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Kirloskar Oil Engines Ltd.Welcomes you to

Analysts Meet

Vijay Varma,Senior Vice President

Pune, INDIAJuly 27, 2007

Today’s Discussion

• Vision 2012• Concerns and Challenges• Our Markets – Domestic and Export• Domestic : Markets, Drivers and Competition• Auto Components• Export : Markets and Drivers• In-house Technology Development (R&E)• Alliance with Waukesha• Financial Performance : FY07 and Q1, FY08• Questions

July 27, 2007 2Kirloskar Oil Engines Ltd.

We will become a major Global Player in off–highway engines and power generation businesses by offering winning combinations of Quality, Cost and Delivery through innovation and unmatched service. We will be amongst the Top Five engine companies of the world.While pursuing the above, we will continue to enhance the value of engine bearing and valves business.


Size of Indian off-highway engine market,FY07 : 5,700 INR CrFY12 : 11,500 INR CrEst. CAGR up to FY12 : 15%Source : KOEL Research

Target Turnover by FY12 : 8,500 INR Cr

Growth Path


-

2,000

4,000

6,000

8,000

10,000

FY07 FY08 FY09 FY10 FY11 FY12

Present Products

INR Cr

•Varsha Pump•A350 engine•Fire Pump Engines

New Projects

CAGR 23%

CAGR 35%

Concerns & Challenges

• Leadership Development• Improve Processes – Order fulfillment and New

Product Development• Strengthen Sourcing – Indian and Global• Complete CAPEX plan in time

– Manufacturing Processes, and,– Modern Plant and Machinery

• Develop Sustainable Alternate Sources of EnergyGreenTech


Thereby, make KOEL a modern engine maker diversified across geographies and markets

KOEL’s Markets

Major Markets - Engines

Domestic– Agriculture – Pumps and engines for Farm Machinery– Generating sets – 3 to 30 kVA, 30 to 600 kVA, 2000 to

6600 kVA– Construction and Industrial Machinery – Engines

Export– Agriculture – Pumps and engines for Farm Machinery– Generating sets – 10 to 600 kVA– Construction Machinery – Engines

Others– Castings – Division sold to KFIL– Oil Trading– Power – Unviable. Thus, deemphasised


Agriculture – Engines and Pumps


Engines up to 20 hp

Water Cooled Air Cooled

Pumpsets

Power GenerationEngines & Gensets


Engines

Liquid Cooled Air Cooled

Gensets

2 to 6 MW3 to 600 kVA

Construction & Industrial - Engines


EnginesSeries

OEM Customers :

Liquid Cooled

Air Cooled

Domestic MarketsDrivers and Competition

Agriculture : Drivers

4 to 100 hp engines and pumps• Spend in agriculture and rural economy• Changing Farm Practices• For 20 hp+ Farm Machinery

– OEM relationships with Tractor and Harvester manufacturers

Range Expansion, FY08 – FY09Compact Pumpset “Varsha”Compact high speed engines : 5 – 7 hp

Competition :Up to 20 hp:No national competitor. Only Regional competitors.New Segment of Compact Pumps developed by Chinese imports.20 hp+: Simpson & Co.


“Kirloskar Green” Generating Sets3 - 30 kVA, 30 - 600 kVA, 2000 – 6600 kVA


Domestic Market DriversPower Generation

Range 3 to 6600 kVA• Investments in economy driven by growth and

optimism• Lifestyle change• Power Shortage and Last Mile unavailability of

quality uninterrupted Power• Telecom, urbanisation, SEZs, townships,

commercial buildings


Range expansion to 1500 rpm 2.4 to 3.6 MW sets running on diesel and gas from FY10


Up to 30 kVA• Residences and Commercial Establishments• Rising disposable incomes and consumption• Changing Lifestyle

• Telecom is a big user• Many sold in semi-urban and rural areas

Competition :Mahindra and MahindraCumminsRegional competitors



30 to 600 kVA• Larger Commercial Establishments• Investments in manufacturing, textiles and

garments, auto components, Information Technology, Retail and such

Competition :CumminsGreaves



2000 to 6600 kVA• Process Plants such as Cement, Textile Mills,

Chemical and Pharmaceutical Industries• Specialised use, such as Standby Power for

Nuclear Power Plants

Competition :CumminsCaterpillarWartsilaOther Imports


Fuel Options - Power Generation

New Fuels – lower emissionGaseous Fuels

– 30 and 50 kVA Natural Gas sets introduced in market. Will expand range based on market demand

– 2.4 to 3.6 MW, alliance with Waukesha from FY10

Bio Fuels – Biodiesels and Straight Vegetable Oils– 15 and 45 kVA offered for cell sites– In-house Generating sets on Biodiesels from 2008– Range will be expanded depending on market need

Developing Technologies to make bio fuels economically viable for sustainable use in decentralised manner – grow and use locallyJuly 27, 2007 18Kirloskar Oil Engines Ltd.

