Kirloskar Oil Engines Ltd.

Welcomes you to Analysts Meet

Vijay Varma, Senior Vice President Pune, INDIA July 27, 2007

Todays 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

Kirloskar Oil Engines Ltd.

We will become a major Global Player in offhighway 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.
Target Turnover by FY12 : 8,500 INR Cr
July 27, 2007

Size of Indian off-highway engine market, FY07 : 5,700 INR Cr FY12 : 11,500 INR Cr Est. CAGR up to FY12 : 15%
Source : KOEL Research
Kirloskar Oil Engines Ltd.

Growth Path
CAGR 35% CAGR 23%

10,000 8,000 6,000 4,000 2,000 -

INR Cr

New Projects

Varsha Pump A350 engine Fire Pump Engines

FY07 FY08 FY09 FY10 FY11 FY12 Present Products

July 27, 2007

Kirloskar Oil Engines Ltd.

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 Energy

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

July 27, 2007

Kirloskar Oil Engines Ltd.

KOELs 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

July 27, 2007

Kirloskar Oil Engines Ltd.

Agriculture Engines and Pumps

Engines up to 20 hp

Water Cooled Pumpsets

Air Cooled

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Kirloskar Oil Engines Ltd.

Power Generation Engines & Gensets

Engines

Liquid Cooled Gensets

Air Cooled

3 to 600 kVA
July 27, 2007 Kirloskar Oil Engines Ltd.

2 to 6 MW
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Construction & Industrial - Engines

Engines Series OEM Customers :

Liquid Cooled

Air Cooled
July 27, 2007 Kirloskar Oil Engines Ltd.

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

Range Expansion, FY08 FY09 Compact Pumpset Varsha Compact high speed engines : 5 7 hp
July 27, 2007 Kirloskar Oil Engines Ltd.

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Kirloskar Green Generating Sets

3 - 30 kVA, 30 - 600 kVA, 2000 6600 kVA

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Kirloskar Oil Engines Ltd.

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Domestic Market Drivers Power 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

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Kirloskar Oil Engines Ltd.

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Domestic Market Drivers Power Generation

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 Mahindra Cummins Regional competitors

July 27, 2007

Kirloskar Oil Engines Ltd.

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Domestic Market Drivers Power Generation

30 to 600 kVA
Larger Commercial Establishments Investments in manufacturing, textiles and garments, auto components, Information Technology, Retail and such

Competition : Cummins Greaves

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Kirloskar Oil Engines Ltd.

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Domestic Market Drivers Power Generation

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 : Cummins Caterpillar Wartsila Other Imports

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Kirloskar Oil Engines Ltd.

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Fuel Options - Power Generation

New Fuels lower emission
Gaseous 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 locally
July 27, 2007 Kirloskar Oil Engines Ltd.

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Domestic Market Drivers Construction & 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 KOELs proven delivery performance over years KOELs proven performance on upgrades to meet changing technical and emission requirements
July 27, 2007 Kirloskar Oil Engines Ltd.

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Domestic Market Drivers Construction & Industrial Machinery

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

Range Extension 5 7 hp compact high speed engines in FY08

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Kirloskar Oil Engines Ltd.

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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

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Kirloskar Oil Engines Ltd.

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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

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Kirloskar Oil Engines Ltd.

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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 engines Compact Pumps Varsha

July 27, 2007 Kirloskar Oil Engines Ltd.

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Export Market Drivers - Engines

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 manufacturers
July 27, 2007 Kirloskar Oil Engines Ltd.

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Export Market Drivers - Engines

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

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Kirloskar Oil Engines Ltd.

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New Products FY08 and beyond Result 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 Pumpset Construction Machinery Market (30,000 / 100): Compact 5 - 7 hp high speed engine Natural Gas Engines (300 / 10): 35 and 55 kVA introduced in market Biodiesel Engines (Market developing): 15 and 45 kVA offered for cell sites In-house generating sets to run on biodiesel from Jan. 2008 500 kVA manufactured engine (4000 / 450) Present Share 20% with traded Engine: In-house designed and manufactured engine for genset
July 27, 2007 Kirloskar Oil Engines Ltd.

