KIRLOSKAR OIL ENGINES LIMITED
ANNUAL REPORT 2011-2012
MANAGEMENT DISCUSSION AND ANALYSIS
The global economy grew at 3.8% in the calendar year 2011 as against 5.2%
in 2010, according to the World Economic Outlook released by the
International Monetary Fund. The slowdown during 2011 occurred mainly due
to emerging and developing economies experiencing slower growth than before
which was compounded by increased stringency of monetary policies. The
growth is likely to slowdown further to 3.3% during 2012.
There is a possibility that the Euro regions may experience a mild
recession in 2012. This may emerge as a result of rise in sovereign yields,
effects of bank de-leveraging on the real economy and additional fiscal
consolidation. Growth in emerging and developing economies is also expected
to slow down due to worsening external environment and a weakening internal
The Indian economy grew robustly at around 8.4% in the two preceding
financial years. In 2011-12, it grew at the rate of 6.9%. The Wholesale
Price Index (WPI) remained constant at around 9% during the year. This
slowdown is almost entirely, due to the weakening of the country's
industrial growth which is expected to grow at 3.9% in Financial Year 2011-
12. However, agriculture, its allied sectors and the services sector,
continued to perform well. The expected growth of these sectors would be
2.5% and 9.4% respectively in Financial Year 2011-12.
Several global factors contributed to India's economic slowdown. These
include Euro region crises, sluggish growth in some industrialized
economies and rising global commodity prices. The hardening of
international crude oil prices also had a significant impact on the
national economy. Resultantly, commodity prices in the domestic markets
also saw a steep rise, which, along the tightening of monetary policies to
control inflation contributed to an environment of slowing investment in
the industrial sector.
India's Economic Survey for Financial Year 2011-12 projects the country's
GDP growth to accelerate to 7.6% in 2012-13 and 8.6% in 2013-14, along with
falling inflation and fiscal consolidation. The Global Economic Prospects
published by the World
Bank more cautiously predict a continued slowdown in the Indian economy,
with a 6% growth rate in 2012-13 that will rise to 7.3% over 2013-14.
The Company's performance is impacted by industrial growth in key business
India's construction sector was expected to grow at 4.8% during the
Financial Year 2011-12 as against 8% during the Financial Year 2010-11. In
Financial Year 2011-12, highway construction projects, 4,375 km in total
length, were commissioned. The Union Budget has set a target of completing
highways totalling 8,800 km in length under the National Highway
Development Programme (NHDP) in the Financial Year2012-13.
The power sector saw a growth of 8.6% during April 2011 - January 2012 as
compared to 5.2% during April 2010 - January 2011. India's energy deficit
decreased from 9.6% in 2006-07 to 7.9% during April 2011-December 2011.
Peak deficit declined from 13.8% to 10.6% during the same period. Apart
from financing related challenges, growth in this sector is expected to be
constrained by fuel shortages and issues regarding environmental regulatory
During the year under review, the Company achieved sales of Rs. 2,276
crores (including sales of bearings business of Rs. 62 crores) as against
Rs. 2,364 crores in the previous year, (including sales of bearings
business of Rs. 123 crores), showing a marginal decline of 3.8%.
The profit before tax is Rs. 281 crores (including profit on sale of
bearings business Rs.48 crores) in 2011 -12 against Rs. 244 crores in the
previous year 2010-11.
Engines Business operational performance
The Company caters to diverse customer needs across three key sectors of
the economy viz. agriculture, industry and services.
1. Agriculture Engines Business
The agriculture sector witnessed a growth of 2.8 % in 2011. The Indian
agriculture market for engines below 20 hp witnessed 21% growth which was
due to untimely monsoon and grid power deficit in many regions of rural
India. Government subsidy schemes for pump sets also played a vital role in
market growth. This was true, especially for portable engines for pump set
application below 5 hp. However, the Company's Agriculture Business
registered a negative growth of 6% on account of the high price gap with
respect to competitors (mainly Indian unorganized sector) and Chinese
imports. The Company is in the process of formulating a strategy for growth
to respond to these challenges and is committed to improving its market
2. Industrial Engines Business
The industrial engines marketgrew by 14% during Financial Year 2011-12. The
demand for the Company's products in the industrial engines segment was
dampened by the tightening monetary policy of the Reserve Bank of India and
rising inflation in building material prices in the country. The Company's
share in the domestic market declined to 30% in Financial Year 2011-12 from
52% in the previous fiscal. However, the Company continues to maintain a
significant position in the Indian industrial engines market.
During the Twelfth Plan, investment in infrastructure is expected to be Rs.
