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Conference Earnings Call 4Q 2010-11

Company Kirloskar Brothers Ltd

Date: April 27, 2011

Operator:

Ladies & Gentlemen, Good Afternoon! Thank you for standing by, and welcome to

Kirloskar Brothers Ltd. fourth quarter and financial year 2010-11 earnings call.

Joining us today in this conference room are Mr. Sanjay Kirloskar, Chairman &

Managing Director, Mr. Jayant Sapre & Mr. Ramesh Srivasatava, Executive Directors,

Mr. Umesh Shastry, Vice President (Finance), and Mr. G P Kulkarni, Vice President -

Legal & Company Secretary.

Mr. Umesh Shastry will take us through result highlights for the period ending March

2011. All participants are requested to refer to the presentation available on the company

website, www.kbl.co.in.

As a gentle reminder, during the duration of the presentation, all participants are in a

listen only mode. There will be an opportunity to ask questions at the end of the

presentation. If you wish to ask a question, please press *1 on your telephone.

Please be advised that this conference is being recorded today.

I will now hand the conference over to Mr. Umesh Shastry.

Over to you, Sir.

Mr. Umesh Shastry:

Good afternoon Ladies and gentlemen, and welcome to KBL’s fourth quarter earning

call.

Before I begin my presentation, I would like to remind you that the overview and the

discussions that we have today may include certain forward-looking statements that must

be viewed in conjunction with the risks that we face. My presentation is primarily based

on the presentation that is already loaded on the KBL website, so I will just go through

the company level highlights first which will be followed by the sector and the factory

level highlights, that will be followed by brief of the financial both for the company

standalone as well as for the consolidated financial, and then we will tell you about the

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way forward as far as KBL is concerned. Once this is through, we will throw open the

floor for questions and answers.

So, at a company level, I would like to inform all of you that we were selective with our

order booking during this entire year with a lot of emphasis given on the

electromechanical business. We also set up task force for supporting and closing all three

projects that were going on so that we were able to execute these projects speedily. We

did take a lot of initiatives for operational efficiency improvements and we had strict

project monitoring. We also monitored and controlled our sales depending upon the

debtors, mainly in relation to the Andhra Pradesh sale so that we were able to control our

receivables and that the debtor’s level did not go far beyond the sales level. As we had

explained to you in the last analysts meet, we did achieve the completion of the

percentage of completion for two major orders, namely the Bangalore Water Supply and

Sewerage Board for the water sector and the Rajiv Sagar Project for the irrigation sector

in Q4. You would have also noticed that there has been improvement in the operating

results of the company in the current financial year. We also achieved significant

reductions in material costs through various initiatives like negotiations and value

engineering.

I will now give you a brief synopsis about each of our business verticals starting with the

irrigation sector.

As far as the irrigation sector is concerned, we received the first EPC order for the

Satgaon Pathar Lift Irrigation Scheme in the current year. This established us as an EPC

contractor in Maharashtra and also gave us qualification for distribution systems. Also

registration for PWD and VIDC for Class A rating took place, thereby KBL got qualified

for an unlimited value of EPC work which can come. The validation of the world’s

largest irrigation project was done by completing the commissioning as well the PG

testing of the SSNL and the Godavari projects. One important thing that we did was as

far as the AP project was concerned was that we were able to change the payment terms

from the hitherto 70% against supply to 85% and from 15% against commissioning to 5%

against erection, and 10% against commissioning. This definitely helped to improve our

project cash flow.

We have an international project in Egypt which is going on by the name Benban and

Rozaikat and this project is valued at about Rs. 120 crores and this has been progressing

very well as per the planned schedule and it is likely to be commissioned in this year in

October 2011.

Moving onto our next sector, which is the water resource management sector. For the

BWSSB project, we dispatched about 20 numbers large pumps and about 29 numbers

motors in addition to soft starters, and about Rs. 87 crores worth of dispatches were done

in Q4, and we were able to complete the POC as planned in March 2011. Another

important project in the water sector is at Bhopal and the intake well and pump house is

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in the advanced stage of completion, and the electromechanical installation is under

progress as far as this project is concerned. We have also done a lot of work on the dome

and the bridges and pipeline work has also been completed along with the substation for

this particular project. There were certain projects in Kerala which were Cherthala,

Pattuvam, and Meenad, and in Cherthala and Pattuvam, the erection work and

commissioning work has been completed, and the Meenad project has been in fact

inaugurated on February 24, 2011 by Hon. Mr. Premchandra.

Moving onto our next sector which is the power sector, we had a lot of good things

happening in this sector during the year and we would like to inform you that we

manufactured the largest indigenously developed Condensate Extraction Pump at

Krishnapattan, it was an 800MW Unit. We also manufactured the largest Horizontal

Split Casing pump for BHEL Pipava for their thermal power plant. The largest Concrete

Volute Pump installed for any thermal power plant in India was done at the Tata Mundra

project. The CW pumping system was commissioned at Illinois for the Bechtel Power

Corporation in the USA. We also commissioned the Horizontal Kaplan turbine at Darna

HEP. We successfully tested and dispatched high pressure high temperature pump for

NPCIL. The Secondary Sodium Pumps were dispatched, two of them, for the BHAVINI

project after successfully completing the endurance test, and we have also established an

Advanced Technical Product Development (ATPD) Centre at Kirloskar Vadi, which will

have special emphasis on products for the nuclear business.

Moving onto the oil and gas sector, pre-Tendering efforts with Gactel resulted in order of

about 5 numbers UPH Pumps of the value of about Rs. 18.6 million. We also got an

order worth about Rs. 39 million for 10 firefighting VT pumps from Toyo. We made

presentations on FM/UL pumps at Mumbai and Guwahati for various customers, and this

also resulted in generation of FM/UL pump set enquiry from HPCL, and we successfully

installed cooling water pumps at BPCL Kochi & one number turbine driven pump is

currently under commissioning over there.

Regarding the marine and defence sector also which is a small sector today but which is

definitely going to grow, we had some breakthrough orders coming in this particular

sector. We had about Rs. 78 million from CFEES for designing and engineering of the

water mist system for submarine. We also had a Rs. 5 million from KPCL for Devas

pumps with gunmetal material of construction. A Rs. 34 million order from ITD

Cementation was received for dry dock drainage project, and the good thing was this

project was awarded to us on a premium considering the association we have with the

customer. We also had a Rs. 16.5 million order from Alcock Ashdown, Gujarat, for the

Indian Naval survey vessels. We also had the Kirloskar Vadi plant foundries approved

by IRS, and we have also received the certificate for the same.

Regarding the industry sector, there was very good sales growth in this because of

seminars which were conducted throughout India and surveys also were conducted by

agencies to identify certain disgruntled customers whom we were able to once again

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bring back into our fold. We have installed the Intellequip software and this has helped

to reduce the response time as far as interaction with the customers is concerned. It has

also helped to ensure that future projects are designed to KBL specifications because easy

availability of data is there since all the data is available through the software. We

standardized a large range of products and through our dealers we ensured that their

availability was readily there for the customers. Marketing efforts were channelized

towards advanced products so that profitability could be taken care of consequently, and

a lot of significant thrust was given in the industry sector on improving the export

business.

