Kirloskar Pneumatic Company Limited (KPCL) has received a customs order that could potentially impact its financial position. The company is facing a demand for differential duty and an equal penalty from the Principal Commissioner of Customs (Imports), Mumbai.

Order Details

The customs authority has issued an order demanding a total of Rs 2.39 crore from KPCL, broken down as follows:

The order also includes a provision for interest payment on the differential duty amount.

Reason for the Demand

The demand stems from a re-assessment of the declared classification of imported goods under the Custom Tariff Heading (CTH). This reclassification has led to the determination of additional duty owed by the company.

Company's Response

KPCL has stated that it plans to file an appeal against the order. The company's management does not anticipate any material impact on its financial operations or other activities as a result of this order.

Potential Relief

The customs order includes a provision for reduced penalty if the company acts promptly. If KPCL pays the demanded duty and interest within thirty days from the date of the order's communication, the penalty amount would be reduced to 25% of the duty and interest.

Disclosure and Compliance

In compliance with SEBI regulations, KPCL has informed the stock exchanges about this development. The company received the order via email on November 13 and made the disclosure on November 14.

While the order presents a significant financial demand, KPCL's decision to appeal and its statement regarding the lack of material impact suggest that the company is prepared to address this challenge.

Kirloskar Pneumatic Company Limited (KPCL) reported a challenging first half, with sales declining to INR 650.00 crores from INR 706.00 crores in the previous year. Despite the setback, the company remains optimistic about a strong recovery in the second half and maintains its guidance for over 15% revenue growth for the full year.

Financial Performance

KPCL faced headwinds across order booking, sales, and execution in H1. The company's financial performance for the period is summarized in the table below:

*Compared to April 1 order book

Segment Performance

The gas compression segment experienced significant challenges, with the company losing market share in CNG packages due to competitive pricing pressures. However, other segments showed resilience:

1. Tezcatlipoca Centrifugal Compressor: Demonstrated strong performance with 115 orders this year, of which 88 have been delivered.
2. Refrigeration and Air Conditioning: The company plans to enter the commercial air conditioning market with its Zephyros C system, targeting a INR 5,000.00 crore market opportunity.

Future Outlook

Despite the current challenges, KPCL's management remains confident in achieving over 15% revenue growth. Key factors supporting this outlook include:

1. New Product Launches: The company is introducing new products like the A-800 compressor frame, targeting specific market segments.
2. PLI Scheme Application: KPCL has applied under the production-linked incentive scheme to enter the commercial air conditioning market.
3. Order Book Growth: The company expects to secure significant orders in Q3, potentially exceeding INR 600.00 crores.
4. Manufacturing Capabilities: KPCL is leveraging its enhanced in-house manufacturing capabilities to improve competitiveness.

Management Commentary

K. Srinivasan, Managing Director of KPCL, stated, "We have fully digested the gas market share [loss], and we are not taking anything outstanding out of it. January, we will see that the numbers are there." He also emphasized the company's focus on innovation and indigenization, particularly in the air conditioning segment.

While Kirloskar Pneumatic faces near-term challenges, its strategic initiatives and diverse product portfolio position it for potential growth in the coming quarters. Investors will be closely watching the company's performance in H2 to assess its ability to meet the ambitious growth targets set for the year.