50 lakh crores. The India Infrastructure Finance Company Limited (IIFCL)
has put in place a structure for credit enhancement to ease access of
credit to infrastructure projects. As mentioned earlier, the government has
indicated a target of covering 8,800 kms of roads under the NHDP in
Financial Year 2012-13. With these developments, the Indian construction
equipment industry is expected to grow by 19 - 20% over the next few years.
3. Power Generation Engines Business
The Company's power generation engines business addresses the telecom and
other industrial segments such as retail, banking and IT. At the macro
level, the power situation has improved with decline in the peak deficit
from 13.8% in 2006-07 to 10.6% during the period April 2011 - December
2011, thereby affecting demand for power generation sets.
Telecom operators curtailed expansion plans in India in Financial Year
2011-12. In order to remain competitive amidst an uncertain regulatory
landscape, they increased focus on tower sharing arrangements instead of
new roll-outs, thereby negatively impacting the demand for DG sets as
compared to the previous year.
During Financial Year 2011-12, the Company achieved a market share of 23%
by value in this segment. The Company is pursuing a sound risk management
strategy through product diversification (to include smaller KVA bracket
3000 RPM Gensets) and enhanced focus on government business.
4. Large Engine Business
During the year, all engines manufactured and supplied within the Large
Engine Business were for Stationary Power Plant application, to provide
emergency power using High Speed Diesel (HSD) as fuel. The Company's
engines are preferred by customers on account of high proven reliability in
In Financial Year 2011-12, the Company received an order of Rs. 396 Crores
from the Nuclear Power Corporation of India Limited (NPCIL) for supply,
erection and commissioning of 16 Emergency DG sets each with a power rating
of 4.2 MW. This order was received under a global tender and is expected to
be completed (up to installation phase) in the next 3.5 years.
The Company entered into a license agreement with Daihatsu Diesel
Manufacturing Co. Ltd., Japan, for manufacture, marketing and supply of
diesel engines in India in the 610KW to 2560 KW range. Daihatsu is an
established manufacturer and global supplier of diesel engines for marine
and power plant applications. These engines will cater to requirements of
the commercial marine segment.
5. Customer Support
The presence of an extensive network, comprising 103 trained service
dealers and 342 well equipped service outlets, across India illustrates the
Company's commitment to customer support. This widespread network enables
the Company to provide timely after-sales services to its customers,
including those during emergency situations. Customer requests are
responded to within 4 to 8 hours of time depending on the distance.
While ensuring high service standards at all times through regular audits
of its service dealers, customer education is another area of high
priority. Towards this end, over 300 customer training events were
conducted in Financial Year 2011-12 with the objective of educating
customers on engine maintenance. To further strengthen our customer
relationship and to satisfactorily meet customer needs, the Company has
proactively introduced centralized Annual Maintenance Contracts (AMC) as
well as a customer help desk to handle all complaints.
The Company has presence in international markets with offices in UAE,
South Africa and Kenya, as well as representatives in Indonesia and Nigeria
and a strong distribution network throughout the Middle East and Africa.
New markets in the Middle East, South East Asia and New Zealand are being
Research & Engineering
1. Existing and New product development
The Company has continued with the K1080 programme and substituted 4
Cylinder engines in place of 6 Cylinder engines in the 100 to 125 kVApower
The development of a Portable Diesel Genset has been completed and its
planned market launch is currently underway. The Company is entering a new
market segment in India with the launch of this product.
2. Emission Norms
The Company has successfully complied with BS-III norms for construction
equipment, which became mandatory from April 1,2011. The engines are now
well received in the market.
Various Quality Assurance processes were effectively implemented in
Financial Year 2011-12 to ensure trouble free production ramp up of all the
engines/applications conforming to all BS III requirements. Customers are
fully satisfied with the quality of products delivered.
The Company continued training its suppliers and a few identified Genset
OEMs on Six Sigma tools, benefits of which have been realized in terms of
reduced PPM levels. The Company remains committed towards developing and
improving various supply chain related processes.
The Company organized a Supplier Quality Contest in Financial Year 2011-12
to provide a platform for its suppliers to share their quality improvement
projects and other best practices. Awards were presented to the winners as
a token of recognition of their sustained efforts.
Vendor Development & Material Cost Reduction Initiatives
The Company is focusing its efforts on vendor training for quality systems
and Six Sigma Tools. Selective supplier funding has helped improve their
delivery performance. The vendor online payment facility is now fully
established. New suppliers were added to develop new engines and
Cost control and cost reduction projects continued to be a focus area.
Initiatives undertaken in this direction include Value Analysis/Value
Engineering (VA / VE), exploration of alternate materials, process
improvements and re-engineering. Effective implementation of cost control
measures across the supply chain has helped the Company optimize its
The Company continues to maintain healthy and harmonious industrial
relations. In September 2011, the Company signed a wage agreement with the
workers union at its Nashik plant.