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Varsha for Agricultural Market Entering New Segment

AV1XL Varsha

For 12 to 18 m Head 13 to 21.5 lps Discharge

For 5 to 11.5 m Head 3.3 to 13.5 lps Discharge

120 kg.
750 - 800 cc / h Fuel Consumption
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60 kg.
450 500 cc / h Fuel Consumption

Kirloskar Oil Engines Ltd.

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Varsha Compact Pumpset

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

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Compact High Speed Engine for Industrial and Power Generation Market
TAF1
2007 Indian Market Size : 30,000 / INR 100 Cr

FA 350

Speed:1500 / 1800 rpm 6/7.5hp

164 kg.
GeneratingsetsandConstruction Machinery
July 27, 2007

Speed:3000 / 3600 rpm 5/7hp

44 kg.
GeneratingsetsandConstruction Machinery
Kirloskar Oil Engines Ltd.

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Natural Gas Generators designed in-house

2007 Indian Market Size : 300 / INR 10 Cr

35 and 55 kVA introduced in market Range will be expanded based on Market Study
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Biodiesel Generators designed in-house

2007 Indian Market Size : Market Developing

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
July 27, 2007 Kirloskar Oil Engines Ltd. 32

Alliance with Waukesha Products 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

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Alliance with Waukesha Products 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 B Gas (India) : 45 Units / USD 130 M

* = Source Diesel & Gas Turbine and KOEL Research

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Kirloskar Oil Engines Ltd.

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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 Engines Agricultural machinery Pumping sets, engines for Farm machinery such as Tractors and Harvesters Mobile Machinery Construction and Industrial Machinery Stationary Equipment Generating sets and such Auto Components : Engine Bearings and Valves
July 27, 2007 Kirloskar Oil Engines Ltd.

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KOEL Sales Highlights 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%
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
July 27, 2007 Kirloskar Oil Engines Ltd.

Auto Component :

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KOEL Sales Break-up

Sales FY07 (audited) Vs. FY06 (audited) All in INR Cr, rounded off FY07 FY06 Change 41% Small Engines 361 256 51% Medium Engines 1,199 793 24% Large Engines 124 100 47% Total Engines 1,685 1,148 17% Bearings 103 88 22% Valves 22 18 18% Auto Component 125 106 -23% Castings 51 66 -9% Fuel Oil 137 150 -100% Power 0 3 35% Total (Includes Inter-SBU Sales) 1,997 1,474 44% Inter SBU - Sales 114 79 35% Total External Sales 1,883 1,395 Exports Exports / Total External Sales
July 27, 2007

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

143 8%

132 9%

8%
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Kirloskar Oil Engines Ltd.

Engine Sales increase 28% by volume & 47% by value

Qty., rounded off Small Engines Medium Engines Large Engines Total

FY07 87,300 77,200 7 164,507

FY06 Change 77,200 13% 51,600 50% 9 -22% 128,809 28%

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Agriculture Engine Sales increase 10%

INR Cr, rounded off Small Engines Medium Engines Total FY07 76 83 159 FY06 Change 68 11% 76 9% 144 10% Market Share* 27 - 30% 65 - 70%

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

Qty., rounded off Small Engine Medium Engines Total

FY07 FY06 Change 45,300 41,000 10% 14,500 13,000 12% 59,800 54,000 11%

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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

KOELs equity in SEL is of strategic importance

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Power Generation Sales increase by 80%

Market FY06 Change Share* 85 218% 40 - 42% 341 46% 40 - 43% 425 80%

INR Cr, rounded off Cellular PG non-Cellular Total

* = KOEL Research

FY07 270 498 768

Qty., rounded off Cellular PG non-Cellular Total

FY07 22,000 48,400 70,400

FY06 Change 11,100 98% 40,100 21% 51,200 38%

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Industrial & Construction Machinery Sales increase by 50%

Market Share* FY06 Change 12 30% 55 - 60% 163 52% 52 - 56% 176 50%

INR Cr, rounded off Small Engines Medium Engines Total

* = KOEL Research

FY07 16 248 264

Qty., rounded off Small Engines Medium Engines Total

FY07 10,300 24,100 34,400

FY06 Change 8,000 29% 15,700 54% 23,700 45%

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Kirloskar Oil Engines Ltd.

