kirloskar pneumatic co. ltd. annual report 2004-05kirloskarkpcl.com/pdf/investor relations/annual...

A n n u a l R e p o r t 2 0 0 4 - 0 5A n n u a l R e p o r t 2 0 0 4 - 0 5A n n u a l R e p o r t 2 0 0 4 - 0 5KIRLOSKAR PNEUMATIC CO. LTD.KIRLOSKAR PNEUMATIC CO. LTD.KIRLOSKAR PNEUMATIC CO. LTD.

True progress isachieved step by step.There are noshort-cuts,no alternatives.

True progress is nothing but a result of

true understanding, true effort and true

commitment in every endeavour, small

or big. It is the seamless integration of

these attributes that enables us overcome

challenges and consistently achieve

milestones. Today, we are not just growing,

but progressing from strength to strength.

Something which is reflected in our

comprehensive financial performance.

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Increase in sales by 22%.

Transmission Division has registered

growth of 51%.

Reciprocating Compressor business

increased by 65%.

KPCL emerges as a major supplier of

Wind Mill Gear Boxes.

Indian Railway Locomotives run on

KPCL Traction Gears and Pinions.

Indian Navy ships fitted with KPC

Marine Gear Boxes.

Entry in Export market for Portable Screw

Compressors. 22 machines exported

to Middle East.

1

Contents Page No.

Board of Directors 1

Notice 3-5

Directors’ Report 6-10

Report on Corporate Governance 11-16

Management Discussions & Analysis 17-18

Auditors’ Report 19-21

Balance Sheet 22

Profit & Loss Account 23

Cash Flow Statement 24

Schedule Nos. 1 to 20 forming part of Accounts 25-42

Statement on Significant Accounting Policies 42-44

Balance Sheet Abstract and Company’s

General Business Profile 45

Statement pursuant to Section 212 45

Subsidiary - Khosla Indair Ltd. 46-55

Attendance Slip / Proxy Form 56

Information for shareholders

Annual General Meeting

Day & Date : Thursday, July 21, 2005

Time : 11.00 a.m.

Venue : Registered Office of the Company

th stDates of Book Closure : 18 July 2005 to 21 July 2005(both days inclusive)

A n n u a l R e p o r t 2 0 0 4 - 0 5KIRLOSKAR PNEUMATIC CO. LTD.

BOARD OF DIRECTORS Mr. Sanjay C. Kirloskar ChairmanMr. Rahul C. KirloskarMr. Vikram S. KirloskarMr. A. C. MukherjiMr. J. Y. TekawadeMr. P. S. JawadekarMr. G. Krishna Rao GIC NomineeDr. M. K. Datar IDBI NomineeMr. H. R. Mustikar Managing Director

COMPANY SECRETARY Mr. Kedar P. Phadke

STATUTORY AUDITORS M/s. Dalal & ShahChartered Accountants,Mumbai

BANKERS Bank of India Union Bank of IndiaBank of Maharashtra The United Western Bank Ltd. ICICI Bank Ltd. State Bank of India

REGISTRAR & INTIME SPECTRUM REGISTRY LTD.TRANSFER AGENTS Pune Office : Mumbai Office :

102, Shree Vidyanand, C-13, Pannalal Silk Mills Compound, Dr. Ketkar Path, Erandwane, LBS Marg,Near Old Karnataka High School, Bhandup,Pune 411 004 Mumbai 400 078

REGISTERED OFFICE Hadapsar Industrial Estate,Pune 411 013

LOCATION OF FACTORIES Pune, Saswad and Faridabad

3


NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that the 30th Annual General Meeting of the Members of Kirloskar Pneumatic Company

Limited will be held on Thursday the 21st day of July, 2005 at 11.00 a.m. at the Registered Office of the Company

at Hadapsar Industrial Estate, Pune 411 013 to transact the following business :

ORDINARY BUSINESS

1. To receive, consider and adopt the Balance Sheet as at 31st March, 2005 and the Profit and Loss Account for

the year ended 31st March, 2005 and the Auditors’ and Directors’ Report thereon.

2. To appoint a Director in place of Mr. Rahul C. Kirloskar, who retires by rotation and being eligible, offers

himself for re-appointment.

3. To appoint a Director in place of Mr. Vikram S. Kirloskar, who retires by rotation and being eligible, offers

himself for re-appointment.

4. To appoint Auditors to hold office from the conclusion of the Annual General Meeting till the conclusion of

the next Annual General Meeting and to authorise the Board of Directors to fix their remuneration.

SPECIAL BUSINESS :

5. To consider and, if thought fit, to pass, with or without modification, the following Resolution, as SPECIAL

RESOLUTION :

“RESOLVED THAT subject to the provisions of Section 310 of the Companies Act, 1956 read with the

Articles of Association of the Company, the remuneration of a Director for his services in attending the

meeting of Board of Directors or Committee thereof, be and is hereby increased from Rs. 2,000/- to Rs.

5,000/- with immediate effect”.

Notes :

1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO

ATTEND AND VOTE INSTEAD OF HIMSELF AND THE PROXY SO APPOINTED NEED NOT BE A MEMBER OF

THE COMPANY.

2. The Proxy Form duly executed and properly stamped should reach the Company’s Registered Office at least

48 hours before the time of the meeting.

3. The Register of Members and the Share Transfer Books of the Company will remain closed from Monday,

the 18th day of July, 2005 to Thursday, the 21st day of July, 2005 (both days inclusive).

4. Pursuant to the Scheme of Amalgamation, the members of erstwhile Kirloskar Pneumatic Co. Ltd. were

allotted 1(one) equity share of Rs.10/- each, fully paid up of K G Khosla Compressors Ltd. for every 4(four)

equity shares of Rs.10/- each, fully paid up held by them on the record date fixed by the company i.e.

20/8/2002. Company has already forwarded the new share certificates in the month of October, 2002 to the

shareholders of erstwhile Kirloskar Pneumatic Co. Ltd. without surrendering the old share certificates held

by them. You are therefore requested to please submit the new share certificates for transfer / demat

purpose and do not submit the old share certificates issued by erstwhile Kirloskar Pneumatic Co.Ltd. prior to

25-9-2002, as they are already been treated as cancelled.

5. Company has not issued any new share certificates to the shareholders of K G Khosla Compressors Ltd and

forwarded only self adhesive stickers regarding change in the name of the company i.e. from K G Khosla

Compressors Ltd to Kirloskar Pneumatic Co.Ltd. The above certificates are not cancelled, so please do not

send the above certificates to the company for exchange purpose.

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6. Please encash your Dividend / Debenture Warrants immediately (pending, if any) as dividend/interest remaining

unclaimed for seven years from its dates, are now required to be transferred to the ‘Investor Education and

Protection Fund’ established by the Central Government under the amended provisions of the Companies

Act, 1956, and you shall not be able to claim any unpaid dividend / interest from the said fund or from the

Company thereafter.

7. Queries on Accounts of the Company, if any, may please be sent to the Company Secretary at the Registered

Office of the Company seven days in advance of the Meeting so that the answers may be made available at

the meeting.

8. Members are requested to bring their personal copy of the Annual Report to the Meeting.

9. Reappointment of Directors at the Annual General Meeting : Mr. Rahul C. Kirloskar and Mr. Vikram S.

Kirloskar retire by rotation and being eligible, offer themselves for reappointment. Pursuant to Clause 49(VI)(A)

of the Listing Agreement relating to the Code of Corporate Governance, the particulars of the aforesaid

Directors are given below :

Profile of Directors retiring by rotation :

a. Mr. Rahul C. Kirloskar, aged 41 years, is a top notch technocrat, associated with Kirloskar Group of Companies

for more than 15 years at senior levels in different capacities. The Directorship / Committee Membership in

other companies of Mr. Rahul C. Kirloskar is as follows :

Name of the Company Board position held Committee Membership

Kirloskar Brothers Limited Director -

Kirloskar Oil Engines Limited Director - Export -

Ansal Properties & Infrastructure Limited Director -

Quadrant Communications Ltd. Director -

Alpak Investment Pvt. Ltd. Director -

Kirloskar Services Pvt. Ltd. Director -

Pratibha Communications Pvt. Ltd. Director -

Foresight Pvt. Ltd. Director -

b. Mr. Vikram S. Kirloskar, aged 46 years, graduate from Massachusetts Institute of Technology, USA with a

Bachelor of Science in Mechanical Engineering and has been trained in various companies in India and

abroad in different capacities. The Directorship / Committee Membership in other companies of Mr. Vikram

S. Kirloskar is as follows :

Name of the Company Board position held Committee Membership

Kirloskar Brothers Limited, Executive Director -

Kirloskar Oil Engines Limited, Director -

Kirloskar Systems Limited Chairman Audit Committee

Kirloskar Theratronics Pvt. Ltd. Director -

Kirloskar Toyoda Textile Machinery Pvt. Ltd., Director -

Toyota Kirloskar Motor Pvt. Ltd. Director -

Toyota Kirloskar Auto Parts Pvt. Ltd. Director -

Registered Office : By Order of the Board of Directors

Hadapsar Industrial Estate,

Pune 411 013 Kedar P. Phadke

Pune, April 28, 2005 Company Secretary

5


ANNEXURE TO THE NOTICEEXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956.

Item no. 5

At present the Company pays Rs. 2,000/- as sitting fees to Directors for attending the meeting of the Board or

Committee, thereof. Considering the valuable time given by the Directors and timely guidance provided, it is

proposed to increase the sitting fees payable from existing Rs. 2000/- to Rs. 5000/-.

The Board of Directors of your Company recommend the special resolution as set out at item no. 5 of the notice

for your approval.

All the Directors except Mr. H. R. Mustikar, Managing Director, are concerned or interested in this resolution.

Registered Office : By Order of the Board of Directors


Pune 411 013 Kedar P. Phadke

Pune, April 28, 2005 Company Secretary

6

DIRECTORS’ REPORT TO THE MEMBERS

The Directors have pleasure in presenting their Report and the audited Statement of Accounts for the year ended

March 31, 2005.

FINANCIAL RESULTS

The Financial results for the year ended March 31, 2005 are summarised below:

(Figures in Rs.)

2004-05 2003-04

Gross Profit 38,161,977 31,164,432

Less:

Depreciation 22,580,512 21,474,122

Provision for Taxation 303,000 175,000

Profit after tax 15,278,465 9,515,310

Balance of Profit from previous year 8,564,005 —

Add / (Less)

Tax adjustments for earlier years (770,884) (14,770)

Expenses in respect of Previous Year (402,535) (936,535)

Surplus carried to Balance Sheet 22,669,051 8,564,005

OPERATIONS

The Company achieved a turnover of Rs. 2641 Million (previous year Rs. 2162 Million), registering the growth of

22% over the last year.

The Air Conditioning and Refrigeration Division registered a growth of over 60% over the previous year inspite of

fierce competition. Your Company has established itself as a leader in design, manufacture and supply of Air

Conditioning and Refrigeration Compressors.

Compressed Natural Gas (CNG) Compressor packages developed during the last year are successfully supplied

to Gujrat Gas and Gujrat Adani. Over 25% of the total business relates to project orders received from various

refineries. The bought out components form a major portion of the project cost resulting into higher material

content and lower margins.

The Transmission Division has registered a growth of about 51% over the previous year and we expect to keep up

this momentum in 2005-2006.

Air Compressor Division has maintained their market share despite unfavourable markets.

Rigorous efforts initiated in the previous year continue in this year also to recover the past dues and / or to

ascertain the reasons for non-recovery. To reflect the fair position of receivables and to strengthen the discipline

in financial reporting, after making assessment and careful review of these past dues, irrecoverable debts have

been written off during the year under appropriate heads. Despite this the Company’s operations during the year

resulted in profit of Rs. 22.668 million against a profit of Rs. 8.564 million during the previous year.

DIVIDEND

Although profit has improved, it is still considered inadequate for the purpose of considering any dividend.

Hence, the Directors believe that it would not be prudent to make any recommendation in this behalf.

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FIXED DEPOSIT

The Company has only unclaimed Deposits of Rs. 3,41,500/-. The reminders have been sent to the respective

depositors.

PROSPECTS

With the revival of the Indian economy and better business conditions, the company is expecting good growth in

both the segments during the current year. On 1st April 2005, your Company has the order board of Rs. 1732

million.

The Air Compressor Division was restructured to meet the challenges of new economic scenario.

The growth prospects for standard products continue to be encouraging.

DIRECTORS

Mr. Rahul C. Kirloskar and Mr. Vikram S. Kirloskar retire by rotation at the ensuing Annual General Meeting and

being eligible offer themselves for reappointment.

JOINT VENTURE COMPANY

The performance of Joint Venture Company Kirloskar McQuay Pvt. Ltd. continues to be satisfactory.

TSUNAMI RELIEF

In the month of December 2004, the Country was drawn into the Tsunami disaster. This was amongst the worst

disaster that the World has faced and the entire Kirloskar Group responded to the process of relief. Company

contributed towards Prime Minister’s National Relief Fund along with voluntary donations by employees from

their salaries.

DELISTING OF SHARES FROM DELHI & PUNE STOCK EXCHANGES

The Company has received the delisting permissions from The Delhi Stock Exchange Association Limited and

Pune Stock Exchange Limited and the Company’s shares continue to be listed only on the Stock Exchange,

Mumbai.

CORPORATE GOVERNANCE

The Company confirms to the norms of Corporate Governance as envisaged in the Listing Agreement with the

Stock Exchange. A separate report on Corporate Governance along with Statutory Auditors’ Certificate on the

Compliance is attached and forms part of the Annual Report.

STATUTORY DISCLOSURES

1. Conservation of Energy, Technology Absorption and Foreign Exchange

The information required under Section 217 (1) (e) of the Companies Act, 1956, read with the Companies

(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, pertaining to Energy Conservation,

Technology Absorption, Foreign Exchange Earnings and Outgo, is given in the Annexure to this Report and

forms part of this Report.

2. Subsidiary Company

Pursuant to section 212 of the Companies Act, 1956, the details in respect of Khosla Indair Limited, a wholly

owned Subsidiary Company, are annexed to and form part of the Annual Report.

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3. Particulars of Employees

Information pursuant to Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars

of Employees) Rules, 1975, as amended, is not given since the Company does not have any employee

drawing remuneration in excess of the limits prescribed by the section.

4. The Cash Flow Statement for the year 2004-2005 is attached to the Balance Sheet.

5. Directors’ Responsibility Statement

The Directors confirm that :

i. In preparation of Annual Accounts, the applicable accounting standards have been followed.

ii. The Directors have selected such accounting policies and applied them consistently in order to show

true and fair view of the state of affairs.

iii. The Directors have taken proper care in maintaining accounting records as per the provisions of the

Companies Act, 1956, for safeguarding Company’s Fixed Assets and detecting fraud and other

irregularities.

iv. The Annual Accounts are prepared on the principle of going concern.

AUDITORS

The Auditors of the Company, M/s. Dalal & Shah, Chartered Accountants, retire at the conclusion of

ensuing Annual General Meeting and are eligible for re-appointment. The requisite certificate pursuant to

Section 224(1-B) of the Companies Act, 1956 has been received.

PERSONNEL

The Company continues to have cordial relations with all the employees.

ACKNOWLEDGEMENT

The Directors take this opportunity to express their gratitude for the valued and timely support from our Bankers

and Financial Institutions and wish to place on record their appreciation for the continued trust and confidence in

the Company by its large number of members, employees, customers and suppliers.

For and on behalf of the Board of Directors

SANJAY C. KIRLOSKAR

Pune, April 28, 2005 CHAIRMAN

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ANNEXURE TO THE DIRECTORS’ REPORTInformation as required under Section 217(1)(e) of the Companies Act, 1956.

A. Conservation of Energy

a) Energy Conservation measures taken :

● Introduced transparent sheets for machine shop by which lighting load consumption was reduced

by keeping off the overhead shed lamps throughout the day.

● Restored the solar water heating system for canteen which was unused since long and closely monitored

its performance since last six months. This is the unconventional energy source for saving the power.

● Introduced energy saving lamps for newly renovated offices like Materials, Marketing and Administrative

Building etc.

● Close monitoring of loads of distribution transformers are switching on distribution transformers

according to load conditions to avoid no load losses. (Specially on Holidays)

● Installed submersible pumps with water level controller for Heat treatment furnace pits to collect

seepage water and stored it in main collection tank for recycling it during rainy season for water

conservation.

b) Additional Investments and Proposals, if any, being implemented for reduction of consumption of

energy.

Proposals

● Concentration on overhead compressed air grid to avoid air leakage through under ground lines

which is at present not noticeable .

● Trying out of different energy saving products of lighting load. Trial for few products is under process.

● Introduced energy efficient burners and continuous sand mixer instead of traditional sand mixing

process for energy saving.

● Introduction of soft starter for 93 KW motor for Air compressor motor.

Investment :

Estimated additional investment for above proposals is Rs. 0.3 Million

c) Impact of the measures at (a) & (b) for reduction of energy consumption and consequent impact on the

cost of production of goods.

Estimated saving from activities mentioned in (b) above is Rs. 0.15 Million per year.

d) Total Energy consumption and energy consumption per unit of production as per prescribed Form-A

Not given, as the Company is not covered under the list of specified industries.

