3.14 Financial Instruments

A financial instrument is any contract that gives
rise to a financial asset of one Company and a
financial liability.

A. Financial assets

i. Initial recognition and measurement

All financial assets are recognised initially at
fair value plus, in the case of financial assets
not recorded at fair value through profit or
loss (FVTPL), transaction costs that are
attributable to the acquisition of the financial
asset. However, trade receivables that do not
contain a significant financing component
are measured at transaction price.

ii. Subsequent measurement

For purposes of subsequent measurement,
Debt instruments are measured at
amortised cost.

iii. De-recognition

A financial asset (or, where applicable, a part
of a financial asset or part of a Company
of similar financial assets) is derecognised
primarily when:

• The rights to receive cash flows from the
asset have expired, or

• The Company has transferred
substantially all the risks and rewards of
the asset.

iv. Impairment of financial assets

In accordance with Ind AS 109, the Company
applies expected credit loss (ECL) model for
measurement and recognition of impairment
loss on the following financial assets and
credit risk exposure:

Financial assets that are debt instruments,
and are measured at amortised cost e.g.,
loans, debt securities, deposits, trade
receivables and bank balances.

The Company follows ‘simplified approach’
for recognition of impairment loss allowance
on Trade receivables.

The application of simplified approach
does not require the Company to track
changes in credit risk. Rather, it recognises
impairment loss allowance based on lifetime
ECLs at each reporting date, right from its
initial recognition.

Lifetime ECL are the expected credit
losses resulting from all possible default
events over the expected life of a financial

instrument. ECL is the difference between
all contractual cash flows that are due to the
Company in accordance with the contract
and all the cash flows that the Company
expects to receive, discounted at the original
EIR. When estimating the cash flows, an
entity is required to consider:

• All contractual terms of the financial
instrument (including prepayment,
extension, call and similar options)
over the expected life of the financial
instrument. However, in rare cases
when the expected life of the financial
instrument cannot be estimated reliably,
then the entity is required to use the
remaining contractual term of the financial
instrument.

• Cash flows from the sale of collateral held
or other credit enhancements that are
integral to the contractual terms.

As a practical expedient, the Company uses a
provision matrix to determine impairment loss
allowance on portfolio of its trade receivables.
The provision matrix is based on its historically
observed default rates over the expected life
of the trade receivables and is adjusted for
forward-looking estimates. At every reporting
date, the historical observed default rates are
updated and changes in the forward-looking
estimates are analysed.

ECL impairment loss allowance (or reversal)
recognized during the period is recognized
as income/expense in the Statement of Profit
and Loss (P&L). This amount is reflected
under the head ‘other expenses’ in the P&L.
The Balance Sheet presentation for various
financial instruments is described below:

Financial assets measured as at amortised
cost: ECL is presented as an allowance, i.e., as
an integral part of the measurement of those
assets in the balance sheet. The allowance
reduces the net carrying amount. Until the
asset meets write-off criteria, the Company
does not reduce impairment allowance from
the gross carrying amount.

For assessing increase in credit risk and
impairment loss, the Company combines
financial instruments on the basis of shared
credit risk characteristics with the objective
of facilitating an analysis that is designed to
enable significant increases in credit risk to be
identified on a timely basis.

Significant Accounting Judgements,
Estimates and Assumptions

The preparation of the Company’s Financial
Statements requires management to make
judgements, estimates and assumptions that
affect the reported amounts of revenues,
expenses, assets and liabilities, and the
accompanying disclosures, and the disclosure
of contingent liabilities. Uncertainty about
these assumptions and estimates could result
in outcomes that require a material adjustment
to the carrying amount of assets or liabilities
affected in future periods.

Judgements

In the process of applying the Company’s
accounting policies, management has made
the following judgements, which have the most
significant effect on the amounts recognised in
the Financial Statements.

Estimates and Assumptions

The key assumptions concerning the
future and other key sources of estimation
uncertainty at the reporting date, that have
a significant risk of causing a material
adjustment to the carrying amounts of
assets and liabilities within the next financial
year, are described below. The Company
based its assumptions and estimates on
parameters available when the Financial
Statements were prepared. Existing
circumstances and assumptions about
future developments, however, may change
due to market changes or circumstances
arising that are beyond the control of the
Company. Such changes are reflected in the
assumptions when they occur.