Domestic Market DriversConstruction & Industrial Machinery

Range 3 to 200 hp• Investments in economy – such as roads,

construction, infrastructure up-gradation and repairs, SEZs, townships, commercial buildings

• Changes in method - road making and construction, urban repairs and garbage handling and such

• KOEL engines are customised and have proved performance on 100 applications

• KOEL’s proven delivery performance over years• KOEL’s proven performance on upgrades to meet

changing technical and emission requirements


Domestic Market DriversConstruction & Industrial Machinery

Range 3 to 200 hpContractors ask for KOEL engines on machines due to superior performance and after sales service

Range Extension5 – 7 hp compact high speed engines in FY08


Domestic Market Drivers - Marine

2200 to 11000 hp engines for propulsion• Technology is licensed from SEMT Pielstick• Preferred supplier to Indian Navy and Coast Guard

for 18 years• Order Board as on April 01, 2007:

– Marine Rs. 250 Cr.– Stationary Power Plants Rs. 110 Cr.

Competition :MTU, Germany


Export Strategy continues

• Increase OEM business• Consolidate and grow in our traditional markets –

distribution in Africa and Middle East• Increase Institutional Sales• Keep strengthening and creating Sales and

Service Network• We continue to receive repeat orders from OEMs

in Europe and China


Export Market Drivers - Engines

Agriculture : Up to 20 hp engines and pumps• Markets for Traditional Cast Iron engines in Africa

and Middle East. Such designs made only in India and KOEL is the leader

Competition :Regional level engine manufacturers from India


Range Extension, FY09 :5 – 7 hp high speed enginesCompact Pumps “Varsha”


Power Generation : 10 to 600 kVA• 2007 Market is about 1 B USD in Africa and Middle

East (Source : Frost & Sullivan Report)

• 250 to 600 kVA range introduced in FY07• Value Proposition : “Kirloskar Green” generating

sets at competitive price• Traditional European suppliers are quoting long

delivery times• KOEL is creating capacities to meet demand (EoU

for Gensets and Greenfield Engine Plant at Kagal)

Competition :European Generating set manufacturersJuly 27, 2007 24Kirloskar Oil Engines Ltd.


Construction & Industrial Machinery :20 to 100 hp engines• Pump OEMs in Middle East, China and Europe


Range Extension, FY09 :Engines for Fire Protection Pumps in Europe & USA

New Products – FY08 and beyondResult of in-house R&E

Result of in-house R&E(Indian Opportunity Size, Qty. / INR Cr, 2007)

Agriculture Market ( 350,000 / 280) :• “Varsha” Compact PumpsetConstruction Machinery Market (30,000 / 100):• Compact 5 - 7 hp high speed engine Natural Gas Engines (300 / 10):• 35 and 55 kVA introduced in marketBiodiesel Engines (Market developing):• 15 and 45 kVA offered for cell sites• In-house generating sets to run on biodiesel from

Jan. 2008500 kVA manufactured engine (4000 / 450)

Present Share 20% with traded Engine:• In-house designed and manufactured engine for

gensetJuly 27, 2007 27Kirloskar Oil Engines Ltd.

“Varsha” for Agricultural MarketEntering New Segment

AV1XL

Varsha

For 12 to 18 m Head13 to 21.5 lps Discharge120 kg.750 - 800 cc / h Fuel Consumption

For 5 to 11.5 m Head3.3 to 13.5 lps Discharge60 kg.450 – 500 cc / h Fuel Consumption


“Varsha” – Compact Pumpset

2007 Indian Market Size :350,000 Units / INR 280 Cr


Compact High Speed Engine for Industrial and Power Generation Market

TAF1

FA 350

Speed : 1500 / 1800 rpm6 / 7.5 hp164 kg.Generating sets and Construction Machinery

Speed : 3000 / 3600 rpm5 / 7 hp44 kg.Generating sets and Construction Machinery


2007 Indian Market Size :30,000 / INR 100 Cr

Natural Gas Generatorsdesigned in-house

35 and 55 kVA introduced in marketRange will be expanded based on Market Study


2007 Indian Market Size :300 / INR 10 Cr

Biodiesel Generatorsdesigned in-house

• 15 and 45 kVA offered for Cellular Tower sites• In-house generators to run on Biodiesel from 2008• Range will be expanded based on Market Study


2007 Indian Market Size :Market Developing

Alliance with WaukeshaProducts to market from FY10

• Waukesha makes 1200 gas engines per year and is leading global player with 28% global share.