B. Technology Absorption :

Research and Development (R & D) :

1. Specific areas in which R & D is carried out by the Company :

● Design and development of Electrical Screw packages

● Introduction of additional models for Construction and mining portable compressors.

● Design of special compressors for naval application.

● Development of Compressor for PET bottling applications.

● Development of Vehicle Engine Driven Air-conditioning Systems for Buses.

● Development of Rail Coach Air-conditioning Unit.

● Value engineering and product standardization activities for Windmill gearboxes

● Performance improvement measures for Marine gear boxes operating in field.

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2. Benefits derived as a result of above R & D :

● Increasing our market share in Industrial Sector.

● Further various R & D efforts in application engineering resulted into timely and smooth execution of

special projects.

● Receipt of firm orders from Government Sector.

● Business Growth in Transport Air-conditioning Sector.

● Possibility of business growth for gearboxes for naval applications.

● Various value engineering / standardization projects have resulted in performance improvement.

3. Future plan of Action :

● Design and development at efficient rotor profiles for screw compressors.

● Completion of entire range of electrical compressors.

● Development of Vehicle Engine driven Air-conditioning System for Buses.

● Development of API 618 Systems for Gas Compression.

● Design and development of gearboxes for Offshore Patrol Vessel and Corvette application.

● Design and development of gearboxes for high power Windmill application.

● Design and development of Custom built Industrial gearboxes.

4. Expenditure on R & D ( Rs. in Million )

a) Capital —

b) Recurring 11.11

c) Total 11.11

d) Total R & D Expenditure as a Percentage of total turnover 0.41 %

5. Technology Absorption, Adaptation & Innovation :

1. Efforts in brief, made towards Technology Absorption, Adaptation & Innovation:

● Imported technology absorbed and adopted to innovate and extend present range of products.

● Building of expertise for design and development of special purpose compressors.

2. Benefits derived as a result of the above efforts :

● Increase in Market share through addition of new range of products.

● Products with latest technology available to customer.

● Minimize breakdown of equipments, resulting into Customer satisfaction.

3. Information regarding Imported Technology during last 5 years

Technology Imported and fully absorbed Year of Import

1 Centrifugal Compressors 2000

2 Special Screw Compressor 2001

3 Water Well Drilling High Pressure Compressors 2002

4 Industrial Air Supply Compressor 2003

5 Indigenous Development of Centrifugal Compressor phase 1 2004

C. Foreign Exchange Earnings and Outgo :

Foreign exchange outgo Rs. 330.21 Mn.

Foreign exchange earned Rs. 83.25 Mn.


SANJAY C. KIRLOSKAR

Pune, April 28, 2005 CHAIRMAN

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REPORT ON CORPORATE GOVERNANCE

1. Company’s Philosophy on Corporate Governance

The Company as a part of Kirloskar Group, is committed to maintain high standards of Corporate Governance.

To us, Corporate Governance means conduct of business with transparency, accountability and business

prosperity with the ultimate objective of realising long term shareholder value, whilst taking into account the

interest of all other stakeholders for wealth creation.

2. Board of Directors :

The Board of Directors of the Company comprises of Executive, Non-Executive and Independent Directors.

The Chairman is a Non-Executive Director. In all, there are 9 Directors including 5 Non Executive & Independent

Directors, 3 Non Executive Directors and 1 Executive Director. As on March 31, 2005, the composition of the

Board of Directors of the Company meets the stipulated requirements of clause 49 of the Listing Agreement

of the Stock Exchange.

●●●●● Number of Meetings :

Four Board Meetings were held on May 9, 2004, July 24, 2004, October 27, 2004 and January 27, 2005. The

Annual General Meeting of the Company was held on July 24, 2004.

Name of the Director Status No. of Board Whether& Position Meetings attended Directorships in other companies as disclosed

the last

Held AttendedAGM

Committee Committeeduring during Public Private Membership* Chairmanship

the year the year

Mr. Sanjay C. Kirloskar Non 4 4 Yes 6 2 6 -Chairman Executive

Mr. Rahul C. Kirloskar Non 4 4 Yes 4 4 - -Director Executive

Mr. Vikram S. Kirloskar Non 4 3 No 3 4 1 -Director Executive

Mr. A. C. Mukherji Non 4 3 Yes 7 - 9 3Director Executive &

Independent

Mr. J. Y. Tekawade Non 4 4 Yes - - - -Director Executive &

Independent

Mr. P. S. Jawadekar Non 4 2 No 2 2 - -Director Executive &

Independent

Mr. G. Krishna Rao Non 4 4 Yes - - - -(Nominee) Executive &General Insurance IndependentCorporation of India

Dr. M. K. Datar Non 4 4 Yes - - - -(Nominee) Executive &Industrial Development IndependentBank of India

Mr. H. R. Mustikar Executive 4 4 Yes 1 1 - -Managing Director

* Only three Committees i.e. the Audit Committee, Investors Grievance Committee and Remuneration Committee

are considered for this purpose.

Directors with materially significant related party transactions, pecuniary or business relationship with the

Company

There have been no materially significant related party transactions, pecuniary transactions or relationships

between the Company and its Directors that may have potential conflict with the interests of the Company at

large.

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3. Audit Committee :

The role and terms of reference of the Audit Committee covers the areas mentioned under Clause 49 of the

Listing Agreement and Section 292A of the Companies Act, 1956 besides other terms as may be referred by

the Board of Directors. These include oversight of Company’s financial reporting process and disclosure of its

financial information to ensure that the financial statement is correct, sufficient and credible; reviewing annual

and quarterly financial statements with management before submission to the Board; reviewing the adequacy

of internal control systems and performance of external and internal auditors with management.

The Audit Committee consists of Mr. G. Krishna Rao, Mr. Rahul C. Kirloskar, Mr. A. C. Mukherji and Mr. J. Y.

Tekawade. Mr. G. Krishna Rao, Independent Director is the Chairman of the Audit Committee. The Audit

Committee met six times during the year i.e. on May 9, 2004, July 24, 2004, September 7, 2004, October 27,

2004, January 27, 2005 and March 14, 2005.

Chairman, Managing Director, Vice President (Finance) and the concerned partners of M/s. Dalal and Shah,

the statutory Auditors, are permanent invitees to the Audit Committee. We have also appointed an external

agency as Internal Auditors for each Division. The Internal Auditors submit their report to the Audit Committee.

Company Secretary acts as Secretary to the Audit Committee.

Attendance record of Audit Committee members

Name of the Director No. of Meetings

Held Attended

Mr. G. Krishna Rao 6 5

Mr. Rahul C. Kirloskar 6 6

Mr. A. C. Mukherji 6 5

Mr. J. Y. Tekawade 6 6

4. Remuneration Committee :

The functioning and terms of reference of the Committee are as prescribed under the Listing Agreement with

the Stock Exchange. It determines the Company’s policy on all elements of remuneration packages of all the

Directors including salary, benefits, bonus, stock options, pension rights and compensation payment etc. and

also to determine the remuneration of the Non-Executive Directors of the Company.

The Remuneration Committee comprises of 3 independent Directors consisting of Mr. P. S. Jawadekar, Chairman,

Mr. G. Krishna Rao and Mr. J. Y. Tekawade. Company Secretary acts as Secretary to the Committee.

Attendance record of Remuneration Committee members

Name of the Director No. of Meetings

Held Attended

Mr. P. S. Jawadekar 2 1

Mr. G. Krishna Rao 2 2

Mr. J. Y. Tekawade 2 2

The Details of remuneration paid during the year, to the Directors are as under :

A. Non Executive and Independent Directors

Name of the Director Sitting Commission Salary & Total

Fees on Net profit Perquisites

(Rs.) (Rs.) (Rs.) (Rs.)

Mr. Sanjay C. Kirloskar 10,000 - - 10,000

Mr. Rahul C. Kirloskar 50,000 - - 50,000

Mr. Vikram S. Kirloskar 6,000 - - 6,000

Mr. A. C. Mukherji 16,000 - - 16,000

Mr. J. Y. Tekawade 28,000 - - 28,000

Mr. P. S. Jawadekar 6,000 - - 6,000

Mr. G. Krishna Rao

(Paid to General Insurance Corporation of India) 24,000 - - 24,000

Dr. M. K. Datar

(Paid to Industrial Development Bank of India) 12,000 - - 12,000

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B. Executive Director

Mr.H. R. Mustikar

Managing Director

(1.4.2004 TO 31.3.2005)

Rs.

Salary 19,38,710

House Rent Allowance 3,95,645

Contribution to :

Provident Fund 2,32,645

Superannuation Fund 2,90,807

Gratuity Paid -

Other perquisites 3,80,828

TOTAL 32,38,635

Note :

1. Mr. H. R. Mustikar is reappointed for a period of 5 years i.e. from 6th July 2004 to 5th July 2009.

2. As a part of service contract, a notice period of 3 months by either side is specified.

3. Company has not introduced any Stock Option Scheme.

5. Investors Grievance Committee

The Investors Grievances Committee specifically looks into redressing of shareholders and investors complaints

such as transfer of shares, non-receipt of shares, matters relating to transfer and registration of shares, issue

of duplicate share certificates, split and consolidation requests, non-receipt of dividend and to ensure

expeditious share transfer process. The Committee functions under the chairmanship of Mr.G. Krishna Rao,

a Non-Executive Independent Director and Mr. Rahul C. Kirloskar, Director as its members. The members of

this committee met once this year i.e. on July 24, 2004.

All the queries of the investors are dealt with by the Compliance Officer i.e. Mr. Kedar P. Phadke, Company

Secretary, who inturn informs the Investors Grievance Committee periodically. All the requests for Transfer of

Shares have been considered by the Company.

The Company has received 9 complaints during the year. The complaints were regarding Non receipt of New

share Certificates and Non receipt of Old Share Certificates sent for Demat. The Company has resolved all the

Complaints.

6. General Body Meetings :

●●●●● Annual General Meeting :

The details of the last three Annual General Meetings are as follows :

Date Time Venue

July 24, 2004 11.00 am Kirloskar Pneumatic Company Limited,

July 26, 2003 10.00 am Hadapsar Industrial Estate

September 25, 2002 02.30 pm Pune 411 013

●●●●● Special Resolutions passed in last 3 AGM’s :

The shareholders at the Annual General Meeting held on July 24, 2004 have passed the following 2 (two)

Special Resolutions

1. Delisting of Securities from the Delhi Stock Exchange Association Limited and Pune Stock Exchange

Limited

2. Reappointment of Mr. H. R. Mustikar, Managing Director of the Company and to fix the remuneration.

●●●●● No Resolution was passed last year through Postal Ballot.

7. Disclosures :

During the year 2004-2005, the Company had no materially significant related party transaction, that has

potential conflict of interest with the interest of Company at large.

There has not been any non compliance, penalties or strictures imposed on the Company by the Stock

Exchange, SEBI or any other Statutory Authority on any matter including matters related to Capital Markets,

during last three years.

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8. Means of Communication :

The quarterly, half yearly, nine monthly and yearly financial results are published in the leading news papersof Maharashtra i.e. Times of India, Economic Times (English) and Maharashtra Times(Marathi). The Companyalso updates its results and shareholding pattern quarterly on the SEBI EDIFAR Website.

Company’s results are sent to the Stock Exchange by fax, courier & email. The Company does not give anyofficial news release and has not made any presentation on financial results to institutional investors.

The Management Discussions and Analysis is a part of this Annual Report.

9. General Shareholder’s Information :

●●●●● Annual General Meeting :

Date July 21, 2005Time 11.00 a.m.Venue Kirloskar Pneumatic Co. Ltd.,

Hadapsar Industrial Estate, Pune 411 013

●●●●● Financial Calendar :

Financial year 1st April to 31st Marcha. First Quarter Results Last week of Julyb. Second Quarter Results Last week of Octoberc. Third Quarter Results Last week of Januaryd. Results for year ending March 2006 April / May 2006

●●●●● Date of Book Closure : July 18, 2005 to July 21, 2005(both days inclusive)

●●●●● Dividend Payment Date : The Company has not declared any dividend for the financialyear 2004-05.

●●●●● The Stock Exchange : Mumbai

●●●●● Stock Code : 505283 KirloskarPN

●●●●● Depositories : National Securities Depository Ltd.Central Depository Services (I) Ltd.

●●●●● ISIN Number : INE811A01012

●●●●● Market Price Data :

Market Price Data as per Bombay Stock Exchange i.e. High-Low during each month for this financial year

Year High Low Close

April 2004 30.00 21.50 25.60May 2004 35.00 19.35 20.40June 2004 32.60 21.25 31.70July 2004 46.50 31.75 42.45August 2004 50.85 33.00 46.00September 2004 49.80 39.00 45.90October 2004 72.45 46.00 60.55November 2004 86.00 59.50 74.85December 2004 83.00 70.00 74.75January 2005 79.40 64.00 75.05February 2005 109.45 70.50 106.60March 2005 137.95 102.10 114.45

●●●●● Stock Performance in comparison to BSE Sensex :

15


●●●●● Registrar & Transfer Agent :

M/s. Intime Spectrum Registry Limited are the Registrar & Transfer Agents for shares in physical form as

well as electronic mode.

●●●●● Share Transfer System :

Share Transfers are registered and returned within a period of 15 days from the date of receipt, provided

the documents are correct and valid in all respects.

●●●●● Shareholding Pattern as on March 31, 2005

Category No. of Shares held % of shareholding

A. Promoter’s 67,41,441 52.48

B. Banks, Financial Institutions, Insurance Companies

(Central/State Govt. Institutions) 4,99,098 3.89

C. Other Corporate Bodies 18,37,769 14.31

D. General Public 37,43,844 29.15

E. NRIs 22,186 0.17

Grand Total 1,28,44,338 100.00

Pursuant to Regulation 3(1)(e)(i) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations,

1997, as amended the ‘Group’ consists of; Better Value Holdings Private Limited, Kirloskar Brothers Limited,

Kirloskar Oil Engines Limited, Kirloskar Ferrous Industries Limited, Pooja Credits Private Limited, Kirloskar

Systems Limited, Asara Sales & Investments Private Limited, PIH Finvest Company Limited, Navsai Investments

Private Limited, Prakar Investments Private Limited, Alpak Investments Private Limited, Achyut & Neeta Holdings

& Finance Private Limited, Harihareshwar Investments & Finance Private Limited, Cees Investments Private

Limited, Kirloskar Kisan Equipments Limited, Kirloskar Briggs & Stratton Power Equipment Limited, Kirloskar

Silk Industries Limited, Kirloskar Proprietary Limited, Kirloskar Copeland Limited, G. G. Dandekar Machine

Works Limited, Smt. Suman Kirloskar, Smt. Mrinalini Kirloskar, Smt. Neeta A. Kulkarni, Mr. Atul C. Kirloskar,

Mrs. Arti Kirloskar, Miss. Gauri Kirloskar, Miss. Aditi Kirloskar, Mr. Sanjay C. Kirloskar, Mrs. Pratima Kirloskar,

Mr. Alok Kirloskar, Miss. Rama Kirloskar, Mr. Rahul C. Kirloskar, Mrs. Alpana Kirloskar, Miss. Alika Kirloskar, Mr.

Aman Kirloskar, Mr. Gautam A. Kulkarni, Mrs. Jyotsna Kulkarni, Mr. Nihal Kulkarni, Mrs. Shruti Nihal Kulkarni,

Mr. Ambar Kulkarni, Mr. Vikram S. Kirloskar, Mrs. Geetanjali Kirloskar, Miss. Manasi Kirloskar, Mrs. Roopa J.

Gupta.

●●●●● Distribution of Shareholding as on March 31, 2005

Holding No. of Amount % to

Members Shares Rs. Capital

UPTO 500 24270 1081349 10813490 8.42

501 1000 418 361019 3610190 2.81

1001 2000 147 236403 2364030 1.84

2001 3000 66 175506 1755060 1.37

3001 4000 29 106899 1068990 0.83

4001 5000 50 241747 2417470 1.88

5001 10000 53 395224 3952240 3.08

10001 AND ABOVE 76 10246191 102461910 79.77

TOTAL 25109 12844338 128443380 100.00

●●●●● Dematerialisation of Shares :

The Company has entered into an agreement with National Securities Depository Limited (NSDL) and

Central Depository Services (I) Limited (CDSL). The name of the Company appears in the Compulsory

Trading List w.e.f. June 2000. As on date, 90% of Share Capital is in Electronic Form.

●●●●● Outstanding GDRs/ADRs/Warrants or any convertible instruments, conversion date and likely impact

on equity

Company has no GDR/ADR / Warrants or any convertible instruments.

●●●●● Insider Trading :

The code of internal procedure of conduct and code of corporate disclosure practices as suggested

under the SEBI (prohibition of Insider Trading) Regulations, 1992 as amended by the Notification of 20th

February 2002 has been approved by the Board on June 28, 2002 and is made effective immediately.

16

b. in respect of any other matter

Registered Office of the Company

Kirloskar Pneumatic Co. Ltd.

