Asian Paints - Annual Report - 2008-2009

ASIAN PAINTS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Dear Members,

Your Directors have pleasure in presenting the 63rd Annual Report of your
Company and the Audited Accounts for the financial year ended 31st March,
2009.

FINANCIAL RESULTS:

(Rs. in Crores)
Asian Paints Limited

2008-09 2007-08 Growth
(%)

Sales and Operating Income (Net) 4270 3419 24.9

Operating Profit 621 617 0.8

Less: Interest 10 8

Less: Depreciation 57 44

Profit before Tax and exceptional item 554 565 -1.9

Less: Exceptional item 6

Profit before Tax 548 565 -3.0

Less: Provision for Current, fringe benefit
and deferred Tax 184 188

Profit After Tax 364 377 -3.3

Add/(Less): Prior period items (2) (2)

Net Profit after prior period items 362 375 -3.4

Less: Minority interest

Net Profit attributable to shareholders of
the Company 362 375 -3.4

Add: Balance brought forward from the
previous year 200 150

DISPOSABLE PROFIT 562 525

That the Directors recommend for
appropriation as under:

Dividend - Interim 62 62

- Final 106 101

Tax on Dividend 28 28

Transfer to General Reserve 136 134

Balance carried forward to Balance Sheet 230 200

Asian Paints Limited
Group Consolidated
2008-09 2007-08 Growth
(%)

Sales and Operating Income (Net) 5463 4407 24.0

Operating Profit 721 720 0.1

Less: Interest 26 21

Less: Depreciation 74 59

Profit before Tax and exceptional item 620 640 -3.0

Less: Exceptional item 1 7

Profit before Tax 619 633 -2.2

Less: Provision for Current, fringe benefit
and deferred Tax 197 203

Profit After Tax 422 430 -1.8

Add/(Less): Prior period items (3) (2)

Net Profit after prior period items 419 428 -2.0

Less: Minority interest 22 19

Net Profit attributable to shareholders of
the Company 398 409 -2.8

Add: Balance brought forward from the
previous year 200 150

DISPOSABLE PROFIT 598 559

That the Directors recommend for
appropriation as under:

Dividend - Interim 62 62

- Final 106 101

Tax on Dividend 29 28

Transfer to General Reserve 171 168

Balance carried forward to Balance Sheet 230 200

Net sales and operating income for the standalone entity increased to Rs.
4,270 crores from Rs. 3,419 crores in the previous year - a growth of
24.9%. The operating profit (PBDIT) increased by 0.8%, from Rs. 617 crores
to Rs. 621 crores. The profit after tax for the current year is Rs. 362
crores as against Rs. 375 crores in the previous year.

The consolidated sales and operating income net of discounts and excise
duty increased to Rs. 5,463 crores from Rs. 4,407 crores - a growth of 24%.
Net profit after minority interest for the group for the current year is
Rs.398 crores as against Rs. 409 crores in the previous year.

NOTES ON FINANCIAL RESULTS:

* Paint volume sales growth was good both in India and international
operations.

* Significant increase in material costs led to increase in the selling
prices in the first half of the year.

* Profit Before Tax was impacted by high material costs during the first
half of the year. In the third quarter reduction in selling prices to
stimulate demand and consumption of inventories carried at higher cost,
impacted margins.

* An exceptional item of Rs. 5.9 crores has been provided in the current
year, being provision for diminution in the value of long term investment
in the subsidiary in Bangladesh, based on management's assessment of the
fair value of its investment.

* The exceptional item in the previous year pertained to a loss on
disposal of the subsidiary in Australia. The analysis on the performance of
your Company is discussed in the Management Discussion and Analysis report.

CONSOLIDATED ACCOUNTS:

Your Company has received a letter from the Ministry of Corporate Affairs
(MCA) granting exemption under Section 212(8) of the Companies Act, 1956
from attaching the financial statements of the subsidiary companies in
India and abroad, both direct and indirect, to the balance sheet of your
Company for the financial year 2008-09. A statement of summarised
financials of all subsidiaries of your Company, pursuant to the approval
under Section 212(8) of the Companies Act, 1956, forms part of this report.
Additional information in respect of the annual report and the financial
statements of the subsidiary companies of your Company will be made
available to members on request. In accordance with the Accounting Standard
(AS 21) issued by the Institute of Chartered Accountants of India,
Consolidated Financial Statements presented by your Company include
financial information of all its subsidiaries.

DIVIDEND:

During the financial year 2008-09, your Company declared and paid an
interim dividend of Rs. 6.50 per equity share in the month of November,
2008. In addition, your Directors recommend payment of Rs. 11/- per equity
share as the final dividend for the financial year ended 31st March, 2009.
If approved, the total dividend (interim and final dividend) for the
financial year 2008-09 will be Rs.17.50 per equity share; Rs.17/- per
equity share was paid as dividend for the previous year.

TRANSFER TO RESERVES:

Your Company proposes to transfer Rs. 135.97 crores to the general reserve.
An amount of Rs. 230 crores is proposed to be retained in the profit and
loss account.