Moving onto the customer service and support sector, a big commissioning of four

numbers CW pumps was done at Tata Power-Trombay and because of that we had about

Rs. 4 crores coming in during the month of March 2011, and we also did receive good

accolades from the customer for this particular activity. Tata Power has now included

our name in their top thirty preferred vendor list. Regarding complaint resolution, 93%

of the complaints were resolved within three days as per our records against the 90% that

we had initially planned, so we have definitely done better on this front. As you are all

aware, we have toll free line now in operation across India and training has also been

specifically provided to all the ASCs there, and we did have a survey report and the

feedback of that report says that about 76% of our customers are happy with the response

and resolving the complaints in Devas products. We will definitely try and take this

upward to the extent possible because that is our endeavor.

Regarding building and construction, this sector achieved both sales and booking in

excess of 60% compared to what we actually achieved last year, and secondary HVAC

orders were received from all across the country through various contractors and also

through approvals from various consultants. We received India’s biggest HVAC order

for the Mumbai International Airport valued Rs. 12 million with 21 pumps, and this order

was received against imported pumps which were basically rejected on technical grounds.

We also received from the Airports Authority of India - Kolkata International Airport of

170 pumps order in which case also the other imported makes and the Indian pumps were

rejected on technical grounds thereby proving our efficiency and superiority. KBL’s

biggest HYPN order from the hotel industry was received for the Hotel Crown Plaza at

Ahmadabad. Order for the Multi outlet Multi stage pumps has definitely increased and

these orders are basically coming in with minimum 30% advance and they are coming in

from right across the country. We had about 350 numbers first monoblock order for

schools in New Delhi, and concept of office space saving works has got us the first order

for multi-outlet multistage in vertical execution in Pune, and now offers are being

submitted to various metros for this particular concept.

Regarding the distribution sector, regarding our 9 inch submersible pumps, we had

demonstrations in the states of Haryana and Punjab and we got very good response

regarding their performance. TISCO Jamshedpur has purchased over 100 number of

Eterna series pumps from us in past year and has also signed a rate contract with us for

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the Eterna range of submersible pumps. We received a very good order for 460 numbers

monoblock from Jammu & Kashmir Agro with a value of about Rs. 7 million, and we

had some promotional schemes which were introduced during the fourth quarter of the

year, this definitely helped to boost sales of certain Eterna, PBS, Shower Joy pumps and

we had about over 800 numbers of these particular pumps which were sold consequent to

this particular promotional scheme.

This takes care of the nine business verticals that we have.

Moving onto some of the highlights of the factories or the plants that we have. As far as

the Kirloskar Vadi was concerned, I will first talk about the large pumps division because

as you are aware, Kirloskar factory has two divisions, the large pumps and the small

pumps divisions. Regarding the large pumps division, the largest horizontal split case

pumps with about 25000 M3/Hr discharge was dispatched for BHEL. We also dispatched

the largest VT pump with about 40,000 M3/Hr discharge for Adani. The Secondary

Sodium Pumps were dispatched to Bhavini as I had already mentioned a little earlier.

Similarly, 20 pumps for the BWSSB project were also dispatched during the month of

March 2011, and we had about Rs. 14 crores of spares which were dispatched and the

total value of spares which were dispatched was a little higher than the plan that we had

taken at the beginning of the year, so this was a good achievement.

As far as the small pumps are concerned, the production rise was about 4.6% compared

to last year, and as far as dispatch was concerned, it was higher by about 5.8% in terms of

quantity compared to the previous year. The MOST implementation is in progress at our

foundry at CI and NF foundry as well as the Split Case division, and there were certain

major orders which were executed in the various business sectors for Bliss Enterprises,

NPCIL, Essar Construction, John Deere, etc., during Q4.

Going onto the Devas factory, we concluded our wage settlement amicably in February

2011. The foundry production target was achieved in all the three shifts as per MOST

that is with 460 minutes working. The manufacturing target was also achieved as per

MOST in all the cells except the single phase cell. The Devas factory actually developed

about 269 new models during the year 2010-2011. It had the highest yearly production of

single phase which was more than lakh numbers. The single phase and the KOS

conveyorised new assembly line was commissioned. This was basically for capacity

enhancement at the plant, and we also had the first pass percentage of castings

improvement, we had the machining rejection levels reducing, and we also had a

significant reduction in the in-house foundry rejection. All this was due to the efforts

which we took in order to improve the quality at the Devas plant. There are a few

pictures which have been loaded on the website as far as the Devas factory are concerned.

I think most of you would have gone through them. For those who have not gone

through them, I suggest you go through the website and have a look at some of the

pictures. We had changes in the quality control lab, new machines were installed over

there.

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Moving onto the update as far as the Coimbatore and Ahmedabad factory projects are

concerned, we would like to inform you that trial production has already commenced at

the Coimbatore plant and the full production will actually commence in April 2011. The

Ahmedabad plant will actually commence production only by December 2011. The

project is a little delayed, but we are quite confident that we will be able to achieve this

target. There are a few pictures regarding how the Coimbatore factory is also looking

like in the website, so those pictures are quite self explanatory as to how the Coimbatore

factory has progressed.

Going onto our Kondhapuri Factory which is primarily where the valves are

manufactured. The largest size spindle sluice valve of 1,500 mm was developed in Q4.

We also developed 3,600 mm Butterfly Valves which is also the largest size developed so

far. Tamperproof Kinetic Air Valve was developed and a patent was also registered for

the same. The Gauge Room & Tool Crib solar panel were established at the Kondhapuri

factory. We received the certification for EMS & OHSAS, and the study of MOST and

the validation of the same has also been completed. The implementation is planned in the

current year, and the order book also for the valve factory crossed Rs. 100 crores.

If you take a look at the pending order board for KBL at the end of Q4 or as at March

2011 end, the order board stands at about Rs. 3,027 crores. This order board is actually

down by about 7% as compared to Q3, but the good thing in the order board is that the

order book for the own products is actually up by about 5.4% compared to December end

and by about 10.3% compared to last year. So, as far as we see it, this is definitely a

positive sign. And the highest percentage of the pending orders still continues to remain

in the irrigation sector at about 47% followed by power with 32% and water with about

12%.

Some of the major orders that we received in Q4 were from the Khargaon Lift Irrigation

scheme as we mentioned earlier for the irrigation sector which was valued at about Rs. 50

crores. We also had from the Bhabha Atomic Research order for the power sector valued

at about Rs. 73 crores. These were two big orders. In addition to that, there were several

significant orders that we received from L&T, the Indian Navy, and also from the country

of Chile during the fourth quarter.

I now come to the standalone financial highlights for the current year moving on from the

sector and the factory related issues. At a standalone level, KBL sales for the year ended

FY11 are Rs. 1,942 crores against Rs. 2,018 crores which we did in the previous year

which is a drop of about 4%. As compared to the previous year, all the sectors except

irrigation, water, and oil & gas sectors have actually crossed the previous sales figures.

The major fall in the total sales of KBL is primarily coming because of fall of Rs. 332

crores in the irrigation sector sales, and this is mainly because as we have mentioned to

you in the earlier analysts meet also, we did hold back the dispatches for the projects of

Andhra Pradesh in H1 of the financial year because of the non-recovery of money from

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them. The current dispatches are being made subject to a maximum cap on the amount

recoverable and the money inflow from that state has also commenced and now the

money inflow is progressing satisfactorily.