1. Training and Development Programmes
With an objective of developing future leadership, the Company has designed
leadership development programmes for different managerial levels:
- Leadership Development Programme (LDP) was initiated for the second batch
of senior level managers.
- Middle Management Development Programme (MMDP) for middle level managers
was launched and completed.
- Assessment Centre for identifying Fast Trackers at the junior level was
initiated. An individual development programme has been evolved for all
existing Fast Trackers.
2. Employee Engagement Activities
During the year, the Company conducted various employee engagement
activities, including an employee engagement survey, workgroup level action
planning and follow up sessions and speak out sessions. These initiatives
were aimed at assessing the level of employee satisfaction and taking
appropriate corrective actions. The employee satisfaction score in
Financial Year 2011-12 showed an improvement over the previous year.
3. Employee Performance Management Initiatives
The Company developed an online Performance Management System (PMS) for
managers in Financial Year 2011-12, facilitating online quarterly reviews
and feedback. The objective of PMS is to develop a performance oriented
culture in the Company and also to ensure the alignment of individual goals
with corporate goals.
Environment, Occupational Health & Safety (EHS)
During the Financial Year 2011 -12, the Company undertook the following
environment initiatives across all its plants: Pune Plant:
- Asbestos roofing was replaced with galvalume sheets
- Turbo ventilators were installed for natural ventilation
- Alight pipe system was introduced in office areas to reduce electricity
consumption Kagal Plant:
- Reaction cum sludge dewatering unit installed for effective industrial
- A4000 cu m rainwater harvesting pond was constructed
- An oil and water separator was installed (for the screw compressor) to
avoid soil contamination
- 800 trees were planted Nasik Plant:
- Rainwater harvesting facility installed
- Installation of a light pipe in the assembly and office areas to reduce
- Anew paint booth with an innovative concept of down draught ventilation
was installed Rajkot Plant:
- The plantation area was increased from 35,000 sq. ft. to 39,000 sq. ft.
- Turbo ventilators were installed for natural ventilation
- Use of natural gas in place of HSD at paint booth oven
- EHS certification was obtained for this plant
The Company's second annual Corporate Sustainability Report was released in
the public domain in January 2012. The report was awarded the highest
Application Level Check rating of A+ by the Global Reporting Initiative
(GRI), Netherlands, forthe second successive year.
The Company places utmost importance on the health and wellbeing of its
employees. As part of this commitment, lectures on health, fitness,
diseases and lifestyle improvement as well as medical check-ups of its
employees are regularly organized.
During the year, the following initiatives were undertaken to improve the
occupational health of the Company's employees:
- Acoustic enclosure for all Engine Test beds to reducing occupational
noise exposure at the Pune plant
- 'Wellness at Door Step' programme (health check up) for employees at the
Pune and Kagal plants
- Blood donation camp organized for employees at the Kagal plant
- Realigning of paint booth to reduce odour and improve work environment at
the Rajkot plant Safety
- A new process was implemented for the use of a fire-blanket to cover fire
prone material while welding / gas cutting at a height.
- EHS training programmes were conducted throughout the year. Corporate
Social Responsibility (CSR)
The Company conducts yearly Community Perception Surveys (CPS) to assess
its perception as a Corporate Citizen among communities in the vicinities
of its operations. The CPS rating in Financial Year 2011-12 showed a
significant improvement over the previous year. The Company has, as a
policy, chosen health and education as primary areas of focus for its CSR
In addition to CSR highlights mentioned in last year's report, the
following new initiatives were employed during Financial Year2011-12:
- Health awareness programmes on adolescent health and hygiene
- Provision of school material to primary school children
- Workshop for teachers and students on team building, career guidance
- Waste Management workshop
- 'Hasat Khelat Paryavaran' events in Pune and Kagal to develop
- Livelihood generation training for self-help groups
- Life skills training programmes
- Vocational training programmes for the youth
- Support to the Kirloskar Foundation for their programmes Awards,
Recognitions & Certifications
During the Financial Year 2011 -12, the Company received the following
awards, recognition and certifications:
- The Commendation Certificate for Strong Commitment to Excel from CM. This
award is a testament to the efforts and commitment of the Company to attain
world class standards of performance.
- For the second consecutive year, the Engineering Export Promotion Council
(EEPC) conferred its award to the Company. This award is sponsored by
Ministry of Commerce & Industry, Government of India.
- Participated in the national convention on Quality Concept 2011 organized
by the Quality Circle Forum of India. The Pune plant received the Par
- The Pune and Kagal plants received the prestigious '12th National Award
for Excellence in Energy Management 2011'from the Confederation of Indian
- KAIZEN on DV Cylinder Head won 1 st prize at the national level in
'INDIZEN 2012' contest.