MANAGEMENT DISCUSSION AND ANALYSIS:

These have been unprecedented times for the global economy. The financial
meltdown caused by several complex forces that created imbalances in fund
flows, asset price bubbles; financial instruments that caused yet other
problems has resulted in the most severe financial crisis since the Great
Depression. While most developed economies are expected to be in recession
in 2009, the vast majority of developing countries are experiencing a sharp
reduction in growth from that seen in the period 2002-2007. Central Banks
have aggressively cut interest rates to pump-prime economies and
governments across the globe have announced large stimulus packages to
revive the jammed financial systems. But the financial strains remain
acute. A sustained economic recovery will be possible only when the
abnormal risk aversion in the financial sector abates and credit begins to
flow into the economies.

The impact of this contagion was felt in India as well. The Services
sector, especially IT, is facing headwinds from low growth rates and the
strong protectionist stance in developed world while export growth has
turned negative since October, 2008. After seeing 7.5% plus growth
consistently for the past five years, increasing distress from the global
crisis along with deteriorating domestic situation has set the stage for a
marked slowdown in growth this year. Job losses have been reported across
sectors with export units, financial services, airlines and infrastructure
taking a major hit. The GDP is estimated to have grown at 6.5% for the
financial year 2008-09.

The first half of 2008-09 saw high inflation on the back of a rapid rise in
crude prices and other base commodities. However, beginning September 2008,
both inflation and growth came down. Inflation at the end of the year was
near 0.26% after touching 13.4% in July, 2008. A combination of falling
commodity prices and domestic tax cuts (excise, customs and service tax)
helped to hasten the decline. The rupee was also extremely volatile and saw
heavy depreciation against major currencies, losing more than 20% against
the US dollar, during the course of the year.

I. Products and Market:

Paints:

The year 2008-09 was a very difficult year for the paint industry. A
combination of soaring raw material prices and a sharp fall in demand in
the third quarter of the year affected the industry. The market for all
paints produced by companies in India both big and small is estimated to
have grown by about 17 to 18% by value over the previous year, but by less
than 10% by volume. The growth for decorative paints would be above 20% by
value and industrial paints substantially lower. The volume growth for the
industry would be the lowest over the last five years at about 9%. The year
was marked by exceptional growth in the first six months followed by a much
slower growth in sales during the rest of the year. The third quarter
volume growth was negative, but volumes recovered substantially in the
fourth quarter. Given the circumstances, your Company has done very well in
the year 2008-09.

Decorative Paints:

Your Company has been the leader in the Decorative paints segment for over
four decades now and this year too, your Company believes it grew faster
than its competitors in this segment. As the environment turned out to be
far more difficult than anticipated, your Company's response was twofold;
continue to invest in the business to build long term strengths and
simultaneously, respond proactively to the rapidly changing environment to
ensure that growth is strong in the near term.

Effective 1st April 2008, your Company's entire range of Decorative
products was made free of lead and other heavy metals. This is a step in
making your Company's products fully conform to contemporary standards.

Growth in turnover was ahead of volume on account of price increases as
well as changes in the product mix. Emulsion paints for interiors have been
growing much faster than distempers over the last decade. This trend
continued in the financial year 2008-09. Exterior emulsions too continue to
grow much faster than the overall paint demand powered by the Company's
leading brands Apex Ultima, Apex and Ace. In both these categories your
Company introduced a range of new products which did very well. In
Exteriors, the Duracast range of textured finishes, Ultima Metallics and
Apex Tile Guard all had successful launches. In interiors, the Royale Play
metallics and Stucco, the kids range of Chalkboard, Fluorescent and Glow
and Royale Shyne had successful launches and are doing very well. During
the later part of the year, your Company tied up with Dupont USA to co-
brand the Royale range of Emulsions with Teflon, the product synonymous
with toughness and durability.

The year marked another first for the Company. In May, it opened its
Signature Store 'Colour' at Bandra in Mumbai. A unique experience centre,
it was opened to build confidence through education about colour and to de-
mystify and remove the hassle from the decorating process. In essence its
purpose was To provide inspiration to families while they are in the
process of designing their dream home by fuelling their spirit of
experimentation'. The store is the first of its kind in the world in the
Paint category and the response from the end consumer has been phenomenal.
Over 17,000 consumers have visited the store in the last ten months and the
level of customer delight achieved has been exceptional. Regular weekend
training programs have been run for consumers on Colour and Decor.

Your Company continued with its efforts in upgrading the shop ambience of
its leading retailers and providing services to their customers and
training to their shop personnel. These have been well appreciated by both
your Company's retailers and end consumers. Your Company has also commenced
introducing a new chain of Colour ideas' where retail outlets have been
modified to offer a slice of the Signature Store' thereby providing the
same inspiration to consumers in process of designing their homes. The
first two stores have been inaugurated at Hyderabad and Chennai and have
met with a very enthusiastic response from consumers. Your Company is now
in the process of expanding this network of Colour Ideas' across the
country.

The expansion of the ColourWorld network continues unabated and today your
Company has more than 12,000 ColourWorlds offering a wide range of products
7 Asian Paints Limited Annual Report 2008-2009 and shades to consumers even
in many small towns across the length and breadth of India.

Your Company continued to invest in the area of colour with the launch of
ColourNext 2009. Several Colour Guides and Decor booklets are available to
consumers at retail outlets.

Prices of raw materials increased sharply in the first six months of the
year. The impact of rising crude prices as well as the depreciating rupee
affected price especially of solvent based products. As a result, your
Company increased prices six times till 1st October, 2008. Due to good
demand and increase in trade inventories, growth in the first half of the
year 2008-09 was excellent. In the last five months of the year, raw
material prices fell sharply due to the world wide slowdown. The third
quarter was weak and there was poor purchasing by dealers as they responded
to low demand and reduced inventory. Your Company responded by lowering
prices in November, 2008, December, 2008 and February, 2009. This did
affect short term profits due to the consumption of higher priced inventory
carried by the Company but helped revive growth. This was reflected in the
last quarter performance which was a welcome change after the poor showing
in the third quarter. Growth in the paint sale in the fourth quarter was
27.63%. The volume growth achieved would have been considered good in a
normal year. The excellent annual performance in the top-line has enabled
your Company to do better on profits than would have been the case
otherwise.

The capacity of the Sriperumbudur Plant has been raised to 100,000 KL per
annum. The Distribution Centres at Kasna Plant and Ankleshwar Plant have
been commissioned. With the completion of two additional centres at
Sriperumbudur Plant and Patancheru Plant over the next fifteen months, your
Company would have modernised its vast distribution system, making it
possible to service its 25,000 strong distribution base more effectively
with lower levels of inventory.

The work on the erection of the Company's Sixth Decorative Paint plant at
Rohtak, Haryana is on schedule with its first phase of 150,000 KL per annum
scheduled for commissioning in the first quarter of 2010-11.

Your Company is committed to continually improving its products, expanding
its product range and offering its consumers a wide range of products and
services at every value proposition. Your Company believes that this along
with continuous investment in marketing activities will enable your Company
to expand its business and meet the challenge from the leading
international paint companies who are now in India. Simultaneously, your
Company is continually investing in building manufacturing and distribution
resources which would help maintain and improve services to its customers.

Industrial Coatings:

Automotive Coatings: Asian PPG Industries Limited

Your Company is engaged in manufacturing of Automotive, Original Equipment
Manufacturers (OEM), Refinish and certain other Industrial Coatings
through, Asian PPG Industries Limited (APPG), a 50:50 Joint Venture Company
between your Company and PPG Industries Inc., USA which was formed in 1997.

During the financial year 2008-09, passenger car sales growth was flat in
India. The domestic sales of vehicles fell drastically in the festive
season from October to December 2008, due to slowdown in the domestic
economic growth, high interest rates and tight liquidity situation. During
the year under review, many automobile companies had started to cut
production by shutting plants for a few days, in order to avoid inventory
buildup. However, most OEMs posted fair growth in the last quarter of the
year 2008-09. This growth was aided by the 4% CENVAT reduction in December,
2008 and another 2% in February, 2009, discounts, cheaper financing and
higher disbursements by public sector banks.

The year saw a sharp rise in price of raw materials due to the twin impact
of rising crude oil prices and appreciation of the US Dollar vis-a-vis the
Indian Rupee. Simultaneously, continuing efforts by customers to cut costs
limited the scope for improving price realization. This posed a serious
challenge to the ability of coating suppliers to sustain margins and manage
earnings growth. Cost reduction, better cash management, quality
improvement and reduction in development time for new products were the
major points of focus for APPG during the year. These initiatives helped
APPG arrest the slide in sales and profitability. Total sales fell to
Rs.420.94 crores from Rs. 436.16 crores in the previous year. The Profit
After Tax declined to Rs. 15.78 crores for the year ended 31st March, 2009,
from Rs. 32.94 crores for the previous year.

Faaber Paints Private Limited, a wholly owned subsidiary of APPG, reported
Profit Before Tax of Rs. 0.28 crore this year as compared to Rs. 0.83 crore
for the financial year ended 31st March, 2008. The sales remained flat at
Rs. 11.05 crores (Rs. 10.98 crores in 2007-08) due to poor market
conditions in the second half of the year 2008-09.

APPG's first manufacturing facility was commissioned in March 2008. The
installed capacity is 3,200 KL per annum. Your Company is confident that
this facility will help provide better service to its customers.

Notwithstanding the subdued market conditions and the intensified
competition, your Company believes that the year ahead is a year of great
opportunity for APPG. While there may be a temporary slowdown, APPG's
strategy of offering better value to its customers by providing superior
products and service through upgraded service standards and improved
delivery capabilities will help grow APPG's share of the market and meet
expectations of its stakeholders.

Non-Auto Industrial Coatings:

Your Company operates in the non-auto industrial coatings segment through
its Growth Business Unit and a wholly owned subsidiary, Asian Paints
Industrial Coatings Limited.

Revenues from the segment of non-auto industrial liquid paints showed
satisfactory growth in the first half of the year. There was a marked
decline in demand in the second half, due to the overall depressed economic
conditions and the difficult credit situation. Industrial projects,
maintenance activities and production of engineering goods slowed down
during this period. Your Company was able to record value growth in this
segment last year inspite of the adverse economic situation.

Your Company exercised the required control over operating expenses and
prudently managed working capital and material costs during the year, which
saw periods of rapid inflation and deflation in prices.

The industrial liquid paints plant at Taloja received the ISO 9000
certification at the start of the year. This plant today has the capability
to manufacture the entire range of products sold in this segment.

Growth in this segment is expected mainly in the secondhalf of the year
2009-10.

Asian Paints Industrial Coatings Limited:

Asian Paints Industrial Coatings Limited (APICL), a wholly owned subsidiary
of the Company, is engaged in the manufacture and sales of Powder Coatings.

After several years of high growth, there was a very marginal year-on-year
growth in revenue last year. While the first half of the year saw double-
digit growth in revenue, demand slowed down significantly in the third
quarter. All major segments of OE manufacturers using Powder Coatings
experienced a drastic drop in demand during this period. There has been
some improvement in demand towards the end of the last quarter. However, at
least in the first few months of the year 2009-10, it is not expected that
sales of Powder Coatings will grow substantially. Some improvement in
demand and sales is expected from the second quarter of the year 2009-10,
while prospects for growth will be linked to the overall performance of the
economy.

Others:

Your Company's other business comprises of plants manufacturing Phthalic
Anhydride and Pentaerythritol, located at Ankleshwar (Gujarat) and
Cuddalore (Tamil Nadu), respectively. These products are used in the
manufacture of alkyd resins as well as several products in other
industries. Approximately 50% of the production in the case of both
chemicals is used for captive consumption by other plants of your Company
and the balance is sold to various customers.

The Phthalic Anhydride business experienced a slump in demand in the third
quarter. The businesses of several customers were severely affected by the
slowdown in domestic as well as export-led demand. The improvement in
demand in the last quarter and careful management of inventories and costs
ensured that the business remained profitable during the year 2008-09,
though the profits were below expectations.

Demand for Pentaerythritol was up to expectations in the first half of the
year. The product-mix produced mitigated the impact of the overall
difficult period for business in the third and fourth quarters. Profits
from the business were better than those in the previous year, while the
growth in profits is attributable mainly to the performance in the earlier
part of the year 2008-09.

Technical Instruments Manufacturers (India) Limited

Technical Instruments Manufacturers (India) Limited (TIM) is a 100%
subsidiary of your Company. It owns the building which houses your
Company's Corporate Office. It has no income except the rent it receives
from your Company. The Board of Directors of your Company at their meeting
held on 28th March, 2009, approved the merger of TIM with your Company, for
which an application and petition has been filed by TIM with the Hon'ble
Bombay High Court.

International Business Unit:

The group operates in five regions across the world as given herebelow:

Region Countries

Caribbean Barbados, Jamaica, Trinidad & Tobago

Middle East Egypt, Oman, Bahrain & UAE

South Asia Bangladesh, Nepal & Sri Lanka

East Asia and China, Malaysia, Singapore,
South East Asia Thailand & Hongkong

South Pacific Fiji, Solomon Islands, Samoa,
Tonga & Vanuatu

During the year under review, the focus continued to be on introduction of
new products, increasing the number of dealer tinting systems in the
market, increasing the product range offered through these systems,
expanding the dealer network, increasing exports, sharper focus on the
protective and industrial coating segments as well as improving service
level to minimize loss of sale due to stock outs.

During the year under review, the volume of paint sold increased by 19.6%
to 138,970 KL and the revenue from paint sales increased by 29.5% to Rs.
906 crores. New product sale in volume terms constituted approximately 6.5%
of total paint sales of overseas subsidiaries and over 1143 dealer tinting
systems have been installed so far in various subsidiaries.

Material prices during the year were volatile. While the first half of the
year saw high inflation on the back of a rapid rise in prices of crude oil
and other commodities, beginning September, 2008, the world economy took a
downturn with inflation coming off. The impact of price increases was
neutralized to a large extent by formulation engineering, global sourcing
and economies of scale in purchasing and reduction in material losses in
manufacturing.

Profit after tax for the overseas operations of the group during the year
is Rs 48.0 crores as compared to Rs. 36.7 crores during the previous year.

During the year, Asian Paints (International) Limited, your Company's
direct subsidiary, has purchased the balance 49% stake in Asian Paints
(Tonga) Limited for a consideration of TOP 646,800 (approx. USD 314,000)
making it a wholly owned subsidiary.

Your Company has made a provision of Rs. 5.9 crores towards diminution in
value of its long term investment in Asian Paints (International) Limited,
a wholly owned subsidiary of your Company, based on the management's
assessment of the fair value of its investment in Asian Paints (Bangladesh)
Limited. This item has been treated as an exceptional item. Your Company
will continue to evaluate its portfolio at the end of every year to test
for impairment. The management will continue to take all feasible steps as
necessary to enhance the performance and the net worth of its overseas
subsidiaries.

The revenue from paint sales of Berger International Limited, subsidiary
listed on the Singapore Stock Exchange has increased by 10.2% to S$ 156
million (equivalent to Rs. 483 crores). BIL has earned a profit after tax
of S$ 2.8 million (equivalent to Rs 8.7 crores) as compared to S$ 2.2
million (equivalent to Rs. 5.9 crores) during the previous year.

The region wise performance is detailed below:

Caribbean Region:

During the year under review, the volume of paint sold in the region has
decreased by 3.6 % to 9,256 KL. The global economic meltdown took its toll
on the Caribbean economies and also impacted our operations in the region.
The revenue from paint sales has increased by 8.7% to Rs. 163.3 crores.
PBIT (Profit Before Interest and Tax) for the region has decreased by 19.3%
to Rs. 5.7 crores. The subsidiary in Trinidad has made profit as against a
loss in the previous year. Steps have been taken to improve the
profitability of the unit in Jamaica. The subsidiary in Barbados has
performed satisfactorily.

Middle East Region:

During the year under review, the volume of paint sold in the region has
increased by 24.8% to 100,062 KL and the revenue from paint sales has
increased by 45.6% to Rs. 465.1 crores. PBIT has increased by 33.0% to
Rs.56 crores.

The Middle East region is the largest operating region for the group
outside India. The region now contributes 51.1% of the sales from overseas
operations. All the subsidiaries in the region have performed well. Sales
of Egypt, Oman, UAE and Bahrain subsidiaries have grown by 36.4%, 51.3%,
41.1% and 20.4% respectively in local currency. The subsidiaries in
Bahrain, Oman and UAE have registered good increase in profit, while the
subsidiary in Egypt continues to be the biggest profit contributor in the
region.

South Asia Region:

During the year under review, the volume of paint sold in the region has
increased by 24.0% to 18,047 KL and revenue from paint sales has increased
by 38.5% to Rs. 114.8 crores. PBIT for the region has increased by 43.4% to
Rs. 8.6 crores.

All subsidiaries in the region have performed well. The Sri Lanka,
Bangladesh and Nepal subsidiaries have registered sales growth of 23.3%,
50.6% and 26.8%, respectively in local currency. Expansion of the
ColorWorld dealer network and increased influencer interactions through
painter-dealer meets has helped all the subsidiaries to achieve healthy
sales growth. The subsidiaries in Sri Lanka and Nepal have reported profits
while the Bangladesh unit has sharply reduced its losses.

East Asia and South East Asia Region:

During the year under review, the economies in the region were severely
impacted by the global meltdown. The volume of paint sold in the region has
marginally increased by 0.3% to 9,001 KL. However, the revenue from paint
sales has increased by 19.3% to Rs. 105.8 crores. Loss before interest and
tax has increased to Rs. 6.3 crores from Rs. 3.6 crores during the previous
year.

The subsidiary in Singapore has performed satisfactorily and has been
profitable. The losses are higher in the subsidiaries in Malaysia, Thailand
& Hongkong and lower in China compared to the previous year.

South Pacific Region

During the year under review, the volume of paint sold in the region
(adjusted for sales of the Australian subsidiary which was divested during
the previous year) increased by 4.4 % to 3,070 KL and revenue from paint
sales increased by 13.2% to Rs. 62.0 crores. PBIT for the region (excluding
Australia) has decreased by 6.2% to Rs 5.4 crores.

The Fiji, Vanuatu and Solomon Islands subsidiaries have registered sales
growth of 10%, 18% and 13%, respectively. There is a marginal decline in
the sales of the subsidiary in Tonga which has, however, made profit during
the year as against a loss in the previous year.

II. SAFETY, HEALTH AND ENVIRONMENT:

Your Company continued to focus on improving work place safety and the
safety capabilities across all its plants. During the year, all the five
decorative paint manufacturing units were audited and certified by the
British Safety Council. The Ankleshwar plant of the Company was recognised
with a Certificate of Appreciation by the Gujarat Safety Council for one
million hours of accident free working.

Your Company undertook waste minimization initiatives in its efforts to
conserve resources and protect the environment. Kasna Plant was awarded the
Gold Award in the Chemical Sector for outstanding achievement in
environmental management by Greentech Foundation.

Resource conservation and waste minimization continued to be the key focus
areas for your Company during the 2008-2009. This resulted in reduction in
specific generation of effluents and solid waste. Also, specific water
consumption was further reduced during the year 2008-09.

III. HUMAN RESOURCES:

The thrust area for your Company during 2008-09 was to promote coaching
within the organisation and integrate it in the overall human resources
development agenda. The Results Coaching Systems, Australia is partnering
with your Company in developing managers as coaches. A batch of thirty-five
managers has now received certification in coaching.

A series of programs were held at all levels in Technology function to
promote the work culture of innovation and 11 Asian Paints Limited Annual
Report 2008-2009 collaboration and HR processes have been adopted to
support this initiative.

During 2008-09 the efforts to reach out to all employees were continued.
This has received a very favourable response from employees.

Performance Management System was operational for a full year after its re-
launch last year. It has been implemented well.

IV. CORPORATE SOCIAL RESPONSIBILITY:

Your Company continues its initiatives in Corporate Social Responsibility
through its three core areas: Water Conservation, Care of the Aged and
Education. Your Company installed a rainwater harvesting scheme at its
manufacturing facility in Bhandup, Mumbai in 2002. It soon replicated the
format at its other plants in Ankleshwar, Kasna, Patancheru and
Sriperumbudur. Awareness programs were organized on water conservation and
Rain Water harvesting through Total Water Management Centre and also free
expert advice was provided to interested parties on implementation of Rain
Water Harvesting projects.

Your Company has endeavored to work towards the cause of the disadvantaged
elderly sections of the communities located in the vicinity of its plants.
Camps were organized for cataract surgeries, diabetes detection, dental
examination and vaccination and immunization during the year 2008-09. Also,
educational tours for the school children from the villages in the vicinity
of its plants, providing drinking water to schools, providing walking
sticks to the disadvantaged, training teachers on healthcare and hygiene
topics and undertaking tree plantation drives were some of the other
initiatives undertaken by your Company.

Your Company has always focused on improving infrastructure facilities of
schools in the vicinity of its plants. The Ankleshwar plant has been
actively spearheading the renovation works of the Shree Gattu Vidyalaya,
which will greatly enhance the infrastructure facilities of the school. The
plants at Sriperumbudur, Patancheru and Cuddalore are also providing
infrastructure support to schools in their locality.

V. INFORMATION TECHNOLOGY:

During the financial year 2008-09, your Company has upgraded its key
Enterprise Resource Planning (ERP), Supply Chain Planning and Customer
Relationship Management (CRM) applications to the latest platform. This
has provided the Company the ability to adopt the latest innovations in
these areas and also implement workflow based processes to improve the
overall effectiveness of these applications.

The investments made in virtualization technology at the data centre in the
previous year were continued in this year. Your Company has now completed
the migration of all applications to this platform, reducing the
requirements of space and power while improving the uptimes and agility of
the applications. In 2008-09 IT applications and tools supporting the new
distribution warehouses in Kasna and Ankleshwar with real time integration
to other IT systems was completed successfully.

Over the years your Company has implemented systems to complement and
enhance business processes and made them available to employees on the move
as well as to business partners. With attacks on information assets
increasing dramatically, it was felt necessary to improve the systems to
safeguard the integrity of your Company's data and protect its information
assets. In the current year your Company has enhanced the security systems
and processes to achieve the same at the data centre. The same will be
extended to the applications and desktops in the coming year.

VI. RESEARCH & DEVELOPMENT:

Your Company is executing an integrated strategy for technology development
and deployment. The technology function is supporting your Company's
strategy around four missions: technology development, development of
substantially new products, productivity improvement, and cost reduction.
The focus for your Company in the financial year 2008-09 had been to
develop technology capabilities to meet the mid-term and long term
strategic goals of the organization. They were built on the technology
trends and the customers' requirements. Your Company further continues to
focus on innovation and collaboration. The strategy of developing platform
technologies is beginning to bear fruit. The productivity of the technology
function has improved considerably by redirecting resources towards the
core R&D activities and by increasing the productivity of the individual
scientists.

In keeping with environmental legislation in the developed world, your
Company had removed lead and other heavy metal products from all decorative
paints. The knowledge developed is being leveraged to your overseas units
as well. Going forward, your Company will be focusing on developing
products with low volatile organic contents (VOC) in both the water borne
and the solvent based products in decorative and industrial paints.

Your Company has also developed contacts with research organizations with
whom it has started collaborating in some areas of research so as to
accelerate progress. The Company has been successful in attracting
competent and committed scientists to strengthen its internal capabilities.
This effort will continue. The Technology personnel are now settled in the
new state of art R & D Center established at Turbhe, Navi Mumbai.

VII. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Your Company has deployed an appropriate mix of automated and manual
internal control systems to ensure propriety in the utilization of funds,
safeguarding of assets against unauthorized use or disposition, true and
fair reporting and compliance with all the applicable regulatory laws and
company policies. A state-of-the-art ERP system with tight integration to
other applications are designed to adopt best practices and provide real
time information for effective decision making, monitoring and control.
Your Company has a clearly defined authority manual defining sanctioning
limits at each level in the hierarchy for various kinds of expenses. Tight
and periodic budgetary control and review mechanisms supplement the
preventive controls designed in the system.

Your Company has an in-house internal audit department. To maintain
independence, the internal audit function reports directly to the Audit
Committee and to the Manging Director & CEO of the Company. The audit plans
for the year are approved by the Audit Committee. The internal audit
function verifies the adequacy and effectiveness of internal controls from
operation, financial and statutory compliance point of view through a blend
of process and transactional audits. A summary of significant observations
along with any action plan identified by the management is placed
periodically before the Audit Committee for review and guidance.

VIII. RISK AND OUTLOOK:

The environment today is fraught with risks and uncertainty more than ever
before. Adverse impact of global financial turmoil is expected to weaken
demand conditions even in the markets where the group operates. The
political conditions in these regions would also have an impact on business
performance.

Given the linkages with global markets, growth in India will be dependent
on how the global scenario unfolds. In tandem with other economies
globally, India too has stepped up fiscal efforts to support growth and
policy makers have been quite proactive so far with monetary as well as
other administrative tools. It would be a big surprise indeed if the
massive monetary and fiscal policy support to the economy combined with the
measures taken to stabilize the financial system does not to have a
significant influence on the course of economic events.

It is hoped that the new Central Government to be formed will accelerate
the reforms process and provide the necessary impetus to investment
especially in power generation, roads, ports and water supply systems. As
important would be the development of Human Resources and investment in
basic health and sanitary services. The deterioration of the geopolitical
situation in the region is another concern that the country faces. The
foreign exchange market and the crude oil prices continue to be volatile.
Hence, predicting the future accurately in such uncertain times is near
impossible.

However, your Company's Management is optimistic that the Indian economy
will recover in the second half of 2009-10 and would be able to achieve a
GDP growth of around 5.5% to 6%. The expected growth rate, though lower
than what the country has witnessed in the last few years, is still strong
enough to sustain consumer demand. Your Company also expects the rural
economy to perform well and support paint demand. The market for industrial
coatings is expected to be challenging and will depend on performance of
sectors like automobiles, consumer durables and the general industrial
activity. Some tentative signs of recovery already seem underway and this
augurs well for the industry in the coming year.

CAUTIONARY STATEMENT:

Statements in this Management Discussion and Analysis describing the
Company's objectives, projections, estimates and expectation may be
'forward looking statements' within the meaning of applicable laws and
regulations. Actual results might differ materially from those either
expressed or implied.

CORPORATE GOVERNANCE:

A separate report on Corporate Governance forms part of the Annual Report,
pursuant to Clause 49(VII) of the Listing Agreement. Your Company is
compliant with the requirements of the Listing Agreement and necessary
disclosures have been made in this regard in the Corporate Governance
Report. The Management Discussion and Analysis and the report on Corporate
Governance are included as a part of the Directors' Report.

A certificate from the Joint Statutory Auditors of the Company regarding
compliance with the requirements of Corporate Governance as stipulated
under Clause 49 of the Listing Agreement is attached to this report.

FIXED DEPOSITS:

Your Company has not accepted any fixed deposits during the year 2008-09
and there are no outstanding fixed deposits from the public as on 31st
March, 2009.

SALES TAX DEFERMENT BENEFIT:

Your Company continues to avail sales tax deferment benefit for the
expanded capacity at Kasna plant for which eligibility certificate for Rs.
38.2 crores has been received. A sum of Rs 4.1 crores has been availed
during the year 2008-09 and with this, the total amount of deferment
availed upto 31st March, 2009 is Rs. 27.1 crores.

INSURANCE:

All the insurable interests of your Company including inventories,
buildings, plant and machinery and liabilities under legislative enactments
are adequately insured.

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION:

Particulars in respect of conservation of energy and technology absorption
by the Company as per Section 217(1)(e) of the Companies Act, 1956, are
given as Annexure to this report in Form A' and B', respectively.

FOREIGN EXCHANGE EARNINGS AND OUTGO:

Details of expenditure and earnings in foreign currencies are given under
Schedule M' to the financial statements.

PERSONNEL:

In terms of the provisions of Section 217(2A) of the Companies Act, 1956
and the Companies (Particulars of Employees) Rules, 1975, names and other
particulars of the employees are required to be set out in the annexure to
this report. However, as per the provisions of Section 219(1)(b)(iv) of the
Companies Act, 1956, the Report and Annual Accounts of the Company sent to
the shareholders do not contain the said annexure. Any shareholder desirous
of obtaining a copy of the said annexure may write to the Company Secretary
at the Registered Office of the Company.

DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors
hereby confirm that:

* In preparation of the annual accounts, the applicable accounting
standards have been followed.

* The accounting policies have been selected and applied consistently and
the judgments and estimates made, are reasonable and prudent, so as to give
a true and fair view of the state of affairs of the Company at the end of
the financial year and of the profit and loss of the Company for that
period.

* Proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities.

* The annual accounts have been prepared on a going concern basis.

DIRECTORS:

During the financial year ended 31st March, 2009, the term of Mr. Ashwin
Choksi as Executive Chairman, Mr. Ashwin Dani as Executive Vice-Chairman
and Managing Director and Mr. Abhay Vakil as Managing Director expired on
31st March, 2009. The Board of Directors at their meeting held on 5th
March, 2009, appointed Mr. P. M. Murty as an Additional Director and Whole-
time Director of the Company with effect from 5th March, 2009 and as the
Managing Director & CEO with effect from 1st April, 2009. Mr. Ashwin
Choksi, Mr. Ashwin Dani and Mr. Abhay Vakil, were appointed as Additional
Directors and as Non-Executive Chairman, Non-Executive Vice-Chairman and
Non-Executive Director, respectively, with effect from 1st April, 2009.

Mr. Ashwin Choksi and Mr. Ashwin Dani joined the Board in 1970 and Mr.
Abhay Vakil in 1983. They have had an immense played a crucial in
transforming your company into a world class organization, without
compromising on the core values and ethics laid down by the founding
fathers. Your Company has grown by leaps and bounds in the last decade
under their stewardship. The Board of Directors place on record their
appreciation of the immense contribution to the growth and well being of
the Company, by Mr. Ashwin Choksi, Mr. Ashwin Dani and Mr. Abhay Vakil
during their long tenure with the Company.

Mr. Amar Vakil, Mr. R.A. Shah and Dr. S. Sivaram are due to retire by
rotation at the conclusion of the forthcoming Annual General Meeting and
being eligible offer themselves for re-appointment. Appropriate resolutions
for their re-appointment are being placed before you for your approval at
the ensuing Annual General Meeting. The brief resume of the aforesaid
Directors and other information have been detailed in the Corporate
Governance Section of this report. Your Directors recommend their re-
appointment as Directors of your Company.

AUDITORS:

M/s. Shah & Co., Chartered Accountants and M/s. B S R & Associates,
Chartered Accountants, Joint Auditors of the Company are due for retirement
at the ensuing Annual General Meeting and are eligible for reappointment.
Your Directors recommend their reappointment for the ensuing year.

COST AUDITOR:

The Company has received the approval of the Central Government for
appointment of Mr. Damji Keshavji Visariya as Cost Auditor to conduct the
audit of the cost records of your Company for the financial year 2008-09.

APPRECIATION:

Your Directors wish to place on record their appreciation of the
contribution made by employees at all levels to the continued growth and
prosperity of your Company. Your Directors also wish to place on record
their appreciation of banks and other financial institutions, shareholders,
dealers and consumers for their continued support.

For and on behalf of the Board
Ashwin Choksi
Chairman

Place: Mumbai
Date : 12th May, 2009.

Annexure to Directors' report

Form A

Disclosure of particulars with respect to conservation of energy:

2008-09 2007-08

A. Power and fuel consumption

1. Electricity

(a) Purchased
Units (000 KWH) 30,076 29,574
Total Amt. (Rs. in Crores) 14.08 13.10
Rate per unit 4.68 4.43

(b) Own Generation
Through diesel Generator
Units (000 KWH) 7,734 2,759
Units per ltr. of diesel oil 3.36 3.40
Cost/unit (Rs.) 10.14 9.43

Natural Gas
Units (000 KWH) 5,801 7,466
Units per nm3 3.34 3.29
Cost/unit(Rs.) 3.87 3.66

2. Coal

Quantity (in MTs) 14,783 16,345
Rs. in Crores 6.76 5.31
Average rate/MT (Rs.) 4576 3249

3. Diesel
Quantity (in KL) 1,651 1,016
Rs. in Crores 6.06 3.33
Average rate/KL (Rs.) 36.72 32.80

4. Furnace Oil
Quantity (in MTs) 883 1,170
Rs. in Crores 2.47 2.64
Average rate 27.94 22.53

5. Natural Gas
Quantity (in 000 cubic m.) 2,553 2,917
Total Amt (Rs.in Crores) 2.97 3.15
Average rate 11.62 10.81

B. Consumption per unit of production

Electricity Furnace oil Natural Gas
08-09 07-08 08-09 07-08 08-09 07-08

Paints 87 89 39 74 71 52
Phthalic 113 16 - - 55 51
Penta 966 921 0 13 - -

Coal Diesel
08-09 07-08 08-09 07-08

Paints - - 51 44
Phthalic - - - -
Penta 3 3 - -

Fore B

Disclosure of particulars with respect to technology

Absorption:

Research and Development (R&D)

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

The R&D Unit of your Company is carrying out the following activities to
support the business goals of your Company:

* Development of new products and processes related to surface coatings and
intermediates.

* Value engineering through formulation re-engineering and identification
of new and alternate raw materials.

* Upgradation of existing product and processes.

* Technology support to all overseas units.

* Optimization of products and processes to minimize waste generation and
reduce environmental and safety concerns.

* Development of new application techniques for various substrates.

* Import substitution and identification of new raw material for
development.

* Development of new analytical test methods, characterization techniques.

* Collaborative development with vendors, academia and institutes.

* Development of domain expertise to expedite product development.

* Research on new functional polymers, emulsions and nano technology.

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

* Antialgal/antifungal efficacy of interior and exterior wall finishes
improved.

* Introduced newer colourant and bases in DTS for expanding shade range
offer with improved shade fidelity.

* Recycling/reuse of process waste and wash water to reduce waste
generation and disposal load.

* Cycle time of processing enamels, colourant, primers and emulsion brought
down.

* Energy efficient processing techniques introduced for colourants, enamels
and primers.

* Development of ultima metallic coating with high durability and shade
fidelity

* Development of Royale Shyne - top end exterior product with rich look and
film performance.

* Developed machine tintable 2K Pigmented PU metallic finishes for
interior/exterior of wood.

* Six new application effects developed for Royale Play.

* Development of hot melt thermoplastic road marking meeting AASHTO
specification.

* Development of industrial synthetic enamel free from heavy metals like
lead, chromium and mercury.

* Development of several Protective Coatings for meeting specific customer
requirements and for significantly broadening the Company's range of such
products.

3. Further plan of action:

Your Company considers the development of technical capabilities to sustain
its competitive position in the market place of primary importance. In
order to address the needs of the customers in a rapidly changing market
place, the Company will continue to strengthen its technical programs and
the skills of its technical personnel. It had started to develop advanced
technical capabilities and technology platforms to support its product
plans, improve its manufacturing and open new applications. These
activities are beginning to pay off.

4. Expenditure on R & D during the year is as follows:

(Rs. in Crores)
2008-09 2007-08

Capital 25.90 34.19
Recurring 27.46 17.66
Total 53.36 51.85
Total R&D expenditure as
a percentage of Net Sales
& operating income 1.25% 1.52%

Technology absorption, adaptation and innovation:

All developments were done indigenously.

Foreign exchange earnings and outgo:

Your Company's exports primarily consist of Di-pentaerythritol and
Monopentaerythritol to US and Europe. The Di-pentaerythritol is used mainly
as an additive in the manufacture of aviation fuel and the
Monopentaerythritol is mainly used in the manufacture of explosives. The
demand for your Company's products from these markets were stable during
the year. During the year your Company has also supplied small lots of
these products to consumers in Taiwan and Japan.

Your Company also exports items to its overseas units and licensees.
Machine tinting colorants and resins form the bulk of material exported.
Specific products or special products which are of low volume for domestic
manufacture by the overseas units are also produced and exported to the
units from India. Support is extended to overseas units through export of
marketing materials and machinery parts. Export queries received in India
from countries where your Company has operations is routed through
respective overseas units.

For and on behalf of the Board
Ashwin Choksi
Chairman
Place: Mumbai
Date : 12th May, 2009.