MIRA INFORM REPORT

Report Date :

30.12.2006

IDENTIFICATION DETAILS

Name :	KIRLOSKAR OIL ENGINES LIMITED
Registered Office :	Laxmanrao Kirloskar Road, Khadki, Pune – 411 003, Maharashtra
Country :	India
Financials (as on) :	31.03.2006
Date of Incorporation :	13.06.1978
Com. Reg. No.:	11-88972
TAN No.: [Tax Deduction & Collection Account No.]	NSKK00041G
Legal Form :	A Public Limited Liability Company. The company's shares are listed on the Stock Exchanges.
Line of Business :	Manufacturing and Selling of Internal Combustion Diesel Engines, Bimetal Bearings and Generating Sets.

RATING & COMMENTS

MIRA’s Rating :

Ba

RATING		STATUS	PROPOSED CREDIT LINE
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory

Maximum Credit Limit :	USD 28500000
Status :	Satisfactory
Payment Behaviour :	Regular
Litigation :	Clear
Comments :	Subject is an old established company of Kirloskar Group. Available information indicates high financial responsibility of the company. Financial position of the company is good. Business is active. Payments are usually correct and as per commitments. The company can be considered normal for business dealing at usual trade terms and conditions.

LOCATIONS

Registered Office :	Laxmanrao Kirloskar Road, Khadki, Pune – 411 003, Maharashtra, India
Tel. No.:	91-20-25815341/ 0341/2310341
Fax No.:	91-20-25813208/ 0209 /2313208/9
E-Mail :	1. aditi@koel.co.in 2. pna@koel.co.in 3. ksd@koel.co.in 4. investor.relations@koel.co.in 5. enrichinglives@kirloskar.com
Website :	1. http://www.kirloskars.com 2. http://www.koel.co.in
Head Office :	C-13, Pannalal Silk Mills Compound, Lal Bahadur Shastri Road, Bhandup, Mumbai – 400 078, Maharashtra
Tel. No.:	91-22-25923837/25963838
Fax No.:	91-22-25672693/25946969
E-Mail :	isrl@intimespectrum.com
Factory :	Khadki, Pune, Maharashtra Phursungi, Pune, Maharashtra Ahmednagar, Maharashtra Nasik, Maharashtra Solapur, Maharashtra Hospet, Karnataka
Area :	595735 sq.mtrs (owned) and 394041 sq.mtrs. (Leased)
Branches :	102, Shree Vidyanand, Dr. Ketkar Path, Erandawane, Near Karnataka High School, Pune – 411 004, Maharashtra Tel. No. : 91-20-5428397/98 E-mail : pune@intimespectrum.com Bhagirathi Building, 1202/3/11, Shivajinagar, Off Ghole Road, Opposite Hotel Surya, Pune – 411004, Maharashtra, India Tel. No. : 91-20-56203395 E-mail : pune@intimespectrum.com