- QCFI, Pune Chapter Trophy for the Financial Year 2010-11 for spreading
Quality Circle activities across the organization
- The Pune and Nashik Plants received the MEDAENCON award
- 'Gurukul' (the Company's training centre) at the Kagal Plant received
'Best Prax Benchmark 2011 Award' in the manufacturing category.
Concerns and Threats
India's off highway engines market slowed down to 14% in Financial Year
2011-12. The market demand was adversely affected by factors such as poor
availability of funds, which in turn hampered growth in the housing
segments, delayed closure of highways projects by NHDP, scams related to
the mining sector etc.
Apart from the overall slowdown in the market, during Financial Year 2011-
12, a major customer of the Company commenced in-house manufacture of
diesel engines. To compensate for this loss, the Company has aggressively
begun expanding its customer base and applications portfolio. The Company
successfully stabilized manufacture and supply of BS-III engines to over 55
applications during the first quarter of the last fiscal.
The off highway market continues to be bearish and is likely to regain its
buoyancy towards the beginning of the third quarter of the current fiscal.
The Company anticipates the inflationary trend to pick-up in the coming
months. The Company is gearing up to effectively address the cost pressures
and enhance its operational efficiency.
The Company's engines and pump sets for the agriculture segment have shown
a better performance and low total cost of ownership. This is in comparison
to the products of its competitors. Also, the Company's products are priced
at an average premium of 35% -40%.
However, the Company faces stiff competition from low cost Chinese imports
and from unorganized Indian players. Availability of Government subsidies
for diesel pump sets in most of the agriculture market plays a vital role
in generating a demand for our agriculture pump sets.
India's peak power demand continues to grow at approximately 8% annually,
the associated power shortage during high peak will raise demand for diesel
gensets in the near future. Import of low cost diesel generators has
resulted in increased competition from global players in the lower
The Company's business plans in the telecom business were not realized on
account of low level of buying by telecom operators. Non telecom market
movement was lower in the first two quarters, however the Company responded
to market needs and achieved growth in the third and fourth quarters.
On the regulatory front, the Government of India is considering revision of
emission norms by June 2013. All engine manufacturers will have to upgrade
the design of engines to conform to the new emission standards. The Company
is confident that its products will meet the required emission norms.
Increased competition in the higher kVA product range from international
players venturing into the Indian genset market is expected. The Company is
currently in the process of developing engines for higher kVA DG sets and
is confident that these will meet customer requirements and will feature
enhanced operational and performance parameters.
The stationary power plant segment of the large engine business group was
adversely affected by high furnace oil prices in Financial Year 2011-12.
Generation of power at those prices became uneconomical for the customers.
This situation continues to be an area of concern.
Prospects for the Current Year
For the current financial year, the Company has a cautious outlook on the
economy, considering the anticipated rise in crude oil prices and
inflationary pressures in the economy, especially in Coke and Steel.
The Government of India continues to put great emphasis on infrastructure,
especially the urban infrastructure and national highways. The Union Budget
2012-13 envisages 8,800 kms of road constructions with a total outlay of
Rs. 25,000 crores.
In the power generation segment, the estimated demand and supply gap of
around 8%, together with continuing improvement in lifestyles will sustain
the business growth. Growth in service and manufacturing sectors is also
expected to trigger the demand for generator sets. Besides conventional
power generation, the Government of India has announced setting up of new
nuclear power plants. The Company has already taken a lead in this area by
winning orders worth Rs. 396 crores to supply gensets to the Nuclear Power
Corporation of India over the next 3 years. The demand for DV series
engines is rising and this product segment is expected to perform better in
the current financial year.
Statements in this report, particularly those which relate to Management
Discussion and Analysis, describing the Company's objectives, projections,
estimates and expectations may constitute 'forward looking statements'
within the meaning of applicable laws and regulations. Actual results may
differ materially from those either expressed or implied.
The Directors would like to place on record their appreciation of the
contribution made and support provided to the Company by the shareholders,
employees, bankers, suppliers and customers.
For and on behalf of the Board of Directors
ATUL C. KIRLOSKAR
Date : 26 April 2012
Place : Pune.
KIRLOSKAR OIL ENGINES LIMITED
(FORMERLY KNOWN AS KIRLOSKAR ENGINES INDIA LIMITED)
ANNUAL REPORT 2010-2011
MANAGEMENT DISCUSSION AND ANALYSIS
The operations of the Company comprise of Engines and Bearings business and
operational performance review is carried out separately for these
While global economies are still recovering, Indian economy has
comparatively shown a faster recovery. In the year under review, the Indian
export sector has shown a growth of approx 50% in volume terms and 37% in
value terms over the previous financial year. The engineering sector has
significantly contributed to the growth in exports.
