (Indian Accounting Standards) Amendment Rules, 2023, which amended certain accounting standards (see below), and are effective 1 April 2023:

• Disclosure of accounting policies - amendments to Ind AS 1

• Definition of accounting estimates - amendments to Ind AS 8

• Deferred tax related to assets and liabilities arising from a single transaction - amendments to Ind AS 12

The other amendments to Ind AS notified by these rules are primarily in the nature of clarifications.

These amendments did not have any material impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. Specifically, no changes would be necessary as

a consequence of amendments made to Ind AS 12 as the Company’s accounting policy already complies with the now mandatory treatment.

As part of adopting amendments to Ind AS 1 -Presentation of Financial Statements, the Company describes its material accounting policies applied, under each of the individual notes to the Financial Statements and avoids repeating the text of the standard, unless when it is considered relevant to the understanding of the note’s content. These accounting policies most frequently or significantly require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operation.

Other accounting policies are provided under Note 50 for completeness purposes. The Company’s accounting policies and methods are unchanged compared to March 31, 2023.

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (‘the functional currency’). The standalone financial statements are presented in Indian rupee (INR), which is the Company's functional and presentation currency.

2.2 Critical estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Company's accounting policies.

This note provides an overview of the areas that involved a higher degree of judgement or complexity and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The areas involving critical estimates or judgements are:

• Estimation of impairment of investments in subsidiaries and joint ventures - Note 6

• Impairment of trade receivables - Note 12

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

3(a) Property, plant and equipment and Capital work-in progress

Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at historical cost less depreciation. Depreciation is calculated using the straight-line and written down value methods to allocate their cost, net of their residual values, over their estimated useful lives.

The useful lives have been determined based on Schedule II to the Companies Act, 2013 except for roads (classified as buildings) and tools, jigs and fixtures, patterns and mould and dies (classified as plant and machinery); where useful lives have been determined based on technical evaluation carried out by the management's expert which are different from those specified by Schedule II to the Companies Act, 2013, in order to reflect the actual usage of the assets. The residual values are not more than 5% of the original cost of the asset.

i) Property, plant and equipment pledged as security

Refer note 47 for information on property, plant and equipment pledged as security by the company.

ii) Contractual obligations

Refer to note 44(a) for disclosure of contractual commitments for the acquisition of property, plant and equipment.

iii) Details of benami property held

No proceedings have been initiated on or are pending against the Company for holding benami property under the

Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made thereunder.

iv) Title deeds of immovable properties not held in name of the company

The title deeds of all the immovable properties (other than properties where the company is the lessee and the lease

agreements are duly executed in favour of the lessee), as disclosed in note 3(a) and 4 to the financial statements, are

held in the name of the company.

a) The title to the properties in Arasur Village are held in the name of the Company as per the title deeds. In these properties, a portion in SF No-100/1 was incorrectly claimed by an individual and a connected litigation filed by him was dismissed in the Company’s favour. The Company has now initiated action for removing the Individual’s name from the sub registrar’s records.

b) A land parcel measuring 48,000 sq ft was purchased by the Company at Kurichy, Coimbatore in 2007 from Coimbatore Private Industrial Estate Limited. This land is adjoining its other property in the same place and is being claimed as a road by the authorities from 2009. A litigation that commenced in 2010 concerning the same is currently pending before the Madras High Court under a review petition filed by the Company.

3(b) Right of use assets and Lease liabilities

This note provides information for leases where the Company is a lessee.

The Company leases various offices and warehouses. Rental contracts are typically made for fixed periods of 11 months to 7 years.

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor.

i) Amounts recognised in the balance sheet

The balance sheet shows following amounts relating to leases:

a) Additions to the gross carrying amount of right-of-use assets are ' 5.02 million (Lease modifications) and ' 11.64 million (New leases) for March 31, 2024 and March 31, 2023, respectively.

b) Disposals to the gross carrying amount of right-of-use assets are ' 16.74 million and ' Nil for March 31, 2024 and March 31, 2023, respectively.

(iii) Cash outflow

The total cash outflow for leases is ' 23.35 million and ' 22.54 million for the year ended March 31, 2024 and March 31, 2023, respectively.

(iv) Extension and termination options

Extension and termination options are included in a number of property leases. The majority of extension and termination options held are exercisable only by the Company and not by respective lessor.