• About 200 gas engines operating in India • Gas Engine is most fuel efficient at 41 - 44%

efficiency Vs. 40 - 41% of competition• Gas and Diesel engines have high power / weight

ratio• 1500 rpm, 2.4 to 3.6 MW range provides

opportunity to competitively price generating sets as compared to present range at 1000 rpm

• Proven engine design of Wartsila, 600 engines operating worldwide


Alliance with WaukeshaProducts to market from FY10

• Exclusive manufacture for Global Markets of diesel engines for generating sets

• In-house packaging of Gas generating sets for Indian Market

• Opportunity to supply diesel engine components and assemblies to Waukesha as several parts are common for diesel and gas engines

• Manufacturing Feasibility Study in 6 months to decide investments and plant location


Opportunity size 2007*Diesel (Global) : 800 Units / USD 1.3 BGas (India) : 45 Units / USD 130 M* = Source Diesel & Gas Turbine and KOEL Research

KOEL Sales Breakup

FY07 Vs. FY06, and,Q1, FY08 Vs. Q1, FY07

Terminology

Engines:• 3 to 20 hp = Small Engines• 20 to 800 hp = Medium Engines• 2200 to 11000 hp = Large EnginesAgricultural machinery• Pumping sets, engines for Farm machinery such

as Tractors and HarvestersMobile Machinery• Construction and Industrial MachineryStationary Equipment• Generating sets and such• Auto Components : Engine Bearings and Valves


KOEL SalesHighlights FY07 Vs. FY06

• Agriculture : up by 10%• Cellular : up by 218%• Power Generation, other than Cellular : up by 46%• Power Generation, 275 to 600 kVA : up by 39%• Industrial & Construction : up by 50%• Tractors : up by 9%• Exports : up by 8%

• Auto Component :

– Bearings : up by 17%, Valves : up by 22%. Growth curtailed as unprofitable orders dropped

– Increase in sales of Bearings to OEMs but drop in After Market


KOEL Sales Break-up

All in INR Cr, rounded off FY07 FY06 ChangeSmall Engines 361 256 41%Medium Engines 1,199 793 51%Large Engines 124 100 24%Total Engines 1,685 1,148 47%Bearings 103 88 17%Valves 22 18 22%Auto Component 125 106 18%Castings 51 66 -23%Fuel Oil 137 150 -9%Power 0 3 -100%Total (Includes Inter-SBU Sales) 1,997 1,474 35%Inter SBU - Sales 114 79 44%Total External Sales 1,883 1,395 35%

Exports 143 132 8%Exports / Total External Sales 8% 9%

Sales FY07 (audited) Vs. FY06 (audited)

Sold to KFIL w.e.f. Q4, FY07

Unviable. Stopped.


Engine Salesincrease 28% by volume & 47% by value


Qty., rounded off FY07 FY06 ChangeSmall Engines 87,300 77,200 13%Medium Engines 77,200 51,600 50%Large Engines 7 9 -22%Total 164,507 128,809 28%

Agriculture Engine Salesincrease 10%


Qty., rounded off FY07 FY06 ChangeSmall Engine 45,300 41,000 10%Medium Engines 14,500 13,000 12%Total 59,800 54,000 11%

INR Cr, rounded off FY07 FY06 ChangeMarket Share*

Small Engines 76 68 11% 27 - 30%Medium Engines 83 76 9% 65 - 70%Total 159 144 10%

* = KOEL Research. In case of Medium Engines, share of non-captive market

Relationship with PTL and SEL

• KOEL has supplied engines to PTL from 1972• FY07 invoicing to PTL < INR 100 Cr• Engine Supply to PTL will continue

– Q1 sales lower as PTL was clearing inventory

• SEL continue to receive Technology from KOEL– Subject to Technology License

• KOEL’s equity in SEL is of strategic importance


Power GenerationSales increase by 80%


Qty., rounded off FY07 FY06 ChangeCellular 22,000 11,100 98%PG non-Cellular 48,400 40,100 21%Total 70,400 51,200 38%


Cellular 270 85 218% 40 - 42%PG non-Cellular 498 341 46% 40 - 43%Total 768 425 80%* = KOEL Research

Industrial & Construction Machinery Sales increase by 50%


Qty., rounded off FY07 FY06 ChangeSmall Engines 10,300 8,000 29%Medium Engines 24,100 15,700 54%Total 34,400 23,700 45%


Small Engines 16 12 30% 55 - 60%Medium Engines 248 163 52% 52 - 56%Total 264 176 50%* = KOEL Research

Engine Bearings & Valves

• Unprofitable business curtailed in FY07

• Working on global alignments

• Valves EoU starts invoicing in FY08


56% 59%

44% 41%

FY06 FY07

OEM Sales After Market Sales

88103

18

22

0

20

40

60

80

100

120

140

FY06 INC Cr FY07 INR Cr

Bearings Valves

17%

22%INR Cr.