Growth of investment in agriculture and industries such as retail,
hospitality, hospitals, IT, banking and infrastructure is evident in the
current financial year. This generated a good demand for our engines, pump
sets and generating sets. However due to continual increase in prices of
crude oil, customers could also prefer alternate fuels for engines.
The growth of telecom Industry in India peaked in 2008-09. This was
followed by a period during which the telecom companies separated the
activity of telecom towers management into a separate business. The
previous financial year saw consolidation of the tower management
businesses. As a result of the consolidation, saturation of telecom density
in the urban areas and less than expected growth in the rural areas, the
demand for generating sets went down considerably. Other than the telecom
industry, demand for generating sets for power generation has shown a
steady growth. The competition for generating sets below 30kV Arrange has
further intensified during the year under review.
During the year under review, your Company achieved sales of Rs. 2,363 Crs.
(Previous Year Rs. 2,219 Crs.) resulting in increase in sales by 6.5 % over
The profit before tax is at Rs. 244 Crs. (Previous Year Rs. 263 Crs.) after
providing for depreciation of Rs. 85 Crs. (Previous Year Rs. 84 Crs.)
Business wise analysis is presented below:
BUSINESS WISE OPERATIONAL PERFORMANCE
Your Company caters to the diverse needs of the customers from all the
three sectors of economy namely Agriculture, Industrial and Services.
A. ENGINE BUSINESS
1. Agriculture & Off Highway Engine Business
While agriculture sector grew by 5.4% due to progressive governmental
policies during the year under review, the Indian agriculture market for
engines below 20HP shrunk by 15% in numbers, due to the delay in onset of
monsoon and monsoon continuing through the sowing period. The market share
was enhanced in the agriculture segment from 17% to 21% despite the drop in
total market volume. A total of more than 76,000 engines were sold in the
Agricultural market, out of which 30,000 were portable pump sets which were
launched in the year 2008, despite facing competition from cheaper Indian
and Chinese alternatives. High head portable pump sets were introduced for
the agriculture market.
The growth of India's construction equipment industry is directly linked to
the growth of the country's economy, since it is driven by increased
investments in the infrastructure and related sectors. Construction
equipment industry (primarily comprising of backhoe, crane and excavators
etc., used in the Off Highway segment) has shown a growth of 20% during the
year under review. In the Off Highway Market, the Company grew by 21%
driven by robust domestic demand. Besides this, bulk supplies were started
to new customers acquired in the previous financial year. Such supplies
accounted for 10% of the total supply to the Off Highway Markets. The
proactive measures resulted in enhancing its market share in the domestic
Your Company successfully geared up for the BS-III emission norms now
applicable for Construction Equipment Vehicles [CEV], by migrating over 55
applications from BS-II to BS-III.
Overseas agriculture & Off Highway market also experienced revival in
demand; especially in the West Asia & African markets. During the year
under review, acquisition of a major OEM customer in South African mining
market strengthened our market position. Internationally, Agriculture & Off
Highway markets recovered during the year under review. The marketing
strategy will address the demand in the focus markets and will also enable
the Company and its business partners to tap the potential business in this
2. Power Generation Engine Business
The power generation business of the Company addresses the telecom and
other industrial segments such as retail, banking, IT and telecom markets.
During the year under review the domestic power generation market, except
the telecom segment, experienced a revival in demand. Overall market, other
than the telecom segment, grew by around 15%.
Your Company continuously innovates to bring down the life cycle cost of
the products thereby providing value for money to our customers. The newly
designed DV series of engines in the range of 320 kVAto 625 kVA were
successfully launched in the domestic market. Our Research & Development is
working on extending the range to 750 kVA.
New products were developed in the range of up to 160 kVA, which run on
alternate energy sources like natural gas and bio gas.
The global economic meltdown seems to be easing up in the overseas markets
served by the Company. Increased efforts in the overseas markets in the
industrial segments resulted in acquisition of new customers, in Africa,
Middle-East & South East Asia and the Indian sub continent. Company has
increased its presence in key geographical locations in countries such as
UAE, Nigeria, South Africa & Kenya.
3. Customer Support Business
Your Company has a widespread network of trained service dealers and well
equipped service outlets all over India. The network enables us to respond
to customer calls upto 50 km range within 4 hours and beyond 50 km range
within 8 hours.
Growth was achieved in Agriculture Spares segment by increasing the number
of parts distributors and increasing focus on availability of parts.
New initiatives and constant up-gradation of systems and procedures helped
the Company in securing customer confidence and also gaining over 21%
growth in spare parts sale over the previous year and also additional
revenue generation through annual maintenance contracts with cellular
operators as well as domestic customers.