Timing of Revenue Recognition

The Company deals with the designing,
manufacturing, supply and servicing
of gears and gear boxes. The type of
customers varies across these segments,
ranging from dealers to Original Equipment
Manufacturers, their suppliers, and Industrial
Customers. The Company recognizes
revenue from sale of goods at a point in
time based on the terms of the contract with
customers which may vary case to case.
Terms of sales arrangements with various
customers, including Incoterms, determine
the timing of transfer of control and require
judgement in determining the timing of
revenue recognition.

Property, Plant and Equipment and
Investment Property

The Company has estimated the useful life of
Property, Plant and equipment and Investment
Property as per the useful life prescribed in
Schedule II of the Companies Act 2013 except
in respect of certain categories of assets as
described in Note No. 3.10.

Defined Benefit Plans

The cost of the defined benefit gratuity
plan and other post-employment leave
encashment benefit and the present value of
the gratuity obligation are determined using
actuarial valuations. An actuarial valuation
involves making various assumptions that
may differ from actual developments in the
future. These include the determination of
the discount rate, future salary increases
and mortality rates. Due to the complexities
involved in the valuation and its long-term
nature, a defined benefit obligation is highly
sensitive to changes in these assumptions.
All assumptions are reviewed at each
reporting date.

Further details about defined benefit
obligations are given in Note 28.

Provision for Warranty and Liquidated
Damages

Provisions for warranty-related costs are
recognized when the product is sold or
service provided. Provision is estimated
based on historical experience and
technical estimates. The estimate of such
warranty-related costs is reviewed annually.

Provision for liquidated damages are
recognized based on the terms of the sales
agreed with customers, the delivery date
and the commitment date. The estimate of
liquidated damages is reviewed annually.

Allowances for Slow/Non-moving Inventory
and Obsolescence

An allowance for Inventory is recognised
for cases where the realisable value is
estimated to be lower than the inventory
carrying value. The inventory allowance
is estimated taking into account various
factors, including prevailing sales prices of
inventory item and losses associated with
obsolete/slow-moving/redundant inventory
items. The Company has, based on these
assessments, made adequate provision in
the books.

28. Employee Benefits Obligation

a. Defined Contribution Plan

The Company makes Provident Fund and Employee State Insurance Scheme contributions which are defined
contribution plans for qualifying employees. Under the scheme, the Company is required to contribute a
specified percentage of the payroll cost to fund the benefit. The Company recognised ^ 2.51 Crores (Previous
year ^ 2.80 crores) for Provident Fund contribution, ^ 0.21 Crores (Previous year ^ 0.17 crores) for Employee
State Insurance Scheme to charge in the Statement of Profit and Loss. The contribution payable to these plans
by the Company are at the rates specified in the rules of the scheme.

b. Defined Benefit Plan

(i) Gratuity

Under the Gratuity plan operated by the Company, every employee who has completed at least five years of
service gets a Gratuity on departure at 15 days on last drawn salary for each completed year of service as per
the Payment of Gratuity Act, 1972. The scheme is funded with an Insurance Company in the form of qualifying
insurance policy. The following table summarizes the components of net benefit expense recognised in the
Statement of profit and loss and the funded status and amounts recognised in the Balance Sheet.

35. Capital management

The Company’s capital management is intended to create value for shareholders by facilitating the meeting of long¬
term and short-term goals of the Company. The Company determines the amount of capital required on the basis of
annual operating plans and long-term product and other strategic investment plans. The Company is equity financed
and has always been a net cash company with cash and bank balances along with investment which is predominantly
invested in liquid and short-term mutual funds.

36. Financial risk management objectives and policies

The Company’s principal financial liabilities comprise of trade payables. The Company has various financial assets
such as trade receivables and cash and short-term deposits, which arise directly from its operations.

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees
the management of these risks. The Company’s senior management is supported by a Risk Management Committee
that advises on financial risks and the appropriate financial risk governance framework for the Company. The Risk
Management Committee provides assurance to the Company’s senior management that the Company’s financial risk
activities are governed by appropriate policies and procedures and that financial risks are identified, measured and
managed in accordance with the Company’s policies and risk objectives.

A. MARKET RISK

Market risk is the risk of any loss in future earnings, in realizable 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, liquidity and other market changes. Future specific market
movements cannot be normally predicted with reasonable accuracy.

Foreign currency exchange rate risk

The fluctuation in foreign currency exchange rates may have potential impact on the income statement and equity,
where any transaction references more than one currency.

The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange
rate risks.

