Tuesday, April 24, 2007

We have received a few questions from analysts and investors on the publication of Annual Results on April 19, 2007. The following is the response to the questions received.

Vijay Varma,

Senior Vice President (Business Development and Corporate Communications), Kirloskar Oil Engines Ltd., Pune 411003, INDIA E-mail : vijay.varma@kirloskar.com Fax : +91(20)2581 3208

Secretary : Ms. Pushpa Bhandari (pushpab@koel.co.in), Phone : +91(20)6608 4109 (DID)

Questions on revenues

1. Break up in revenues in FY07 from the ‘engine’ segment in Small, Medium, and Large engines, and Auto Components

2. The order backlog in the engine segment at the end of FY07

In our business of discrete manufacturing, Order Backlog is not relevant. Thus, such information can not be shared.

3. Likely reason for tepid growth in the auto components segment in FY07

We have recently invested in increasing the capacity. We have just started reaping benefits on increased out put.

4. Has there been any significant ramp down in the ‘Other’ business segment as the revenues in the segment have fallen on Y-o-Y basis in FY07

We have exited business of castings with effect from Jan. 01, 2007, and power business has been de-emphasised in last 2 years. Thus, revenue from “Other” businesses has reduced.

Questions on margins

1. EBIT margins have doubled in the ‘Other’ business segment on a lower revenue base. Any significant change in the ‘Other’ business segment in FY07.

Margin has increased due to profit on sale of leased assets in current year. The lease rent earned against these assets in current year is negligible.

2. Reason for lower profitability in the auto component segment in FY07 in the backdrop of weak growth in the revenues in the same.

The sales mix is shifting towards larger supply to OEM Customers as compared to the After Market. In addition, product mix also impacts overall margins.

3. Profitability in the engine segment hasn’t improved in FY07. Is that because of lower growth in the large size engines compared to our previous expectations

Profits in Engines have improved to Rs. 178.75 Cr from Rs. 123.52 Cr. From sales revenue break-up provided above, you will observe that the sales mix for FY07 and FY06 differs.

4. Staff costs have not grown along with the growth in the revenues in the year. Any particular reason for the same.

We enter in to wage agreements every 3 years, and improving productivity is a continuous endeavour of the company. Thus, employee costs do not increase in same proportion to sales.

We have executed wage agreement with employees’ union on March 31, 2007. This is valid for the next 3 years. The yearly incremental impact of the employee costs is about Rs. 65 million.

5. Reason for the strong growth in the other expenditures on a Y-o-Y basis in FY07 compared to other items on the cost side.

Though Other expenditure has increased in rupee value, as ratio of sales revenue, it has reduced from 14.1 % to 12.5 %.

Other expenditure includes variable as well as fixed expenses. Since Sales have increased, variable costs such as power fuel, contractual labour, Discount & Commission and Freight costs have increased.

6. There has been a sharp ramp up in the interest cost in the year. Has that been because of increase in the debt? What is the debt at the end of FY07 on the books and the break up between long term and working capital debt?

Please await our Annual Report in which values of debt and interest are detailed.

7. The break-up of other income for FY07 and the reason the soft other income

Total other income has increased by Rs. 70 mio (From 484 mio to Rs.554 mio )

Major items of increase are as under -

Sale of Scrap due to increase in sales and production.

Commission received by company

Warranty provisions written back as these no more necessary.

Income from wind power generation.

Penalty payment received from supplier due to late deliveries and installation.