Secretarial Department


Pune 411 013

Phone No. 020- 26870133 / 341

Fax No. 020 – 26870297 / 634

Email : [email protected]

COMPLIANCE CERTIFICATETo,The Board of DirectorsKirloskar Pneumatic Co. Ltd.Hadapsar Industrial Estate,Pune 411 013

Re.: REPORT ON CORPORATE GOVERNANCE

We have examined the records concerning the Company’s compliance of conditions of Corporate Governance as stipulated in Clause 49 ofthe Listing Agreement entered into, by the Company, with the Stock Exchange of India, for the financial year ended 31st March 2005.

The objective of our examination is to give our opinion on whether the Company has complied with the conditions of Corporate Governanceas stipulated in the provisions of Clause 49 of the Listing Agreement entered into by the Company with the Stock Exchange, Mumbai.

Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of theconditions of the Corporate Governance. It is neither an audit nor an expression of an opinion on the financial statements of the Company.

We have conducted our examination on the basis of the relevant records and documents maintained by the Company and furnished to usfor examination and the information and explanations given to us by the Company.

Based on such examination, in our opinion, the Company has complied with the conditions of the Corporate Governance, as stipulated inClause 49 of the Listing Agreements of the Stock Exchange, Mumbai.

We further state that, such compliance is neither an assurance as to the future viability of the Company, nor to the efficiency or effectivenesswith which the management has conducted the affairs of the Company.

For and on behalf ofDalal & Shah

Chartered Accountants

Shishir Dalal

Mumbai : April 28, 2005 Partner

●●●●● Code of Conduct :

Securities & Exchange Board of India (SEBI) vide their circular dated October 29, 2004 revised the provisions

of Clause 49 of the Listing Agreement, wherein the effective date was April 1, 2005. SEBI has extended

the effective date upto December 31, 2005 vide its Circular dated March 29, 2005. The Board of Directors

of the Company have approved the Code of Conduct, for the Members of the Board of Directors and

Senior Management of the Company, in their Meeting held on January 27, 2005 effective from April 1,

2005.

●●●●● Plant Locations :

PUNE SASWAD FARIDABAD

Hadapsar Industrial Estate, Saswad Industrial Area 18.8 Kms Delhi Mathura Road,

Pune 411 013 Tal.: Purandar, Dist. Pune Faridabad 121 003

●●●●● Address for Correspondence :

a. In respect of shares :

R & T Agent :

Intime Spectrum Registry Limited

Pune Office :

102 Shree Vidyanand

Dr. Ketkar Path, Erandwane,

Near Old Karnataka High School

Pune 411 004

Phone No.: 020-25458397

Fax No. 020 – 25458398

Email : [email protected]

Mumbai Office :

C-13, Pannalal Silk Mills Compound,

LBS Marg, Bhandup,

Mumbai 400 078

Phone No. : 022-25923837

Fax No. 022-25672693

17


MANAGEMENT DISCUSSIONS AND ANALYSIS

Industry Structure and Development

With an improving macro economic environment in 2004-05 and its strong positioning in its major business lines,

the Company has been able to achieve healthy growth across various operations and marketing parameters. This

performance reflects the strength of the Company, into two major business segments i.e. 1) Air Compressor

Division (ACD) & Air Conditioning & Refrigeration Division (ACR) 2) Transmission Division (TRM).

During the current year, the Company expects to achieve good growth in sales; considering the present order

board and demand for new products, especially developed for defence sector.

Business Segments (segment-wise / product-wise performance)

The Company has two major business segments viz. Compression Systems and Transmission Products.

i. Compression Systems segment consists of Air Compressor Division (ACD) and Air Conditioning & Refrigeration

Division (ACR)

The ACD manufactures various types of Compressors such as small Air Compressors, Railway Brake

Compressors, Reciprocating Air Compressors, Screw Compressors and Reciprocating Process Gas

Compressors. The company has manufacturing facilities for the above at Hadapsar, (Pune) and at Faridabad.

The ACR Division with a plant at Saswad, (Pune), manufactures Refrigeration and Air Conditioning Compressors

and undertakes design and packaging of conventional and high-tech refrigeration systems for various industries.

The newly formed Process Gas Division, which packages Gas Compression systems for Oil Refineries and

Petrochemical Industry, is located at Saswad.

ii. The Transmission Division manufactures Rail Traction Gears, Wind-Mill Gear Boxes, Marine Gearboxes for

Naval and commercial ships and gearboxes for industrial applications. This manufacturing facility is located

at Hadapsar, (Pune).

Performance

During the year, turnover of Compression Systems Segment, which comprises of ACD & ACR Division, was

Rs. 2404 million, compared to Rs. 2008 million during the last year.

The turnover of TRM Segment was at Rs. 259 million, compared to Rs. 154 million during the last year.

Outlook

Company expects to receive good orders in ACD for higher capacity Screw Compressor for water well drilling

applications. Further it is expected that orders from Public Sector would continue.

In ACR Division, for Refrigeration Compressors the Company has increased its market share in the Indian market

and have taken up aggressive steps for export of these compressors.

The TRM Division is expected to report good growth due to good order board from Railways and Windmills.

Opportunities, Threats and Concerns

Air Compressor Division

There is a good opportunity for growth as Industrial and Infrastructural activities show good growth, where air

compressors are used, which will help us to increase the market share.

There is tough competition in each market sector from multinational and local companies. The Company proposes

to develop state of art, highly reliable products and improve upon after sales service to get higher market share.

Air Conditioning & Refrigeration Division

Our leadership in Hydro carbon based Refrigeration Systems in India has been further strengthened with KPC

taking up almost all orders for expanding oil and gas sector.

With the reduction of import duties a possible threat is emerging from International Manufacturers.

18

We are continuing to make inroads into the CNG sector and the Natural Gas Compression Market despite the

established presence of International Manufacturers who are already in this business in India.

Transmission Division

A) RAIL TRACTION SECTOR

Entry of Multinational Companies (MNCs), in Indian Railway and their plans for sourcing traction gears for

Global Market from India has helped in technology upgradation and vast rise in business potential.

B) INDUSTRIAL SECTOR

In Wind Energy Generator Gearboxes, the exacting quality standards demanded by the application alongwith

concessional import duties has brought in a preference to import of gearboxes. Quality upgradation and Cost

reductions have been undertaken to negate the same.

Broad basing of the Product lines and development of new markets and technology has been undertaken to

sustain the growth rate.

A marked shift of Indian Railways from Diesel Hydraulic to Diesel Electric propulsion system has eroded the

market for Hydraulic Transmissions.

With opening up of markets and lowering of Customs Duties; competition from overseas manufacturers has

intensified. This has affected market share as well as margins. Different Cost reduction projects have been taken

up to counter the same.

Internal Control Systems and their adequacy

Company has adequate internal control systems to ensure maintenance of proper accounting records, their

accuracy and Accounting Standards, safeguarding of Company’s assets and assessing its risk for insurance

coverage.

Company has appointed Internal Auditors for review of Internal Control Systems. The detailed reports of Internal

Auditors are presented to the Audit Committee. The compliances of observations of Internal Auditors are monitored

by the management.

Safety, Health and Environment :

The Company is giving due importance to safety, health and environment related issues. The employees are

educated and trained to improve their awareness and skills.

The company has been supporting and providing assistance to the society by arranging various health camps i.e.

free eye check-up, Heart Disease Prevention Programme, screening for Hypertension (High Blood Pressure),

diabetis and Heart Disease.

Besides effluent treatment of waste products, lot of attention has been given to improve greenary all around the

plants, through massive tree plantation programmes.

Human Resources and Industrial Relations

To meet the Company’s long term vision and various emerging challenges, the Company has put together a

number of initiatives, e.g. significant strides have been made in organizational renewal programme, with focus

on enhancing organizational efficiencies, employee competencies and commitment, keeping in mind the flexibility

required to meet changing market requirements and to use manpower gainfully and enhance their productivity.

Upgrading skills and competencies across all levels and functions especially to meet the technological challenges

will gather momentum. The Company plans to build on people and processes.

The Company’s Future Leaders Programme seeks to identify, leverage and appropriately deploy talent within the

Company keeping in view the long-term objective of the Company.

The Company is also focusing beyond the workplace with programmes such as training to its employees and

engaging and recognizing employees in social activities.

The relations with the employees at all levels continue to be cordial. As on March 31, 2005, the total employee

strength was 820 numbers.

19


REPORT OF THE AUDITORS TO THE MEMBERS

KIRLOSKAR PNEUMATIC CO. LTD.

We have audited the attached Balance Sheet of KIRLOSKAR PNEUMATIC CO. LTD., as at 31st March, 2005 and

also the annexed Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on

that date. These financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on these financial statements based on our Audit.

(1) We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatements. An Audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audit provides a reasonable basis for our opinion;

(2) As required by the Companies (Auditor’s Report) Order, 2003 (CARO, 2003), issued by the Central Government

of India in terms of Section 227(4A) of the Companies Act, 1956, we annex hereto a Statement on the

matters specified in paragraphs 4 of the said Order;

(3) Further to our comments in Annexure referred to in paragraph 2 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief

were necessary for the purposes of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as

appears from our examination of the Books of the Company;

(c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by the report are

in agreement with the Books of Account of the Company;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by

this report comply with the Accounting Standards referred to in Section 211 (3C) of the Companies

Act,1956, to the extent applicable;

(e) On the basis of the written representations received from the Directors as on 31st March, 2005, and taken

on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st

March, 2005 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of

the Companies Act, 1956;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said

Accounts, read together with the notes thereon, give the information required by the Companies

Act,1956, in the manner so required and present a true and fair view in conformity with the accounting

principles generally accepted in India:

(i) In the case of the Balance Sheet, of the state of the affairs of the Company as at 31st March, 2005,

(ii) In the case of the Profit and Loss Account, of the Profit for the year ended on that date, and

(iii) In the case of the Cash Flow statement, the cash flows of the company for the year ended on that

date.

For and on behalf of

DALAL & SHAH


Shishir Dalal

Partner

Membership No: 37310

Mumbai, April 28, 2005

20

ANNEXURE TO THE AUDITORS’ REPORT

Statement referred to in Paragraph 2 of the Auditors’ Report of even date to the Members of KIRLOSKAR

PNEUMATIC CO. LTD., on the Financial Statements for the year ended 31st March, 2005.

On the basis of the records produced to us for our verification / perusal, such checks as we considered appropriate,

and in terms of information and explanations given to us on our enquiries, we state that:

i) (a) The Company has maintained proper records showing full particulars including quantitative details

and situation of fixed assets.

(b) As explained to us, considering the nature of the Fixed Assets, the same have been physically verified

by the management at reasonable intervals during the year as per the verification schedule adopted

by the Company. According to the information and explanations given to us and the records produced

to us for our verification, discrepancies noticed on such physical verification were not material and

the same have been properly dealt with in the Books of Account.

(c) As per the information and explanation given to us on our enquiries the disposal of assets during the

year were not substantial so as to have an impact on the operations of the company, or affect its

going concern;

ii) (a) The inventories have been physically verified by the management at reasonable intervals during the

year and partially at the close of the year except inventory lying with third parties, which have been

confirmed by them at the close of the year;

(b) The procedures of physical verification of inventories followed by the management as explained to

us are, in our opinion, reasonable and adequate in relation to the size of the Company and the nature

of its business;

(c) According to the inventory records produced to us for our verification, we are of the opinion that the

Company is maintaining proper records of its inventory. Further, the discrepancies noticed on physical

verification of inventories, if any, referred to above, as compared to book records, though not material,

have been properly dealt with in the books of account;

iii) As per the information and explanation given to us and the records produced to us for our verification the

company has not granted to nor taken secured or unsecured loans from companies, firms and other

parties covered in the register maintained under section 301 of the Companies Act, 1956;

iv) In our opinion and according to the information and explanations given to us, there are adequate internal

control procedures commensurate with the size of the Company and the nature of its business with regard

to the purchase of inventory and fixed assets and also for sale of goods and services. As per the information

given to us, no major weaknesses in internal controls, have been identified by the management or the

internal auditors of the Company. During the course of our audit, nothing has come to our notice that may

suggest a major weakness in the internal control systems of the Company;

v) On the basis of the audit procedures applied by us, and according to the information and explanations

given to us on our enquiries on this behalf and the records produced to us for our verification, there are

no transactions required to be entered into the register in pursuance of section 301 of the Companies Act,

1956;

vi) In our opinion and according to the information and explanations given to us, the Company has complied

with the directives issued by the Reserve Bank of India and the provisions of Section 58A of the Companies

Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975, where applicable with regard to the

deposits accepted by it from the public. Since the Company has not defaulted in repayments of deposits,

compliance of Section 58AA or obtaining any order from the National Company Law Tribunal, does not

arise;

vii) On the basis of the internal audit reports broadly reviewed by us, we are of the opinion that, the Company

has an adequate internal audit system commensurate with the size and nature of its business;

21


viii) The Company has made a representation to the Central Government stating that provisions under Section

209(1)(d) of the Companies Act, 1956, are not applicable to the Company as the products manufactured by

the Company are not covered under the said section and the rules made thereunder viz. Cost Accounting

Records ( Engineering Industries ) Rules, 1984. Consequently, the cost records have not been made and

maintained;

ix) (a) According to the records of the Company, the Company has been generally regular in depositing

undisputed statutory dues including Provident Fund, Investor Education and Protection Fund,

Employees State insurance, Income Tax, Sales Tax, Service tax, Wealth Tax, Customs Duty, Excise

duty, Cess and other Statutory dues with the appropriate authorities;

(b) On the basis of our examination of the documents and records of the Company and the information

and explanations given to us upon our enquiries in this regards, disputed amounts payable in respect

of Sales Tax, Income-tax, Wealth-tax, Service –tax, Customs Duty and Excise Duty/cess not deposited

with the appropriate authorities are as follows :

Statutes Forum Before Whom Pending

Commissioner District Tribunal High Supreme Total

Appeals Court Court Court

1 Sales Tax - - 2,056,724 74,626,336 - 76,683,060

2 Income Tax - - 9,910,332 712,245 - 10,622,577

3 Custom Duty 1,499,365 - - - - 1,499,365

4 Excise 6,898,725 - 279,565 - - 7,178,290

5 Land Revenue - 613,874 - - - 613,874

x The Company has not defaulted in repayment of dues to any financial institutions or banks during the

year;

xi The Company has, in our opinion, maintained proper records and contracts with respect to its Investments

where timely entries of transactions have been made. All Investments held by the Company at the close of

the year are held in its own name;

xii The terms and conditions at which guarantees have been given by the company for loans taken from

financial institutions and/or banks by others, are, in our opinion, not prejudicial to the interest of the

company;

xiii As per the information and explanations given to us, term loans obtained by the company, in our opinion,

have been applied for the purpose for which they were obtained;

xiv According to the information and explanations given to us and on an overall examination of the balance

sheet of the company, we are of the opinion that no funds raised on short-term basis have been used for

long-term investment;

xv As per the information and explanation given to us on our enquiries on this behalf there were no frauds on

or by the Company noticed or reported by the Company during the year;

In view of the nature of activities carried on by the Company clause no (xiii) of CARO, 2003 is applicable to

the company. Further in view of the absence of conditions prerequisite to the reporting requirement of

clauses (x), (xii), (xviii), (xix) and (xx) the said clauses are, at present, not applicable.

For and on behalf of

DALAL & SHAH


Shishir Dalal

Partner

Membership No: 37310

Mumbai, April 28, 2005

22

As per our attached report of even date. For and on behalf of the Board of Directors.For & on behalf ofDALAL & SHAH H. R. Mustikar Sanjay C. Kirloskar

Chartered Accountants Managing Director Chairman

Shishir Dalal Kedar P. Phadke Suhas S. Kolhatkar

Partner Company Secretary Vice President & Finance Controller

Mumbai, April 28, 2005 Pune, April 28, 2005

BALANCE SHEET AS AT 31ST MARCH, 2005

As at As at 31st March, 2005 31st March, 2004

Schedule Rs. Rs. Rs.I. SOURCES OF FUNDS :

1 Shareholders’ Funds :(a) Capital 1 128,443,380 128,443,380(b) Reserves & Surplus 2 230,239,120 216,184,117

358,682,500 344,627,497

2 Loan Funds :(a) Secured loans 3 514,380,917 581,576,924(b) Unsecured loans 4 27,727,313 78,335,147

542,108,230 659,912,071

Total 900,790,730 1,004,539,568

II. APPLICATION OF FUNDS :

1 Fixed Assets(a) Gross Block 718,557,289 717,930,907(b) Less: Depreciation 524,722,052 537,061,079

(c) Net Block 5 193,835,237 180,869,828(d) Capital work in progress,

expenditure to date 4,723,646 2,764,184

198,558,883 183,634,012

2 Technical Know-how 6 27,037,298 30,106,210

3 Investments 7 42,967,882 55,600,632

4 Current Assets, Loans and Advances :(a) Inventories 8 418,963,322 429,724,069(b) Sundry Debtors 9 897,711,768 884,099,843(c) Cash & Bank Balances 10 5,590,022 8,159,330(d) Loans and Advances 11 139,006,705 195,816,844

1,461,271,817 1,517,800,086

Less: Current Liabilities and provisions :(a) Liabilities 12 860,236,799 842,943,606(b) Provisions 13 303,000 175,000

860,539,799 843,118,606

Net Current Assets 600,732,018 674,681,480

5 Miscellaneous Expenditure(to the extent not written off or adjusted) :Deferred Revenue Expenditure in respect of :Voluntary Retirement Scheme 31,494,649 60,517,234

Total 900,790,730 1,004,539,568

Notes forming part of the Financial Statements 20 - -

23







PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2005

Current Year Previous Year

Schedule Rs. Rs. Rs.