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Engine Bearings & Valves

Unprofitable business curtailed in FY07 Working on global alignments Valves EoU starts invoicing in FY08
44% 41%
140 120 100 80 60 40 20 0 88

INR Cr.
18

22%
22

17%
103

FY06 INC Cr Bearings

FY07 INR Cr Valves

56%

59%

FY06 OEM Sales

July 27, 2007

FY07 After Market Sales

Kirloskar Oil Engines Ltd. 44

KOEL Sales Breakup

Q1, FY08 Vs. Q1, FY07

KOEL Sales Highlights 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
July 27, 2007 Kirloskar Oil Engines Ltd.

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KOEL Q1, FY08 Sales Break-up

Q1, FY08 (Provisional) Vs. Q1, FY07 (Audited) Sales, rounded off to INR Cr Q1, FY08 Small Engines 90 Medium Engines 325 Large Engines 30 TOTAL ENGINES 446 BEARINGS 20 VALVES 4 AUTO COMPONENT 23 EXPORT 33 CASTINGS 0 FUEL OIL 18 POWER 0 TOTAL INCLUDING (INTER SBU) 520 LESS INTERSBU 28 TOTAL EXTERNAL 492

Q1, FY07 81 246 15 342 18 5 23 30 17 56 0 467 40 427

Change 11% 32% 100% 30% 10% -28% 2% 12% -100% -68% -100% 11% -30% 15%

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

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Financial Performance

Capital Use
Turnover Business TCE Net Block 2,000 Net Current Assets 5 Yr CAGR 22% 18% 24% 8%

All in INR Cr
500 450 400 350 300 250 200 150 100 50 0

Turnover

1,800 1,600 1,400 1,200 1,000 800 600 400 200 FY03 FY04 FY05 FY06 FY07

Business TCE Net Block Net Current Assets Turnover

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Margins & Returns Business ROCE is growing

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY03 FY04 FY05 FY06 FY07

RONW ROCE BusinessROCE OperatingMargin

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Increase in Returns / Share

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

100 90 80 70 60 50 40 30 20 10 -

INR

EPS CashEPS BookValue /Share

FY03 FY04 FY05 FY06 FY07

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Consistent increase in Profits

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

350 300 250 200 150 100 50 -

Mkt Cap INR Cr

3,000 2,500 2,000 1,500 1,000 500 -

PBT PAT EBDIT Operating EBDIT Market Cap @ year end

FY03 FY04 FY05 FY06 FY07

July 27, 2007 Kirloskar Oil Engines Ltd.

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Improving Employee Productivity

No. of Employees Turnover (INR M)/ Employee CAGR -4% 26%

7 6 5 4 3 2 1 0 FY03 FY04 FY05 FY06 FY07

July 27, 2007

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Turnover (INR M)/ Employee No. of Employees

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Low Debt

1,200 1,000 800 600 400 200 FY03 FY04 FY05 FY06 FY07 Debt Share holders fund

INR Cr

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Investments

CAPEX Plan FY08 FY10 900 INR Cr

Breakup in Businesses
13% 16%
Small Engines Medium Engines

Breakup in years
18%
FY08 FY09

71%

Large Engines

80% in Plant and Machinery

24%

58%

FY10

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Interest and Depreciation

INR Cr, rounded off Interest & Financing Cost Depreciation Total Financing Cost & Dep FY07 14 32 46 FY08 38 57 95 FY09 68 106 174 FY10 68 123 191

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

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Kagal Expansion to 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.
July 27, 2007 Kirloskar Oil Engines Ltd.

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

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Cautionary Statement

Statements in this presentation, particularly those which relate to managements views and analysis, describing the Companys 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.

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Contact at Kirloskar
Vijay Varma, Senior Vice President, Kirloskar Oil Engines Ltd., Pune 411003, INDIA E-mail : vijay.varma@kirloskar.com Secretary : Ms. Uma Murali (um@koel.co.in), Phone : +91(20)6608 4109 (DID)