KOEL Sales Breakup

Q1, FY08 Vs. Q1, FY07

KOEL SalesHighlights Q1, FY08 Vs. Q1, FY07

• Agriculture : up by 9%• Cellular : up by 52%• Power Generation, other than Cellular : up by 23%• Power Generation, 275 to 600 kVA : up by 88%• Industrial : up by 57%• Exports : up by 12%• Tractor : down by 49% - FY08 sales estimated to

equal to FY07.

Auto Component :

• Bearings : up by 17%, Valves : up by 22%. Growth curtailed as unprofitable orders dropped


KOEL Q1, FY08 Sales Break-up

Q1, FY08 (Provisional) Vs. Q1, FY07 (Audited)Sales, rounded off to INR Cr Q1, FY08 Q1, FY07 ChangeSmall Engines 90 81 11%Medium Engines 325 246 32%Large Engines 30 15 100%TOTAL ENGINES 446 342 30%BEARINGS 20 18 10%VALVES 4 5 -28%AUTO COMPONENT 23 23 2%EXPORT 33 30 12%CASTINGS 0 17 -100%FUEL OIL 18 56 -68%POWER 0 0 -100%TOTAL INCLUDING (INTER SBU) 520 467 11%LESS INTERSBU 28 40 -30%TOTAL EXTERNAL 492 427 15%


Division Sold to KFIL w.e.f. Q4, FY07

Unviable. De-emphasised.

Financial Performance

Capital Use


-200

400 600 800

1,000 1,200 1,400

1,600 1,800 2,000

050

100150200

250300350

400450500

FY03 FY04 FY05 FY06 FY07

Business TCE

Net Block

Net Current Assets

Turnover

All in INR CrTurnover

5 Yr CAGRTurnover 22%Business TCE 18%Net Block 24%Net Current Assets 8%

Margins & ReturnsBusiness ROCE is growing


0%5%

10%15%20%25%30%35%40%45%50%


RONW

ROCE

Business ROCE

Operating Margin

Increase in Returns / Share


-10 20 30 40 50 60 70 80 90

100


EPS

Cash EPS

Book Value / Share

INR

5 Yr CAGREPS 46%Cash EPS 34%Book Value / Share 24%

Consistent increase in Profits


-

500

1,000

1,500

2,000

2,500

3,000

-

50

100

150

200

250

300

350


PBT

PAT

EBDIT

Operating EBDIT

Market Cap @ year end

INR Cr

5 Yr CAGRPBT 58%PAT 44%EBDIT 35%Operating EBDIT 60%Market Cap @ year end 116%

Mkt Cap

Improving Employee Productivity


-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

1

2

3

4

5

6

7


Turnover (INR M)/ Employee

No. of Employees

CAGRNo. of Employees -4%Turnover (INR M)/ Employee 26%

Low Debt


-

200

400

600

800

1,000

1,200


INR Cr

Debt

Share holders fund

Investments

CAPEX Plan FY08 – FY10900 INR Cr

Breakup in Businesses

Breakup in years


58%24%

18%

FY08

FY09

FY10

16%

71%

13% Small Engines

Medium Engines

Large Engines

80% in Plant and Machinery

Interest and Depreciation

Additionally, INR 11 Cr will be capitalised in FY08.Debt will peak in FY09 – FY10.


INR Cr, rounded off FY07 FY08 FY09 FY10Interest & Financing Cost 14 38 68 68Depreciation 32 57 106 123 Total Financing Cost & Dep 46 95 174 191

Kagal Expansionto meet Rising Demand

• INR 550 Cr being invested– Genset EoU : First Invoice made in July 2007 to

Chinese customer– Engine Plant– Medium Engines, and,– New Products : “Varsha” - Compact Pumpset and

“FA350” – Compact high speed Engine

• Expect to fully utilise genset and engine capacity in 3 to 4 years

• Castings capacity increase at KFIL in progress


We are shifting manufacture of traditional Small Engines to Rajkot as good supplier base is available there. We presently make these in Phursunghi in Pune.

Holding in KFIL

KFIL is secured source of castings for making engines• Current holding is 48%• On Conversion of Warrants, holding will be 52%



Cautionary Statement

Statements in this presentation, particularly those which relate to management’s views and analysis, describing the Company’s objectives, projections, estimates and expectations may constitute “forward looking statements” within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.

Contact at Kirloskar

Vijay Varma, Senior Vice President,Kirloskar Oil Engines Ltd., Pune 411003, INDIAE-mail : [email protected] : Ms. Uma Murali ([email protected]),Phone : +91(20)6608 4109 (DID)

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