INCOME

Sales ( Gross ) 14 2,961,136,761 2,480,243,940Less : Excise Duty 319,714,308 289,897,319

Net Sales 2,641,422,453 2,190,346,621

Other Income 15 62,145,722 55,624,548

2,703,568,175 2,245,971,169

EXPENDITURE

Materials Consumed &Manufacturing Expenses 16 1,850,549,289 1,416,441,385

Employees’ Emoluments 17 368,132,944 333,602,827

Interest & Other FinanceCharges, net 18 52,106,700 58,735,109

Sundry Expenses 19 394,617,265 406,027,416

Depreciation 22,580,512 21,474,122

2,687,986,710 2,236,280,859

Profit before Taxation 15,581,465 9,690,310

Provision for Taxation :Current Tax ( Including Wealth Tax Rs. 151,000/- 303,000 175,000 Previous Year Rs. 175,000/- )

Deferred Tax ( See Note 14 ) - -

Profit after Taxation 15,278,465 9,515,310

As per last Account 8,564,005 -

Add / ( Less ) Tax Adjustments in respect of (770,884) (14,770)earlier years ( Net )

23,071,586 9,500,540

Expenses in respect of previous years (402,535) (936,535)

Balance carried to Balance Sheet 22,669,051 8,564,005

Net Profit after Tax ( After prior period adjustments ) 14,105,046 8,564,005

Weighted average number of Shares 12,841,962 12,841,962

Basic and Diluted Earning Per Share ( Rs. ) ( net of tax ) 1.10 0.67of the face value of Rs. 10/-

Notes forming part of the Financial Statements 20

24

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2005

PARTICULARS 2004-2005 2003-2004Rs. Rs. Rs.

(I) OPERATING ACTIVITIES(A) Profit before Taxation 15,581,465 9,690,310(B) ADJUSTMENTS :

Add :(i) Loss on Sale of Investments - 1,393,096(ii) Provision for Diminution in value of Investment 3,863,750 1,099,999(iii) Depreciation 22,580,512 21,474,122(iv) Amount written off against Tech. Knowhow 3,068,912 3,068,912(v) Loss on Assets sold 813,320 9,199,789(vi) Interest on Secured /Unsecured Loans 52,106,700 58,735,109(vii) Tax Adjustments in respect of earlier years (770,884) (14,770)

81,662,310 94,956,257

97,243,775 104,646,567Less :Investment Income included above :(i) Dividend 7,893,761 3,606,916(ii) Income from Units 264,214 133,735

8,157,975 3,740,651(iii) Surplus on Sale of Assets 1,504,909 167,340

Profit on sale on investment 8,871,000 16,292,000(iv) Expenses in respect of previous year 402,535 936,535(v) Income Tax & Wealth Tax paid 2,514,998 (4,387,127)

21,451,417 16,749,399

CASH FROM OPERATIONS 75,792,358 87,897,168

(C) (Increase) / Decrease in Current Assets(i) Inventories 10,760,747 (135,678,604)(ii) Sundry Debtors (13,611,925) (9,483,800)(iii) Other Current Assets, Loans & Advances 59,150,136 80,228,400

56,298,958 (64,934,004)(D) Increase/(Decrease) in Current Liabilities

(i) Liabilities 46,315,778 80,841,738

102,614,736 15,907,734

NET CASH FROM OPERATIONS 178,407,094 103,804,902

(II) INVESTMENT ACTIVITIES(i) Sale of Investments 21,503,750 20,341,998(ii) Provision for Diminution in value of Investment (3,863,750) (1,099,999)(iii) Capital Expenditure (39,898,938) (8,782,191)(iv) Sale proceeds of Assets 3,035,102 569,573

(19,223,836) 11,029,381(v) Investment Income :

Dividend 7,893,761 3,606,916Income from Units 264,214 133,735

8,157,975 3,740,651

NET CASH FROM INVESTING ACTIVITIES (11,065,861) 14,770,032

(III) FINANCING ACTIVITIES(i) Increase / (Decrease) in Secured Loans (80,180,564) (32,349,142)(ii) Cash Credit 12,984,557 (26,537,085)(iii) Interest on Secured /Unsecured Loans (52,106,700) (58,735,109)(iv) Increase / (Decrease) in Unsecured Loans (43,802,500) (12,606,103)(v) Increase / (Decrease) in Unsecured SICOM

Sales Tax Deferred Liability (6,805,334) (6,331,638)

(169,910,541) (136,559,077)

NET CHANGE IN CASH + CASH EQUIVALENTS ( I + II + III ) (2,569,308) (17,984,142)

Cash & Cash Equivalents as at 1-4-2004 (Opening Balance) 8,159,330 26,143,472

Cash & Cash Equivalents as at 31-3-2005 (Closing Balance) 5,590,022 8,159,330






25


SCHEDULES

Schedule Nos. 1-20 annexed to and forming part of the Balance Sheet as at and the Profit and Loss Account for the year ended31st March, 2005.


Rs. Rs. Rs.

SCHEDULE 1 : SHARE CAPITAL :

AUTHORISED :

15,000,000 Equity Shares of Rs.10/- each 150,000,000 150,000,000

150,000,000 150,000,000

ISSUED AND SUBSCRIBED :

12,844,338 Equity Shares of Rs.10/- each 128,443,380 128,443,380

128,443,380 128,443,380

PAID UP :

12,844,338 Equity Shares of Rs.10/-each fully paid 128,443,380 128,443,380

Total 128,443,380 128,443,380

Notes :i. 1,495,100 Equity Shares of Rs.10/- each were allotted as fully paid up Bonus Shares by capitalization of General Reserve.

ii. 592,000 Shares of Rs.10/- each were allotted as fully paid up as per Delhi High Court Amalgamation order without payment beingreceived in cash.

iii. 2,590,138 Equity Shares of Rs.10/-each were allotted to Equity Shareholders of Erstwhile Kirloskar Pneumatic Co. Ltd. on Amalgamationas per Scheme approved by the High Court of Judicature at Bombay.

SCHEDULE 2 : RESERVES AND SURPLUS :

Capital Reserve :

As per last Account 27,965 27,965

Revaluation Reserve

As per last Account 27,740,101 27,740,101Less Adjustment on assets sold during the year 50,043 -

27,690,058 27,740,101

Securities Premium (Share Premium) Account

As per last Account 51,817,923 51,817,923

General Reserve :

As per last Account 128,034,123 128,034,123

Surplus as per annexed Profit & Loss Account 22,669,051 8,564,005

Total 230,239,120 216,184,117

26

As at As at31st March, 2005 31st March, 2004

Rs. Rs.

SCHEDULE 3 : SECURED LOANS :

Loan under Asset Credit Scheme from the Industrial Development Bank of India. 33,072,708 39,232,708( For security see note (A) below )

Corporate Loan from the Industrial Development Bank of India 36,140,000 42,300,000( For security see note (B) below )

Rupee Term Loan from ICICI Bank Ltd. - 28,125,000

Other Loansi) From ICICI Ltd. 1,798,066 3,275,907ii) From Ford Credit Kotak Mahindra Ltd. 279,218 486,941( Secured against hypothecation of specific Vehicles purchased. )

Rupee Term Loan from ICICI Bank Ltd.( For Security see note (C) below ) 250,000,000 -

Working Capital Loans from Consortium BanksCashcredit 193,090,925 138,208,368( For Security see Note (D) below )

One time Cash Credit limit for execution of specific order. - 41,898,000

From Cosmos Co.op. Bank Ltd. against Second Charge onGross Block of Fixed Assets of the Company - 30,000,000

Working Capital Term Loan - 160,050,000

Funded Interest Term Loan - 98,000,000

Total 514,380,917 581,576,924

Note :

(A) Loan under Asset Credit Scheme from IDBI, is secured by way of a First Charge on immovable properties of the Company situate atHadapsar Industrial Estate, Pune and Saswad both present and future and by way of hypothecation of all the movables save &except book-debts, including movable machinery, machinery spares, tools and accessories, present and future, subject to priorcharges created and/or to be created (i) in favour of Bankers, of the Company’s stock of raw materials, semi-finished goods,consumables, stores and such other movables as may be agreed to by IDBI for securing borrowings for working capital require-ments in the ordinary course of business and (ii) on specific items hypothecated to IDBI under its Equipment Finance Scheme andAsset Credit Scheme.

(B) Corporate Loan from IDBI, is secured by way of a First Charge on immovable properties of the Company situate at HadapsarIndustrial Estate, Pune and Saswad both present and future and by way of hypothecation of all the movables save except book-debts, including movable machinery, machinery spares, tools and accessories, present and future, subject to prior charges createdand/or to be created in favour of Bankers, of the Company’s stock of raw materials, semi-finished goods, consumables, stores andsuch other movables as may be agreed to by IDBI for securing borrowings for working capital requirements in the ordinary courseof business.

(C) Rupee Term Loan from ICICI Bank Ltd., is secured by a) Second charge by way of executing legal Mortgage of immovable propertiessituate at i) Hadapsar Industrial Estate, Pune both present and future ii) Saswad within the limits of Saswad Municipal Corporationboth present & future iii) All movable assets of the Company present and future b) Second Charge by way of Mortgage by Deposit ofTitle Deeds by way of constructive delivery in respect of immovable properties situate at Faridabad c) Corporate Guarantee by M/s.Kirloskar Oil Engines Ltd.

(D) Cash Credit facilities including fund and nonfund based facilities are secured by (i) First Charge by way of Hypothecation of CurrentAssets of the Company namely stock of Raw Materials, Stock in Process, Semi-Finished and Finished Goods, Stores and Spares notrelating to Plant and Machinery (Consumable Stores and Spares), Bills Receivables and Book Debts and all other movables bothpresent and future in the factories premises and Godowns situated at Hadapsar, Saswad and Faridabad. (ii) Second Charge by wayof Mortgage of Immovable Properties situate at Hadapsar Industrial Estate, Pune and Saswad within the limits of Saswad MunicipalCorporation in favour of Consortium Banks.

27



Rs. Rs.

SCHEDULE 4 : UNSECURED LOANS :

Sales Tax Interest Free Loan from The State Industrial and InvestmentCorporation of Maharashtra Ltd. 27,385,813 34,191,147

Fixed Deposits 341,500 2,648,000

Loans from Joint Stock Companies - 41,496,000

Total 27,727,313 78,335,147

SCHEDULE - 5 : FIXED ASSETS

Plant &

Water Machinery Leased Asset Total As at

Particulars Land Buildings Tanks & (including Electrical Furniture & Vehicle Plant and 31.03.2005 31.03.2004

(a) Pipelines Equipments) installations Fixture Machinery Total

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

GROSS BLOCK AT COST :

As at 01-04-2004 6,105,533 92,200,109 1,942,215 470,779,179 16,236,746 35,347,965 18,541,155 49,037,904 690,190,806 717,602,016

Increase due to Revaluation

on 30.6.84 2,944,933 12,914,151 - 11,881,017 - - - - 27,740,101 27,740,101

Additions - - - 32,334,605 513,372 2,912,628 2,178,871 - 37,939,476 8,782,191

Deduction in revaluation

during the year - - - 50,043 - - - - 50,043 -

Deductions and adjustments - 1,266,896 - 26,978,110 3,761,914 2,774,682 2,481,449 - 37,263,051 36,193,401

Apportioned Cost as

at 31-3-2005 9,050,466 103,847,364 1,942,215 487,966,648 12,988,204 35,485,911 18,238,577 49,037,904 718,557,289 717,930,907

DEPRECIATION :

Upto 31-03-2004 - 40,777,478 1,942,215 398,286,337 15,039,321 23,218,430 8,759,393 49,037,904 537,061,078 542,178,336

For the year - 2,202,783 - 16,348,395 301,286 2,209,208 1,518,840 - 22,580,512 21,474,122

Deductions and Adjustments - 328,603 - 26,574,354 3,716,959 2,404,715 1,894,907 - 34,919,538 26,591,379

Total Depreciation upto 31-03-2005 - 42,651,658 1,942,215 388,060,378 11,623,648 23,022,923 8,383,326 49,037,904 524,722,052 537,061,079

NET BLOCK :

As at 31-03-2005 9,050,466 61,195,706 - 99,906,270 1,364,556 12,462,988 9,855,251 - 193,835,237 180,869,828

As at 31-03-2004 9,050,466 64,336,782 - 84,373,859 1,197,425 12,129,534 9,781,762 - 180,869,828

a) Includes premises on Ownership basis in Co-operative Societies Rs.844,900/- (Previous year Rs. 1,991,839/-)

SCHEDULE 6 : TECHNICAL KNOWHOW :

As per last Account 9,821, 569 9,816,315

Acquired during the year - 3,074,166

9,821,569 12,890,481

Less : Written off during the year 3,068,912 3,068,912

6,752,657 9,821,569

Others 20,284,641 20,284,641( See Note 15 )

Total 27,037,298 30,106,210

28


Rs. Rs. Rs.

SCHEDULE 7 : INVESTMENTS AT COST :

LONG TERM INVESTMENTS :

Government and Trust Securities

Quoted :

Unit Trust of India :

38165 6.75 % Tax Free US 64 Bonds of Rs.100/- eachunder Unit Scheme 1964 3,816,500 3,816,500

6819.248 units of Rs.10/- eachunder UTI - Unit Scheme 2002 ( Growth ) 68,192 68,192

3,884,692 3,884,692

3300 Master Shares of Rs.10/- each 8,244 8,244

3,892,936 3,892,936Unquoted :

6 Year National Savings Certificates of the Face Value ofRs.7,500/- (deposited with the Government Departmentas Security) matured, awaiting realisation 7,500 7,500

Indira Vikas Patra of the Face Value Rs.100/- (depositedwith the Government Department as Security) 100 100

7,600 7,600

3,900,536 3,900,536Fully paid Equity Shares :Trade, Unquoted :

1 Share of Rs.100/- each in Kirloskar Proprietary Ltd. 100 100

In subsidiary Company:Unquoted :495,000 Equity Shares of Rs.10/- each in

Khosla Indair Limited 4,950,000 4,950,000Less: Provision for diminution in value (4,949,500) (4,949,500)

500 500Other, Quoted :

100,000 Shares of Rs.10/- each inThe Mysore Kirloskar Ltd. 2,400,000 2,400,000

Less: Provision for diminution in value (2,399,999) (2,399,999)

1 1

50,000 Shares of Rs.10/- each inKirloskar Ghatge Patil Auto Ltd. 500,000 500,000

Less: Provision for diminution in value (499,999) (499,999)

1 19398 Shares of Rs.10/- each in Housing

Development Finance Corporation Ltd. 117,475 117,475

375,000 Shares of Rs.10/- each in KirloskarInvestment and Finance Ltd. 5,000,000 5,000,000

Less: Provision for diminution in value (3,863,750) -

1,136,250 5,000,000

10,005 Shares of Rs.10/- each in ICICI Bank Ltd. 201,101 201,101

128,205 Shares of Rs.10/- each inKirloskar Electric Company Ltd. 6,853,501 6,853,501

8,308,329 3,901,136 12,172,079

Carried Over Rs. 3,901,136 3,901,136

29



Rs. Rs. Rs.

SCHEDULE 7 : INVESTMENTS AT COST : (Contd.)

Brought Over 3,901,136 12,172,079

Brought Over 8,308,329 3,901,136

Fully paid Equity Shares (Contd.) :

Quoted (Contd.)

2,000,000 Shares of Rs.10/- each inKirloskar Ferrous Industries Ltd. 20,000,000 20,000,000

500 Equity Shares of Rs.10/- each in HDFC Bank Ltd. 5,000 5,000

1,400 Equity shares of Rs. 10/- each in Punjab National Bank 43,400 43,400

28,356,729 32,220,479Unquoted :

- (252,000) Shares of Rs.10/- each in Kirloskar Systems Ltd. - 8,769,000

1,272 Shares of K. Sh. 1,000/- each in Kirloskar Kenya Ltd. 833,984 833,984

56,250 Shares of Singapore $ 1 each inKirsons Trading Pte. Ltd. - a Foreign Body Corporate. 1,120,932 1,120,932

1 share of Rs.100/- fully paid in The Nasik Merchants’Co-operative Bank Ltd. 100 100

500 Shares of Rs.10/- each in The Sangli Bank Ltd. 5,000 5,000

750,000 Equity Shares of Rs.10/- each fully paid inKirloskar McQuay Pvt. Ltd. 7,500,000 7,500,000

62,500 Shares of Rs.20/- each fully paid inThe Cosmos Co-operative Bank Ltd. 1,250,000 1,250,000

10,710,016 19,479,016In Debentures and Bonds :Quoted :$ 25,000 12.5% Secured Redeemable Partly Convertible

Debentures of Rs.100/- each of The Mysore Kirloskar Ltd.Balance non-convertible portion of Rs.44/- per Debenture -matured on 01.06.1998 awaiting realisation 1,100,000 1,100,000

Less: Provision for diminution in value (1,099,999) (1,099,999)

1 1

Total Rs. 42,967,882 55,600,632

Book Value as at Market Value as at

31st March, 31st March, 31st March, 31st March,2005 2004 2005 2004

Rs. Rs. Rs. Rs.