KBL was quite selective with its orders in the current financial year because we wanted

to improve our sales mix and consequently our share of the own product sales in the total

sales mix of KBL went up from 43% in the previous year to 49% in the current year.

This also led to a material cost percentage decrease from 74.3% in the previous year to

69.1% in the current year along with our other material cost reduction initiatives that we

did speak about at the beginning of the presentation.

The total expenditure during the current year is Rs. 479 crores against Rs. 360 crores in

the previous year which is a rise of about Rs. 119 crores, but the increase is mainly due to

an increase in ERE by about Rs. 45 crores and the advance of Kirloskar Construction and

Engineers Limited which we did write off in the current year whose value was Rs. 67

crores. The other good thing that has happened in the current year is that despite the

pressure on the working capital and despite the hardening of the interest rates, we were

able to bring down our interest cost from Rs. 34 crores in the previous year to Rs. 30

crores in the current year. The profit before tax for the current year stands at Rs. 103

crores against Rs. 173 crores, but if we remove the Rs. 67 crores KCEL advances which

were written off, the operating profit actually stands at about Rs. 170 crores. So as a

percentage to sales, the operating profit for the current year is a little better than what it

was in the last year because we had reduced sales in the current year.

The major additions to fixed assets in the current year took place mainly because of the

new plants at Coimbatore and Ahmedabad and this was about Rs. 50 crores. The net

current assets have slightly increased from Rs. 594 crores to Rs. 614 crores in the current

year. The loan funds have decreased from Rs. 357 crores to Rs. 349 crores. Now if you

look at the decrease in the loan funds, you will find a decrease of only Rs. 8 crores in

totality, but this is because the term loan for Capex has actually increased by Rs. 45

crores compared to the previous year. So in other words, we have been able to reduce

our unsecured loans and working capital loans by Rs. 56 crores as compared to the last

year. So this is a good reduction which is done by improving our cash flow in the current

year.

If you take a look at the five-year standalone financial for the year, our turnover from

about Rs. 1340 crores in FY07 peaked last year to Rs. 2018 crores and is at Rs. 1942

crores in the current year. The increase has primarily been in the domestic segment. The

export segment has remained more or less flat over a period of the last five years, and in

the current year, our exports are at about Rs. 183 crores. The total assets for the last three

years have also been more or less flat at about just over a Rs. 1000 crores. The net

current assets have gone up from Rs. 250 crores five years back to about Rs. 614 crores

in the current year. There is a decrease in the investment because of the transfer of shares

to KBIL which took place in the last year, which all of you are aware of. The fixed assets

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have doubled from about Rs. 161 crores in FY07 to Rs. 316 crores in the current year

mainly with the Ahmedabad and Coimbatore planned new plants.

The shareholder’s funds are up from about Rs. 602 crores to Rs. 737 crores over a similar

period over five years, and the reserves also stand increased from Rs. 581 crores to Rs.

721 crores. The borrowings have declined a little compared to the last year, but like I

told you the decrease in the working capital and unsecured loans is about close to Rs. 60

crores compared to the previous year. The EBITDA without the extraordinary income

was about 16% in FY07 which was about Rs. 215 crores. In the last year, we had about

Rs. 233 crores which was at about 12% and in the current year, after the Rs. 67 crores

advance write off of KCEL, it is down to Rs. 163 crores. It would have been about Rs.

230 crores or more or less similar to last year’s figures without the write off of the KCEL

advances. Similarly, the PBT which actually went down in FY09 to about Rs. 98 crores

and went up to Rs. 173 crores in the last year, is at Rs. 103 crores in the current year

again after the Rs. 67 crores hit, so the operating profit would have been at about Rs. 170

crores which would have been more or less similar to that of last year. The PAT

similarly stands at Rs. 61 crores as compared to Rs. 118 crores in the last year and the

cash profit is down from Rs. 144 crores in the last year to about Rs. 91 crores in the

current year, but of course, again this cash profit is nothing but the PAT plus

depreciation, so it includes the hit for the KCEL advances write off. The EPS which

declined to about Rs. 6 in FY09 climbed back to Rs. 15 last year and is now down to Rs.

8. The dividend pay out in the current year, we have given a dividend of 175%. Last

year, you would remember that the dividend declared was 175% plus 100% being the

Centenary Year, so we have maintained the dividend rate of last year in this current year

as well. The book value per share has gone up over the last five years from about Rs. 57

per share to about Rs. 94 per share, and the current market cap stands at about Rs. 1055

crores. The turnover per employee has also remained flat at about Rs. 0.7 crores over a

period of the last three years.

The consolidated accounts of the company, before I tell you about the numbers, I would

actually like to tell you that the consolidated financial now the KBIBV which is our

subsidiary company in Netherlands, the SPP Pumps, UK, and the Braybar Pumps, South

Africa, as well as Kirloskar Brothers Europe are the three international subsidiaries which

are now part of KBIBV. In other words, KBIBV happens to be our subsidiary company

and those other three international subsidiaries are subsidiaries of KBIBV. So the result

that you see under KBIBV are the consolidated results of these three entities put together,

and Pressmatic & Quadromatic which were two other subsidiary companies that we have

are also consolidated with Hematic Motors Pvt. Ltd. So that is one more change that you

would notice as compared to the previous year, and Kirloskar Corrocoat which was

considered as a joint venture company 50% last year whereas in the current year it is a

subsidiary company. So when we look at these numbers, we find that the Kirloskar

Brothers International BV had an income of Rs. 459 crores in the last year which went

down to Rs. 411 crores in the current year. This primarily happened because of the rupee

appreciation and the conversion at the year-end rates where we had a fall of Rs. 5 in the

Pound conversion rate and a fall of about Rs. 5 in the Euro conversion rate. But in terms

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of Pounds and Euros actually the income has gone up. The PAT for the Kirloskar

Brothers International BV stands at Rs. 16 crores as compared to Rs. 10 crores in the last

years.

KCEL had an income of Rs. 124 crores in the current year after a write back of the Rs. 67

crores loan which was written off by KBL and which was written back in the books of

accounts of KCEL, and as compared to Rs. 2 crores loss in the last year we have shown

Rs. 1 crore loss in the current year after this write back of Rs. 67 crores.

The Gondwana Engineers Ltd had an income of about Rs. 70 crores in the last year which

fell slightly to Rs. 67 crores, or it is more or less flat, but the PAT actually went up from

Rs. 3 crores to Rs. 4 crores.

Kolhapur Steel also the income remained more or less flat. It was Rs. 35 crores in the

last year and Rs. 37 crores in the current year, but the profitability actually doubled from

Rs. 2 crores to Rs. 4 crores, and we are glad to inform you that this as you are all aware

this was a company which was a BIFR company when we acquired it and from the red

we have actually converted it into green with a very healthy operating profit currently.