DIRECTORS

Name :	Mr. Atul C. Kirloskar
Designation :	Chairman and Managing Director
Profiles :	He has began his career with the erstwhile Kirloskar Cummins Limited in the year 1978, where he started out as a trainee. In December, 1981 he was appointed as the Chief Executive of Cummins Diesel Sales and Service. On 1^st November, 1984 he was appointed as the Executive Vice President of Company. He was co-opted on the Board of company on 6^th August, 1985 wherin he took over as the Managing Director. In 1988, he became the Vice Chairman of company and held the position till 25^th July, 1988 when he was appointed Chairman of the Company. He is a member of the World Economic Forum Chairman of the Defence Sub-Committee and National Committee Member of Confederation of Indian Industries (CIIS). In September, 2002 he was elected as President of Mahratta Chamber of Commerce Industries & Agriculture (MCCIA) for a period of two years.
Name :	Mr. Sanjay C. Kirloskar
Designation :	Vice Chairman
Name :	Mr. Gautam A. Kulkarni
Designation :	Joint Managing Director
Age :	45 years
Profile :	He has started his career in 1978 as a trainee in the Company. He underwent extensive training in the servicing department, production and techcentre (R & D) until 1983. In 1983, he was assigned to took after Kirloskar Filters Limited (KFL) and appointed its’ Chief Executive. Soon after on 2^nd April 1984, he was appointed as the Managing Director of KFL. During his tenure at KFL the sales income grew from 125 mm to 600 mm. On 1^st May, 1992, he was appointed as the Vice President of Kirloskar Brothers Limited. While in KBL, he was attached to the corporate office of the group. In 1998, he resigned as the Vice President of Kirloskar Brothers Limited. On 20^th August, 1998 he was appointed as the Joint Managing Director of Kirloskar Oil Engines Limited, Wherein he focused on three major aspects in turning around the company. Re-structuring of Kriloskar Oil Engines Limited Right Sized the Organisation Took up the target of reducing the debt and thereby reduce the interest burden of the company. In July 2000, he has been co-opted as a director on the Board of Kirloskar Brothers Limited and had been appointed the Vice Chairman.
Name :	Mr. Rahul C. Kirloskar
Designation :	Director (Exports)
Qualification:	B. S. (Mechanical Engineering), USA
Profile :	He is a top notch technocrat and has been associated with the Kirloskar Group of Companies for more than twelve years at senior levels in different capacities. Presently, he is working as the Director (Export) of the company. He actively participated in weeklong course of top management professionals of major international companies on Total Quality Management (TQM) in Japan, conducted by Japanese Union of Scientists and Engineers (JUSE). The course exposes professionals, who are quality conscious, to the latest methods prevailing in Japan in TQM.
Name :	Mr. V. K. Bajhal
Designation :	Director
Name :	Dr. N. A. Kalyani
Designation :	Director
Name :	Mr. H. M. Kothari
Designation :	Director
Name :	Air Marshal Y. V. Malse (Retd.)
Designation :	Director
Name :	Mr. P. G. Pawar
Designation :	Director
Name :	Mr. A. N. Alwani
Designation :	Director (Finance) [upto 31.08.2005]
Name :	Mr. U. V. Rao
Designation :	Director (w.e.f. 6^th May 2002)
Name :	Mr. D. R. Swar
Designation :	Director (Large Engines, Auto Components Business Groups and HR)
Age:	58 years
Qualification:	B.E. (Mech.)
Experience:	34 years
Date of Joining:	25.08.87
Previous Employment:	Purchase Manager, Ruston and Hornsby (India) Limited
Profile:	He has started his career in the Company from 25^th August, 1987 as Associate Vice President (Materials). After few years in company, he was assigned to took after manufacturing, marketing and services of medium enginees as Vice President (Engines & SBU Head)
Name :	Mr. R. R. Deshpande
Designation :	Director [Medium and Small Engines]
Name :	Mr. Vikram S. Kirloskar
Designation :	Director (w.e.f. 19^th May, 2004)
Other personnel
Name :	Mrs. Aditi Chirmule
Designation :	Assistant Company Secretary
Name:	Mr. R. Shrinivasan
Designation:	Director

KEY EXECUTIVES

Name:	Mr. Sanjay D. Parande
Designation:	Chief Financial Officer
Name:	Ms. Aditi Chirmule
Designation:	Company Secretary

MAJOR SHAREHOLDERS

Names of Shareholders	No. of Shares	Percentage of Holding
Promoters	59214695	60.99
Resident Individuals	15484405	15.95
Private Corporate Bodies	5971004	6.15
Financial Institutions	12161720	12.53
Nationalized and other Banks	81890	0.08
FIIs and NRIs	4172476	4.30
TOTAL	97086190	100.00

BUSINESS DETAILS

Line of Business :	Manufacturing and Selling of Internal Combustion Diesel Engines, Bimetal Bearings and Generating Sets.
Products :	Products Description - ITC Code Internal Combustion Diesel Engines 84.08 Bimetal Bearings 85.09 Generating Sets 85.02 Cast Iron Castings and Investment/Steel Castings 732599.09 Medium/Small/ Large Engines -- Valves -- Bearings and Bimetal strips -- Auto Components --

PRODUCTION STATUS

Particulars	Unit	Licensed Capacity	Installed Capacity	Production meant for sale
Engines between 2.5 HP to 740 HP ( a )	Nos.	271400	113394	113394
Engines above 2400 HP to 10000 HP(a)	Nos.	26	5	5
Generating Sets between 5 KVA to 600 KVA ( a )	Nos.	11800	5474	5474
Generating Sets between 1 .6 MW to 4.4 MW ( a )	Nos.	14	6	6
Bimetal Bearings & Engine Valves ( a ) and ( j )	Nos. [ooo’s]	105050	42707	42707
Bimetal Strip-( a ) and ©	MT	11981	2809	2808
C.I. Castings	MT	26200	12889	12889
Investment Steel Castings	MT	100	106	106
Electricity	Kwh [ooo’s]	135000	54822	54822
Pump Sets	MT	40300	-	-
R Type Engines ( f )	Nos.	8000	8000	-
Air Compressors up to 1 000 cfm	Nos.	500	500	-
Diesel/electric compressors 30 to 2500 cfm	Nos.	500	500	-
Garage compressors above 5 HP and parts	Nos.	250	250	-
Air receiver, inter coolers, heat exchangers and parts thereof	Nos.	500	500	-
Car lifts, washers and lubricants equipments	Nos.	300	300	-
Aluminium Castings	MT	NA	300	-
Agricultural Implements	MT	200	200	-
Self Priming Pumps	Nos.	3500	3500	-
Camshafts	Nos.	49500	-	-

GENERAL INFORMATION

No. of Employees :

2684 persons (1581 persons in factory, 601 persons in office and 502 others.)