(v) Critical judgements in determining lease term:

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

4 Investment properties

Investment properties (other than land) are depreciated using the written down value method over their estimated useful lives. Investment properties have a useful life of 30 and 60 years for Factory and Office building, respectively. The useful lives have been determined based on Schedule II to the Companies Act, 2013.

Estimation of Fair Value

The Company obtained independent valuations for its investment properties. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Company considers information from a variety of sources including:

• current prices in an active market for properties of different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences,

• discounted cash flow projections based on reliable estimates of future cash flows,

• capitalised income projections based upon a property’s estimated net market income, and a capitalisation rate derived from an analysis of market evidence.

The fair values of investment properties have been determined by "S. Pichaiya & associates", who is a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017. The main inputs used are the rental growth rates, expected vacancy rates, terminal yields and discount rates based on comparable transactions and industry data. All resulting fair value estimates for investment properties are included in level 3.

5 Goodwill and Other intangible assets

The intangible assets include computer software and drawings which are recorded at the cost of acquisition and are amortised using the straight-line method over a period of five years or their legal/useful life whichever is less. Refer Note 50(d) for other accounting policies related to goodwill and other intangible assets.

6 Financial assets - Investments (non-current)

i) Classification of financial assets at amortised cost

The Company classifies its financial assets at amortised cost only if both of the following criteria are met:

• The asset is held within a business model whose objective is to collect the contractual cash flows, and

• The contractual terms give rise to cash flows that are solely payments of principal and interest.

Financial assets classified at amortised cost comprise trade receivables, loans and other financial assets such as security deposits.

ii) Classification of financial assets at fair value through other comprehensive income:

Financial assets at fair value through other comprehensive income (FVOCI) comprise:

Equity securities (listed and unlisted) which are not held for trading, and for which the Company has irrevocably elected at initial recognition to recognise changes in fair value through OCI rather than profit or loss. These are strategic investments and the Company considers this classification to be more relevant.

iii) Derivatives

Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedge accounting criteria, they are classified as ‘held for trading’ for accounting purposes and are accounted for at FVPL. They are presented as current assets or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period.

The Company assesses the indicators of impairment of investments in subsidiaries and joint ventures as per the requirement of Ind AS 36 at least on an annual basis. The carrying value of investments (including guarantees) being less than the networth of the subsidiary is an indicator of potential impairment. The Company has performed detailed impairment assessment and concluded that there is no impairment of carrying value of investments.

Details of crypto currency or virtual currency

The Company has not traded or invested in crypto currency or virtual currency during the current or previous year.

Disclosure required as per Section 186

The company has advanced loans to its subsidiary-Elgi Compressors USA Inc. to fund the business acquisition and additional working capital requirements. The loans are repayable by March 31, 2028 ( Previous year: March 31, 2025) and carry interest rates which are at par with the prevailing market rates.

The Company has complied with the number of layers prescribed under the Companies Act, 2013.

*Include goods in-transit ' 113.88 million and ' 84.07 million as on March 31, 2024 and March 31, 2023, respectively. Notes:

a) The cost of inventories recognised as an expense includes ' Nil (March 31, 2023 - ' Nil ) in respect of provision for slow moving inventories and has been reduced by ' 2.83 million (March 31, 2023 - ' 23.15 million) in respect of reversal of such provisions.

b) Raw materials, Work in progress and Finished goods include R&D inventory.

12 Trade receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business and reflect the company’s unconditional right to consideration (that is payment is due, only on the passage of time). Trade receivables are recognized initially at the transaction price as they do not contain significant financing components. The Company hold the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less loss allowance.

For trade receivables and contract assets, the company applies the simplified approach required by Ind AS 109, which requires expected lifetime losses to be recognized at the initial recognition of receivables.

Terms and rights attached to equity shares:

The Company has one class of equity shares having a par value of ' 1/- per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding. During the year ended March 31, 2024, the amount of Final dividend per share recognised as distributions to equity shareholders is ' 2.00 per share (March 31, 2023: ' 1.15 per share).

On September 28, 2020, the Company allotted bonus equity shares of ' 1/- each, credited as fully paid up equity shares to the holders of the existing equity shares of the Company in the proportion of one equity share of the Company for every one existing equity shares of the Company, by way of capitalizing a part of the securities premium account of the Company.