Kirloskar Brothers, Thailand, has about Rs. 9 crores of income in the current year. Last

year, it was practically negligible and it had about Rs. 1 crore loss, but this was for the

period ended December 31, 2010. In the current year, from January 2011 onwards, this

company has done a turnaround and we have seen significant improvement in the income

as well as the profitability of this company and this company is going to definitely be in

the green in the current year and do well. In the current year, Kirloskar Brothers,

Thailand, also will become part of Kirloskar Brothers International BV. For the FY11, it

has been reflected separately because it was a subsidiary of KBL, but as per the decision

that KBL has taken, all the international subsidiaries will be subsidiaries of Kirloskar

Brothers International BV located in Netherlands. So for the FY12 results, the Kirloskar

Brothers Thailand also will be shown under the consolidated KBIBV results.

As far as Hematic Motors is concerned, also we had a significant improvement in the

profits in the current year. Kirloskar Ebara, which is a joint venture company, the income

was more or less flat and the profit after tax also declined a little from Rs. 11 crores to

Rs. 8 crores.

With all this, we find as a total income for the consolidated accounts is more or less flat

as compared to last year. It was Rs. 2688 crores in the last year and it is Rs. 2663 crores

in the current year, and the profit after tax stands at Rs. 98 crores as compared to Rs. 114

crores in the previous year.

If you just take a quick look at the consolidated key figures for the last three years, the

income has moved from Rs. 2495 crores in March 2009 to Rs. 2663 crores currently, the

PBDIT has moved up from Rs. 200 crores to Rs. 244 crores, and the cash profit is up

from about Rs. 113 crores to Rs. 145 crores. The PBDIT percentage is more or less flat

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between 8% and 10%, and the ROC is also after going up to about 19% last year has

dropped to about 16% in the current year.

After this set of financial, I will just quickly brief you on what the KBL as a company

will be doing from going ahead. We have decided that we will continue to focus very

strongly on ROCE, cash generation, and cash flow because finally a healthy company is a

company which has got enough surplus money with it. We are definitely strengthening

our project management capabilities and we are continuing from what we started doing in

Q2 or Q3 of last year. We will be working on a selective basis in projects and in

partnership for electromechanical portion of the projects. We will be also ensuring that

recovery and sales are matched so that at no point in time more and more debtors are

created and we will also see how quickly we are able to close all the projects which are

currently under our purview. New initiatives such as nuclear, hydro, and other high value

products are also being taken up.

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Regarding the industry sector, the current export-domestic sales breakup is about 19:21

which we intend to take up to about 35:65. Also the high-end liquid management

products we are giving a strong emphasis and focus on that and we would like to take that

up from about 20% in the current year to about 40% in the next year. Replacement

market which is a good money earner, we also have about 40,000 pumps replacement

market as highlighted by Digit in a survey, and we are definitely going to concentrate on

that. We are going to create a product differentiation in the market for KBL brand

products consequent to which we would like to realize higher sales for the same. There

are a lot of projects coming up in the hospitality and the railways industry which we will

be strongly focusing on, so that we are able to convert them into orders for our company.

There is a big order for ONGC which is currently in the pipeline and we are definitely

going to see how we are going to be able to execute that smoothly. In the Indian Navy

and the Commercial Marine, there are excellent opportunities for the water mist and

firefighting systems which are also being explored. Also we would like to cater to the

Marine onboard requirements in the marine and defence, so we would like to complete

our product basket which we are definitely intending to do in the current year. Outside

utilities and fire, we will be also concentrating on other opportunities in the building and

construction sector. Our focus is to basically capture high margin by focusing on high

value products such as the FM/UL, multi-outlet and multi-stage and the LLC pump. We

would definitely like to target more than 90% on-time delivery with the increased

capacity at Devas coupled with the Coimbatore and the Ahmedabad plants. A lot of

awareness is being created today in the market on LLCT pumps and the BE star-rated

energy efficient products, on Concrete Volute Pump and FM/UL listed products which

will continue through seminars and conferences. We have also installed the simulation

software at our Kirloskar Vadi plant for the methoding of stainless casting so that the

casting quality is improved and we are able to achieve high quality castings with reduced

cycle time. Vadi fracture is implementing most, like I told you earlier, this will definitely

lead to improvement in production efficiency as well as managerially efficiency. We will

focus on high delivery performance as well as quality of our own products and cycle time

for radiographic quality castings. We are taking corrective actions to improve supply

chain in Devas so that we are able to improve our on-time delivery performance. A lot of

actions are being taken in Devas to reduce the inventory, to reduce rejections, as well as

improve the managerial efficiency. Advance action on long lead time items such as

gearbox and castings and actuators along with strengthening of the design department

activities will also help us in achieving a better delivery performance in the current year

as against what we did in the previous year.

With that I come to the end of the presentation and what actually we wanted to tell all of

you in this particular conference call. I would now like to throw open the call for

questions and answers and all of us, the CMD, the two EDs, the Company Secretary, and

I are open and available for any questions that any one of you might have.

Thank you.

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Operator:

At this time, if you wish to ask a question, please press *1 on your telephone keypad and

wait for your name to be announced. If you wish to cancel your request, please press

hash or the pound key.

First on line, we have question from Ms. Kirti Dalvi from Enam. You can go ahead.

Ms. Kirti Dalvi:

Good evening sir; a few questions from my side. There has been increase in our

unallocable expenditure in our segmental results, could you just elaborate a little bit on

that, for the year as a whole?

Mr. Umesh Shastry:

Just give me a minute please.

Ms. Kirti Dalvi:

Sure.

Mr. Umesh Shastry:

Kirti, basically what has happened is that the operating expense is primarily 67 crores

you know has gone up because of Kirloskar KCEL adjustment, okay. And last year we

also had a lot of income from investments, which has gone down in the current year by

about 26 crores, because we had dividend income from subsidiaries and we also had

investment income because of the investments that we had in the bonds which we

actually encashed in the last year. So, 67 crores plus 26 crores is the 83 crores delta

which you will find primarily coming between last year and the current year.

Ms. Kirti Dalvi:

Sure sir, sir the second question is primarily on our operating results, if I exclude that 67

crores from a quarterly other expenditure, our margins have gone up significantly, this is

in spite of having the higher staff cost. So, are these margins are sustainable or is there

particular order which we have booked in this question that has results in such significant

jump in OPMs?

13

Mr. Umesh Shastry:

Margins of course are sustainable, there is no question on that, we have a healthy order

book on hand, and the BWSSB order and the Rajiv Sagar order coupled with the increase

in the products business in the current year has definitely helped us improve the operating

profit.

Ms. Kirti Dalvi:

So, whatever the OPMs we have achieved in the Q4 are the sustainable OPMs for the

year as a whole, can we presume that?

Mr. Umesh Shastry:

As far as the products business concerned, of course. As far as the projects business is

concerned, it depends on the percentage of completion or the projects which are currently

being executed. So, when the POC gets completed it is at that time we will actually book

the revenue and the profits for that particular order.

Ms. Kirti Dalvi:

Kay, so sir in the current order book of almost 3000 odd crores, if you could elaborate I

mean what are the current stages of various orders, I mean the broad base. Are these

majority of the projects in the I mean have passed that percentage of completion method

or they are yet to pass?

Mr. Umesh Shastry:

Currently, as far as the irrigation orders are concerned of about 1400 crores, about 700

crores of that has not even commenced. So, you know, our of the balance 700 crores,

they are at a very infant stage today. So, it will definitely take time before we are able to

complete the 50% POC for those particular projects.