Bankers :

• State Bank of India, 20^th Floor, Express Tower, Nariman Point, Mumbai

Tel. No. 91-22-22810962

Facility : Fund and Non fund based

• Bank of Maharashtra, I. F. Branch, F. C. Road, Pune, Maharashtra

Tel. No. 91-20-5538470

Facility : Fund and Non fund based

• Bank of Baroda, CBB Branch, Near RTO, Pune, Maharashtra

Tel No. 91-20-6215284

Facility : Fund and Non fund based

• HDFC Bank Limited, Bhandar Road, Pune – 411 004, Maharashtra

Tel No. 91-20-5673008

Facility : Fund and Non fund based

• The Cosmos Co-operative Bank Limited, Khadki, Pune, Maharashtra

Tel No. 91-20-5817225

Facility : Fund and Non fund based

• The United Western Bank Limited, Pune, Maharashtra
• The Shamrao Vitthal Co-operative Bank Limited, Pune, Maharashtra
• ICICI Bank Limited

Facilities :

	As on 31.03.2006 [Rs. In Millions]
SECURED LOANS :
Term Loan from HDFC Bank Limited	243.421
Term Loan from GE Capital Services Loan	169.583
Working Capital Loan from Banks
Cash Credit	37.465
Export Credit	125.399
Foreign Currency Demand Loans	89.245

Banking Relations :	Satisfactory
Auditors :	Dalal and Shah Chartered Accountants
Associates/Subsidiaries :	Kirloskar Ferrous India Limited - Pig Iron and Castings Kirloskar Systems Limited - Electronic goods - Kirloskar Brothers Limited - Pumps Mahila Udyog Limited - Bearings G.G. Dandekar Machine Works Limited - Machinery Kirloskar Pneumatic Company Limited - Compressors Kirloskar Power Supply Company Limited Kirloskar Mahle Filter Systems Private Limited Kirloskar Briggs & Stratton Power Equipment Limited Kirloskar Toyoda textile Machinery Limited Denso Kirloskar Industries Private Limited Kirloskar Kenya Limited Cess Investments & Consultants Limited Navsai Farms Private Limited Navsai Investments Private Limited Achyut & Neeta Farms Private Limited Achyut & Neeta Hotels & Resorts Private Limited Achyut & Neeta Holding & Finance Private Limited BHVPL Finvest Estate Private Limited Pragajyoti Real Estate Private Limited Nihal Farms Private Limited Kirloskar Cummins Limited Kirloskar Electric Company Limited Kirloskar Proprietory Limited Indo-Malaysia Engineering Company Berhad Kirloskar Industries (Phils) Incorporation F.H. Schule GmbH, Humburg, Germany Kirloskar Kenya Limited Kisons Trading Company Private Limited Kirloskar Deutz Sales and Service Limited Pune Industrial Hotels Limited Kungan Diesel Limited

CAPITAL STRUCTURE

Authorised Capital:

No. of Shares	Type	Value	Amount
110000000	Equity Shares	Rs. 2/- each	Rs. 220.000 millions
5000000	Preference Shares	Rs. 10/- each	Rs. 50.000 millions
	TOTAL		Rs. 270.000 millions

Issued Capital :-

No. of Shares	Type	Value	Amount
98266980	Equity Shares	Rs. 2/- each	Rs. 196.534 millions

Subscribed Capital :-

No. of Shares	Type	Value	Amount
97086500	Equity Shares	Rs. 2/- each	Rs. 194.173 millions

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS	31.03.2006	31.03.2005	31.03.2004
SHAREHOLDERS FUNDS
1] Share Capital	194.173	197.173	194.173
2] Reserves & Surplus	6989.572	5426.582	3963.394
NETWORTH	7183.745	5623.755	4157.567
Deferred Tax	97.492	66.671	49.481
LOAN FUNDS
1] Secured Loans	668.350	514.922	281.023
2] Unsecured Loans	1.657	2.321	16.191
TOTAL BORROWING	670.007	517.243	297.214
TOTAL	7951.244	6207.669	4504.262
APPLICATION OF FUNDS
FIXED ASSETS [Net Block]	1693.772	1318.126	1226.885
Capital work-in-progress	228.433	128.746	68.184
INVESTMENTS	4998.882	3784.148	2014.324
CURRENT ASSETS, LOANS & ADVANCES
Inventories	1109.364	866.122	741.030
Sundry Debtors	3084.304	2197.738	1883.258
Cash & Bank Balances	176.389	66.926	257.347
Other Current Assets	206.511	275.001	241.283
Loans & Advances	687.905	517.447	556.646
Total Current Assets	5264.473	3923.234	3679.564
Less :
Current Liabilities	3642.098	2452.746	2209.176
Provisions	592.218	496.839	275.519
Total Current Liabilities	4234.316	2949.585	2484.695
Net Current Assets	1030.157	973.649	1194.869
MISCELLANEOUS EXPENSES	0.000	0.000	0.000
TOTAL	7951.244	6204.669	4504.262