4. Large Engine Business
During the year under review, engines were supplied for main propulsion
application and for stationary power plant application. In the stationary
power plant market segment, high fuel oil prices adversely affected new
Commissioning of previously supplied engines on the naval vessel frigates
built at Mazagaon docks was successful. Four generating sets, each of 3.6
MW rating, are successfully installed at the Kalpakkam Nuclear Power Plant,
which are awaiting final commissioning.
5. Kagal Plant
During the year under review, in the fourth year of operation, the
production of engines increased by 53% and production of generating sets
increased by 15% over the previous year.
Generating sets of400 kVAand 500 kVA using the new DV series engines were
15 Nos. of 500 kVA generating sets were supplied by our OEMs for powering
the opening and closing ceremonies of the Common Wealth games at New Delhi.
Company successfully added 46 engine application codes to fulfill the needs
of the Customers in Off Highway and Power Generation businesses.
2600 rpm portable pump sets were successfully manufactured within the
existing set up.
Productivity improvements and measures for increasing flexibility in
manufacturing processes were introduced to meet the fluctuating market
6. Pune Plant
During the year under review, your Company has renovated and upgraded its
manufacturing facilities. The plant renovation activity was completed
successfully without affecting deliveries to customers. Due to this
renovation, improvement is expected in labour and plant productivity.
The plant undertook proto, pilot and production batch proving of DV series
of Engines. The Pune plant provided 106 new application codes including
proto and pilot of BS-III compliant R1040, 4R810, 6R1080 and HA medium
Engines. SL90 Engines with FM &UL certification were successfully handed
over for commercial production.
During the year under review, 12 innovative low cost automation projects
were completed and the plant achieved more than 8500 nos. of Kaizens.
The Quality circle from Pune plant was selected for excellent category in
Quality Circle Contest at National level. It also bagged Silver trophy at
international Quality Circle contest.
7. Rajkot Plant
During the year under review, the manufacturing capacity for engines was
increased to 10,000 engines/month. The plant achieved BIS certification for
5HP to 8HP engines with N-series pumps
The automobile industry continued to be buoyant and provided opportunities
for growth in the business. During the year under review, the automobile
sector grew at an average of 9%. The sales of the bearings division for the
year under review amounted to Rs. 123 Crores, an increase of 15% over the
Market share increased to 36% of the OEM market and to 41% in the
after market. The after-market segment has grown significantly due to
increase in vehicle population.
The Company has made adequate investment in technology, infrastructure and
quality, which will enhance customer satisfaction.
C. RESEARCH AND ENGINEERING
1. New Products and Product Development
Your Company strives to fill the product gaps by continuously developing
new products and upgrading existing products. The solutions are being
constantly optimized to minimize inputs and maximize outputs.
The Company has successfully launched K-1080 engine covering 140 to 160
Two models of DV range are successfully handed over for commercial
production to cover product ranges from 320 kVA to 625 kVA. Variants with
speed of 1800 rpm are also under development.
New variant of portable pump set at 2600 rpm handed over to production to
meet higher head requirements.
New applications have been developed for R-810 series engines which have
been introduced in production.
An investment of more than Rs. 20 Crores was made in upgrading Research and
Development facilities in view of upcoming stringent emission norms.
BS-III norms for construction equipment are effective from 1st April 2011.
The company has developed cost effective and user-friendly solution and all
the engines have been certified for these norms and proto samples were
supplied to customers.
3. Alternate Fuels
During the year under review, the Company has developed CNG Generating sets
up to 160kVA which have been successfully installed at different sites.
Company is actively pursuing the development of engines with bio-fuels like
bio-gas and straight vegetable oils (SVO) in the range below20HP.
D. INDUSTRIAL RELATIONS
The Company continues to maintain and improve its healthy and harmonious
Kirloskar Oil Engines Limited was selected jointly by Maratha Chamber of
Commerce, Industries and Agriculture (MCCIA) and Rotary Club of Poona West,
for their newly introduced 'BEST EMPLOYEES RESPONSE AWARD' in large
industry category, Pune.
Your Company's achievement of signing the 6th consecutive wage settlement
in time and without losing even a single production man day in last 50
years (Considering Pre and Post Demerger period) was recognized by a major
publication. This is a unique achievement for any manufacturing company in
Our Employees' health is of prime importance to the Company. Medical check-
up of employees is carried out regularly. Company regularly conducts
lectures on health, fitness, common ailments and diseases and life style
improvement with a view to enhance employee awareness.
Development of employees is an important focus area for the company.
Employees are encouraged to participate in programmes such as Out-Bound
Training, team building, and also various sporting and cultural activities
within and outside the Company.
E. ENVIRONMENT, OCCUPATIONAL HEALTH & SAFETY (EHS)
The Company continues to be recognized for its commitment towards the
* Pune plant is certified for EMS, ISO 14001: 2004 (Environmental
Management System), an international certification standard, since 1999.