Quoted 32,249,666 36,113,416 74,071,512 66,453,249Unquoted 10,718,216 19,487,216

Total Rs. 42,967,882 55,600,632

$ Included in market value at face value / paid up value, whichever is lower, as the quotations are not available.

Note :

Investments made by the Company being of long term nature, diminution in the value of Quoted investments are generally not consideredto be a permanent nature. However, provision for such diminution as considered necessary by the Management has been made in theFinancial statements.

30


Rs. Rs. Rs.

SCHEDULE 8 : INVENTORIES

General Stores & Spares -

* Stores, Spares, Jigs & Fixtures, etc., at cost, (except Jigs and Patternswhich are at cost, less amounts written off) 24,689,650 24,409,644

Stock-in-Trade :

* Raw Materials, at cost 228,384,898 245,506,158

Work-in-progress :

Work-in-Progress expenditure to date at cost (including factory madecomponents Rs.83,584,586/-, 2003-04 - Rs.71,985,155/- ) 132,747,247 126,156,648

Finished Goods, at cost 31,502,121 26,064,889

417,323,916 422,137,339

Goods in Transit 716,475 2,614,284

Goods in Bonded Warehouse, cost to date 922,931 4,972,446

Total 418,963,322 429,724,069

* As certified by the Managing Director

SCHEDULE 9 : SUNDRY DEBTORS, UNSECURED :

(i) Sundry Debtors, Good :(a) Outstanding over six months 150,924,205 276,485,358(b) Other 746,787,563 602,655,385

897,711,768 879,140,743

(ii) Lease Rent Receivable :Overdue instalments :Good - 4,959,100

Total 897,711,768 884,099,843

SCHEDULE 10 : CASH AND BANK BALANCES :

Cash on hand 753,417 753,650

Post office Saving Bank Account

(Pass Book Pledged with Excise Authorities) 85,210 85,210

Bank Balances :

With Scheduled Bank :

In Current Account 4,322,039 6,907,836

In Fixed Deposits 429,356 412,634

4,751,395 7,320,470

Total 5,590,022 8,159,330

31



Rs. Rs. Rs.

SCHEDULE 11 : LOANS AND ADVANCES :

UNSECURED, GOOD :(Unless otherwise stated )

* Advances recoverable in cash or in kind or for value to be receivedGood 85,476,219 145,306,930Doubtful 5,800,392 5,800,392Less : Provision 5,800,392 5,800,392

- 85,476,219 145,306,930Dues from Subsidiary( Maximum balance during the year Rs. 1,149,807/-Previous year Rs. 1,135,407/- ) 1,149,807 1,135,407

Dues from other companies promoted by the Company 2,108,229 3,290,038

Expenditure on Projects, pending implementation 16,260,763 16,260,763

Sundry Deposits 20,114,685 20,180,706

Balances with Central Excise 9,214,303 7,300,299

Tax paid in advance 4,682,699 2,342,701

Total 139,006,705 195,816,844

* Includes due from Managing Director Rs. Nil (Previous Year Rs.786,740/-). Maximum amount due during the year Rs.786,740/-(Previous Year Rs. 1,264,122/-).

SCHEDULE 12 : LIABILITIES :

Sundry Creditors :

(i) Due to Small Scale Industrial Undertakings( See Note 12 ) 141,369,651 153,459,030

(ii) Other Creditors 379,696,224 397,074,569

521,065,875 550,533,599

Other Liabilities 209,695,583 188,611,420

Advances Received 128,740,549 99,618,697

Investor Education and Protection Fund - 2,000

Interest accrued but not due on loans 734,792 4,177,890

Total 860,236,799 842,943,606

SCHEDULE 13 : PROVISIONS :

Provision for Taxation

Income Tax 152,000 -

Wealth Tax 151,000 175,000

303,000 175,000

Total 303,000 175,000

SCHEDULE 14 : SALES :

Current Year Previous Year Rs. Rs.

Sales 2,907,942,153 2,441,176,558Works Contract 27,491,323 11,189,313Errection, Job Work, Operation & Maintenance Charges 25,703,285 27,878,069

Total 2,961,136,761 2,480,243,940

32

Current Year Previous YearRs. Rs. Rs.

SCHEDULE 15 : OTHER INCOME :

Dividend ( Gross ) : From Trade Investments 7,893,761 3,606,916

Income from units of Unit Trust of India 264,214 133,735

Miscellaneous Receipts 38,088,195 26,327,783

Profit on Sale of Investments 8,871,000 16,292,000

Surplus on Sale of Assets 1,504,909 167,340

Sundry Credit Balances appropriated 40,909 645,266

Bad Debts/Liquidated Damages Recovered 541,685 1,361,366

Provisions no longer required Written Back 4,941,049 7,090,142

Total 62,145,722 55,624,548

SCHEDULE 16 : MATERIALS CONSUMED AND MANUFACTURING EXPENSES :

(a) Raw Materials (including components) consumed :Stocks at commencement 245,506,158 152,671,897Add : Purchases 1,564,624,665 1,334,090,119

1,810,130,823 1,486,762,016Less : Stocks at close 228,384,898 245,506,158

1,581,745,925 1,241,255,858(b) Manufacturing Expenses :

Stores and Spares Consumed(including amounts written off against Jigs and Patterns) 89,523,467 68,884,441Manufacturing Expenses 101,327,046 74,554,162Power, Fuel and Water 49,354,150 43,155,057Building Repairs 14,561,916 8,507,170Machinery Repairs 18,622,555 12,920,286

273,389,134 208,021,116

(c) Freight and Octroi 7,442,061 5,259,145

(d) (Increase) / Decrease in Stocks :Stocks at close :

Work-in-Progress 132,747,247 126,156,648Finished Goods 31,502,121 26,064,889

164,249,368 152,221,537

Less : Stocks at commencement : Work-in-Progress 126,156,648 102,554,857 Finished Goods 26,064,889 11,571,946

152,221,537 114,126,803

(12,027,831) (38,094,734)

Total 1,850,549,289 1,416,441,385

SCHEDULE 17 : EMPLOYEES’ EMOLUMENTS :

Salaries, Wages, Bonus, etc. 265,576,424 237,159,462

Production Incentive 11,102,878 10,301,512

Proportionate Deferred Revenue Expenditure in respect ofVoluntary Retirement Scheme ’98 written off 10,498,234 10,498,234

Proportionate Deferred Revenue Expenditure in respect ofVoluntary Retirement Scheme 2000 written off 18,524,352 18,524,352

Contirbution to Provident and Other Funds, etc. 37,423,508 35,622,725

Welfare Expenses 25,007,548 21,496,542

Total 368,132,944 333,602,827

33


Current Year Previous YearRs. Rs. Rs.

SCHEDULE 18 : INTEREST AND OTHER FINANCE CHARGES, net :

Interest :

On Fixed Loans 45,293,653 49,970,629

Other 10,378,659 15,726,536

55,672,312 65,697,165Less : Interest received :

Interest ( Gross, Tax deducted Rs. 530,479 /-,Previous Year Rs.1,172,550/- ) 3,565,612 6,962,056

Total 52,106,700 58,735,109

SCHEDULE 19. : SUNDRY EXPENSES :

Rent 4,786,832 3,661,698

Rates and Taxes 2,697,831 2,355,645

Insurance 2,798,873 3,874,658

Sundry Repairs 9,851,318 5,508,435

Commission and Discount 49,972,170 41,388,210

Royalty 2,252,240 120,000

Travelling Expenses 44,400,913 41,778,644

Excise Duty, net 27,256,498 23,209,769

Sales Tax 1,991,525 1,426,252

Postage, Telephones, Telex Expenses 12,772,382 11,761,009

Bank Charges 24,002,228 22,115,147

Freight Outward 23,534,600 21,337,001

Vehicle Expenses 9,094,105 9,289,065

Printing and Stationery 8,190,242 6,435,677

Legal and Professional Charges 21,762,215 17,741,657

Advertisement and Publicity Expenses 3,893,178 2,809,904

Miscellaneous Expenses 43,532,220 42,042,349

Auditors’ Remuneration 1,110,616 1,461,985

Directors’ Fees and Travelling Expenses 434,689 443,202

Managerial Remuneration : Salary 2,334,355 2,514,000

Loss on Assets sold, destroyed in fire, discarded, demolished or scrapped 813,320 9,199,789

Technical Services & Licence fees 28,951,437 33,586,116

Bad Debts (including Lease Debtors) 28,772,371 48,311,266

Dues from Companies which have discontinued Business Written Off - 11,870,928

Provision for Diminution In Value of Investment 3,863,750 1,099,999

Loss on sale of Investments - 1,393,096

Amount written off against technical know-how 3,068,912 3,068,912

Sundry Debit Balances & Advances Written off 2,790,480 9,031,846

Liquidated Damages 29,687,965 27,191,157

Total 394,617,265 406,027,416

34

SCHEDULE 20 : NOTES FORMING PART OF THE FINANCIAL STATEMENTS :

2004-05 2003-04 Rs. Rs.

1 Significant Accounting Policies followed by the Company are as stated in the statementannexed to the Schedule.( Annexure A )

2. A Contingent Liabilities not provided for in respect of :(a) Claims against the Company not acknowledged as Debts, estimated at 274,101,971 281,521,002(b) Income Tax Matters under Dispute 26,268,360 10,622,577(c) Disputed Central Excise Matters 4,253,210 1,923,000(d) Disputed Sales Tax Demands 75,101,336 -(e) Guarantees to Housing Development Finance Corporation Limited for housing

loans to employees 291,284 761,375

B. Claim for US $ 10 million has been filed against the Company in the International Courtof Arbitration. The Arbitration proceedings have been stayed by the Honourable HighCourt of Delhi. The Company has obtained an opinion from Senior Counsel statingthat this claim is not tenable.

3 Estimated amount of Contracts remaining to be executed on Capital Account and notprovided for, net of Advances 11,693,428 11,208,428

4 Payments to Auditors :(a) As Auditors 810,000 874,800(b) In other capacity :

For Tax Audit 200,000 216,000For Certificates 57,890 189,420

1,067,890 * 1,280,220(c) For Expenses 42,726 181,765

1,110,616 1,461,985* Net of Service Tax

5 Guarantees given by Company’s Bankers for Contracts undertaken by the Company aresecured by a First Charge on Company’s Inventories (excluding Stores and Sparesrelating to Plant and Machinery) Outstanding Bills & Second Charge on Fixed Assets.Amount outstanding as on 31st March 2005. 291,220,687 179,535,469

6 C.I.F. Value of Imports, Expenditure and Earnings in Foreign Currencies :(a) C.I.F. Value of Imports :

Raw Materials (including components and spares) 288,833,315 210,134,752Capital Goods 24,353,094

(b) Expenditure in Foreign Currencies :(i) Commission on Exports 2,396,993 1,487,828(ii) Technical Knowhow (Capitalised) - 2,941,862(iii) Royalty 2,120,300 -(iv) Other matters 12,507,212 11,074,458

(c) Earnings in Foreign Currencies :(i) F.O.B. Value of Exports 81,493,024 80,406,015(ii) Commission received 1,753,959 1,080,650

7 The Company has imported Capital Goods under the Export Promotion Capital GoodsScheme, of the Government of India, at conessional rates of Duty on an undertaking tofullfill quantified Exports against which remaining future obligations aggregates USD1,499,452.38 ( Rs. 69,724,536/-) Export obligations to be fullfilled by the Company under thesaid scheme, by 31st March 2005 is NIL.

8 Details of Raw Materials Consumption and Goods-trade-in :(a) Raw Materials (including Components) consumed :

2004-05 2003-04

Unit Quantity Rs. Quantity Rs.

Steel Bars and Plates M.T. 208 13,106,550 320 17,355,821Pipes Mtrs. 168,171 13,721,030 38,322 5,708,011Castings Nos. 54,028 50,616,979 47,475 22,380,780Forgings Nos. 22,659 120,591,743 22,044 69,954,277Foundry Raw material Ton 22,141 36,548,358 1,278 20,595,884Components Nos. 4,197,390 1,313,946,712 3,458,671 1,053,472,274Others - 33,214,553 - 51,788,811

1,581,745,925 1,241,255,858

(b) Imported and Indigenous Raw Materials Consumption (including Components) :

2004-05 2003-04

Rs. Percentage Rs. Percentage

Imported 392,182,871 24.79 250,295,589 20.16Indigenous 1,189,563,054 75.21 990,960,269 79.84

1,581,745,925 100.00 1,241,255,858 100.00

35


SCHEDULE 20 : NOTES FORMING PART OF THE FINANCIAL STATEMENTS : (Contd.) :

9 Details of Licensed and Installed Capacity, Production, Stocks and Turnover :

(A) Licensed and Installed Capacity and Production

Class of Goods (a) Licensed Capacity Installed Capacity* Production

2004-05 2003-04 2004-05 2003-04 2004-05 2003-04Nos. Nos. Nos. Nos. Nos. Nos.

Air & Gas Compressors of alltypes and ranges includingReciprocating, Centrifugal &Rotary, etc., excludingCompressors forAir-conditioning & Refrigeration 5,646 5,646 4,072 4,072 2,584 2,248

Rock Drills 1,800 1,800 - - - -

Sump Pumps 240 240 - - - -

Pneumatic Tools 2,832 2,832 - - - -

Rock Drill Rods 50,000 50,000 - - - -

High Pressure Compressors 100 100 25 25 - -

Refrigeration Compressors 1,500 1,500 - - - -

Hydraulic Press 600 600 600 600 - -

Car Washers 2,400 2,400 2,400 2,400 - -

Rock Drills & Air Legs 3,600 3,600 3,600 3,600 - -

Vacuum Pumps 2,400 2,400 2,400 2,400 - -

Car Lifts 600 600 600 600 - -

Refrigeration Compressors,Condensors, etc. 1,200 1,200 1,164 1,093 1,164 1,093

Refrigeration & AirconditioningUnits / Plants includingCompressors & Components 2,400 2,400 33 67 33 67

Air Conditioning and RefrigerationEquipment for Transport 600 600 10 2 10 2

Power Transmission Equipment(Torque Converters) 2,400 2,400 19 15 19 15

Reverse Reduction Gears forMarine Gear Engines 900 900 33 25 33 25

Reverse Reduction Gear Units forIndustrial & Mobile Application 1,000 1,000 213 117 213 117

Controllable Pitch Propellers &Standard Propellers 200 200 - - - -

Fluid Couplings 750 750 - - - -

Tractors 10,000 10,000 - - - -

Engines 10,000 10,000 - - - -

(a) Annual capacity on maximum utilisation basis.

* Note : Installed Capacity

Most of the Plant & Machinery being common for different products manufactured by the Company and installed capacity beingdependent on Product Mix, which in turn is decided by the actual demand for various products from time to time and also on availingof sub-contracting facilities, it is not feasible for the Comapny to indicate the exact installed capacity. The Company has, however,indicated the installed capacity on the basis of year’s Product Mix - as certified by the Vice President of the respective divisions andbeing a technical matter, accepted by the Auditors as correct.

36


9 Details of Licensed and Installed Capacity, Production, Stocks and Turnover (Contd.) :

(B) Stocks and Turnover :

Class of Goods Stocks at Commencement Stocks at Close Turnover (including Sundry*

Works Contracts)

2004-05 2003-04 2004-05 2003-04 2004-05 2003-04 2004-05 2003-04

Nos. Rs. Nos. Rs. Nos. Rs.Nos. Rs. Nos. Rs. Nos. Rs. Nos. Nos.

Air & Gas Compressors of all types

and ranges including Reciprocating

Centrifugal & Rotary, etc., excluding

Compressors for Air-conditioning &

Refrigeration 31 22,291,183 26 9,429,759 34 24,384,283 31 22,291,183 2,577 996,321,587 2,241 1,062,825,707 4 2

High Pressure Compressor upto

100 cfm & upto 6000 psi - - - - - - - - - - - - - -

Rock Drills - - - - - - - - - - - - - -

Sump Pumps - - - - - - - - - - - - - -

Pneumatic Tools - - - - - - - - - - - - - -

Rock Drill Rods - - - - - - - - - - - - - -

Refrigeration Compressors,

Condensors, etc. 22 2,483,062 9 1,414,295 40 5,538,786 22 2,483,062 1,145 287,679,697 1,070 268,860,290 1 10

Refrigeration & Air-conditioning

Units/Plants including Compressors

& Components - - - - 3 230,164 - - 30 4,533,517 67 9,120,453 - -

Air-conditioning and Refrigeration

Equipment for Transport - - - - 2 70,086 - - 7 2,499,346 2 852,978 1 -

Power Transmission Equipment

(Torque Converters) 2 352,932 - - - - 2 352,932 21 16,344,686 13 15,146,000 - -

Reverse Reduction Gears for

Marine Gear Engines 2 606,344 - - - - 2 606,344 35 14,226,510 23 28,455,500 - -

Reverse Reduction Gears for

Industrial & Mobile Application - - - - - - - - 212 103,883,000 57 23,353,500 1 60

Fluid Couplings - - - - - - - - - - - - - -

Others - 331,368 - 727,892 - 1,278,802 - 331,368 - 1,215,934,110 - 781,732,193 - -

Total - 26,064,889 - 11,571,946 - 31,502,121 - 26,064,889 - 2,641,422,453 - 2,190,346,621 - -

* Includes units scrapped, dismantled, used as spares, capitalised, given as free replacements.