PROFIT & LOSS ACCOUNT

PARTICULARS	31.03.2006	31.03.2005	31.03.2004
Sales Turnover [including other income]	14712.073	12060.157	10651.252
Profit/(Loss) Before Tax	2459.695	2012.778	1056.013
Provision for Taxation	453.821	273.832	348.354
Profit/(Loss) After Tax	2005.874	1738.946	707.659
Export Value	1302.198	917.599	610.105
Import Value	2833.005	2230.542	1654.954
Total Expenditure	13227.319	11043.806	9595.906

QUARTERLY RESULTS

PARTICULARS	30.06.2006 [1^ST Qtr.]	30.09.2006 [2^nd Qtr.]
Sales Turnover	426.97	491.20
Other Income	11.70	29.49
Total Income	438.67	520.69
Total Expenditure	393.39	433.66
Operating Profit	45.28	87.03
Interest	3.67	2.91
Gross Profit	41.61	84.12
Depreciation	7.44	7.44
Tax	8.83	15.08
Reported PAT	23.47	64.83

Notes:

2006-06 Quarter 1

1. One equity share of Rs 10 each has been subdivided into five equity share of Rs 2 each with effect from 18 August 2005. All the related reference for the previous periods have been restated for the sake of comparability. 2. Figures for the previous periods have been regrouped wherever required. 3. The results for the quarter ended 30 June 2006 have been reviewed by the Auditors. 4. Company received 14 complaints during the current quarter. All complaints are resolved during the quarter. No complaint is pending at the quarter end. 5. The above results were taken on record by Board of Directors in its meeting held on 22 July 2006.

2006-09 Quarter 2

Gross Sales Includes Sales Rs 5232.20 million Income from Operations Rs 148.70 million Expenditure Includes (Increase) / Decrease in Stock in Trade Rs (89.40) million Consumption of Raw Materials Rs 3598.50 million Staff Cost Rs 252.60 million Other Expenditure Rs 574.90 million Tax Includes Provision for Current Tax Rs 146.30 million Deferred Tax Rs (32.30) million Fringe Benefit Tax Rs 4.50 million EPS is Basic and Diluted Status of Investor Complaints for the quarter ended September 30, 2006 Complaints Pending at the beginning of the quarter Nil Complaints Received during the quarter 12 Complaints disposed off during the quarter 12 Complaints unresolved at the end of the quarter Nil 1. Figures for the previous periods have been regrouped wherever required. 2. The results for the quarter ended September 30, 2006 have been reviewed by the Auditors. 3. The above results were taken on record by Board of Directors in its meeting held on October 17, 2006.

KEY RATIOS

PARTICULARS	31.03.2006	31.03.2005	31.03.2004
Debt-Equity Ratio	0.09	0.08	0.09
Long Term Debt -Equity Ratio	0.06	0.03	0.03
Current Ratio	1.17	1.25	1.28
TURNOVER RATIOS
Fixed Assets	3.38	3.12	2.82
Inventory	15.50	15.70	14.17
Debtors	5.80	6.18	6.36
Interest Cover Ratio	15.88	13.53	14.97
Operating Profit Margin (%)	12.01	9.60	12.72
Profit Before Interest and Tax Margin (%)	10.11	7.48	10.35
Cash Profit Margin (%)	9.58	8.10	8.85
Adjusted Net Profit Margin (%)	7.67	5.99	6.47
Return On Capital Employed (%)	22.11	17.83	26.64
Return on Net Worth (%)	18.34	15.47	18.09

STOCK PRICES

Face Value	Rs.10/- each
High	Rs.277.00/-
Low	Rs.272.40/-

LOCAL AGENCY FURTHER INFORMATION

The 1940s era heralded the end of princely patronage for enterprise, Mr. Shantanurao Kirloskar, the eldest son of the founder of Kirloskar Group travelled to Pune to initiate a new aspect of group's activities - diesel engines. Mr. Shantanurao had to face the tangle of red tape and public resistance for acquisition of land for industrial purposes. He had to convince that factories have a longer life than humans and he managed to get a place for the subject, twelve months after signing an agreement with Associated British Oil Engines Export Limited, UK. The company was inaugurated in 1946.

Incorporated in January 1978 as private limited company, Prashant Khosla Pneumatics (PKPL) became a public limited company in October 1980. The company was a wholly owned subsidiary of the Delhi based K. G. Khosla Compressors, a pioneer in the air compressor industry.

Subject, the Pune based Kirloskar Group Company, acquired PKPL in 1994, as per the BIFR-approved rehabilitation package. The company reverse merged with Prashant Khosla Pneumatics, which enabled the company to make tax saving, which would otherwise have been difficult. After the reverse merger, the company's name was changed to the present.