* Pune plant is certified for OHSAS-18001:2007 (Occupational Health &
Safety Management System), an international certification standard, since
* Kagal plant is certified for EMS, ISO 14001:2004 (Environmental) & OHSAS-
18001:2007 (Occupational Health & Safety Management System) Integrated
Management System, since 2009.
* At Kagal 2033 trees have been planted to protect the environment
* Nashik Plant is certified for EMS, ISO 14001:2004 (Environmental) &
OHSAS-18001:2007 (Occupational Health & Safety Management System)
Integrated Management System in Jan, 2010.
* ANagar Plant is certified for EMS, ISO 14001:2004 (Environmental) &
OHSAS-18001:2007 (Occupational Health & Safety Management System)
Integrated Management System in Jun, 2010.
* Implementation of Environmental (EMS) & OHSAS (Occupational Health &
Safety Management System) is in process at Rajkot Plant.
Your Company's maiden Corporate Sustainability report for the year 2009-10,
was released in the public domain on 7th March 2011. Kirloskar Oil Engines
Limited is the first engine manufacturing company in India, to release this
report and receive highest level check certification of A+ from Global
Reporting Initiative (GRI), Netherlands. This rating testifies your
Company's position as an environmentally conscious company, integrating
business principles with sustainable development.
Kirloskar Oil Engines Limited has been honored with Parivartan Leadership
Award for Sustainability-2011 in automotive sector. This award, organized
by India Carbon Outlook, seeks to recognize Indian companies who have
embraced sustainability in their business operations and supply chain.
These companies have shown leadership by taking initiatives for making
their products, processes and facilities sustainable.
In the year under review, following EHS improvement measures were
* Upgradation of paint booth in Pune plant to eliminate air and land
pollution due to paint dust
* Systematic disposal of waste Glass wool (2.9 MT) & used Asbestos sheets
* Installation of transparent roof sheets for enhanced illumination level &
use of natural day light in R-HA Machine shop & Tech Center.
* Installation of turbo vents for improved ventilation in Pune Plant.
* Initiated detailed study on Carbon foot print for all the plants
Based on the finding of Electrical Safety Audits conducted by National
Safety Council (NSC) at Pune, Kagal, Nashik & Rajkot plants, detailed
action plan is under implementation.
Following measures were taken to increase awareness amongst employees on
a) Various competitions were conducted
b) Experts' lectures and seminars arranged on Energy Conservation (ENCON),
EHS at all locations
c) Environment Day celebration (No Vehicle Day)
F. HUMAN RESOURCES
During the year, a number of initiatives were taken in the area of human
The Company conducts Employee Engagement Survey through Gallup India every
year. The Gallup Survey for the year 2011 was conducted in January 2011.
The findings of the survey are used to develop the concrete action plan for
increasing employee engagement.
The Performance Management System for managers was reframed and
implemented. Job Evaluation exercise was initiated to create a role based
level matrix in senior management grades. With a view to develop future
leadership pool, 20 managers were nominated for Leadership Development
Programme, jointly developed with leading management institute. Similarly,
Middle Management Development Programme was initiated in collaboration with
Kirloskar Institute of Advanced Management Studies.
As a part of the Company's effort to improve skill and competency levels of
managers, specially designed need based training programmes were conducted
in various functional areas.
G. CORPORATE SOCIAL RESPONSIBILITY (CSR)
Your Company firmly believes in contributing to the well being of society
through its CSR initiatives in the surrounding communities with a
clearfocus on Health, Education, Environment and Livelihood at all plant
* Sponsored education of children from Akanksha Foundation
* Computer Literacy Program for children
* Career Guidance Workshops forstudents
* Health Awareness Program like De-Addiction, HIV/Aids Awareness, Healthy
* Celebrated 'Joy of Giving' Week
* Free Health Check up Camps
* Tree Plantation
* PUC Check up camps
* Environment Fair at Community
* ENCON Initiatives
* Workshops on income Generation for Self Help Groups
* Livelihood Advanced Business School Training programmes through CM Yl
group & Dr.Reddy's Foundation
H. COST CONTROL
Cost control and cost reduction measures continued to be focus area. This
has helped the Company in partly offsetting Inflationary pressures. Value
Engineering, Value Analysis and Process Re-engineering were the major/
initiatives undertaken. Effective control on the costs across the supply
chain has helped the Company to optimize the material cost.
I. QUALITY ASSURANCE
Several key processes were strengthened and also undertaken several
initiatives like 'Six sigma programs which are being pursued as a part of
continuous improvement process were undertaken. The Company has 139 Green
belt holders and 50 certified Black belt holders in the year under review.
Supplier Quality improvement is a focus area for the Company. Towards this
end, the concept of 'Quality Capacity' was emphasized throughout the
Company's supply base and also during the Annual Supplier Conference.