37



10 Managerial Remuneration :

(a) In view of inadequacy of Profits for the year, calculated in accordance with Section 349 of the Companies Act, 1956, no Commissionis payable to Managing Director and other Directors for the year. Computation of Net Profit in accordance with Section 349 of theCompanies Act, 1956 pursuant to Clause 4A of Part II in Schedule VI to the said Act is not considered necessary, hence not given.

(b) Profit and Loss Account includes payments and provisions on account of Remuneration to the Managing Director as under :

2004-05 2003-04 **Rs. Rs.

Salary 1,938,710 2,220,000House Rent Allowance 395,645 294,000Contribution to :

Provident Fund 232,645 266,400Superannuation Fund 290,807 333,000Gratuity Fund * - 75,000

Other perquisites 380,828 594,734

Total Rs. 3,238,635 3,783,134

* As the employee wise breakup of contribution to gratuity fund is not ascertainable, the same has not been included in theabove figures.

** Includes Remunaration to Managing Director for full year and to Executive Vice Chairman for a period from 1-04-2003 to30-09-2003.

11 (a) The balances of Debtors and Creditors which in the absence of confirmations, wherever necessary, are taken as per Book and aresubject to reconciliation and adjustments thereon having an impact of revenue nature, if any, will be made in the year in which thesame are finally settled.

(b) Sundry Debtors outstanding over six months include amount of Rs.6.86 Crores (Rs.13.17 Crores referred in the last financialstatement) due for more than three years on account of pending settlements with the customers in respect of reconciliations ofaccounts, legal cases, disputes on account of liquidated damages and technical rejections, claims for discounts, etc. Adjustments,if any, will be dealt with in the books of account upon settlement of the matters.

12 (a) This disclosure is based on the information available with the Company regarding the status of Suppliers as defined underthe “Interest On Delayed Payments To Small Scale And Ancillary Industries Undertaking Act, 1993”. Unpaid overdue amount dueon 31st March, 2005 to Small Scale and / or Ancillary Industrial Suppliers is Rs.136,576,104/- on account of Principal andRs. 5,017,566/- on account of Interest.

(b) The names of the Small Scale Industrial Undertakings to whom the Company owes a sum which is outstanding for more than30 days :

A P T ASSOCIATES & ENGINEERSACME FORGING PVT LTDACOUSTIC ENGINEERING COMPANYADITYA ENGINEERING COMPANYADITYA ENGINEERSADROIT ENTERPRISESADROIT INDUSTRIESADVAIT ENGINEERINGADVANCED DESIGN & PROTOTYPE CENTRE P LTDAEP COMPANYAFCIL INDUSTRIES LIMITEDAJAY ENGRAVERSAJAY SYSCON PVT LTDAKOLKAR INDUSTRIESAKSHAY EL-TECH ENGINEERSAKSHAY PLASTIC INDUSTRYANANT FABRICATORSAQUILINE CONTROLS & SYSTEMSARKAY FRP PRODUCTSARUN ENGG WORKSARUNA AGENCIESASHIRWAD ENTERPRISESASHISH ENTERPRISESASIAN ENGINEERING SALES CORPORATIONASPOLITEASSOCIATED ENGINEERSA-VEE ENGINEERSB B GARDA & SONS

B G SHIRKE CONSTRUCTION TECHNOLOGY P LTDBAGA INDUSTRIESBALAPA MECH & ENGINEERING WORKS (INDIA)BESTALL ENGINEERING WORKSBHAIRAVNATH ENGG WORKSBHAIRAVNATH INDUSTRIESBHARAT UDYOG KENDRABRITEX ENGINEERING WORKSC. S. ENGINEERING WORKSCENEVISION TECHNOCRATCHEMTROLS SAMIL INDIA PVT LTDCLEAN O DIESEL SERVICES INDIA PVT LTDCOMPAIR ACCESSORIESCOMPU TAX FORMS PVT LTDCONTROL DEVICESCOOPER FOUNDRY PVT LTDCOOPER METALS PVT LTDDAG PROCESS INSTRUMENTSDATTATRAYA ENGINEERING WORKSDAY-CH ENGINEERINGDELTA ENTERPRISESDEWAS HYDROQUIP PVT LTDDORIGHT ENGINEERINGDYNAMIC ENTERPRISESELECTRO FLASHELECTRO-FLASH INDUSTRIESELECTRONICS SYSTEMS & DEVICESEMARVE PVT LTD

38


EQUIP-MAINTSEXCEL HYDRO PNEUMATICS P LTDFAIR TECH ENGINEERSFERROTHERM HEAT TREATERFLEETGUARD FILTERS PRIVATE LIMITEDFLEXICAN BELLOWS & HOSES P LTDFORTUNA INDUSTRIESFOURTECH ENGINEERING ENTERPRISESFOURTECH ENGINEERSGADSING ENGINEERING WORKSGAGANGIRI ALLOYS P LTDGOLE PRECISION TOOLS PVT LTDGRIHALAXMI METAL INDUSTRIESGRINDWELL INDUSTRIESGURU ENTERPRISESGURUKRUPA ENGINEERSHANUMAN ENGG WORKSHARSH DEEP ENGINEERSHEAT TRANSFER ENGINEERSHIRLEKAR PRECISION ENGG PVT LTDI M ENGINEERS PVT LTDINDIAN PRECISION GEARSINDU ENGINEERSINNOVATIVE TECHNOMICS PVT LTDINSTASEALINTEGRATED ENGINEERS AND CONSULTANTSINTERTEC ENGINEERSINTER-TECH FITTINGS (INDIA)J B CHEMICALSJ J ENGINEERSJ J FILTERSJAL ENGINEERSJAYASHREE ELECTRON PVT LTDK AIR SPECIALITY GASESK H K INDUSTRIESKALASHREE ENGGKAMAL FORGINGS PVT LTDKAREYN PRECISION MACHINES PVT LTDKHALSA ENGINEERING WORKSKISHOR INDUSTRIESKOTHARI ENTERPRISESKRAN RADAR PVT LTDKUBERA TOOLSKUDALE INSTRUMENTS PVT LTDKULKARNI ENTERPRISESKUNAL ENGG WORKSKWALITY PRCEISION GAUGESL K PRECISION ENGGLAMA SYSTEMSLAXMI INDUSTRIESLAXMI VASANT METALLURGICAL INDUSTRIES LTDLIBRAFLEXM & G ANALYSER SYSTEMM/S V.K.KOTHARIMAGNAFIELD CONTROLSMAK GLIT CHEMMAKSEL ENGINEERSMANGALAM ENTERPRISESMANGALORE MINERALS (PVT) LTDMANJALY ENGINEERINGMARK ENGINEERSMARSHALL ENGG WORKSMASIBUS PROCESS INSTRUMENTS(P) LTDMASTERLINE BALANCERMAVAL TECHNOLOGIESMEGA ENGINEERING PVT LTDMIC INSTRUMENTS PVT LTDMICRONIX ENTERPRISESMINCO INDIA PVT LTDMINERVA ENGINEERSMODERN ENGINEERING WORKS

MOHTAMAAN INDUSTRIESMORSON ENGINEERSMULTITECH SERVICESN CRANKWELL P LTDNARHARI ENGINEERING WORKSNEHA ENTERPRISESNEMADE ENGINEERSNETWORKNEW AGE INDUSTRIESNEW AGE ENGINEERSNIKHIL INDUSTRIESNIKI GEARS PVT. LTD.NIRGHOSH ENGINEERINGNOBLE PLASTIC INDUSTRIESNU-TECK ENGG CO PVT LTDOM INDUCTIONOMEGA ENGINEERS AND CONSULTANTSPALAHE ENGG WORKSPANCHSHEEL FILTERS P LTD.PATANGE INDUSTRIESPCE ELECTRIC CONTROLS PVT LTDPOONA COUPLINGS PVT LTDPOONAWALLA STUD FARMPOTDAR CHEMICALSPRADNYA ENTERPRISESPRAGATI INDUSTRIESPRAKASH INDUSTRIESPRECISION APPLIANCESPRECISION GEAR MANUFACTURING COMPANYPRECISION TRANSMATIC DEVICES PVT LTD.PROTON METALCRAFTS PVT. LTD.PUNE TECHTROL PVT LTDPURO ELECTRIC INSTRUMENTS GOA P LTD.PUSHPA ENGINEERING WORKSQUALITY ENGINEERING RECLAIMERS P.LTD.QUALITY NDT SERVICESR.L.R.EQUIPMENTSR.Y.INDUSTRIESRADHEYA MACHINING LTD.RADIX ELECTROSYSTEMSRAHUL ENTERPRISESRAJU ENTERPRISESRASHMI HEATERS PVT.LTD.RASKIN OXYGEN PROBE SYSTEMRAVIN ELECTROSEALS PVT LTDRAVINDRA INDUSTRIES & FABRICATORSRENUKA AUTO CRANKRESEARCH DEVELOPMENT & MANUFACTURINGRICORISHI LASAR CUTTING LTDROHIT ENGINEERSS B RESHELLERS PVT LTDS P ENGINEERSS. P. ENTERPRISESS.K.ENTERPRISESS.M.ENGINEERINGS.N.ENTERPRISES.S.INDUSTRIES (PUNE)SAFE AUTO PARTS P LTD.SAI ENTERPRISESSAMARTH ENGINEERINGSAMARTH GAUGES & TOOLSSARA INDUSTRIESSATYAM ENGINEERING WORKSSCIAKY WIRECUT PVT.LTD.SEBIM VALVES INDIA PVT LTDSHALAKA ENTERPRISESSHALCOT MECHANIQUE (P) LIMITEDSHAMALA ELECTRO-PLATERSSHARP ENGINEERING SERVICESSHARPLINE MACHINERY PVT.LTD.

39



SHEETAL ENGINEERSSHIMOGA PISTONRINGS PVT. LTDSHIMPUKADE ENGINEERING PVT.LTD.SHIRKE ENGINEERING SERVICES PVT LTDSHITAL ENGINEERS & FABRICATORSSHIVAM ENGINEERING WORKSSHIVSHAKTI INDUSTRIESSHREE ENTERPRISESSHREE ENTERPRISES(HADAPSAR)SHREE SAMARTH ENGG WORKSSHREE SAMARTH ENTERPRISESSHREERAM ENGINEERSSHRI BALAJI TECHNOLOGIES PVT. LTD.SHRI DURGA INDUSTRIESSHRI ENTERPRISESSHRI LAXMI INDUSTRIES.SHRI RAM STEELSSHRIRAM ENGINEERING WORKSSHRIRAM ENGINEERSSHRIRAM INDUSTRIES (KOTHRUD)SIDVIM ENGINEERING WORKSSITAL ENGINEERING WORKSSMASH ENTERPRISESSOPAN O&M COMPANY PVT LTD.SPAV ENGINEERSSTANDARD RADIATORS PVT LTDSTAUFF (INDIA ) PVT. LTD.STEEL SAMRAT (INDIA)STERLING ENGG WORKS.STRAG DESIGNERS PVT LTDSUMAN ENGINEERINGSUMMITS HYGRONICS PVT LTD.SUNITHA ENTERPRISESSUNTECH GEARS PVT LTDSUPER QUALITY SPRINGSSUPERIOR HYDRAULIC PVT LTD.SURAJ ENTERPRISES (PUNE)

SURENDRA PRESSING WORKS.SUSHIL ENGINEERING WORKSSUVARN UDYOGSWANSON ENGINEERING SERVICESSWASTIK GAUGES & TOOLSSYSTEMS TECHNOLOGIESTAVADE AUTOMOBILESTECHNO SERVE ENGINEERSTELACE INDUSTRIAL SERVICESTHERMAL INSTRUMENTS INDIA PVT LTDTRISTAR ENGINEERING & CHEMICAL CO.UDEY PYROCABLES PVT.LTD.ULTRASEAL (INDIA) PVT LTDUNIQUE CONTROLS PVT. LTD.UNITECHUNITED HEAT TRANSFER PVT. LTD.UNITED METACHEM (P) LTDUNITY GAUGE AND TOOL CO PVT LTDUSHA ENTERPRISESUTTAM ENGG WORKSUTTAM FABRICATORS (HARYANA)V AUTOMAT & INSTRUMENTS (P) LTDVALGRO ENGINEERS PRIVATE LIMITEDVEDANG MULTI-TECH (INDIA) PVT. LTD.VEE-TECH ENGINEERSVENUS ENGINEERING SERVICEVIBAL CONSULTANTSVIJAY ENTERPRISESVIJAY FABRICATORS & TRADING COVINAY TRADERSVINAYAK INDUSTRIES (RAJKOT)VNS ENGINEERING & SERVICES CO.VSAS AUTOMATION SERVICES PVT. LTD.WESTERN INDIA FORGINGS PVT LTDYASHODEEP ENGINEERSYEMKAY INSTRUMENTS & CONTROLS PVT.LTD.

13 Total expenditure on Research and Development (including allocable overheads) during the year, amounts to Rs.11,107,137 (previousyear Rs. 8,824,262/-) including capital expenditure Rs.Nil (previous year Rs.Nil).

14 Consequent to the issuance of Accounting Standard 22 ( AS - 22 ) “ Accounting for taxes on Income “ by the Institute of CharteredAccountants of India which is mandatory in nature, the Company has reviewed Deferred Taxes which result from the timing differencebetween the Book Profits and Tax Profits.

In terms of consideration of prudence as set out in paragraphs 15 to 18 of AS - 22 , considering the history of past losses of erstwhileKirloskar Pneumatic Co. Ltd., which has been amalgamated with the Company, sufficient future taxable income cannot be estimatedwith virtual or reasonable certainty. The Company therefore has not recognised Net Deferred Tax Asset in the Financial Statement forthe Year ended 31st March, 2005. Further in accordance with paragraph 19 of AS - 22 the Net Deferred Tax Asset, if any, shall bereassessed at the end of each Balance Sheet date hereafter and accordingly due recognition shall be given in the Financial Statements.

15 In accordance with the Accounting Standard 26 Intangible Assets( AS - 26) expenditure on Technical Knowhow on projects underimplementation will be amortized on commencement of commercial production.

16 Consolidated Financial Statement as required by Accounting Standard 21:

Khosla Indair Ltd., a Subsidiary of the Company operates under severe long term restrictions, which significantly impairs its ability totransfer funds to the Company. Consolidated Financial Statement as required by Accounting Standard 21 is therefore not prepared.

In view of above, the question of Accounting for Investments in Associates in Consolidated Financial Statement (AS - 23) and FinancialReporting of Interest in Joint Ventures ( AS - 27) does not arise.

40


17 Details of Segment Reporting

2004-05 2003-04

A. Information about Business Segment - Primary COMPRESSION TRANSMISSION TOTAL COMPRESSION TRANSMISSION TOTAL

(See Note below) SYSTEMS EQUIPMENTS SYSTEMS EQUIPMENTS

Rs. Rs. Rs. Rs. Rs. Rs.

1 Segment Revenue

Sales etc. 2,403,996,219 259,344,167 2,663,340,387 2,011,146,243 153,529,819 2,164,676,062

Less: Inter Segment Revenue - - - - - -

Net Revenue from Operations 2,403,996,219 259,344,167 2,663,340,387 2,011,146,243 153,529,819 2,164,676,062

2 Result

Segment Result 162,014,670 2,878,904 164,893,575 242,006,861 (10,877,697) 231,129,164

Less: Unallocable Corporate Expenses - - 97,205,410 - - 162,703,745

(Net of Income)

Operating Profit 67,688,165 68,425,419

Less: Interest (Net) 52,106,700 58,735,109

Extraordinery Items - -

Profit / (Loss ) before Tax 15,581,465 9,690,310

3 Other Information

Segmernt Assets 1,419,578,452 271,964,769 1,691,543,221 1,408,774,660 232,881,775 1,641,656,435

Add: Unallocable common assets 69,787,304 206,001,741

Total Assets 1,761,330,525 1,847,658,176

Segmernt Liabilities 744,637,351 100,123,031 844,760,382 768,517,855 58,360,510 826,878,365

Add: Unallocable common liabilities 15,469,517 16,240,241

Total Liabilities 860,229,899 843,118,606

4 Capital Expenditure During the year 11,123,505 26,815,971 37,939,476 7,883,992 898,200 8,782,192

5 Depreciation 15,948,553 6,435,039 22,383,592 15,657,057 5,450,398 21,107,455

Add: Unallocable Depreciation 196,920 366,667

22,580,512 21,474,122

6 Non Cash Expenditure 28,711,067 3,380,430 32,091,497 28,711,068 3,380,430 32,091,498

B Secondary Segment - Geographical by Customers

1 Segment Revenue

In India 2,581,847,363 2,084,270,047

Outside India 81,493,024 80,406,015

Total 2,663,340,387 2,164,676,062

C Other Disclosures

1 Segments have been identified in line with the Accounting standard, AS-17 “Segment Reporting”, taking into account the organisationstructure as well as the differing risks and returns.