The company has two manufacturing units in Nashik, Maharashtra. One is a 100% EOU and the other caters to the domestic market. The company started off with the manufacture of air and gas compressor and their accessories. In 1990, it diversified into the manufacture of diesel gensets in technical collaboration with Man B and W Diesel, Germany.

Recession set in soon after the company started manufacturing diesel gensets in 1990. The problems intensified and the company was referred to the BIFR. The problems were caused mainly due to the investments the company had made in the building and plant & machinery, which it could not commercialise.

In 1996-97, Kirloskar Filters was merged with the company and transferred to a new company, Kirloskar Knecht Filters, which is a joint venture promoted in technical and financial collaboration with Knecht Filterwerke GmbH, Germany. The company has also joined hands with Toyoda Automatic Loom Works, Japan for the manufacture of textile machinery.

During the year 1999-2000, the company shifted the small engines business unit from its’ factory at Khadki to Fursungi, on the outskirts of Pune.

The company received order worth Rs. 643.0 millions from the shipyard making vessels from Indian Navy and Coast Guard as the companies 1600 HP to 7200 HP were well accepted by them. The new plant at Fursungi received the ISO 9001 certification in the first year of its operations. The company terminated its agreement with Mahle Filtersystemse GmbH from May, 2002 and accordingly the company sold its shareholding in KMFSPL to MAHLE and the management of KMFSPL rest with MAHLE.

The engines developed by the company is according to Tier II norms and its engines were approved by the Emission Protection Agency of United States.

During 2003-04, subject obtained licence to trade in power.

Its’ products range includes :-

• Medium Engines, Auto Components
• Small Engines
• Large Engines and Valves
• Bearings and Bimetal strips
• Castings

The company is also in the business of manufacturing grey iron castings and trading in oil and power generators and power sales. Additionally during the year under review, the company has obtained licence to trade power.

Dividend: 

In addition to the interim dividend of 100% (Rs.2 per share) paid in February 2006, the Directors recommend a final dividend of 100% (Rs.2 per share) for the year, totaling to yearly dividend of 200% (Rs. 4 per share) (previous year dividend was 1250/-). 

Industry Overview: 

During the year under report, the growth in the Indian economy continued and some sectors have shown an accelerated growth. The services sector of the economy also continues to grow robustly. The resultant growth is seen in capital goods sector. 

The central and state governments continued to give priority to agriculture, road construction, housing, and other infrastructure development and have announced various schemes. The effect of such investments was noticeable in the economy. 

This vibrant economic scenario generated good demand for power, construction and material handling machinery and automobile components. The Telecom industry's need for power increased remarkably. The demand for irrigation pump sets has stabilized and economically priced pump sets are now driving the growth of the sector. New product development targeted at this growing segment is nearly complete and launch of these new products is scheduled in near future. 

The emission and noise regulation by Ministry of Environment and Forest concerning generating sets came into effect in the year ending March 2005. The consumers in urban areas have reconciled to the increased cost of complying with the regulations and have accepted the sleek, canopied, and silent Kirloskar Green Power Ideas generating sets. 

However, the regulation on emission and noise has also resulted in reduction in the number of competitors up to 19 kW output generating sets, as those who cannot meet the regulation cannot sell in the regulated market. 

The OEM demand in Auto Component Industry for the Company's products increased by 15% in the year under report. 

The overall demand from all sectors of economy in which the company operates, continue to grow robustly. 

Company Performance

During the year under report the company achieved sales of Rs. 13,953 million (Rs. 11,486 million) resulting in increase in sales by 21.5% over the previous year. 

The profit before tax is at Rs. 2,528 million (Rs. 2,013 million) after providing for depreciation of Rs. 280 million (Rs. 266 million). 

Analysis for both segments - Engines and Auto Components is presented below. 

Segment-wise Operational Performance: 

Engines: 

The sales of engines registered an increase of 27% at Rs. 11,412 million in the year under report (Rs. 8,969 million), crossing the Rs. 10 billion mark for the first time. 

In the agricultural sector, the engines are used in the farm machinery and farm tractors. In the lower end of the range, there is competition from several domestic players, and few imports from China while few domestic competitors vie for market share in the upper range. They continue to expand their market share by in-depth and effective marketing activities in the potential villages, and offer products for each user segment while improving distribution network in depth, quality and service. Affordable pump sets and engines drive the growth in this market. Thus, a year ago the Company had started the design of less material intensive products to meet the price levels desired by farmers. These products are now being prepared for launch in near future. 

The Farm Tractor market grew by 9% in the year under report and the Company has also started supply to two more tractor manufacturers. Thus, sales to this segment are expected to grow in coming years. 

The Company is the leading player in the Power Generation segment with the widest range in the industry. The Power Generation market experienced high growth in the year under report mainly due to demand from manufacturing, telecommunication and services sector, resulting in an increase in sales to the power generation segment by over 30% as compared to the previous year. 