Also, the calculation of basic and diluted earnings per share for all periods presented are adjusted retrospectively for the above-mentioned bonus issue.

Nature and purpose of other reserves

Capital reserve

Represents profit of a capital nature which is not available for distribution as dividend.

Securities premium

Securities premium is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of Companies Act, 2013.

Statutory reserve

Represents reserve created for statutory purpose not available for distribution as dividend.

General reserve

This is available for distribution to shareholders.

Retained earnings

Company’s share of cumulative earnings since its formation minus the dividends/capitalisation and earnings transferred to general reserve.

Share options outstanding account

The share options outstanding account is used to recognise the grant date fair value of options issued to employees under Elgi Equipments Limited Employee Stock Option Plan, 2019.

FVOCI Equity investments

The company has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated within the FVOCI equity investments reserve within equity. The company transfers amounts from this reserve to retained earnings when the relevant equity securities are derecognised.

Secured borrowings and assets pledged as security:

a) The packing credit loans from Bank are secured by a charge on stocks and receivables of the Company and a pari passu charge on specific land & building of the Company.

Also refer note 47 for value of assets pledged as security.

b) The packing credit loans from Bank are repayable within 180 days from the date of borrowing. The borrowings carry an interest rate linked to Repo rate/T-bills plus agreed spread after reduction of eligible interest subsidy under Interest Equalisation Scheme of Reserve Bank of India.

c) There are no defaults in the repayments of above borrowings during the year. Also refer note 47 for undrawn facilities secured by charges on assets.

d) The borrowings obtained by the company from banks and financial institutions have been applied for the purposes for which such loans were taken.

e) The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.

Net debt reconciliation

This section sets out an analysis of net debt (i.e, liabilities arising from financing activities) and the movements in net debt for each of the periods presented.

(i) Information about individual provisions and significant estimates Provision for Warranty

Provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of the reporting period. These claims are expected to be settled in the next financial year and therefore the time value of money not being material, no adjustment has been warranted. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest future claims could differ from historical amounts.

26(a) Employee benefit obligations

(i) Leave obligations

The leave obligations cover the Company’s liability for earned leave and sick leave.

a) The total provision for compensated absences amounts to ' 115.4 million and ' 113.06 million for March 31, 2024 & March 31, 2023 respectively.

The provision amount of ' 25.26 million (March 31, 2023: ' 25.24 million) is presented as current, since the company expects to settle the full amount of current leave obligation in the next 12 months.

The above total provision includes sick leave provision amounting to ' 22.78 million and ' 21.65 million for year ended March 31, 2024 and March 31, 2023, respectively.

Out of the total sick leave provision, the provision amount of ' 4.15 million (March 31, 2023: ' 4.07 million) is presented as current, calculated based on expected availment by the employees within next 12 months.

(ii) Defined contribution plans Provident Fund:

The Company also has certain defined contribution plans. Contributions are made to provident fund in India for employees at the rate of 12% of basic salary as per regulations. The contributions are made to registered provident fund administered by the government. The obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation.

Superannuation Fund:

The company contributes a percentage of eligible employees salary towards superannuation fund administered by Elgi Equipments Superannuation Fund and managed by Life Insurance Corporation of India.

The expense recognised during the period towards defined contribution plan is ' 90.53 million (March 31, 2023 -' 90.65 million).

(iii) Post-employment benefit obligations - Gratuity

The company provides for gratuity for employees in India as per the payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of Gratuity payable on retirement/ termination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity is a funded plan and the company makes contribution to recognised fund in India. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

The expected rate of return on assets is determined based on the assessment made at the beginning of the year on the return expected on its existing portfolio, along with the estimated increment to the plan assets and expected yield on the respective assets in the portfolio during the year.

(vii) Risk exposure

The Company operates the Gratuity Plan through Elgi Equipments Gratuity Fund, which invests in Life Insurance Corporation of India.

Asset Volatility: A large portion of the investment made by the LIC is in government bonds and securities and other approved securities. Hence, the Company is not exposed to the risk of asset volatility as at the balance sheet date.

Changes in bond yield: A decrease in bond yield will increase plan liabilities, although this will be partially offset by an increase in value of plan's bond holdings.