Ms. Kirti Dalvi:

So, probably sir by FY12 all these projects will come to closure to 50% completion at

least.

Mr. Umesh Shastry:

Some of them will, that is what we have planned, yes. The ones which are currently, out

of the 700 crores project that we are currently executing, you know, there are some which

are definitely planned for crossing the POC in the current financial year.

14

Ms. Kirti Dalvi:

Okay, and sir we were awaiting large orders – export based orders, with LOC, what is the

status on that sir?

Speaker:

Well we got some orders from Senegal, and also order from Laos, and we are waiting for

a big order from Senegal, which probably will come by October.

Ms. Kirti Dalvi:

Okay, would you elaborate sir in terms of the quantum of the order.

Speaker:

Well, right now we are working on it, we are not very sure, because it depends upon how

much credit the government is going to give, the Government of Senegal.

Ms. Kirti Dalvi:

Okay, last time in the analyst meet we did say that our product business is looking quite

optimistic, we are quite optimistic on that and we are looking at almost 30 odd percent

growth in our product side business. We still maintain the same status quo on that?

Speaker:

Very much, especially Devas business, the Coimbatore plant is now fully complete and

will be operational by end of this month, and next month it will be producing about 500

pumps and in the next 3 months that plant should be fully operational and produce about

20,000 pumps. The capacity in Devas has been ramped up, and the capacity will also go

up to 50,000 pumps. So, next year’s target that we have taken for distribution, which is

mostly product, is going to be substantially higher. And the same thing implementation

of most, there are some good orders in Vadi, so the product business is looking up.

Ms. Kirti Dalvi:

Sir, if you could throw little bit balance sheet details and consolidated debt or

consolidated working capital?

Mr. Umesh Shastry:

Just give me a minute Kirti.

15

Ms. Kirti Dalvi:

Sure. Sir, by that time can I ask one more question?

Mr. Umesh Shastry:

Sure.

Ms. Kirti Dalvi:

This order book is what…, now, we are completely on a price variable clause, right,

entire order book is on price variable clause, or are there any fixed price contracts?

Mr. Umesh Shastry:

Mr. Srivastav is answering that.

Mr. Srivastav:

All the new orders are PVC, and the old orders there is a some representation from the

various contractors to make it uniform, so for new orders it is definitely there, but old

order we are trying, some of orders where it is possibility it is there.

Ms. Kirti Dalvi:

So, probably what, 70-80% would be on a price variable clause?

Mr. Srivastav:

Out of this 700 crores, yes. Out of 1100, now right now 1100 crores orders are from

irrigation, so out of that 1100, 700 is with PVC, the remaining 300 crores they are any

way it is with PVC, that is power.

Ms. Kirti Dalvi:

Okay, so most of the order book is on a PVC basis?

Mr. Srivastav:

Right.

Ms. Kirti Dalvi:

Okay.

16

Mr. Umesh Shastry:

Kirti, moving on to your question on the consolidated balance sheet debtors, the loan

funds have actually dropped from 452 crores to 392 crores as far as the secured and

unsecured loans are concerned, and the current assets are up from about 1994 to about

2003, so it is more or less flat. The net current assets have actually dropped from about

728 crores to 717 crores.

Ms. Kirti Dalvi:

And sir, gross block?

Mr. Umesh Shastry:

The gross block is currently at …, from 645 crores it is up to 670 crores.

Ms. Kirti Dalvi:

Okay, and sir the last question on AP orders, what is the status now sir in terms of

receivables and the pending order book?

Speaker:

All the dues whatever was there they have already paid, but there is a credit period for

about 60 days, so whatever the remaining thing is there that is they are paying in this

month and next month, so I don’t think any problem of outstanding at the moment.

Ms. Kirti Dalvi:

So, how much money it is still due from there?

Speaker:

Right now it is only 40 crores due, out of which they are paying 20 crores in this month

and 20 crores next month.

Ms. Kirti Dalvi:

And, what about the work on the pending order book, I mean are we supplying the

products as well as commencing any operation from those projects?

17

Speaker:

Yes, I think the old projects, lot of projects have been completed, but new the projects

which is ongoing is a major is Bheema right now, which will get commissioned I think

after they have power and water.

Ms. Kirti Dalvi:

Okay, fine sir, thank you very much and wish you good luck.

Mr. Umesh Shastry:

Thank you.

Operator:

Thank you Ms. Kirti. Next question comes from Mr. Kamlesh Kotak AMSEC. You can

go ahead sir.

Mr. Kamlesh Kotak:

Hello, good afternoon sir.

Mr. Umesh Shastry:

Hello.

Mr. Kamlesh Kotak:

Sir, you said anything about the Andhra Pradesh order, how many of that orders are in

value terms outstanding of the total book?

Speaker:

The total Andhra Pradesh order is pending right now 1100 crores out of total 3000 crores.

Mr. Kamlesh Kotak:

Okay, so what are we seeing as a execution period for this now?

18

Speaker:

Execution period depend upon the cash flow, whatever the funds are there according to

that we are moving. We have decided that if they are having continuously fund flow we

will complete the job faster, if they are going to have the fund flow problem then we will

be slowed down.

Mr. Kamlesh Kotak:

Okay, so as it stands sir currently are we going to have some kind of a positive impact in

terms of order book growth this year and what kind of revenue growth we are looking at

for the current year?

Speaker:

I think as far as orders are concerned, we are looking into different other states right now,

and depending upon the payment terms and the scope we will be selective.

Mr. Kamlesh Kotak:

So, what is your view on the self-growth for this year sir?

Mr. Umesh Shastry:

We can probably look at about a 15% growth over the current year as far as sales is

concerned in FY12.

Mr. Kamlesh Kotak:

Okay, and what kind of order intakes you are looking at sir in terms of whatever bidding

we must have done in the pipeline upcoming?

Speaker:

Will be from power sector.

Mr. Kamlesh Kotak:

Okay, should we get some positive addition in terms of the order book pending compared

to this year’s de-growth.

19

Mr. Umesh Shastry:

You know, what is happening is we are executing the orders quicker than we did earlier,

so I expect that the order board will probably stay the same or so but our sales might

increase.

Mr. Kamlesh Kotak:

Okay, secondly sir as we mentioned in the presentation the number of employees have

gone down from 2900 to 2700 odd, but the cost of employees has gone up by 51%,

consolidated 26%, so how exactly is that has been?

Mr. Umesh Shastry:

See actually what happened was in June 2010 we actually had a salary rise for our

employees which was done after a period of 3 years, which means the last salary rise was

done in June 2007 and then we had a salary rise in June 2010. So, approximately the

salary bill went up by about 35% because of this salary increase. We also had wage

agreements and wage settlements which were done at Devas and the wage settlement

which is in progress in Kirloskar Vadi, which is not yet been signed, but which is in

progress, so we have made a provision for the likely amount over there. And in addition

to that, because of the increased salary burden the actuarial valuation which came for our

benefits of gratuity and leave encashments were significantly higher compared to the last

year because of this 33% rise in the salary. So, consequent to all this it actually went up

by about 45 crores.

Mr. Kamlesh Kotak:

So, the wage agreement that has now been entered into again are for 3 years, so we will

not be seeing any major kind of a hike this year?