The 'Kirloskar Green Power Ideas' brand under which gensets are marketed has become the most preferred brand in India, and is also introduced in selected countries. The exports of generating sets also grew significantly in the year under review. In sheer numbers, they, the Board believes that 'Kirloskar Green Power Ideas' is now the largest selling brand in the world in the range 15 to 250 kVA. 

They introduced generating sets in 250 to 600 kVA range three years ago. These products now command a market share of about 25% in the Indian market. 

The changed fuel price scenario has resulted in customers mainly looking for standby-power solutions in larger power output generating sets using high-speed diesel as compared to the Company's designs in this class that are predominantly competitive when heavy fuels are used. This situation is putting pressure on sales of the Company's larger generating sets. 

To expand product range and also offer gas fuelled power generation products to large consumers of power; the Company has entered into an agreement with Zorya of Ukraine, a reputed manufacturer of gas turbines. Under this agreement, the Company will package turbines and offer distributed power generation solutions in 2.5 to 40 MW class. The Company expects to book initial orders for these in the current year. 

Another important application of engines is for industrial and construction machinery. The Directors assess that the manufacture of the Construction and Material Handling Equipment has good growth prospects in the country. The exports of these equipments by OEM customers have also started. In the year under review, the Company's sales to this sector grew by 50%. 

The Company is an established supplier to the Indian Armed Forces for decades and the sales to the Armed Forces have increased in the year under report resulting in a healthy order board. 

The engines in the output range 2400 to 11000 hp are also sold for marine applications. The Company has healthy order board from marine sector and further orders from the Indian Navy are expected shortly. 

The implementation of the world class Customer Relationship Management (CRM) solution continues at the Company's Service Dealers and field service personnel. The CRM will further increase satisfaction of customers with the Company's products and service which in turn will lead to sustainable long term market leadership. 

Auto Components: 

The buoyant automobile market, especially commercial vehicle and car markets, grew robustly in the year under report. However, the 'after-market' continues to stagnate. Thus, the Company's sales to OEM market increased by 22% as compared to industry growth of 15% and sales to 'after-market' reduced due to reduced overhauling activity of heavy and light commercial vehicles. The overall growth was limited to 6% mainly due to capacity constraints though the company's plants operated at over 100% capacity. The Company has invested in plant and machinery during the year under review and the increased capacity has now started coming on stream. 

The resultant growth in the Company's sales was 6% over the previous year at Rs. 1,103 million (Rs. 1,044 million). 

It is noteworthy that leading Automotive OEM customers have increased purchases from the Company due to superior service, near zero defects, and quicker product development. The Company has received orders for engine valves for Maruti Udyog Limited's diesel engine project. 

A critical requirement of the OEM customers for engine bearings is `lead free' materials. The Company has developed and obtained approval to its first `lead free' material for a large OEM Customer. 

Sundaram Clayton Limited is one OEM customer of the Company for many years and has awarded us its `Best Quality Supplier' award for the third year in a row. 

The manufacturing facility of the Company was re-certified with the ISO-TS 16949 Certification in the year under report. 

The sales of engines valves did not register a growth in the year under report. 

Other Businesses: 

The Company is also in the business of manufacturing grey iron castings and trading in oil and power generation and power sales.

In the year under report the casting business registered only a marginal growth and is in need of infusion of new technology & investment. 

The oil trading business caters to engine and furnace users who require fuel oil and also lubricants. This business registered increase of 26% in the year under report while expanding its area of operations and customer base. 

The Power business is being de-emphasized for last few years as it is not viable. Thus, in tile year under report, the sales income of this business dropped by 80% as compared to previous year. 

Corporate Social Responsibility: 

In the year under report, the Company has contributed to social causes to the extent of approximately Rs. 4.6 million. Some of the main social causes towards which the Company contributed are as follows: 

Rs. 700,000 to CII Kashmir Earthquake Relief Fund. 

Rs. 500,000 to INTACH for River Cleaning Project. 

Rs. 500,000 to Society of Friends of the Sassoon Hospitals (SOFOSH) for Challenged Children. 

The Company continues the following initiatives: 

Tree plantation encouraged by distributing saplings. 

Free pollution check of two wheelers for students organized. 

Periodic spraying of insecticides in surrounding residential areas to improve health of community organized. 

Free health check for poor sections of surrounding community organized. 

Maintenance of roads adjoining Company's plants. 

Sponsored education and health of under privileged children through social organisation –

Akanksha. In the year under review, the Company commenced the sponsorship of the second Akanksha Centre. 

Community perception survey was carried out last year and in the year under review, specific initiatives were taken in the areas of health and education. 

Exports: 

In the year under report, the exports of the Company grew by 43% to Rs. 1,284 million (Rs. 899 million) maintaining a substantial year on year growth for three consecutive years. It is heartening to note that milestone of Rs.1 billion exports in a year was achieved in about 9 months of the year. The Board is confident that growth in exports will continue in the coming years. 