The Company provides training to suppliers on quality tools like 'Six
Sigma' through six sigma black belt internal trainers certified by CM. The
Initiatives like Supplier Quality Task Force were implemented. As a result
of the efforts put in, the trend for supplier quality performance, measured
in terms of defective parts per million (PPM) is showing continuous
For the last few years Supplier Quality Contest has been conducted. This
provides recognition for the efforts put in by suppliers in continuous
improvement activities as well as in sharing best practices among supplier
partners. The number of customer complaints has reduced by more than 20%
for almost the entire product range.
J. BUSINESS EXCELLENCE
For the second consecutive time, your Company has received the Commendation
Certificate from CM EXIM for Strong Commitment to Excel. In the pursuit of
organisation excellence, this award is a testament to the efforts &
commitment of our employees to attain world class performance.
CONCERNS & THREATS
With the growth momentum in the domestic market, India is an attractive
market for most of the Global players in generating sets business. Entry of
low cost manufacturers in the lower end of the market has led to a fierce
price competition and entry of global players in the higher range has
generated intense competition in that segment. This is likely to put
pressure on the margins of the products in the short and medium term.
The demand for generating sets from the telecom markets is expected to
remain sluggish during the current financial year.
In order to overcome market challenges Company is focusing on expanding the
business in overseas markets and in new product segments like alternate
fuel engines, defense, marine auxiliary generating sets etc.
The pump-sets manufactured by your Company have a better performance and
lower cost of ownership than the competition. Availability of Government
subsidies for diesel pump-sets in some of the Indian Agricultural Markets
is critical and can impact the demand for these products. The competitive
pressures in the Agricultural Market are on the rise and as a result,
margins for these products will be under pressure. Company continues to
work towards mitigating this threat through several cost control measures.
The inflationary trend which started in the last quarter of the year under
review, especially in the Metals Market, is showing no signs of softening.
Further due to tightening of the credit policy by RBI, money flow in the
retail market is getting restricted. As a result, the demand for the Off
Highway equipments is anticipated to taper down in the short term. We will
continue to monitor the emerging scenario, pick-up the early warning
signals and update business plans.
Several Global Players in the Off Highway markets have set up their
operations in India. Thus the competitive landscape in the Equipment Market
is rapidly changing, as the new entrants are attempting to maximize their
share of Indian Market.
Your Company has acquired New Customers and developed new applications for
its products during the year under review and will continue to design
appropriate market strategies.
Effective from 1 April 2011, the emission norms applicable for Commercial
Equipment Vehicles [CEV] have changed from BS-II to BS-III. If the
component industry is unable to ramp up its supplies commensurate with
demand, Company may lose market opportunities in the short term.
Auto Majors will continue to aggressively book the plant capacity of
Suppliers. As such, Company will proactively work towards enhancing
Supplier capacities and capabilities.
PROSPECTS FOR THE CURRENT YEAR
For the current financial year 2011-12, your Company has a cautious outlook
on the economy, considering the anticipated rise in crude oil prices,
inflationary pressures in the economy and the rising interest rates.
Government of India continues to put great emphasis on infrastructure
especially the urban infrastructure as well as national highways, by
enhancing budgetary allocation as well as setting up of lending mechanism.
Several necessary steps to meet the requirements of regulatory change from
BS II to BS III emission norms in the off highway sector have been taken.
In the Power Generation segment, the demand and supply gap for power and
improvement in lifestyle will continue to drive the business. The power
deficit will continue to drive the demand. The deficit is expected to be
around 10% during the current financial year. This deficit, along with the
growth in service and manufacturing sector is expected to trigger growth
for generating sets business during the current financial year. Besides
conventional power generation, Government of India has announced setting up
of new Nuclear Power Plants. Your Company has already taken lead by
successfully supplying large Gensets to Kalpakkam Nuclear Power Plant. Sale
of newly introduced DV range of generating sets has picked up and is
expected to do better. With the projected 8-9% GDP growth, the Company
expects to achieve growth of turnover in the range of 15% to 20%.
Statements in this Report, particularly those which relate to Management
Discussion and Analysis, describing the Company's objectives, projections,
estimates and expectations may constitute 'forward looking statements'
within the meaning of applicable laws and regulations. Actual results might
differ materially from those either expressed or implied.
INTERNAL CONTROLS SYSTEMS AND THEIR ADEQUACY
Internal Audit across the organization is carried out by a renowned
auditing firm as per the plan approved by the Audit Committee. Senior
Management of the Company reviews the internal audit reports regularly and
the major findings of the audit report along with the action plan are
discussed with the Audit Committee. Internal Controls related to key
business processes are validated during the course of audit. During the
year, ERP implementation review in respect of various business processes
was also carried out.