Inflation Risk: In the pension plans, the pensions in the payment are not linked to inflation, so this is a less material risk.

28 Revenue from operations

The accounting policy for revenue from operations is as follows:

(a) Sale of products

The Company manufactures and sells a range of air compressors and related parts. Sales are recognised when control of the product has transferred, being when the products are delivered to the customers, and there are no unfulfilled obligations that could affect the customer’s acceptance of products. Delivery occurs when the product have been shipped from the Company’s warehouse to the specific location in case of domestic sales, and when a bill of lading is generated in case of exports, the risk of obsolescence and loss have been transferred to the customer and either the customer has accepted the product in accordance with the sales contract, the acceptance provision have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied. Where the company sells goods and also has transportation obligation, and where the control of the goods gets transferred first, the sale of goods and transportation is treated as a separate performance obligation. The Company’s obligation to repair/replace faulty product under the standard warranty terms is recognised as a provision (refer Note 26). A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. The credit facility is as per standard industry terms, thus there is no significant financing component.

(b) Sale of services

The performance obligation under service contract are installation, maintenance and other ancillary services set forth in the contracts. Revenue from rendering of services is recognised over a period of time by reference to the stage of completion as the customer simultaneously receives and consumes the benefit provided by the Company’s performance as the Company performs. In case of transportation revenue, the Company recovers cost of transportation from the customers. The cost is either billed separately in the invoice or included in the total transaction price. Where the transaction price is inclusive of cost of transportation, the Company splits the transaction price into Sale of product and Sale of services. Payment for the service rendered is made as per the credit terms in the agreements with the customers. The credit period is generally short term, thus there is no significant financing component.

*excluding investments in subsidiaries and joint ventures, carried at cost less impairment losses aggregating to ' 1,705.90 million (March 31, 2023 - ' 1,705.90 million) which are outside scope of Ind AS 107.

The equity securities are not held for trading; the Company has made an irrevocable election at initial recognition to recognise changes in fair value through OCI rather than profit or loss as these are strategic investments and the Company considers this to be more relevant.

(i) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This consists of listed equity instruments, that have quoted price. The fair value of all equity instruments which are traded in the stock exchanges is valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Investment in unquoted equity instrument (First Energy TN1 Pvt Ltd and First Energy 5 Pvt Ltd), pursuant to power purchase arrangement, is determined to have cost as an appropriate measure of fair value due to restriction to sell at face value.

There are no transfers between level 1, level 2 and level 3 during the year.

The company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

• the use of quoted market prices or dealer quotes for similar instruments

• the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date

• the fair value of the remaining financial instruments is determined using discounted cash flow analysis.

The carrying amounts of trade receivables, trade payables, dealer deposits, cash and bank balances, deposits with financial institutions, loans to subsidiaries, borrowings and other current financial liabilities and financial assets are considered to be the same as their fair values, due to their short-term nature.

The fair values for loan to subsidiaries, loans to employees were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk. The security deposits are payable on demand and hence their carrying amount is considered as fair value.

For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values. For equity instruments measured at FVOCI whose fair value measurement was performed using unobservable inputs (Level 3), the reconciliation from opening balance to closing balance and relationship between such unobservable inputs and fair value has not been disclosed considering that the carrying amount of such instruments is not significant.

The company’s risk management is carried out by treasury department under policies approved by the board of directors. Company's treasury identifies, evaluates and hedges financial risks in close co-operation with the company’s operating units. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(A) Credit risk

Credit risk arises from cash and cash equivalents, favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers including outstanding receivables.

(i) Credit risk management

For banks and financial institutions, only high rated banks/institutions are accepted.

The Company assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal and external ratings in accordance with the limits set by the Company. The finance function consists of a separate team who assess and maintain an internal credit rating system. The compliance with the credit limits by customers is regularly monitored by the finance function.

(ii) Security

For some trade receivables, the Company may obtain security in form of guarantees, deeds of undertaking or letter of credit, which can be called upon if counter party is in default under the terms of the agreement.

a) Expected credit loss for loans, security deposits and investments

The entity's investments and deposits at amortized cost are considered to have low credit risk since they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

For loans to related parties and employees, the Company considers the probability of default upon initial recognition of loan and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring on the loan as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forward looking information. The following indicators are considered:

• internal credit rating

• actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the borrower’s ability to meet its obligations

• actual or expected significant changes in the operating results of the borrower

• significant increases in credit risk on other financial instruments of the same borrower

• macroeconomic information (such as market interest rates or growth rates)

The resultant internal credit rating for loans, deposits and investments is C1. The entity estimates that the 12-month expected credit loss in this scenario and the estimated gross carrying amount at default to be immaterial and hence there is no expected credit loss recognised for the year ended March 31, 2024 and March 31, 2023.

