KIRLOSKAR OIL ENGINES LIMITED
ANNUAL REPORT 2004-2005
Chairman's speech for KOEL's Annual General Meeting for the year ending
March 31, 2005.
Date : Friday, July 15, 2005.
Time : 10.30 a.m.
Place : KOEL, Pune.
Good Morning Ladies and Gentlemen,
I extend a warm welcome to you all to the Annual General Meeting of your
company for the fiscal year ending March 31, 2005 and thank you for taking
out the time to attend this meeting.
As the Annual Report is with you for sometime, I am sure you have had
time to go through the various achievements of the Company in the year
The sales and operating income increased to Rs. 11,826 million (last year,
Rs.10,413 million) registering a growth of 14%. Exports increased to Rs.899
million (last year, Rs.610 million) registering a growth of 47% over last
year and the Domestic sales increased to Rs.10,558 million (last year, Rs.
9,415 million) registering a growth of 12% over last year. Profit Before
Tax was Rs.2,013 million as compared to Rs.1,056 million last year.
Year under Review:
Having shared with you the highlights of the achievements in the year under
review, I would like to provide some details.
In the operational revenues, the Engines segment contributed 73% (last
year, 72%) of the sales income while the Engine Bearings and Valves segment
contributed 9% (last year, 9%) sales in the year under review.
Rest of the revenue came from other businesses.
Your company's sales in Engines segment were higher by 15 % at Rs. 8,954
Million (last year, Rs. 7,807 Million) as compared to the previous year,
while in the Auto Component segment the sales were higher by 8% at Rs.
1,043 Million (last year, Rs. 968 Million). And, the sales in other segment
increased by 21% over previous year to Rs.2,201 Million (last year Rs.1,815
It is noteworthy to mention that the rise in engine sales was due to growth
in all markets - tractors, power generation, earth moving and construction
machines, telecom, and services sector in general. Sales of engines in
Industrial and construction market were significantly higher, thanks to the
ongoing thrust on infrastructure building. The Engine Bearings and Valves
business experienced a growth in sales due to increased demand from
automobile and engine makers in the country.
The exception to this was a drop in domestic sales of engines below 20 hp.
The increased prices of diesel pumpsets, depleting water levels, and
announcement of free electricity to farmers in certain states affected this
market. Added to the woes are increased prices of diesel. Thus, the total
market for diesel driven pumpsets below 20 hp dropped by 30% over the
previous year. While the drop in our revenue was contained to 10% in the
As an immediate compensation to drop in domestic market, the company
concentrated and secured increase in exports of engines up to 20 hp. I had
mentioned last year that company has embarked on developing new products
that are not as material intensive as the present ones. These products will
offer us opportunity to deliver products to farmers at price points they
desire. The development is progressing satisfactorily and we expect to
introduce the new products next year.
The Capital Employed in Engines and Auto Component segment has registered
slight increase as on March 31, 2005 with Engines at Rs.1,390 million (last
year, Rs.1,322 million) and Bearings and Valves at Rs. 461 million (last
year, Rs. 397 million). I would like to point out that these figures are to
be seen against increased sales and are result of our tight fiscal
I had shared with you last year the results of Customer Satisfaction
assessment by reputed independent agency like AC Nielsen. Such assessment
is made each year and Company attends to specific observations that are
thrown up. In the year under review satisfaction of our customers continued
to be comparable to the best in industry.
Employee Cost :
Consequent to the wage agreement with employees union valid for 3 years and
revision in salaries of Managers, the employee costs have gone up by about
Rs.165 Million in current fiscal.
The employees have agreed to increased productivity goals to ensure
competitiveness on this front. I am certain that employee cost as
percentage of sales will reduce over time due to increased sales and better
With increasing opportunities in manufacturing sector, the attrition rate
has gone up in year under review as compared to those experienced earlier.
The company is preparing to address this by increasing attention to
employee related matters.
In the year under review, the Company conducted employee satisfaction
assessment by reputed independent agency - Gallup. The results show that
the managerial satisfaction levels are good and on some parameters we are
comparable to other companies in India. The parameters on which we are not
comparable to others are being attended to and we look forward to
improvements in employee satisfaction and involvement.