The Company has started seeing initial successes in securing OEM customers in overseas markets, and sales to OEMs have nearly doubled in the year under report as compared to previous year. Parallelly, the essential and time-consuming activity of creating after sales service network in chosen overseas markets continues. 

The efforts to increase exports of auto components have resulted in a rise in sales by 7%. In the year under report, two European OEMs have agreed to purchase bearings and bushes in significant volumes. Additionally, one American OEM has agreed to purchase significant volume of engine valves. To meet the demand for valves, the Company is setting up Export Oriented Unit (EOU). The focus for this product group is to develop new products targeted at precise needs of the foreign markets. Thus, this business is now leveraging the Company's capability to design and develop bearings and valves on the strength of Company's engine design capability. 

Prospects for Current Year: 

The domestic farm machinery market in engine range up to 20 hp is expected to remain stable after drop in market size in last two years. The Company's new products that meet customers' expectations while lowering costs will be introduced soon. 

The tractor market is growing and, in addition to Punjab Tractors Limited, the Company is now supplying to two other tractor manufacturers. Moreover, tractor manufacturers are increasing exports of tractors with the Company's emission compliant engines. The Board believes that these factors will result in healthy increase in sales in the current year. 

The genset market is expected to continue its growth driven by demand from manufacturing and services sector in the vibrant economy. The genset market, and the Company's sales to this market will grow in the current year. 

Growth in sales is also expected in Construction and Material Handling market as the Company's long-standing customers have drawn up growth plans. 

To meet the increasing demand for auto components, further investments to increase capacity continues. The supplies will start in this year against the agreements reached with domestic and foreign OEMs. Thus, the Company expects to significantly increase sales of Auto Components in the current year. 

With the anticipation of healthy growth in domestic sales and exports sales in coming years, and also to meet product up-gradation needs, the Company continues to invest in the plant and machinery. The capital expenditure is targeted to expand capacity, develop new products, improve quality, and reduce costs. 

It is in trade terms with:-

v Aashish Enterprises

v Aask Engineers

v Accuferrous

v Accumax Industries

v Accure Machine Tools Reconditioners

v Admant Tools and Designers

v Adroit Engineers

v Advance Diesel Engines Private Limited

v A D Wills Rowat (India) Private Limited

v Advance Mechanical Works

v Advin Diesels

v Akar Tools Limited

v Ambaji Metal Industries

v Arun Engineering Works

v Ashok Enterprises

v B A Traders

v B. J. Enterprises

v Bharat Machine Tools

v C. P. Engineers

v Ishan Enterprises

v Itw Signode India Limited

v J. J. Filters

v Jay Casting Company

v K. T. Industries

v Kinetic Pistons

v Laxmi Engineering Works

v Laxmi Industries

v Leena Engineering Works

v Lonavala Engineering & Castings

v New Laxmi Industries

v Nirmitee Engineers

v Om Enterprises

v Paresh Enterprises

v Poona Coupling Private Limited

v Pore Industries

v Quality Castings

v Radhe Enterprises

v Raj Engineering works

v Rajavir Industries

v Rico

v Rocket Engineering Corporation Private Limited

v S. B. Founders

v Sai Castings Private Limited

v Samir Castings Private Limited

v Santosh Engineering Works

v Shivkrupa Enterprises

v Shivshakti Engineering Works

v Shree Engineering Works

v Shree Kartik Engineering Works

v Shree Padma Engineers

v Shree Rameshwar Engineering Works

v Shri Ganesh Enterprises

v Shri Industries

v Sita Foundry

v Sri Laxmi Spares Private Limited

v Super industries

v Suyash Castings Private Limited

v Talab Engineering Company

v Tulsi Industrial Corporate

v V I N Enterprises

v Victor Enterprises

v Vikas Industries

v Vinayak Industries

The company’s fixed assets of important value include land (freehold and leasehold), buildings, plant and machinery including computer, air conditioning plant, electrical installation, furniture and fixture, vehicles and aircrafts and drawings and designs.

AS PER WEBSITE

Incorporated in Jun.'78 as a private limited company, Prashant Khosla Pneumatics (PKPL) became a public limited company in Oct.'80. The company was a wholly-owned subsidiary of the Delhi-based K G Khosla Compressors, a pioneer in the air-compressor industry.  

 Kirloskar Oil Engines (KOEL), the Pune-based Kirloskar group company, acquired PKPL in 1994, as per the BIFR-approved rehabilitation package. KOEL reverse-merged with Prashant Khosla Pneumatics, which enabled KOEL to make tax savings, which would otherwise have been difficult. After the reverse merger, the name of the company was changed to Kirloskar Oil Engines.

The company has two manufacturing units in Nashik, Maharashtra. One is a 100% EOU and the other caters to the domestic market. The company started off with the manufacture of air- and gas-compressors and their accessories. In 1990, it diversified into the manufacture of diesel gensets in technical collaboration with Man B and W Diesel, Germany. 