The Company also has provided guarantee for loans availed by subsidiaries (Refer Note 51), for which the Company assesses credit risk by considering the risk of default occurring on the loan to which the guarantee relates i.e., the risk that the specified debtor will default on the contract.

The entity carries out a review of the liquidity and solvency of the subsidiaries to which the guarantee has been provided as part of its strategic business reviews. The entity also corroborates its assessment with the repayments of receivables and loans by the subsidiaries to the entity. Based on the assessment performed, no expected credit loss provision has been made in respect of financial guarantee provided to subsidiaries for the year ended March 31, 2024 and March 31, 2023, as in the management's assessment the amount was immaterial.

b) Expected credit loss for trade receivables under simplified approach

Customer credit risk is managed by the Company based on the Company's established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an internal credit rating system. Outstanding customer receivables are regularly monitored and assessed for its recoverability.

An impairment analysis is performed at each reporting date, where receivables are grouped into homogenous credit groups and assessed for impairment. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 12. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers have sufficient capacity to meet the obligations and the risk of default is negligible.

The expected loss rates are based on the payment profiles of sales over a period of 24 months before the reporting date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables if any.

Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Company, and a failure to make contractual payments for a period of greater than 720 days past due and the same is considered as credit impaired.

Impairment losses on trade receivables are presented as loss allowances under other expenses. Subsequent recoveries of amounts previously written off are credited against the same line item.

The Company has computed the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking information.

(B) 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. Due to the dynamic nature of the underlying businesses, Company treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows.

The credit facility sanctioned by the banks are subject to renewal every year.

Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time in INR and can be renewed for further period of 1 year.

(ii) Maturities of financial liabilities

The tables below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for:

a. all non-derivative financial liabilities, and

b. net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows.

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

(c) Market risk

(i) Foreign currency risk

The company operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, EUR and AUD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the company’s functional currency (INR). The risk is measured through a forecast of highly probable foreign currency cash flows. The risk is managed by the Company by entering into Forward Contracts.

(ii) Price risk

The Company’s exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet as fair value through OCI.

To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.

The majority of the Company's equity instruments are publicly traded and are included in the Nifty 50 index. Sensitivity

The table below summarises the impact of increases/decreases of the index on the Company’s equity and total comprehensive income for the period. The analysis is based on the assumption that the equity index had increased by 5% or decreased by 5% with all other variables held constant, and that all the Company’s equity instruments moved in line with the index.

The Company has 26% interest in Joint venture called Elgi Sauer Compressors Limited which was set up as company together with JP Sauer & Sohn Maschinenbau GMBH in India, to sell compressors and their parts along with rendering engineering services.

The Company has 50% share in Industrial Air Solutions LLP which was set up as Limited liability partnership in India with Mr. Rajeev Sharma, for distribution of products of Elgi Equipments Limited.

The Company through its wholly owned subsidiary Elgi Compressors USA Inc, has set up a joint venture called Evergreen Compressed Air and Vacuum LLC, with Mr.Michael Keim for a share of 50% each. The joint venture is having registered office at Seattle, USA and will be the distributor of products of Elgi Equipments Limited.

The Company through its wholly owned subsidiary Elgi Compressors USA Inc, has set up a joint venture called Compressed Air Solutions of Texas, LLC, with Mr.Bryan Becker for a share of 50% each. The joint venture is a distributor of products for compressed air systems mainly in the state of Texas.

The Company through its wholly owned subsidiary Elgi Compressors USA Inc, has set up a joint venture called PLA Holding Company, LLC, with Mr. Jeffery Brandon Todd for a share of 50% each. The joint venture was formed in the state of North Carolina. PLA Holding Company, LLC, wholly owns Pattons of California, LLC, a California company which is a distributor of products for compressed air systems mainly in the state of California.

The Company through its wholly owned subsidiary Elgi Compressors USA Inc, has set up a joint venture called G3 Industrial Solutions, LLC, with Mr.Chad Gooding and Mr.Luke Johnson for a share of one third for each. The joint venture is a distributor of products for compressed air systems mainly in the states of Kansas city and Missouri.

The Company through its wholly owned subsidiary Elgi Compressors USA Inc, has set up a joint venture called Gentex Air Solutions, LLC, with Mr. James Gery Naico and Mr.Diego Hernandez for a share of one third for each. The joint venture is a distributor of products for compressed air systems mainly in the states of North Carolina.

The Company through its wholly owned subsidiary Elgi Compressors USA Inc, has set up a joint venture called CS Industrial Services, LLC, with Mr. Kevin Melisz and Mr.Jeff Kurczewski for a share of one third for each. The joint venture is a distributor of products for compressed air systems mainly in the states of Western Newyork.

The company has 98% interest in a joint arrangement called L.G. Balakrishnan & Bros (Firm) which was set up as partnership firm in India together with Elgi Ultra Industries Private Limited to earn rental income.

The company has 80% interest in a Joint arrangement called Elgi Services which was set up as partnership firm in India together with Elgi Ultra Industries Private Limited.

*The above Key management personnel compensation does not include gratuity since the same is computed actuarially for all the employees and amount attributable to key management personnel cannot be ascertained separately and does not include unvested share based payments.

The remuneration paid to the Managing Director amounting to ' 23.43 million and to the Executive Director amounting to ' 8.82 million is in accordance with the provisions of Section 197 read with schedule V to the Companies Act, 2013.

** Subsequent to March 31, 2024, the Board of Directors of the Company’s Subsidiary, ATS Elgi Limited have recommended a dividend of ' 1,110/- per fully paid equity share (March 31, 2023 - ' 1,050/- per share). This proposed dividend is subject to the approval of shareholders in the ensuing annual general meeting.

42 Share based payments

Employee Stock Option Plan

The establishment of Elgi Equipments Limited Employee Stock Options Plan, 2019 (Elgi ESOP 2019) was approved by the Board of Directors at its meeting held on December 16, 2019 and the shareholders by way of postal ballot on January 31, 2020. The plan shall be administered through a Trust via acquisition of the equity shares from the secondary market.

The Elgi ESOP 2019 plan is designed to provide benefits to the eligible employees of the company and its subsidiaries. Under the plan, the participants are granted options which vest upon completion of three years of service from the grant date. Participation in the plan is at the board's discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits.

Once vested, the options remain exercisable for a period of three months.

Options are granted under the plan for no consideration and carry no dividend or voting rights. When exercisable, each option is convertible into one equity share.

(i) Fair value of options granted

a) Grant 1 (307,600 Shares) dated March 06, 2020:

The fair value at grant date of options granted during the year ended March 31, 2020 is ' 27.71 per option after allotment of bonus shares. The fair value of these options before bonus issue were ' 55.42. The fair value at grant date is independently determined using the Black-Scholes Model which takes into account the exercise price, the term of the option, the share price at the grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free rate for the term of the option.

The model inputs for the options granted during the year ended March 31, 2020 included:

a. Options are granted for no consideration and vest upon completion of service for a period of three years. Vested options are exercisable for a period of three months after vesting.

b. Exercise price: ' 200.05

c. Grant date: March 06, 2020

d. Expiry date: June 05, 2023

e. Share price at grant date: ' 201.65

f. Expected price volatility of the company's shares: 30.45%

g. Expected dividend yield: 0.82% (determined based on latest dividend declared at ' 1.65 per share as on valuation date)

h. Risk-free interest rate: 5.48%

The expected volatility is calculated using market data for stock prices of ELGi. (Source: Bloomberg)

b) Grant 2 (474,300 Shares) dated August 03, 2021:

The fair value at grant date of options granted during the year ended March 31, 2022 is ' 65.29 per option. The fair value at grant date is independently determined using the Black-Scholes Model which takes into account the exercise price, the term of the option, the share price at the grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free rate for the term of the option.

The model inputs for the options granted during the year ended March 31, 2022 included:

a. Options are granted for no consideration and vest upon completion of service for a period of three years. Vested options are exercisable for a period of three months after vesting.

b. Exercise price: ' 225

c. Grant date: August 03, 2021

d. Expiry date: November 01, 2024

e. Share price at grant date: ' 212.50

f. Expected price volatility of the company's shares: 40.41%

g. Expected dividend yield: 0.38% (determined based on latest dividend declared at ' 0.80 per share as on valuation date)

h. Risk-free interest rate: 4.98%

The expected volatility is computed using standard deviation of returns of the share prices, for the term equal to residual maturity of the option life.

c) Grant 3 (152,600 Shares) dated September 26, 2022:

The fair value at grant date of options granted during the year ended March 31, 2023 is ' 189.46 per option. The fair value at grant date is independently determined using the Black-Scholes Model which takes into account the exercise price, the term of the option, the share price at the grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free rate for the term of the option.

The model inputs for the options granted during the year ended March 31, 2023 included:

a. Options are granted for no consideration and vest upon completion of service for a period of three years. Vested options are exercisable for a period of three months after vesting.

b. Exercise price: ' 450

c. Grant date: September 26, 2022

d. Expiry date: December 25, 2025

e. Share price at grant date: ' 421.45

f. Expected price volatility of the company's shares: 60.50%

g. Expected dividend yield: 0.27% (determined based on latest dividend declared at '1.15 per share as on valuation date)

h. Risk-free interest rate: 7.34%

The expected volatility is computed using standard deviation of returns of the share prices, for the term equal to residual maturity of the option life.

d) Grant 4 (175,900 Shares) dated August 28, 2023:

The fair value at grant date of options granted during the year ended March 31, 2024 is ' 186.45 per option. The fair value at grant date is independently determined using the Black-Scholes Model which takes into account the exercise price, the term of the option, the share price at the grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free rate for the term of the option.

The model inputs for the options granted during the year ended March 31, 2024 included:

a. Options are granted for no consideration and vest upon completion of service for a period of three years. Vested options are exercisable for a period of three months after vesting.

b. Exercise price: ' 430.00

c. Grant date: August 28, 2023

d. Expiry date: June 30, 2026

e. Share price at grant date: ' 463.95

f. Expected price volatility of the company's shares: 49.20%

g. Expected dividend yield: 0.43% (determined based on latest dividend declared at ' 2.00 per share as on valuation date)

h. Risk-free interest rate: 7.17%

The expected volatility is computed using standard deviation of returns of the share prices, for the term equal to residual maturity of the option life.

43 Contingent liabilities and contingent assets

Contingent liabilities

(a) Claims against the Company not acknowledged as debts

(i) The company has disputed demands for excise duty, service tax and sales tax and other matters amounting to ' 11.09 million and ' 17.87 million as on March 31, 2024 and March 31, 2023 respectively. The company has deposited ' 2.19 million and ' 2.83 million against the above mentioned disputes as on March 31, 2024 and March 31, 2023, respectively.

The Company has filed appeals with appropriate authorities of Central Excise and Sales Tax Department against their claims.

(ii) The Company had deposited a sum of ' 18.80 million with Railways department of the Government of India in respect of a Road Under Bridge (RUB) project undertaken by the Railways near the Company’s factory at Kodangipalayam village. As Railways had planned for a Limited Use Subway and as the RUB project undertaken would benefit the public at large, the deposit was made as directed by the Madras High Court as an interim measure, pending finality as to whether the Company has to bear the full cost or only the differential cost. The Company received an unfavourable order on June 03, 2020 from the single judge of the Madras High Court holding that neither party is required to make any payment to the other. The Company filed an appeal against this order before the Division bench and was able to get the stay of the order of the single judge . The Company is reasonably confident of defending the case successfully to a large extent, however, in order to be realistic and out of abundant caution, the Company has decided to make a provision of ' 7.71 Million for the year ended March 31, 2023 based on a possibility that the Company may be requested by the court to bear the incremental cost of the RUB. This provision should not be construed as an admission of liability under any circumstances and has been made purely as an accounting prudence.

(iii) The Company has evaluated the impact of the Supreme Court Judgment in case of “Vivekananda Vidyamandir And Others Vs The Regional Provident Fund Commissioner (II) West Bengal” and the related circular (Circular No. C-I/1(33)2019/Vivekananda Vidya Mandir/284) dated March 20, 2019 issued by the Employees’ Provident Fund Organisation in relation to non-exclusion of certain allowances from the definition of “basic wages” of the relevant employees for the purposes of determining contribution to provident fund under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. In the assessment of the management, the aforesaid matter is not likely to have a significant impact and accordingly, no provision has been made in these Financial Statements.

(iv) The Company received summons’ during the year relating to the same matter as reported in the previous year, from a statutory authority, i.e, under the Foreign Exchange Management Act, 1999 (‘FEMA’), seeking information primarily relating to imports, exports including sales to subsidiaries and subsidiaries to their customers and overseas direct investments, including transactions of earlier years. The Company has submitted all the relevant information sought for by the authority from time to time to address the queries raised in the summons’ and hearings. The Company's application for noobjection certificates during the year for making overseas investments/providing guarantees in favour of its subsidiaries was not cleared by the statutory authorities and no reasons were cited. In the management's assessment, this is not likely to have a significant impact on the financial statements as of and for the year ended March 31, 2024.

43A Whistle blower

The Company has received whistle-blower complaints during the year and for certain matters which were open as at March 31, 2024, based on preliminary findings these are not considered to have any significant impact on the financial statements of the Company. For the matters closed, the entity has assessed that there is no impact on the financial statements for the year ended March 31, 2024.

43B Audit trail compliance

The Company uses two software for maintenance of its books of accounts. Consequent to proviso Rule 3(1) of the Companies (Accounts) Rules, 2014, for the financial year commencing on or after the 1^st day of April 2023, the Company is required to ensure that the accounting software and payroll software have a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and also ensure that the audit trail cannot be disabled.

The Company had undertaken steps to ensure compliance with the above requirement from the beginning of the year and also considered the evolving guidance in this regard.

1. In payroll software, audit trail for changes by end user is completely enabled from February 2024. However, due to limitation in the software, the audit log does not capture some specific changes and pre-modified values.

2. I n respect of the accounting software, the feature of recording audit trail (edit log) facility was enabled from November 06, 2023 meeting all the statutory requirements.

Further, the log of audit trail has not been tampered with throughout the period wherever they were enabled.

(i) Borrowing secured against current assets

The Company has working capital limits from banks received on the basis of security of current assets.

The quarterly returns or statement of current assets filed by the Company with banks and financial institutions are in agreement with the books of accounts.

(ii) Utilisation of borrowed funds and share premium

The Company has not advanced or loaned or invested funds to any other person(s) or entity(is), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:

a) 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

b) provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries.

The Company has not received any fund from any person(s) or entity(is), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the group shall:

a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or

b) provide any guarantee, security or the like on behalf of the ultimate beneficiaries

(iii) Registration of charges or satisfaction with Registrar of Companies

There are no charges or satisfaction which are yet to be registered with the Registrar of Companies beyond the statutory period.

49 Joint Operations and ESOP Trust

The Company has two joint operations as detailed in Note 41.

The Company has determined its interest in the assets and liabilities relating to the joint operation on the basis of its rights and obligations in a specified proportion in accordance with the contractual arrangement.

Nature & purpose of loans and guarantees:

(i) The Company has advanced loan and provided guarantee to its subsidiaries- Elgi Compressors USA Inc. and Industrial Air Compressors Pty Ltd. to fund the business acquisition and additional working capital requirements. The guarantees provided to Elgi Compressors Europe S.R.L- Belgium is for the purpose of meeting working capital requirements and Elgi Compressors France SAS is for incurring capital expenditure.

(ii) The loans carry interest rates which are at par with the prevailing market rates. These loans are repayable within March 31, 2028.

52 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Managing Director (MD) of the company has been identified as the chief operating decision maker of the Company. He assesses the financial performance and position of the Company and makes strategic decisions. The business activities of the Company comprise of manufacturing and sale of compressors. Accordingly, there is no other reportable segment as per Ind AS 108 Operating Segments.

As regards the entity wide disclosures, the revenue attributable to the country of domicile and foreign countries have been disclosed in Note 28 (Disaggregation of revenue). There are no non-current assets other than financial instruments and deferred tax assets located outside the country of domicile.

54 Compliance with approved scheme(s) of arrangements:

The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.

55 Relationship with struck off companies

The Company has no transactions with the companies struck off under Companies Act, 2013 or Companies Act, 1956.