Mr. Umesh Shastry:

The wage agreement is primarily for workers, which is we have undertaken for 4 years,

not for 3 years, as far as the staff employees are concerned there is no you know what we

will do is based on the market conditions there will definitely be some increase in the

salaries, but it will not be like it was done last year where it was after a time period of 3

years where it was about 35%.

Mr. Kamlesh Kotak:

Sure, okay. Sir, as regards the write off about Kirloskar Construction & Engineering,

what was the rationale of writing off that big an amount, I mean, and what are the exact

numbers of that entity in terms of revenue and the loss?

20

Mr. Umesh Shastry:

The revenue inclusive of other income for this company was 124 crores in the current

year which included the 67 crores write back of the loan that we wrote off, but the

primary reason for writing off this loan was because we found that you know initially

when we had acquired this company we thought that there was a good synergy because of

the civil work and because of our status as an EPC contractor, but somehow as the time

went by the projects which KCEL itself had quoted for and the orders which it had

received, it happened that they were unable to execute those projects on time and they

landed up in cases where we had necessarily give the money in order for them to be able

to move those projects ahead. There were a lot of cost and time over runs, and you know

over a period of the last one year or so we have been seeing that even though KCEL

today is trying to complete work on all its current pending projects, it has stopped taking

new orders, but it is completing work on all the current pending projects. It will not be in

a position to actually generate that kind of money and repay it back to KBL, so you

know, this advances which we had given to it as far as we took a stock of it, we found

that it was going to be practically next to impossible for KCEL to be able to get this cash

and give it back to us. As a result of which we felt that it was better to take the hit and

write off that amount since KCEL had an inability to actually return that amount to us.

Mr. Kamlesh Kotak:

So, leaving that aside then what is the core operating loss of this entity sir?

Mr. Umesh Shastry:

It is actually 69 crores, because they have disclosed a loss of 1 crores after write back of

this amount of 67 crores, so actual loss is 69 crores.

Mr. Kamlesh Kotak:

On a revenue of 57 crores.

Mr. Umesh Shastry:

On a revenue of 53 crores, that is right.

Mr. Kamlesh Kotak:

So, the way forward what we are looking at in terms of this company now?

21

Mr. Umesh Shastry:

I beg your pardon?

Mr. Kamlesh Kotak:

What is the outlook for this company from hereon?

Speaker:

Actually, you know, whatever order board we will have we will try and execute to make

sure that…, the order board is about 78 crores, we will be executing that to the best of our

ability and we will see how to take that forward.

Mr. Kamlesh Kotak:

So we are not incrementally taking order for this business sir?

Speaker:

At the moment we are not.

Mr. Kamlesh Kotak:

Okay, fine sir.

Speaker:

Because we want to make sure that we get our act together in the stuff.

Mr. Kamlesh Kotak:

So, I think that means we completely have wrong on this acquisition sir.

Speaker:

That is what it looks like now.

Mr. Kamlesh Kotak:

Any ways, okay, thank you very much sir.

22

Mr. Umesh Shastry:

Thanks.

Operator:

Thank you Mr. Kamlesh.

Next question comes from Mr. Manish Goyal from Enam. You can go ahead sir.

Mr. Manish Goyal:

Hello sir.

Mr. Umesh Shastry:

Hello Manish.

Mr. Manish Goyal:

Sir, a couple of questions on, just can you give us a revenue mix in terms of projects and

products for FY11?

Speaker:

About 1200 crores comes from the project, and about 700 crores comes from the

products.

Mr. Manish Goyal:

Okay, and out of this 1200 crores roughly how much would be irrigation and how much

would be power?

Speaker:

450 crores is from irrigation, and around 400 crores is from the power. And rest would

be water.

Mr. Manish Goyal:

Okay. So, basically just to get a sense going forward, say out of this 3000 crores order

book which we have, how much is projects, and how much is products.

23

Speaker:

Right now you have seen that 1400 crores is for irrigation and about 1000 crores is for

power, so 2400, and 375 crores is for water.

Mr. Manish Goyal:

So this entire 2775 crores what you are saying, but this should be including your products

also, right?

Speaker:

Yes, this will include the products for those projects.

Mr. Manish Goyal:

So, roughly can we have the sense in terms of out of these 2775 crores how much would

be products, now your own manufactured products?

Speaker:

It will be difficult to project, but depending upon the project it is normally consists from

10% to 25%.

Mr. Manish Goyal:

Okay, and also basically what we are saying is that from the existing order book what we

have, what we said earlier that our margin should be sustainable say for the full year if we

have seen our PBT margins to the tune of 8.8%, we don’t see that margin should fall

going forward.

Mr. Umesh Shastry:

That is right.

Mr. Manish Goyal:

Okay, and sir as far as, what is the target for basically own manufactured products which

has gone up to 49% in FY11, what do we see in FY12 and FY13?

Speaker:

We will try to take it to about 55% or so.

24

Mr. Manish Goyal:

So, 55% in FY12?

Speaker:

Yes.

Mr. Manish Goyal:

And, may be a couple of years down the line sir?

Speaker:

You know it depends on how business develop, it might go up or it might stay the same.

Mr. Manish Goyal:

Okay, so that gives us some levy to improve margins also going forward, if our own

manufactured product contribution increases?

Speaker:

Yes.

Mr. Manish Goyal:

Okay, and on the wage agreement you mentioned that at Kirloskar Vadi the …..

Speaker:

It is under negotiation.

Mr. Manish Goyal:

Okay, but we have done the provisions in the current year.

Speaker:

That is right.

25

Mr. Manish Goyal:

So, basically going forward now overall employee cost should probably not go, it will

probably not increase significantly for the next 2-3 years sir?

Mr. Umesh Shastry:

It will go as per market conditions, as a percentage of sales definitely you will see a drop

in ERE in the next 2-3 years.

Mr. Manish Goyal:

Okay, and on the cash flow and the debt sir, you mentioned that the focus is to improve

cash flows, so what is the target sir in terms of reduction in debt for FY12, how much

debt can be reduced, and on the working capital also what kind of improvements can we

see?

Mr. Umesh Shastry:

We will definitely try and reduce our working capital and CC by about a 150 crores

compared to the current year. That means we would try to reduce it by a further 150

crores.

Mr. Manish Goyal:

Okay, so debt should also be reducing by 150 crores, can we presume that?

Mr. Umesh Shastry:

That is exactly our endeavor.

Mr. Manish Goyal:

Okay, and sir as far as retention money is concerned, is it possible to give the number say

how much is total debtor outstanding and how much is retention money in that?

Mr. Umesh Shastry:

Just give me a minute Manish.

Mr. Manish Goyal:

Sure.

26

Mr. Umesh Shastry:

Our debtors have actually gone down from about 600 crores last year to about 473 crores,

and the retention debtors have gone up from about 257 crores to 327 crores.

Mr. Manish Goyal:

Okay. So, the debtors doesn’t include retention money, that is separate you mean to say?

Mr. Umesh Shastry:

Yes, debtors I am talking about is the pure sundry debtors without including the retention

debtors, have actually come down from 600 crores to 473 crores, and the retention

debtors have gone up from 257 to 327 crores, primarily you know with the two big mega

projects also that we executed for the BWSSB and Rajiv Sagar, there is a certain amount

which has gone into that in the month of March, but the way the projects are proceeding

we definitely don’t believe that these amounts will remain stuck for long, because the

projects are definitely stated for completion in the first 6-9 months of the current financial

year, so we should be able to get back that money in FY12 itself.