Capital Expense :
In the year under review, we could complete capital expenditure of Rs. 419
Million as compared to our plan to invest about Rs. 700 Million. The result
was that we fell short of capacities to service engine bearing customers.
The planned capital expenditure of the current year and balance from the
year under review will be completed soon, and will result in increased
sales of auto components and engines in 20 to 300 hp engines.
With the increasing confidence in the Indian economy and initial successes
in overseas OEM market, I see the need to now develop products for the
Global markets and plan for quantum leap from our present platform. Thus,
in the year under review, we have increased capital expenditure in R&E to
five times the amounts we have invested in earlier years.
Going forward, our expenses will increase for developing new products and
technologies, and investments in Plant and Machinery will also go up.
Operating profit for the year under review was Rs.1,016 million as compared
to Rs.1,057 million in the last year. The profit is more or less unchanged
in spite of increased sales as company was not able to pass on to the
customers full impact of sharp increase in prices of Iron and Steel and
other commodities and the increased employee costs. Additionally, product
mix change also impacted the profit.
Profit Before Tax inclusive of income due to sale of investments is higher
at Rs. 2,013 million which is an increase of 91% as compared to Rs. 1,056
million in previous year.
The Profit After Tax is higher at Rs.1,739 Million which is 146% higher as
compared to Rs.708 Million in previous year.
Business Scenario and Current year prospects:
The Indian economy's robustness was demonstrated by GDP growth of 6.9%.
This is very healthy growth and, I hope and expect that current year GDP
growth will be above 7%.
The Stock markets are witnessing ever rising peaks in indices. This is an
indicator of confidence in the Indian economy and anticipated growth in
coming years. Thus, I do expect the economy to be buoyant in the rest of
the current fiscal and your company benefiting from the buoyancy.
In the first quarter of the current year, Company has achieved higher sales
of Engines and Engines Bearings and Valves. The board has approved the
first quarter results today, and I am happy to share these with you.
The revenue is up by 31% to Rs. 3,275 million (last year first quarter, Rs.
2,494 million), and includes exports of Rs. 355 million (last year first
quarter, Rs. 249 million). In this quarter, the operating profit is Rs.219
million which is slightly lower as compared to last year's same quarter
at Rs.249 million mainly due to lower financial income of Rs. 19.2
million this year versus Rs.79.5 million last year.
While sharing these results for the quarter, I would like to point out that
in spite of increase in sales of engines below 20 hp by 26% as compared to
comparable quarter in last year, the pressure to develop competitive
products for farmers has not abetted. As mentioned earlier, company is
developing new products to address needs of customers in this segment.
You are aware that Company has set out to increase exports. While year on-
year exports registered 47% increase, first quarter increase over
comparable period last year is 43%. In addition to developing OEM
customers, we have started selling application packages to foreign
institutional buyers. Their initial interest and order flow is good. The
quality and service levels expected by foreign OEMs and institutional
buyers are much higher than those expected by our traditional customers in
domestic and foreign markets. Your Company continues to prepare to meet
these higher standards. We expect these customers will step up their
purchases, as they are satisfied with our products and services.
Societal Initiative :
Company has sponsored one Akansha Centre in Khadki, Pune. The centre caters
to 60 under privileged children who are taught languages, mathematics, and
creative skills are also imparted. The goal is to develop them in to be
confident members of society. I am happy to inform that this centre is
running satisfactorily for one and half years with attendance levels
Corporate Governance :
SEBI has revised the guidelines for Corporate Governance which are to be
complied with by December 2005. I am happy to inform that company is
progressing to comply with the revised guidelines well within the
I am happy to inform that the customers in each market have appreciated our
products, responsiveness and customer care. As a result company's market
shares in domestic markets have gone up in each key markets, and exports
are increasing. Hence, I would like to thank all our customers with a
promise that our customer centricity will keep on becoming sharper with
I am grateful for the support given to us by you, the shareholders, our
bankers, our suppliers, and our employees.
SOURCE : WEBSITE
DATED : 22/10/2005