Kirloskar Oil Engines Ltd. Welcomes you to Analysts Meet. Vijay Varma, Senior Vice President Pune, INDIA July 27, 2007

Kirloskar Oil Engines Ltd. Welcomes you to Analysts Meet Vijay Varma, Senior Vice President Pune, INDIA July 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 2

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. Target Turnover by FY12 : 8,500 INR Cr 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 3

Growth Path 10,000 8,000 6,000 4,000 2,000 - CAGR 23% INR Cr FY07 FY08 FY09 FY10 FY11 FY12 Present Products CAGR 35% New Projects Varsha Pump A350 engine Fire Pump Engines 4

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 5

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 7

Agriculture Engines and Pumps Engines up to 20 hp Water Cooled Air Cooled Pumpsets July 27, 2007 Kirloskar Oil Engines Ltd. 8

Power Generation Engines & Gensets Engines Liquid Cooled Air Cooled Gensets 3 to 600 kva 2 to 6 MW July 27, 2007 Kirloskar Oil Engines Ltd. 9

Construction & Industrial - Engines Engines Series OEM Customers : Liquid Cooled Air Cooled July 27, 2007 Kirloskar Oil Engines Ltd. 10

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 12

Kirloskar Green Generating Sets 3-30 kva, 30-600 kva, 2000 6600 kva 13

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 14

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 15

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 16

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 17

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 18

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 KOEL s proven delivery performance over years KOEL s proven performance on upgrades to meet changing technical and emission requirements 19

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 20

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 21

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 22

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 23

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 24

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 25

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 27

Varsha for Agricultural Market Entering New Segment AV1XL Varsha For 12 to 18 m Head 13 to 21.5 lps Discharge 120 kg. 750-800 cc / h Fuel Consumption For 5 to 11.5 m Head 3.3 to 13.5 lps Discharge 60 kg. 450 500 cc / h Fuel Consumption July 27, 2007 Kirloskar Oil Engines Ltd. 28

Varsha Compact Pumpset 2007 Indian Market Size : 350,000 Units / INR 280 Cr 29

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 / 7.5 hp 164 kg. Generating sets and Construction Machinery July 27, 2007 Speed : 3000 / 3600 rpm 5 / 7 hp 44 kg. Generating sets and Construction Machinery Kirloskar Oil Engines Ltd. 30

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 31

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 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 33

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 34

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 36

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% 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 37

KOEL Sales Break-up Sales FY07 (audited) Vs. FY06 (audited) All in INR Cr, rounded off FY07 FY06 Change Small 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% Sold to KFIL w.e.f. Q4, FY07 Unviable. Stopped. Exports 143 132 8% Exports / Total External Sales 8% 9% 38

Engine Sales increase 28% by volume & 47% by value Qty., rounded off FY07 FY06 Change Small Engines 87,300 77,200 13% Medium Engines 77,200 51,600 50% Large Engines 7 9-22% Total 164,507 128,809 28% 39

Agriculture Engine Sales increase 10% INR Cr, rounded off FY07 FY06 Change Market 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 Qty., rounded off FY07 FY06 Change Small Engine 45,300 41,000 10% Medium Engines 14,500 13,000 12% Total 59,800 54,000 11% 40

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 41

Power Generation Sales increase by 80% INR Cr, rounded off FY07 Market FY06 Change Share* Cellular 270 85 218% 40-42% PG non-cellular 498 341 46% 40-43% Total 768 425 80% * = KOEL Research Qty., rounded off FY07 FY06 Change Cellular 22,000 11,100 98% PG non-cellular 48,400 40,100 21% Total 70,400 51,200 38% 42

Industrial & Construction Machinery Sales increase by 50% INR Cr, rounded off FY07 FY06 Change Market Share* Small Engines 16 12 30% 55-60% Medium Engines 248 163 52% 52-56% Total 264 176 50% * = KOEL Research Qty., rounded off FY07 FY06 Change Small Engines 10,300 8,000 29% Medium Engines 24,100 15,700 54% Total 34,400 23,700 45% 43

Engine Bearings & Valves Unprofitable business curtailed in FY07 Working on global alignments Valves EoU starts invoicing in FY08 140 120 100 80 60 40 20 0 INR Cr. 18 88 FY06 INC Cr 17% 22% 103 22 FY07 INR Cr 44% 41% Bearings Valves 56% 59% FY06 OEM Sales FY07 After Market Sales 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 46

KOEL Q1, FY08 Sales Break-up Q1, FY08 (Provisional) Vs. Q1, FY07 (Audited) Sales, rounded off to INR Cr Q1, FY08 Q1, FY07 Change Small 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. Deemphasised. 47

Financial Performance

Capital Use All in INR Cr 500 Turnover 450 400 350 300 250 200 150 100 50 0 FY03 FY04 FY05 FY06 FY07 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200-5 Yr CAGR Turnover 22% Business TCE 18% Net Block 24% Net Current Assets 8% Business TCE Net Block Net Current Assets Turnover 49

Margins & Returns Business ROCE is growing 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY03 FY04 FY05 FY06 FY07 RONW ROCE Business ROCE Operating Margin 50

Increase in Returns / Share 100 90 80 70 60 50 40 30 20 10 - INR FY03 FY04 FY05 FY06 FY07 5 Yr CAGR EPS 46% Cash EPS 34% Book Value / Share 24% EPS Cash EPS Book Value / Share 51

Consistent increase in Profits 350 300 INR Cr Mkt Cap 3,000 2,500 5 Yr CAGR PBT 58% PAT 44% EBDIT 35% Operating EBDIT 60% Market Cap @ year end 116% PBT 250 200 150 100 2,000 1,500 1,000 PAT EBDIT Operating EBDIT 50-500 - Market Cap @ year end FY03 FY04 FY05 FY06 FY07 52

Improving Employee Productivity 7 4,000 CAGR No. of Employees -4% Turnover (INR M)/ Employee 26% 6 5 4 3 2 1 3,500 3,000 2,500 2,000 1,500 1,000 500 Turnover (INR M)/ Employee No. of Employees 0 FY03 FY04 FY05 FY06 FY07-53

Low Debt 1,200 1,000 INR Cr 800 600 400 Debt Share holders fund 200 - FY03 FY04 FY05 FY06 FY07 54

Investments

CAPEX Plan FY08 FY10 900 INR Cr Breakup in Businesses Breakup in years 13% 16% Small Engines 71% Medium Engines Large Engines 24% 18% 58% FY08 FY09 FY10 80% in Plant and Machinery July 27, 2007 Kirloskar Oil Engines Ltd. 56

Interest and Depreciation INR Cr, rounded off FY07 FY08 FY09 FY10 Interest & Financing Cost 14 38 68 68 Depreciation 32 57 106 123 Total Financing Cost & Dep 46 95 174 191 Additionally, INR 11 Cr will be capitalised in FY08. Debt will peak in FY09 FY10. 57

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. 58

Holding in KFIL KFIL is secured source of castings for making engines Current holding is 48% On Conversion of Warrants, holding will be 52% 59

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. 60

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)