Recession set in soon after the company started manufacturing diesel gensets in 1990. The problems intensified and the company was referred to the BIFR. The problems were caused mainly due to the investments the company had made in the building and plant and machinery, which it could not commercialise.

In 1996-97, Kirloskar Filters was merged with the company and transferred to a new company, Kirloskar Knecht Filters, which is joint venture promoted in technical and financial collaboration with Knecht Filterwerke Gmbh Germany. KOEL has also joined hands with Toyoda Automatic Loom Works, Japan for the manufacture of textile machinery. During 1999-2000, the company shifted the small engines business unit from the its factory at Khadki to Fursungi, on the outskirts of Pune

 The company received orders worth Rs.634 Million from the shipyard making vessels from Indian Navy and Coast Guard as the companies 1600 HP to 7200 HP were well accepted by them.The new plant at Fursungi received the ISO 9001 certification in the first year of its operations. The company terminated its agreement with Mahle Filtersysteme GmbH from May 2002 and accordingly the company will sell its shareholding in KMFSPL to MAHLE and the management of KMFSPL will rest with MAHLE. 

The engines developed by the Company is according to Tier II norms and its engines were approved by the Emission Protection Agency of United States. 

During 2003-04, the Company obtained license to trade in Power.

CMT REPORT [Corruption, Money laundering & Terrorism]

The Public Notice information has been collected from various sources including but not limited to: The Courts, India Prisons Service, Interpol, etc.

1] INFORMATION ON DESIGNATED PARTY

No exist designating subject or any of its beneficial owners, controlling shareholders or senior officers as terrorist or terrorist organization or whom notice had been received that all financial transactions involving their assets have been blocked or convicted, found guilty or against whom a judgement or order had been entered in a proceedings for violating money-laundering, anti-corruption or bribery or international economic or anti-terrorism sanction laws or whose assets were seized, blocked, frozen or ordered forfeited for violation of money laundering or international anti-terrorism laws.

2] Court Declaration :

No records exist to suggest that subject is or was the subject of any formal or informal allegations, prosecutions or other official proceeding for making any prohibited payments or other improper payments to government officials for engaging in prohibited transactions or with designated parties.

3] Asset Declaration :

No records exist to suggest that the property or assets of the subject are derived from criminal conduct or a prohibited transaction.

4] Record on Financial Crime :

Charges or conviction registered against subject: None

5] Records on Violation of Anti-Corruption Laws :

Charges or investigation registered against subject: None

6] Records on Int’l Anti-Money Laundering Laws/Standards :

Charges or investigation registered against subject: None

7] Criminal Records

No available information exist that suggest that subject or any of its principals have been formally charged or convicted by a competent governmental authority for any financial crime or under any formal investigation by a competent government authority for any violation of anti-corruption laws or international anti-money laundering laws or standard.

8] Affiliation with Government :

No record exists to suggest that any director or indirect owners, controlling shareholders, director, officer or employee of the company is a government official or a family member or close business associate of a Government official.

9] Compensation Package :

Our market survey revealed that the amount of compensation sought by the subject is fair and reasonable and comparable to compensation paid to others for similar services.

10] Press Report :

No press reports / filings exists on the subject.

CORPORATE GOVERNANCE

MIRA INFORM as part of its Due Diligence do provide comments on Corporate Governance to identify management and governance. These factors often have been predictive and in some cases have created vulnerabilities to credit deterioration.

Our Governance Assessment focuses principally on the interactions between a company’s management, its Board of Directors, Shareholders and other financial stakeholders.

CONTRAVENTION

Subject is not known to have contravened any existing local laws, regulations or policies that prohibit, restrict or otherwise affect the terms and conditions that could be included in the agreement with the subject.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs.44.23
UK Pound	1	Rs.86.91
Euro	1	Rs.58.26

SCORE & RATING EXPLANATIONS

SCORE FACTORS	RANGE	POINTS
HISTORY	1~10	5
PAID-UP CAPITAL	1~10	5
OPERATING SCALE	1~10	5
FINANCIAL CONDITION
--BUSINESS SCALE	1~10	5
--PROFITABILIRY	1~10	4
--LIQUIDITY	1~10	4
--LEVERAGE	1~10	5
--RESERVES	1~10	5
--CREDIT LINES	1~10	5
--MARGINS	-5~5	--
DEMERIT POINTS
--BANK CHARGES	YES/NO	YES
--LITIGATION	YES/NO	NO
--OTHER ADVERSE INFORMATION	YES/NO	NO
MERIT POINTS
--SOLE DISTRIBUTORSHIP	YES/NO	NO
--EXPORT ACTIVITIES	YES/NO	YES
--AFFILIATION	YES/NO	YES
--LISTED	YES/NO	YES
--OTHER MERIT FACTORS	YES/NO	YES
TOTAL		43

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average/normal.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
NR		In view of the lack of information, we have no basis upon which to recommend credit dealings	No Rating

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions