Chairman's Speech for the 17th Annual General Meeting of

Kirloskar Ferrous Industries Limited on August 28, 2008.

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Welcome

Good morning Ladies and Gentlemen

On behalf of the Board of Directors, I extend a very warm welcome to all of

you to this 17th Annual General Meeting. The notice convening the meeting,
the Directors' Report and the audited accounts have been with you for some
time and with your permission, I shall take them as read.

Economic Environment:

In the year under review, the Country's GDP recorded a growth of 9% as

compared to 9.6% in 2006-07. The service sector grew by 10.8 per cent as
against 11.1 per cent growth in 2006-07. Industrial growth at 8.5 per cent
in 2007-08 was lower than the 11 per cent growth recorded in 2006-07.
The manufacturing sector grew by 8.8 per cent vis-a-vis the strong
12 per cent growth in the last year, while the mining & quarrying sector grew
by 4.7 per cent over the last year. The agricultural sector grew by a healthy
4.5 per cent in 2007-08 as compared to the 3.8 per cent growth in 2006-07.

On a year-on-year basis, inflation based on the wholesale price index stood at

7.4 percent at end-March 2008 as compared with 5.9 per cent at end
March 2007.

Country's exports grew by 22.9 percent in 2007-08, marginally higher than

a 22.6 per cent growth registered in the previous fiscal. Exports stood
at $155.4 billion in 2007-08, against $126.4 billion in the previous fiscal,
mainly driven by a huge jump in engineering goods, gems and jewellery and
petroleum products.

Total imports in FY 08 stood at $235.7 billion, up 26.9 per cent, from the last
year's mark of $185.7 billion.

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During 2007-08, the foreign exchange reserves increased by
US $ 110.5 billion to US $ 309.7 billion by end-March 2008.

The average price of Indian basket of crude oil rose by 27.4 per cent to
USD 79.5 per barrel from $62.4 per barrel in FY 07.

Monetary and Liquidity Conditions in the Indian Economy:

The Indian foreign exchange market witnessed generally orderly conditions

during 2007-08 with the exchange rate exhibiting two-way movements.
The exchange rate of the rupee against the US dollar, which was Rs.43.59
at end-March 2007 appreciated to Rs.39.97 per US dollar by
end-March 2008. The rupee-euro exchange rate depreciated from Rs.58.14
at end-March 2007 to Rs.63.09 by end-March 2008. Overall, during 2007-08,
the rupee appreciated by 9.1 per cent against the US dollar and by
7.5 per cent against pound sterling but depreciated by 7.7 per cent against
the Japanese yen, and by 7.8 per cent against the Euro.

The Indian equity market witnessed large swings during 2007-08.

The BSE Sensex (1978-79=100) increased by 19.7 per cent during the year
from 13072 at end-March 2007 to 15644 at end-March 2008. The intra-year
peak of 20873 was recorded on January 8, 2008. Corporates mobilised large
resources through public issues during the year. Sound macroeconomic
fundamentals, private corporate profitability, institutional buying support and
global macroeconomic conditions were the major factors determining the
movements in equity prices.

In the credit market, deposit and lending rates edged up during the year as
credit demand accelerated further.

Industry Overview:

Now, I deal with the overview of the pig iron industry. Market for pig iron was
stable and the prices also firmed up. However, coke and iron ore, which are
the predominant constituents in the manufacture of pig iron, have shown
increasing trend in their prices.

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Owing to the favourable international market, the iron ore exports from India
was 100 Million tons during 2007-08, nearly half of it to China and Japan.

As a consequence of the above and coupled with the demand from the
domestic industry, there was an increase in iron ore prices throughout
the year.

Owing to high demand of coke both in international and domestic market and
less export of coke from china, the coke prices which were at a level of
USD 215 MT at the beginning of the year increased steadily to reach a level
of USD 520 MT towards the close of the year. Also the Iron Ore price,
which was at Rs. 2,000/- per MT (ex mines) in 2006 – 07, rose to a level of
Rs. 2,780/- per MT in 2007 - 08.

The Pig Iron realisation increased from Rs. 14,875/- per MT in 2006 – 07 to
Rs. 18,580/- per MT in 2007 – 08.

I will now draw your attention on the scenario prevailing in the Auto Industry
and Tractor Industry which has bearing on the business of our company.

Auto Industry:

According to figures released by the Society of Indian Automobile

Manufacturers, the total production too declined 2.29% to 1.08 crore units
against 1.11 crore units in FY 2007 as demand remained low.

However despite the fall, there was high growth for car and bus
manufacturing companies. The passenger cars sales — the silver lining for
the automobile industry — increased 12.17% to 15.47 lakh units in FY 08
against 13.79 lakh units, while bus sales increased 36% to 34,417 units.
While light trucks 12.57% to 1.93 lakh units

Tractor Industry:

According to figures released by Tractor Manufacturer Association, the total

tractor industry witnessed a dip of 1.78% in 2007-08 at 3,46,501 units as
compared to 3,52,781 units in 2006-07.

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Therefore Inspite of moderate performance by both Auto and Tractor
industries, there was demand for castings throughout the year.

Year under Review:

Operational Review:

Now I would like to share with you some of the highlights on the
achievements of your company.

The sales and other income stood at Rs.744.80 Crores as compared to

Rs.531.56 Crores of the previous year resulting in an increase of 40.11%.

Your Company sold castings aggregating to Rs.262.89 Crores as compared

to Rs.166.69 Crores in the previous year. There has also been an increase in
growth in volume of castings by 57%. The Pig Iron sale was
Rs. 368.43 Crores as compared to Rs. 301.70 Crores during
the previous year.

The profit before tax for the year under review stood at Rs. 65.81 Crores as
compared to Rs. 66.55 Crores of the previous year after providing for
depreciation and amortization.

Rights Issue utilisation and Warrants Conversion

Out of the Rights Issue proceeds of Rs. 2,267.40 Million, the Company has
utilised Rs. 2,054.47 Million for the objects of the Rights Issue till
March 31, 2008. Hot Blast Stoves were installed and commissioned during
the year under review.

Regarding the Warrants, they can be converted into Equity Shares during the
period, which has commenced on March 13, 2008 and will conclude on
March 13, 2010.

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Industrial Relations:

Your company has concluded the wage negotiations with the workmen in
both the units i.e., Hospet and Solapur. The wage settlement is linked to the
productivity and as such the increased wage bill is being absorbed by the
increase in production. This agreement will be in force 2011.

The Employer – Employee Relations have been generally cordial throughout

the year.

Business Scenario and Current year prospects:

The Indian economy is expected to be adversely affected by the surge in

inflation fuelled by energy and commodity prices. Despite signs of growth
slowing down from last year, the Reserve Bank of India has already hiked
interest rates twice during June 2008 to deal with inflationary pressures.
Higher interest rates are expected to moderate growth even further.

Inflation based on the wholesale price index, increased from 7.4 percent at
end-March 2008 to 11.9 per cent by July 12, 2008, reflecting the impact of
some pass-through of higher international crude oil prices to domestic prices
as well as continued increase in the prices of iron and steel, basic heavy
inorganic chemicals, machinery and machinery tools, oilseeds/edible oils etc
on account of strong demand, international commodity price pressures.

Indian equity markets recovered to some extent during April-May 2008 but
declined thereafter in tandem with the trends in major international equity
markets as well as edging up of domestic inflation.

High oil prices, strong input costs, and a depreciating rupee continue to
exacerbate inflationary and other pressures. High interest rates, along with a
slowing global economy, is expected to trim GDP growth to 7.8% in 2008-09.
Oil price had touched an all-time high of $147.27 a barrel on 11th July 2008
but has corrected from there in the succeeding weeks.

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Rising inflation, a forecast slowdown in economic growth, and turmoil in the
global financial markets have dampened investor confidence and led to
foreign capital outflow. This has led the rupee, which was already under
pressure from a rising oil import bill, to depreciate against major currencies
during the first quarter of 2008-09.

Indian Auto Industry is expected to grow at 8 - 10% for 2008-09 and

Tractor Industry is poised for a growth at 6 - 8%. Considering the above, the
demand is expected to exceed the existing capacities of the casting industry.

To capitalise on the upward trend in the demand for the castings, your
company is enhancing the capacity of Solapur plant by installing a new high
pressure moulding line along with supporting equipments. Machine shop
modernisation has also been taken up to improve value addition. All this will
enable your Company to sustain and improve its share of business in the
growing market.

Coke and Iron ore prices are on the increasing trend due to continued
demand from both International and Domestic Markets.

To reduce the raw material cost your company is pursuing the matter of coal
to coke conversion as well as to get the Iron Ore mines at the earliest.

The current year 2008-09 has started off on a good note, which is reflected in
the results of the first quarter showing a sales turnover of Rs.200.16 Crores
(Quarter – 1 of 2007-08 Rs. 165.50 Crores) and a profit before tax of
Rs.20.39 Crores (Quarter – 1 of 2007-08 Rs. 23.05 Crores) after charging
Rs. 5 crore towards relining of one of the furnace.

Future Prospects:

The installation of a new high pressure moulding line with other utility
equipments at Solapur is in progress and is expected to be commissioned in
the current year.

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In order to become cost competitive, the Company has identified the following
projects for cost saving –

• Installation of stoves in second Mini Blast Furnace;

• Installation of turbo blower to utilise the excess blast furnace gas;

• a manipulator for evacuation of hot castings.

Corporate social responsibility:

As a part of its corporate responsibility to the society your Company has been
supporting and providing assistance to the nearby villages by supply of good
quality drinking water and educational assistance. Also basic facilities such as
roads, drainages, school building and medical centre has been provided
though the Trust set up by your Company. Weekly medical check ups by the
specialist doctors, along with free medicine is provided in the neighbouring
village. Seed money has also been provided to rural women to promote self-
employment schemes.

Environment:

Besides effluent treatment of waste products and suppression of fugitive

emissions through sprinklers, lot of other initiatives have been taken to
improve the greenery all around the plant, through massive tree plantation
programs.

Corporate Governance:

Your board is committed to complying with the standards of corporate

Governance. The Board has and will take steps and measures in fulfilling its
responsibility and in ensuring transparency with regard to the financial
statements, internal control and investor related information.

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Acknowledgement:

On behalf of the Board and myself, I take this opportunity to thank our
Customers, Bankers, Financial Institutions and suppliers for the cooperation
and assistance extended to your Company. I thank all the shareholders for
their support and confidence posed with the Company. I also place on record
my appreciation to the leadership of Mr. Gumaste and the teamwork
displayed by the employees of your Company.

Thank you!