The foreign exchange rate sensitivity is calculated for each currency by aggregation of the net foreign exchange rate
exposure of a currency and a simultaneous parallel foreign exchange rates shift in the foreign exchange rates of each
currency by 5%.

Foreign Currency Sensitivity

The following tables demonstrate the sensitivity to 5% appreciation in USD, EURO and GBP exchange rates on foreign
currency exposures as at the year end, with all other variables held constant. The Company’s exposure to foreign
currency changes for all other currencies is not material.

B. CREDIT RISK

Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt according to the
contractual terms or obligations. Credit risk encompasses both the direct risk of default and the risk of deterioration of
creditworthiness as well as concentration risks.

Financial instruments that are subject to concentrations of credit risk, principally consist of trade receivables and loans
and advances. None of the financial instruments of the Company result in material concentrations of credit risks.

Exposure to credit risk - The carrying amount of financial assets represents the maximum credit exposure. The maximum
exposure to credit risk was ? 321.20 Crores as at 31 March 2025 and ? 264.94 Crores as at 31 March 2024, being the
total of the carrying amount of balances with banks, short term deposits with banks, trade receivables, mutual fund
investments and other financial assets.

Customer credit risk is managed by the Company subject to the Company’s established policy, procedures and control
relating to customer credit risk management. Outstanding customer receivables are regularly monitored. At 31 March
2025, the Company has 1 customer (31 March 2024: 1 customer), the receivables from whom exceeds 5% of total
receivables which amounts to approximately 6% (31 March 2024: 10%) of all the total receivables outstanding.

The ageing of trade receivables as of balance sheet date is given below. The aging analysis has been considered from
the due date. The provision for the not due and less than six months receivables represents expected credit loss.

Note : Research and Development expenses of Revenue nature have been classified under the relevant heads of accounts in

the Statement of Profit and Loss and the expenditure of capital nature is grouped under PPE/CWIP

39. Other Statutory Information

(i) The Company does not have any transactions with Companies struck off under Section 248 of the Companies Act,
2013 or Section 560 of the Companies Act, 1956.

(ii) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the
statutory period.

(iii) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.

(iv) No funds (which are material either individually or in the aggregate) have been advanced or loaned or invested (either
from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other
person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing
or otherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in
any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security
or the like on behalf of the Ultimate Beneficiaries.

(v) No funds (which are material either individually or in the aggregate) have been received by the Company from any
person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in
writing or otherwise, that the Company shall, 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 provide any guarantee,
security or the like on behalf.

(vi) The Company does not have any such transaction which is not recorded in the books of accounts that has been
surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961
(such as, search or survey or any other relevant provisions of the Income Tax Act, 1961.

(vii) The Company has not been declared as wilful defaulter by any bank or financial Institution or other lender.

(viii) The Company has complied with the number of layers prescribed under clause (87) of section 2 of the Act read
with the Companies (Restriction on number of Layers) Rules, 2017.

(ix) No Schemes of Arrangements have been applied or approved by the Competent Authority in terms of section
230 to 237 of the Companies Act, 2013.

40. Information relating to Proviso to Rule 3(1) of Companies (Accounts) Rules, 2014 on Audit Trail

a. The Company has used two accounting software systems for maintaining its books of account. In respect of one
of the software systems, the audit trail feature was enabled at the application level for additional tables for the
relevant transactions and at the database level for logging direct data changes, effective October 2024. The audit
trail feature has remained operational from the date of enablement and to the best of the Company’s knowledge,
has not been tampered with. The Company has retained the audit trail data, to the extent enabled and recorded,
in accordance with applicable statutory requirements.

b. With respect to the software used for recording payroll transactions, the audit trail feature was enabled at the
application level throughout the year. The database servers for this application are hosted and managed by a
third-party service provider. Consequently, we could not are unable to confirm whether the audit trail feature
was enabled at the database level throughout the year. The audit trail data, to the extent enabled and recorded,
has been preserved in line with statutory requirements.

41. Previous year’s figures are reclassified/recasted wherever necessary to conform to the current year’s
classification

42. The financial statements were approved by the Board of Directors on 24 April 2025

For M S K A & Associates For and on behalf of the Board of Directors

Chartered Accountants

ICAI Firm Registration No.105047W

Geetha Jeyakumar M Karunakaran M A M Arunachalam

Partner Whole-time Director Chairman

Membership No.029409 (DIN: 09004843) (DIN: 00202958)

Place: Coimbatore Ranjan Kumar Pati Walter Vasanth P J

Date: 24 April 2025 Chief Financial Officer Company Secretary