Mr. Manish Goyal:

Okay. But are we not offering LCs for the retention money or it is basically the pure

receivables?

Mr. Umesh Shastry:

No.

Mr. Manish Goyal:

Okay fine. And this number what you have given this is for standalone number, right?

Mr. Umesh Shastry:

This is standalone, that is right.

Mr. Manish Goyal:

Okay, and you mentioned on the way forward you said that exports you are targeting to

increase to 35% contribution to the overall revenue. So, that is …..

27

Mr. Umesh Shastry:

That is only for industry sector.

Mr. Manish Goyal:

Okay, but say overall exports which are roughly 180-190 crores, how do we see going

forward?

Mr. Umesh Shastry:

It will remain more or less at that level barring any major LOC order that we will receive.

So the LOC order will be an incremental thing.

Mr. Manish Goyal:

But what is the order book as far as exports particularly is concerned, out of total order

book?

Mr. Umesh Shastry:

About 80 crores.

Mr. Manish Goyal:

Okay, and the large order we are expecting only likely to come by October November?

Mr. Umesh Shastry:

Yes, if it comes in this year.

Mr. Manish Goyal:

Okay sir. And can you offer outlook on SPP, how is it doing and also what was the

currency translation impact which we saw in FY11 in terms of top line and bottom line?

Mr. Umesh Shastry:

Like I told you…,

Mr. Manish Goyal:

Or may be as complete subsidiary Kirloskar Brothers.

28

Mr. Umesh Shastry:

Manish, we will probably you know….

Speaker:

The sale for the last full year is about 329 crores, and this is from January to December

2010, because their year is a calendar year, but this is in rupees and what has happened is

the rupee pound relationship has gone from 76 rupees a pound to 71 rupees to a pound.

So, though there is a growth in pound terms, there is I mean because of the currency

exchange I don’t know exactly in rupees how it is reflected.

Mr. Manish Goyal:

No, but what I understand is sir, last year in FY10 you had a sales of roughly 397 crores

in SPP, so if you are saying sales were 329 crores which is a significant reduction,

because even if you factor for 7-8% currency translation, has volumes dropped in SPP?

Speaker:

No, volumes have not dropped. I think what we will do is we will give you a number on

this. We will give you a comparison on both the years.

Mr. Umesh Shastry:

I will send you a mail or something Manish on this.

Mr. Manish Goyal:

Okay, and sir last question on the new facility at Coimbatore, you expect that commercial

production to start in the current year.

Speaker:

This month end it will start.

Mr. Manish Goyal:

Okay, so what kind of revenue contribution we can expect in the current year from the

Coimbatore and on a full …..

Speaker:

At least about 25 – 30 crores.

29

Mr. Manish Goyal:

Okay, and on full scale basis both Coimbatore and Ahmedabad can give you what kind of

revenue sir?

Speaker:

Coimbatore is slated to give you 50 crores single shift, and we have plans that as soon as

we, you know, we are also working on establishing distribution network, I think in a

year’s time as soon as we go full single shift we will have to start the second shift. The

Ahmedabad plant should be operational by latest by end of this year, and it has a capacity

of doing about 350 crores. 750 submersible pumps per shift.

Mr. Manish Goyal:

Okay, and sir on capex you have already done 45 crores, so is there any incremental

capex we will require in these plants?

Speaker:

No, we will not require any great capex in the current year, it will be around 40 crores

which is you know including the some equipment for Vadi and for Devas and

Kondhapuri plants for their upgradation and things like that, but the total capex for the

year FY12 will not go beyond about 40 crores.

Mr. Manish Goyal:

Okay. And just on outlook on say power particular sector, basically what we are saying

is that power order book contribution has increased year on year, so it is roughly now

1/3rd

of the total order book, so how do we see this going forward, are we seeing that at

1000 crores order book it is peaking out?

Speaker:

Yes, I think further growth will be better in power compared to irrigation and water.

Mr. Manish Goyal:

No, but what we see is….

30

Speaker:

Power is booming right now, and I think we have lot of contribution in power plant

especially large circulating water pump, condensate extraction pump, intake pumps; so, I

think we will continue with that.

Mr. Umesh Shastry:

You know this is part of our policy of being selective across sectors, and power sector is

one where the customer has a target date by which he has to start generating power and

start selling power, and that is definitely not the case in irrigation, it could be in water

resource management, but power is where customers chase you and they want to do

everything very quickly. This is also why I said that the kind of orders that we have in

hand now are you know they will be completed faster, so we are concentrating on power,

we have a good reputation in that sector also for delivering large equipment on time.

Mr. Manish Goyal:

Sure sir, I agree, the sense what I wanted to get is that a couple of years our order book

for power is somewhat stagnated at 1000 crores, so is it possible that this 1000 crores

outstanding order book can grow faster and also about may be if you can highlight that

contribution of the power sector revenues, revenues from power sector, how it has been

growing and …, what I am basically worried is that at current levels power revenue

should be peaking out?

Mr. Umesh Shastry:

Should be peaking?

Mr. Manish Goyal:

Peaking in the sense that may be the revenue contribution from power may peak out

going forward.

Speaker:

Manish, the power sector order board may have, you know, may not be the same, but if

you look at last year our execution was 301 crores year before last, and this year it is 416

crores. So, we are executing more orders, so even if the order in take is increased our

execution also has increased.

Mr. Manish Goyal:

Yes, that is what the sense I wanted to get.

31

Speaker:

Growth is almost 30%.

Mr. 5:

Manish, you would also be very happy to know that these are power projects that are

being executed now increasingly outside, there is this year we have just commissioned, I

mean in the year under report power projects where we have supplied are in Chile, in the

US, in Vietnam, in Taiwan, so you know they are happening all around the world. So, I

think the acceptance of KBL as a supplier to the industry is getting better, and in India

yes what you are saying could be true, but there are opportunities around the world which

we are able to access.

Mr. Manish Goyal:

Thanks sir. Thank you very much. Thanks a lot for all the answers.

Mr. Umesh Shastry:

Welcome.

Operator:

Thank you Mr. Manish.

Next question comes from Mr. Samir Rachh from Reliance ADA. You can go ahead sir.

Mr. Samir Rachh:

Good evening sir.

Speaker:

Good evening.

Mr. Samir Rachh:

Congratulations on a very good set of numbers in Q4. Sir, just wanted to get some sense

on this 15% growth which you have targeted for the current year, sir just wanted to

understand which are the segments you expect will drive this growth?

32

Speaker:

Power, industry, distribution, customer support and service.

Mr. Samir Rachh:

So, in case of power you expect this 30% kind of growth to continue sir?

Speaker:

Yes.

Mr. Samir Rachh:

Okay, and sir as far as AP orders are concerned – irrigation, last year there was a gap of

some 375 odd crores, you mentioned, so this year also you expect de-growth in that?

Mr. Umesh Shastry:

As Mr. Srivastav mentioned earlier, the billing will be subject to the recovery that comes

in from that state. So, if the money comes in, you know, we will bill based on whatever

we can do, but if the money doesn’t come in we will restrict the billing.