2 Company has disclosed Business Segment as the primary segment.

3 Composition of Business Segment

Name of the Segment : Comprises of :

a) Compression Systems Air & Gas Compressors, Airconditioning & Refrigeration Compressors and Systems etc.

b) Transmission Equipments Power Tranmission Equipments ( Torque Convertor ) , Reverse Reduction Gears for MarineGear Engines and for Industrial & Mobile application etc.

4 The Segment Revenue, Results , Assets and Liabilities include the respective amounts identifiable to each of the segment andamounts allocated on reasonable basis.

5 The Accounting Policies of the Segments are the same as those described in the Significant Accounting Policy as referred in Note1 of Schedule 20 to the Accounts.

41



18 . Disclosure of Transactions with Related Parties as required by the AS -18

(A) Name of the related party and nature of relationship where control exists

Name of related party Nature of relationship

Khosla Indair Ltd. Subsidiary Company

(B) Related Party Transactions

Nature of Transaction Year Subsidiary Associate KeyCompany Companies management Total

PersonnelRs. Rs. Rs. Rs.

Purchase of Goods 2004-05 422,225 422,2252003-04 3,046,013 3,046,013

Sale of Goods 2004-05 248,369 248,3692003-04 1,474,610 1,474,610

Services Rendered 2004-05 14,400 2,574,765 2,589,1652003-04 17,396 4,000,897 4,018,293

Services Received 2004-052003-04

Dividend Received 2004-05 7,500,000 7,500,0002003-04 2,250,000 2,250,000

Interest paid 2004-05 400,132 400,1322003-04

Lease Rent Paid 2004-05 80,631 80,6312003-04 323,846 323,846

Interest Received 2004-05 21,478 21,4782003-04 38,452 38,452

Remuneration paid 2004-05 3,238,635 3,238,6352003-04 * 3,783,134 3,783,134

Loan given (Net of Recovery) 2004-052003-04

Balance Outstanding Debit (Credit ) 2004-05 1,149,807 1,685,624 2,835,4312003-04 1,135,907 3,559,437 786,740 5,482,084

* Includes Remuneration to Managing Director & to the Executive Vice Chairman

Names of Related parties

1) Subsidiary Company Khosla Indair Ltd.

2) Associate Companies & Joint Ventures Kirloskar Brothers Ltd.Kirloskar McQuay Pvt. Ltd.

3) Key Management Personnel Mr.H.R.Mustikar

4) Relatives of Key Management Personnel Mrs. Snehlata H. Mustikar WifeMr. Milind H. Mustikar SonMr. Mukul H. Mustikar SonMrs. Kanchan M. Mustikar Son’s WifeMrs. Gauri M. Mustikar Son’s WifeMaster Pranav M. Mustikar Son’s SonMiss. Madhura M. Mustikar Son’s DaughterMiss. Mrunal M. Mustikar Son’s DaughterMr. Yeshwant P. Kulkarni BrotherMrs. Premlata Y. Kulkarni Brother’s WifeMr. Mohan R. Mustikar BrotherMrs. Anjali M. Mustikar Brother’s WifeMrs. Usha S. Kale SisterMr. Shyamkant P. Kale Sister’s Husband

Note :Related Party relationship is as identified by the Company based on the available information and relied up on by theAuditors.

42


19 Information required in terms of Part IV of Schedule VI to the Companies Act, 1956, as compiled by the Company, is attached.

20 With a view to achieve productivity improvements and other cost savings, the Company is in process of consolidating its operationsat Pune Plant by shifting its manufacturing facilities from Faridabad.

21 The Company has entered into agreements in the nature of Lease / Leave and Licence agreement with different Lessors / Licensorsfor the purpose of establishment of office premises / residential accomodations and assets. These are generally in nature of operatingLease / Leave and Licence and disclosure required as per accounting standard 19 with regard to the above is as under.

a. Payment under Lease / Leave and Licence for period :

1) Not later than 1 year Rs. 3,253,170/-2) Later than 1 year but not later than 5 years Rs. 2,068,419/-

b. There are no transaction in the nature of Sub Lease.

c. Payments recognised in the Profit and Loss Account for the year ended 31st March, 2005 Rs. 5,241,894/-

d. Period of Agreement is generally for Eleven Months and renewable at the option of Lessee.

22 Previous years figures have been regrouped wherever necessary.






ANNEXURE “A” REFERRED TO IN NOTE NO.1 IN SCHEDULE NO.20 TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED31ST MARCH, 2005.

Statement of Significant Accounting Policies :

1 System of Accounting :

(i) The Company, except under significant and uncertain circumstances, follows the mercantile system of accounting and recognisesincome and expenditure on accrual basis.

(ii) The Financial Statements are based on historical costs. These costs are not adjusted to reflect the impact of the changing valuein the current purchasing power of money.

(iii) Insurance Claims are recognised upon acceptance of claim by the Insurance Companies.

(iv) Estimates and assumptions used in the preparation of the Financial Statements are based upon Management’s evaluation of therelevant facts and circumstances as of the date of the financial statements, which may differ from the actual results at asubsequent date.

2 Fixed Assets and Depreciation :

A. Fixed Assets :

a) Fixed Assets are carried at cost of acquisition or construction or at manufacturing cost in case of Company manufacturedassets, less accumulated depreciation (except Freehold Land).

b) Land & Building, Plant & Machinery at Faridabad Unit acquired before 30th June, 1984, are taken at revalued cost and thoseacquired after 30th June, 1984, are valued at landed cost.

B. Depreciation on Assets (other than Freehold Land) :

(a) On Plant and Machinery given on Lease :

Depreciation on Plant and Machinery given on Lease is being provided at the rates worked on Straight Line Method over theprimary period of Lease Agreement or at the rate specified in Schedule XIV to the Companies Act, 1956, whichever is higher,on pro-rata basis.

Asset Primary Rate on Straight Line Method

Lease Over the primary As specified inPeriod Period of Lease Schedule XIV

Plant and Machinery 8 years 12.50% 10.34%Plant and Machinery 5 years 20.00% 10.34%

43


Statement on significant Accounting Policies (Contd.) :

(b) Depreciation on Assets :

(i) Depreciation on Additions to the Fixed Assets upto 31st March, 1961, is being provided on “Written Down Value”Method in accordance with the Provisions of Section 205(2)(a) of the Companies Act, 1956, at the rates specified inSchedule No.XIV to the said Act.

(ii) Depreciation on Additions to Assets from 1st April, 1961, to 30th September, 1987, is being provided for on StraightLine basis in accordance with the provisions of Section 205(2)(b) of the Companies Act, 1956, pursuant to CircularNo.1/1/86/CLV No.15-(50)84 CL VI dated 21st May, 1986, issued by the Department of Company Affairs, at the ratescorresponding to the rates (inclusive of multiple shift allowance) applicable under the Income Tax Rules 1962 as inforce at the time of acquisition / installation and on Additions on or after 1st October, 1987, on the same basis at the ratesspecified in Schedule No.XIV to the Companies Act, 1956.

(iii) Depreciation on assets of Faridabad unit has been charged on Straight Line Method as per rates prescribed bySchedule XIV to the Companies Act, 1956. Depreciation on additions made after 16th December, 1993, has beencharged on Straight Line Method at the revised rates as prescribed in Schedule XIV to the Companies Act 1956 andsubstituted by Notification GSR No.756 (E) dated 16th December, 1993, of the Department of Company Affairs,Government of India.

(iv) Depreciation on Additions to Fixed Assets is being provided on pro-rata basis from the month of acquisition orinstallation of the said Asset, as required by Schedule XIV to the Companies Act, 1956.

(v) Depreciation on Assets sold, discarded or demolished during the year is being provided at their respective rates uptothe month in which such Assets are sold, discarded or demolished.

(vi) No Depreciation is being charged on Revaluation amount of the Fixed Assets.

3 Technical Know-how Fees :

Expenditure on acquiring Technical Know-how (intangible asset) is being amortised equally over a period of five years aftercommencement of commercial production.

4 Investments :

Investments are valued at Cost of acquisition less estimated diminution in value determined to be of permanent nature.

5 Inventories :

Cost of inventories have been computed to include all costs of Purchase, Cost of Conversion and other costs incurred in bringinginventories to their present location and condition.

(i) The Stocks of Raw Materials and Components, Stores and Spares are valued at cost calculated on Weighted Average basis.

(ii) The Stocks of Work-in-Progress (including factory-made components) and Finished Goods are valued on the basis of Full AbsorptionCost of attributable factory overheads or net realisable value, whichever is lower.

(iii) Goods in Transit are stated at actual cost to the date of Balance Sheet.

(iv) Jigs & Fixtures, Patterns and Dies are valued at Full Absorption Cost of attributable factory overheads and written off equally, overan estimated effective life of three years.

(v) Unserviceable and Obsolete Raw Materials are valued at an estimated realisable value.

(vi) Imported Materials lying in Bonded Warehouse, are valued at cost to the date of Balance Sheet.

(vii) Excise / Customs Duty :Excise Duty on Finished Goods and Customs Duty on imported materials are accounted on production of Finished Goods /Receipt of materials in Customs Bonded Warehouse.

6 Foreign Currency Conversion :

(i) The Company revalorises Foreign Currency Loans, Current Liabilities and Current Assets at Contracted and / or appropriateExchange Rates, at the date of Balance Sheet. Gain or Loss arising out of decrease or increase in Rupee Value of ForeignCurrency Liability for acquiring Fixed Assets is being adjusted to the Cost of Assets acquired and depreciated over the balanceperiod of life of the said Asset.

(ii) Foreign Currency Liability for acquiring Technical Know-how is debited to the said account and amortised over a period of fiveyears.

(iii) Gain or Loss on account of decrease / increase in Rupee Value of other Foreign Currency Loans, Current Liabilities and CurrentAssets are charged to the Profit and Loss Account.

44

Statement on significant Accounting Policies (Contd.) :

7 Sales :

(i) Export Sales are accounted for on the basis of dates of Bills of Lading.

(ii) Construction Contract Sales :

(a) In respect of Construction Contracts undertaken by the Company, the expenditure to the date of Balance Sheet on incompletecontracts wherein profit cannot be estimated reliably, is recognised as sales to the extent recoverable from the customer.This policy has been adopted to comply with the revised AS 7 - “Accounting for Construction Contracts” issued by “theInstitute of Chartered Accountants of India.”

8 Privilege Leave Benefit :

Liability in respect of unavailed privilege leave is being valued at the salary rates prevailing as on the date of Balance Sheet.

9 Employees’ Retirement Benefits :

(i) Retirement benefit in the form of Provident Fund and Pension Schemes whether in pursuance of Law or otherwise, is accountedon accrual basis and charged to Profit and Loss Account of the year.

(ii) Gratuity :

Gratuity payments are under the policy with Life Insurance Corporation of India through Gratuity Trust and are made accordingto their demand. Premium paid is charged directly to Profit & Loss Account.

(iii) Superannuation :

Contribution made to Life Insurance Corporation of India for employees covered under Superannuation Scheme are accountedat the rate of 15% of such employees’ annual salaries.

(iv) Early Voluntary Retirement Scheme :

(a) Liability under Voluntary Retirement Scheme 1998, is being treated as “Deferred Revenue Expenditure” and is being amortisedover a period of ten years.

(b) Liability under Voluntary Retirement Scheme 2000 of Faridabad unit, is being treated as “Deferred Revenue Expenditure”and is being amortised over a period of five years.

45


I. Registration Details

Registration No. : 110307State Code : 11Balance Sheet Date : 31-03-2005

(Amount in Rs. Thousand)

II. Capital raised during the year

Public Issue : -Rights Issue : -Bonus Issue : -Private Placement : -Re-issue of Forfeited Shares -

III. Position of Mobilisation and

Deployment of Funds

Total Liabilities : 1761331Total Assets : 1761331

Source of Funds

Paid-up Capital : 128443Reserves and Surplus : 230239Secured Loans : 514381Unsecured Loans : 27727

Total 900791

Application of Funds

Net Fixed Assets : 198559Investments : 42968Net Current Assets : 600732Misc. Expenditure (includingTechnical Know-how) : 58532Accumulated Losses : -

Total 900791

PART - IV

BALANCE SHEET ABSTRACT & COMPANY’S GENERAL BUSINESS PROFILE

(Amount in Rs.Thousand)

IV. Performance of Company

Turnover : 2703568Total Expenditure : 2687987Profit / (Loss) before Tax : 15581Profit / (Loss) after Tax : 14105Earning Per Share in Rs. : 1.10Dividend rate % : -

V. Generic Names of Principal

Products / Services of the Company

i) Item Code No. : 356501000(ITC Code)Product Description : Air & Gas Compressor

ii) Item Code No. : 375308000(ITC Code)Product Description : Marine Gear Boxes

iii) Item Code No. : 356106000(ITC Code)Product Description : Industrial Air-

conditioning& RefrigerationEquipment

Statement pursuant to Section 212 of the Companies Act, 1956, relating to Subsidiary Companies

1 Name of the Subsidiary : Khosla Indair Ltd.

2 Financial year of the Subsidiary ended on : 31st March, 2005

3 Holding Company’s interest :Equity Share Capital : 100%

4 Profit or Loss for the current financial year so far as concerns the Members of the HoldingCompany, not dealt with or provided for in the Accounts of the Holding Company : Rs. (15,190)

5 Net aggregate Profits or Losses for the previous financial years since becoming subsidiaryso far as concerns the Members of the Holding Company, not dealt with or provided for in theAccounts of the Holding Company : Rs. (7,619,997)

6 Net aggregate amounts received as dividends for previous financial years since becomingsubsidiary dealt with in the accounts of the Holding Company in relevant years. : NIL

For and on behalf of the Board of Directors.

H. R. Mustikar Sanjay C. Kirloskar

Managing Director Chairman

Pune, April 28, 2005

46

Khosla Indair Limited

23RD ANNUAL REPORT

FOR

THE YEAR ENDED ON 31ST MARCH, 2005

BOARD OF DIRECTORS

Mr. H R Mustikar Chairman

Mr. Suhas S. Kolhatkar

Mr. Kedar P. Phadke

Regd. Office : 208, MEGHDOOT, 94, NEHRU PLACE, NEW DELHI 110 019

47

DIRECTORS’ REPORT TO THE MEMBERS

To,

The Members,

Khosla Indair Ltd.

The Directors present their 23rd Annual Report together with the audited Statement of Accounts of the Company

for the year ended March 31, 2005.

OPERATIONS:-

The turnover of the Company during the year under review is Rs. 9452/- (previous year Rs.8292/-).

The Company has made a loss of Rs. 15190/- during the year. The accumulated loss has increased to Rs.

7,635,187/-, which has been carried over to the Balance Sheet.

DIVIDEND:-

In view of the accumulated losses, Directors do not recommend dividend for the year under review.

FIXED DEPOSIT:-

The Company has not accepted any Fixed Deposits.

DIRECTORS:-

In accordance with the requirements of the Companies Act, 1956 and the Articles of Association of the Company,

Mr. H. R. Mustikar, retires by rotation and being eligible offers himself for reappointment.

Mr. A. R. Sathe and Mr. B. P. Sahni, Directors of the Company, resigned on March 30, 2005. The Board wish to

place on record their deep sense of appreciation for the valuable services rendered by them during their tenure.

The Board of Directors, at their meeting held on March 30, 2005, have appointed Mr. Suhas S. Kolhatkar and

Mr. Kedar P. Phadke as Additional Directors of the Company.

AUDITORS :-

The Auditors of your Company M/s. Raghu Nath Rai & Company, Chartered Accountants, retire at the forthcoming

Annual General Meeting and are eligible for re-appointment. The requisite Certificate pursuant to Section 224

(1-B) of the Companies Act, 1956 has been received from them.

AUDITORS’ REPORT :-

With reference to observations on note to the accounts referred to by the Auditors in their Report, the Directors

wish to state that the said notes are self-explanatory.

STATUTORY DISCLOSURES

1. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE:-

The information required under Section 217(1)(e) of the Companies Act, 1956, read with the Companies

(Disclosure of Particulars in the Report of the Board of Directors) Rules, 1998, pertaining to Energy Conservation,

Technology Absorption, Foreign Exchange Earnings and Outgo is not applicable since there are no

manufacturing operations in the Company and do not form a part of this Report.

2. PARTICULARS OF EMPLOYEES

The Company had no employees of the category indicated under Section 217(2A) of the Companies Act,

1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended.

3. DIRECTORS RESPONSIBILITY STATEMENT

The Directors confirm that:

1. In preparation of Annual Accounts, the applicable accounting standards have been followed.

2. Our Directors had selected such accounting policies and applied them consistently in order to show true

and fair view of the state of affairs.