Mr. Samir Rachh:

That is fine, but the way things have gone I think situation in AP would have improved

compared to what it was last year.

Speaker:

Yes, positively.

Mr. Umesh Shastry:

In the last two months the situation is good, the recovery from AP is good, and we

believe that it will continue.

Mr. Samir Rachh:

Sir, as far as margins are concerned, you said you expect flat margins, but overall you

expect the share of products to go up, also …..

33

Mr. Umesh Shastry:

No Samir, I said we will have about 15% revenue growth and about 20% operating profit

growth, so which means that it will be higher.

Mr. Samir Rachh:

Okay, so margins will improve basically.

Mr. Umesh Shastry:

Yes.

Mr. Samir Rachh:

And sir can you give some sense on in total employee this year, how much was this

provision which yo have made for Kirloskar Vadi wage hike?

Speaker:

It will be about 4 crores.

Mr. Samir Rachh:

Okay. Sir if Kirloskar Vadi wage negotiation takes place in the current year, then our

employee cost could go up significantly, right, sir?

Mr. Umesh Shastry:

You know the provision has been made up to March based on our judgment on our

willingness to pay and in the next year’s annual operating plan also that has been build in.

Mr. Samir Rachh:

Okay, and sir , out of this 183 crores exports which we had last year, how much was there

of LOC order?

Speaker:

There was one order from Senegal and one from Loas.

Mr. Umesh Shastry:

Total would be about 20 crores not more.

34

Mr. Samir Rachh:

There significant growth you expect only in FY13 once we get large order which we are

expecting?

Mr. Umesh Shastry:

We are working on it, whenever we get it we will be glad to let you know because we

will be glad to have it.

Mr. Samir Rachh:

Sir, the overall, would you say that, this question is specifically for Mr. Sanjay Kirloskar,

sir would you say that like in terms of performance we have already seen our worst in last

2 years and now actually we are much better company in terms of efficiency, in terms of

product mix, and now actually we are ready to grow faster than what we had done in last

few years.

Mr. Sanjay Kirloskar:

I always worry when you ask questions like that. We will try our best because there is lot

amount of cost reduction programs that are on and also on the other side you know we

are taking orders on a selective basis hopefully so that we will not get into the kind of

problems that we did earlier. Of course it is our wish that we will grow faster, margins

will be higher and that is what we will try to the best of our ability.

Mr. Samir Rachh:

Yes, that is all from my side, all the best.

Mr. Sanjay Kirloskar:

Thank you very much.

Operator:

Thank you Mr. Samir.

Next we have follow on question from Ms. Kirti Dalvi from Enam. You can go ahead

madam.

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Ms. Kirti Dalvi

Sir, just couple of follow up questions again, there have been news that KBL is in tie up

with _______ for the RO plants, could you just elaborate or clarify on that?

Mr. Sanjay Kirloskar:

You know the first thing I wanted to say was that everything that is published is not

necessarily true. I get a call from a guy who says that he has been to Lakshadeep or

somewhere and that KBL is about to sign this contract and what do I have to say about it,

you know, in the typical media fashion; I said if you know this company it doesn’t make

any announcement unless something happens. So, my answer to you is - no comment.

Ms. Kirti Dalvi

Okay sir, the second question on this Kirloskar Construction again, we do have certain

orders yet to execute on that front, so do we see any kind of further loss on those projects

or do we have to provide something additional whatever we have provided in the past, in

the current year do you see that?

Mr. Sanjay Kirloskar:

You know, what we have done is we have given KCL support from KBL, I mean while

we have supported in the form of money we have also now deputed a few people to help

in executing those projects to customer’s satisfaction, because we have to maintain our

brand. So, we will endeavor to the best of our ability to make sure that there are no

further losses, but I cannot guarantee that. All I can say is all known losses we believe

we have taken care of.

Ms. Kirti Dalvi

Okay, and sir in terms of our consolidated order book if you could have a few details on

that, what it is currently?

Mr. Sanjay Kirloskar

The consolidated order board is about…, sorry, KBL’s order board is 3027 crores, the

order board of all the subsidiaries put together is 384 crores.

Ms. Kirti Dalvi

Which includes even SPP pumps and all put together.

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Mr. Sanjay Kirloskar:

Which includes all the subsidiaries that are mentioned.

Ms. Kirti Dalvi

Okay. Thank you very much sir, and wish you good luck.

Mr. Sanjay Kirloskar:

Thank you so much.

Mr. Sanjay Kirloskar:

I will take the last question after this.

Operator:

Okay, the last question comes from Mr. Manish Goyal from Enam. You can go ahead

sir.

Mr. Manish Goyal:

Sir, just wanted to know in irrigation we said that we are again getting qualified for

getting the EPC orders, so just trying to get a sense why again looking at EPC and getting

qualification for distribution, if you can explain this sir?

Speaker:

This is for Maharashtra, and this is having much more portion of the electromechanical as

far as KBL is concerned.

Mr. Sanjay Kirloskar:

You know, we said we would be selective with orders, we also need to maintain a certain

kind of qualification, so if we see a tender which comes out with the kind of terms that

we want, then we would go for that based on the kind of payment terms, the margins that

we are going to make.

Mr. Manish Goyal:

Okay, so like in the market place today what we have seen in the last couple of months

that a lot of orders have gone to competitors, so is it that the terms and conditions of the

orders have changed and we find it that it is not really lucrative to bid for the projects?

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Just wanted to get a sense what are the things we are looking for when we say that we are

very selective in the order?

Mr. Sanjay Kirloskar:

We would like to have as much money as advance as possible, and we have set our

requirements for that. Basically we would like to work with customer’s money rather

than invest in their projects, so that is the basic thing. Then, we would like to have

money on dispatch and today as Mr. Srivastav said a little earlier in most of the cases

even the old ones we have been able to take it to about 85% on dispatch, in some cases

we even try to go for 90%, we also want very little money to be left for commissioning,

we have started putting in back stops so that if the equipment has been supplied, if the

customer is not ready, the customer still has to pay us within a certain number of weeks

after supply of equipment, if he cant commission because of their problems we still want

all the payments to be made to us within a certain number of days of supply. And what

we had said is if the customer cant meet these requirements then you know we would

rather not be there. So, we are asking for some very tight conditions and that is what we

mean by being selective.

Mr. Manish Goyal:

Thanks sir, thank you very much.

Mr. Sanjay Kirloskar:

Thank you.

Operator:

Thank you Mr. Manish.

At this time, I would like to hand the floor back to Mr. Umesh Shastry for his concluding

remarks. Over to you sir.

Mr. Umesh Shastry:

On behalf of KBL I would like to thank all the analysts who did take part in this

conference call. This was the first time we did have a call like this and we hope that it

has been successful and fruitful. We would definitely like to have your feedback on the

same if you can send that to siddharth.dani@kbl.co.in it will definitely help us. In case

we there is anything we need to do better, we will definitely be glad to do that.

Once again, on behalf of all of us at KBL thanks and wish you a good evening.

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Operator:

Thank you sir.

Ladies and gentlemen, that does conclude our conference for today. Thank you for

participating. You may all disconnect now.