3. Directors had taken proper care in maintaining accounting record as per the provisions of the Companies

Act, 1956 and for safeguarding Company’s Fixed Assets and detecting fraud and other irregularities.

4. Annual Accounts are prepared on the principle of going concern.


H. R. Mustikar

Pune, April 25, 2005 Chairman

48

AUDITORS’ REPORT TO THE MEMBERS

We have audited the attached Balance Sheet of KHOSLA INDAIR LIMITED as at 31st March, 2005 and also the

Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the

responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial

statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement. An audit include examining on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating the overall financial statement presentation. We

believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditors’ Report) Order, 2003 (CARO), we report that, in our opinion, and to the

best of our knowledge and belief and as per information and explanations furnished to us and the books and

records examined by us in the normal course of audit.

1. Clause 4(i) of CARO is not applicable as the Company was having negligible value of fixed assets during the

year under reporting.

2. Clause 4(ii) of CARO is not applicable as the Company was not holding any inventory during the year under

reporting.

3. The Company has taken unsecured loan from one party to be listed in the Register required under Section

301 of the Companies Act, 1956. No interest has been paid on this loan. Amount outstanding as on

31st March, 2005 is Rs. 11.50 lacs. As there are no stipulations as to repayment, there are no overdue amounts.

The Company has shown this loan under current liabilities.

4. The Company has not granted any loans to Companies, Firms or other Parties to be listed in the Register

required under Section 301 of the Companies Act, 1956.

5. Clause 4(iv) of CARO is not applicable as the Company has neither purchased any inventory and fixed assets

nor sold any goods. Sale of services is of very minor value during the year.

6. According to the information and explanation given to us and on the basis of such checks as we considered

appropriate the Company has not purchased / sold goods and materials and services from / to Companies

and other parties in which directors are interested as to be listed in the register required under Section 301 of

the Companies Act, 1956 aggregating during the year to Rs. 5,00,000/- or more in respect of each party.

7. The Company has not accepted any fixed deposits from public within the meaning of Section 58A of the

Companies Act, 1956 and Companies (Acceptance of Deposits) Rules 1975.

8. The Company is not having any formal Internal Audit System.

9. The Central Government has not prescribed maintenance of cost records under Section 209(1)(d) of the

Companies Act, 1956, for any of the Company’s products.

10. There have been cases of delay in payment of service tax during the year. However as per information

available with us, there were no arrears of undisputed statutory dues as on 31st March, 2005 outstanding for

a period more than 6 months.

11. There are no disputed amounts payable in respect of Income Tax, Sales Tax, Excise Duty, Custom Duty,

Wealth Tax, Service Tax and Cess outstanding as at 31st March, 2005

12. The accumulated losses of the Company as on 31/03/2005 are more than its net Worth. The Company has

incurred Cash losses during the financial year under report and also in the immediately preceding financial

year.

13. There are no outstanding dues of financial institutions or banks or debenture holders.

49

14. The company has not granted any loans and advances on the basis of security by way of pledge of shares,

debentures and other similar securities.

15. The Company is not a chit fund and therefore the provisions of any special statute are not applicable.

16. The Company is not dealing or trading in shares, securities, debentures and other investments.

17. As per information and explanations given to us, the Company has not given any guarantee for loans taken

by others from bank or financial institutions.

18. The Company has not taken any term loans.

19. The Funds raised on short term basis have not been used for long term investment during the year.

20. During the year the Company has not made any preferential allotment of shares.

21. The Company has no outstanding debentures.

22. The Company has not raised any money by public issue during the year.

23. No fraud on or by the Company has been noticed or reported during the year.

Further to and in terms of the above, we further report that

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were

necessary for the purpose of our audit.

b) In our opinion, proper books of accounts as required by law have been kept by the company so far as

appears from our examination of such books.

c) The Balance Sheet and Profit and Loss Account referred to in this report are in agreement with the books of

account.

d) In our opinion, the Balance Sheet and Profit and Loss Account comply with the accounting standards referred

to in sub-section (3C) of section 211 of the Companies Act, 1956.

e) On the basis of written representations received from the Directors and taken on record by the Board of

Directors, we report that none of the directors is disqualified as on 31st March, 2005 from being appointed as

a director in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956.

f) In our opinion and to the best of our information and according to the explanations given to us, the said

Balance Sheet and Profit & Loss Account read together with the Accounting Policies and notes to accounts

give the information required by the Companies Act, 1956 in the manner so required and subject to following

notes of Schedule ‘H’;

1. Note No B (ii) regarding adoption of Going Concern Basis

2. Note No B (iii) treatment of unsecured loans of Rs. 11.50 lacs; give a true and fair view :

i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2005, and

ii) In the case of the Profit and Loss Account, of the Loss of the Company for the year ended on that

date.

For RAGHU NATH RAI & Co.


( SAMIR JAIN )

New Delhi, April 26, 2005 Partner

Membership No.: 77010

50

In terms of our Report of even date attached For and on behalf of the Board of Directors.

For Raghu Nath Rai & Co. H. R. Mustikar

Chartered Accountants Chairman

Samir Jain Suhas S. Kolhatkar

Partner Director

New Delhi, April 26, 2005 Pune, April 25, 2005

BALANCE SHEET AS AT 31ST MARCH, 2005

(Amount in Rs.)

Schedules As At As At

Annexed 31st March 2005 31st.March 2004

SOURCES OF FUNDS

Shareholders Funds

Share Capital A 4,950,000.00 4,950,000.00

Reserves & Surplus B 1,550,000.00 1,550,000.00

TOTAL 6,500,000.00 6,500,000.00

APPLICATION OF FUNDS

Fixed Assets C

Gross Block 2,155.00 2,155.00

Less:Depreciation 1,429.00 1,357.00

Net Block 726.00 798.00

Current Assets, Loans and Advances D

Sundry Debtors 40,709.00 73,750.00

Cash & Bank Balances 39,739.65 32,330.65

Loans & Advances 8,731.00 880,366.00

89,179.65 986,446.65

Less : Current Liabilities & Provisions E

Current Liabilities 1,216,362.08 1,201,742.08

Provisions 8,731.00 905,500.00

1,225,093.08 2,107,242.08

Net Current Assets (1,135,913.43) (1,120,795.43)

Profit & Loss Account 7,635,187.43 7,619,997.43

TOTAL 6,500,000.00 6,500,000.00

Accounting Policies & Notes on Accounts H

51





Partner Director


PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31ST MARCH, 2005

(Amount in Rs.)

Schedules Current Previous

Annexed Year Year

INCOME

Sales & Services 9,452.00 8,292.00

9,452.00 8,292.00

EXPENDITURE

Employees Expenses F 6,000.00 6,000.00

Miscellaneous Expenses G 33,689.00 46,007.43

Depreciation C 72.00 72.00

39,761.00 52,079.43

Profit for the year (30,309.00) (43,787.43)

Provision Written back 15,119.00 -

Provision for Taxation - -

Profit after Tax (15,190.00) (43,787.43)

Balance Brought forward (7,619,997.43) (7,576,210.00)

Balance Carried forward (7,635,187.43) (7,619,997.43)

Profit after Taxation being Profit attributable (15,190.00) (43,787.43)

to Equity Share Holders

Weighted Average no of Equity Shares outstanding 495,000.00 495,000.00

Basic & diluted earning per share in rupee (0.03) (0.09)

(face value Rs. 10/- per share)

Accounting Policies & Notes on Accounts H

52

SCHEDULES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT 31ST MARCH, 2005

(Amount in Rs.)

As At As At

31st March 2005 31st.March 2004

Schedule ‘A’- Share Capital

Authorised:

495,000 Equity Shares of Rs. 10/- each 4,950,000.00 4,950,000.00

500 Preference Shares of Rs. 100/- each 50,000.00 50,000.00

5,000,000.00 5,000,000.00

Issued, Subscribed & Paid Up:

495,000 Equity Shares of Rs.10/- each fully paid up 4,950,000.00 4,950,000.00

Total 4,950,000.00 4,950,000.00

Notes : All Shares are held by the Holding Company,

Kirloskar Pneumatic Co Ltd.

Schedule ‘B’- Reserves & Surplus

Capital Reserve ( Capital Subsidy ) 1,500,000.00 1,500,000.00

Capital Redemption Reserve 50,000.00 50,000.00

Total 1,550,000.00 1,550,000.00

Schedule ‘D’ - Current Assets, Loans & Advances

(A) Sundry Debtors (Unsecured)

Exceeding six months 40,709.00 73,750.00

Others - -

As per Balance Sheet 40,709.00 73,750.00

(B) Cash and Bank Balances

Cash & Imprest 837.16 419.16

With Scheduled Banks in Current Accounts 38,902.49 31,911.49

Total 39,739.65 32,330.65

(C) Loans & Advances (Unsecured)

Advance Income Tax 8,731.00 880,366.00

As per Balance Sheet 8,731.00 880,366.00

SCHEDULE ‘C’- FIXED ASSETS

GROSS BLOCK DEPRECIATION NET BLOCK

Name of Assets As on Additions Sale/ Total as on As on For the Adjustments Total as on As On As On

1.4.2004 Transfer 31.03.2005 1.4.2004 Year 31.03.2005 31.03.2005 31.03.2004

Furnitures & Fixtures 2,155.00 - - 2155.00 1357.00 72.00 - 1429.00 726.00 798.00

Total 2,155.00 - - 2,155.00 1,357.00 72.00 - 1,429.00 726.00 798.00

Previous year 2,155.00 - - 2155.00 1285.00 72.00 - 1357.00 798.00 870.00

53

SCHEDULES ANNEXED TO AND FORMING PART OF BALANCE SHEET AS AT 31ST MARCH, 2005

(Amount in Rs.)

As At As At

31st Mar. 2005 31st.Mar.2004

Schedule ‘E’- Current Liabilities & Provisions

Current Liabilities

Due to Holding Co. 1,149,807.08 1,135,407.08

Sundry Creditors

For Supplies 55,535.00 55,535.00

For Expenses 11,020.00 10,800.00

Other Liabilities - -

Total 1,216,362.08 1,201,742.08

Provisions

Provision for Income Tax 8,731.00 905,500.00

SCHEDULE ANNEXED TO AND FORMING PART OF PROFIT & LOSS A/C FOR THE YEAR ENDED ON 31.3.2005

Schedule ‘F’ - Employees Remuneration & Exp.

Salary, Wages, Bonus & Retainership 6,000.00 6,000.00

Total 6,000.00 6,000.00

Schedule ‘G’- Miscellaneous Expenses

Rent 6,000.00 6,000.00

Rates & Taxes 1,500.00 2,090.00

Legal & Consultation 12,250.00 20,750.00

Travelling & Conveyance - 2,996.00

Other Expenses 13,939.00 14,171.43

Total 33,689.00 46,007.43

54





Partner Director


SCHEDULE ‘H’ - ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS

A. SIGNIFICANT ACCOUNTING POLICIES:

i) BASIS OF ACCOUNTING :

The Accounts of the Company are prepared under the Historical Cost convention in accordance with applicable Accounting

Standards, except where otherwise stated. For recognition of Income and Expenditure, Mercantile System of Accounting

is followed, except to the extent stated below.

a) Due to uncertainty, Income on account of Insurance Claims are accounted for as and when received.

b) Expenses incurred on services during warranty period are accounted for on cash basis.

ii) REVENUE RECOGNITION :

a) Revenue from the sale of goods, except otherwise stated are recognised upon the passage of titles to the customers,

which generally coincides with the delivery.

b) Sales are exclusive of Sales tax.

iii) FIXED ASSETS :

Fixed Assets are shown at cost less accumulated depreciation.

iv) DEPRECIATION :

Depreciation has been provided on straight line method as per old rates given in Schedule XIV of the Companies Act, 1956.

v) VALUATION OF INVENTORIES

Inventories are valued as follows :

a) Raw material & General Stores are valued at cost.

b) Work in Progress are valued at cost.

c) Finished Goods are valued at cost or market value whichever is lower.

B. Notes to Accounts

i) Miscellaneous Expenses in Schedule ‘G’ include :

Current Year Previous Year

Auditors Remuneration Rs. Rs.

Audit Fee 11,020 11,100

ii) The Accounts have been prepared on going concern basis despite the fact that the entire networth of the company has been

wiped out. There has been no trading during this year and the company has scheme of enhancing its activities in near future.

iii) The Company has treated closing balance of the holding company amounting to Rs. 11.50 lac as a current liability instead of

unsecured loan.

v) Taking into account the consideration of prudence, no asset or liability is anticipated on account of Deferred Tax.

vi) The previous year figures have been regrouped or rearranged wherever considered necessary.

vii) Additional information pursuant to provisions of Para 3 and 4 of Part II of Schedule VI to the Companies Act 1956 is as follows:

(A) Turnover

Particulars Quantity in Units Value in Rupees

Current Year Previous Year Current Year Previous Year

a) Compressors - - - -

b) Service Charges & Job Work - - 9,452.00 8,292.00

Total - - 9,452.00 8,292.00

(B) Particulars of Stock

Particulars Opening Stock Closing Stock

Qty. in Value in Qty. in Value in

Units Rs. Units Rs.

Compressors - - - -

- - - -

NOTE: (1) The above information has been given by the Management and relied upon by the Auditors.

(2) Figures shown in brackets pertain to previous year.

55

BALANCE SHEET ABSTRACT AND COMPANY’S BUSINESS PROFILE

I. Registration Details

Registration No. 1 3 0 3 7 State Code 5 5

Balance Sheet Date 3 1 0 3 2 0 0 5

Date Month Year

II. Capital Raised During the Year ( Amount in ‘000 )

Public Issue Right Issue

N I L N I L

Bonus Issue Private Placement

N I L N I L

III. Position of Mobilisation and Deployment of Funds ( Amount in ‘000 )

Total Liabilities Total Assets

6 5 0 0 6 5 0 0

Sources of Funds

Paid up Capital Reserves & Surplus

4 9 5 0 1 5 5 0

Secured Loans Unsecured Loans

N I L N I L

Application of Funds

Net Fixed Assets Investments

1 N I L

Net Current Assets Misc. Expenditure

- 1 1 3 6 N I L

Accumulated Losses

7 6 3 5

IV. Performance of Company ( Amount in ‘000 )

Turnover & Other Income Total Expenditure (Net)

9 3 9

+ - Profit / Loss Before Tax + - Profit / Loss After Tax

- 3 0 - 1 5

Earning Per Share in Rs. Dividend %

- . 3 0 N I L

V. Generic Names of Three Principal Products / Services of Company(As per monetary terms )

Item Code No(ITC Code) 8 4 1 4 4 0 . 0 1

ProductDescription R E C I P R O C A T I N G A I R C O M P R E S S O R


ProductDescription S C R E W A I R C O M P R E S S O R


ProductDescription G A S C O M P R E S S O R





Partner Director


KIRLOSKAR PNEUMATIC COMPANY LIMITEDREGISTERED OFFICE : HADAPSAR INDUSTRIAL ESTATE, PUNE 411 013

ATTENDANCE SLIP

PLEASE BRING THIS ATTENDANCE SLIP AND HAND IT OVER AT THE ENTRANCE OF THE MEETING HALL AT THE REGISTERED

OFFICE OF THE COMPANY.

NAME & ADDRESS OF THE MEMBER FOLIO NO.

DP ID*

CLIENT ID *

I hereby record my presence at the Annual General Meeting of the Company at the Company’s registered office at Hadapsar

Industrial Estate, Pune 411 013 on Thursday, the 21st July 2005 at 11.00 a.m.

SIGNATURE OF THE MEMBER OR PROXY SHARE(S) HELD

* Applicable to members holding shares in Electronic Form

KIRLOSKAR PNEUMATIC COMPANY LIMITEDREGISTERED OFFICE : HADAPSAR INDUSTRIAL ESTATE, PUNE 411 013

PROXY FORM

I / We....................................................................................................................................................................................................of

....................................................................................................................................of...................................................................in the

district of..................................................................................................................being a member(s) of the above named Company

hereby appoint........................................................................................................of.........................................................in the district

of...................................................................................................................................................................................or failing him / her

.......................................................................................................................of..............................................................in the district of

..................................................................................................as my / our Proxy to vote for me / us on my / our behalf at the Annual

General Meeting of the Company to be held on Thursday the 21st day of July 2005 at 11.00 am and at any adjournment thereof.

Signed this.............................day of..................2005.

FOLIO NO.

*DP ID *CLIENT ID

* Applicable to members holding shares in Electronic Form

NOTE : The Proxy Form must be deposited at the Registered Office of the Company, not less than 48 hours before the time for

holding the meeting.

Affix 15

Paise

Revenue

Stamp

TA 3000, 800 KW Centrifugal Compressor packaged in India

API 619 Propylene Compressor Package of Refrigeration Plant forNumaligarh Refinery Ltd., Assam

Gear Boxfor 225 KW Wind Mill


Hadapsar Industrial Estate, Pune - 411 013, INDIA. Tel.: +91(20) 2687 0133, 2687 0341.

Fax: +91(20) 2687 0297. E-mail: [email protected]

Website: www.kirloskar.com









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