Annual Report - AIA Engineering - 2008-2009

AIA ENGINEERING LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

To,
The Members,
AIA Engineering Limited
Ahmedabad

Your Directors take pleasure in submitting the 191 Annual Report and the
Audited Annual Accounts of the Company for the year ended 31st March, 2009.

1. FINANCIAL HIGHLIGHTS:

Particulars Year ended Year ended
31.3.2009 31.3.2008
Rs. in Lacs Rs. in Lacs

Sales & Other Income 94283.38 62136.57

Profit before Interest, Depreciation
and Taxation 22283.01 15895.23

Interest 84.67 8.49

Depreciation 1617.08 827.03

Profit before tax 20581.26 15059.71

(i) Provision for Taxation (Current) 6775.00 3720.00

(ii) Short / Excess provision of Taxation 7.59 7.79

(iii) Provision for Taxation (Deferred) 421.90 466.90

(iv) Provision for Fringe Benefits Tax 31.00 34.00

Total Tax (i+ii+iii+iv) 7235.49 4228.69

Profit after tax 13345.77 10831.02

Surplus Brought Forward from Previous Year 19620.81 10752.55

Balance available for appropriations 32966.58 21583.57

Interim Dividend on Equity Shares 563.90 0.00

Proposed Final Dividend on Equity Shares 1792.09 751.87

Tax on Dividend on Equity Shares 400.40 127.78

Transferred to General Reserve 1334.58 1083.11

Balance Carried to Balance Sheet 28875.61 19620.81



2. OPERATIONAL REVIEW:

During the year under review, the Turnover of the Company has gone up from
Rs.59380.54 Lacs to Rs.92285.94 Lacs. Exports of the Company have gone up
from Rs. 27305.94 Lacs to Rs.49182.21 Lacs. The Profit Before Tax (PBT) has
increased from Rs. 15059.71 Lacs to Rs.20581.26 Lacs. The Profit after Tax
(PAT) has increased from Rs.10831.02 Lacs to Rs.13345.77 Lacs. On a
consolidated basis, your company (together with its Subsidiaries)
registered a Turnover of Rs. 102329.10 Lacs during the year under review as
compared to the Turnover of Rs. 69118.15 Lacs registered in the Financial
Year 2007-2008. Correspondingly, the Consolidated Profit After Tax (PAT)
has increased to Rs. 17431.20 Lacs in Financial Year 2008-09 as compared to
PAT of Rs.13420.95 Lacs in Financial Year 2007-08. The figures of the
previous year do not include the figures of the erstwhile Reclamation
Welding Limited and Paramount Centrispun Castings Private Limited, the
subsidiaries of the Company which have been merged with the Company
effective from 01.04.2008, being the appointed date and accordingly the
Current Year's figures are not comparable to those of the previous year.

3. DIVIDEND:

During the Financial year 2008-09, the Company has paid an Interim Dividend
of Rs.0.60 (30%) per share on 93983940 Equity Shares of Rs.2 each
aggregating to Rs.659.74 Lacs (including Corporate Dividend Tax) on
12.11.2008.

The Board of Directors is pleased to recommend a final dividend of Rs.1.90
per Equity Share of Rs.2 each (including a Special Dividend of Rs.1.00 per
share of Rs.2 each) amounting to Rs.1792.09 Lacs for the Financial Year
2008-09 subject to the approval of the Shareholders.

The total Dividend outgo for the year ended 3111 March, 2009 would be
Rs.2756.39 Lacs including the Corporate Dividend Tax of Rs.400.40 Lacs.

4. SPLITTING OF THE FACE VALUE OF THE EQUITY SHARES OF Rs.10 EACH TO Rs.2
EACH:

During the year under review, the Equity Shares of the face value of Rs.10
each in the share capital of the Company has been sub-divided / splitted
into 5 Equity Shares of the face value of Rs.2 each with effect from
21.10.2008.

5. ALTERATION IN THE AUTHORIZED SHARE CAPITAL OF THE COMPANY:

During the year under review, Company has re-classified its existing un-
issued Preference Share Capital of Rs.20,00,00,000 divided into 20,00,000
Redeemable Cumulative Preference Shares of Rs.100 each into the Equity
Share Capital of Rs.20,00,00,000 divided into 10,00,00,000 Equity Shares of
Rs.2 each.

With the re-classification of the Preference Share Capital into Equity
Share Capital and splitting of the face value of Equity Shares of Rs.10
each into the face value of Rs.2 each, the Authorized Share Capital of the
Company is Rs.46,00,00,000 divided into 23,00,00,000 Equity Shares of Rs.2
each.

6. AMALGAMATION OF RECLAMATION WELDING LIMITED AND PARAMOUNT CENTRIPUN
CASTINGS PRIVATE LIMITED WITH THE COMPANY:

Your Directors are pleased to inform that the Scheme of Amalgamation of
Reclamation Welding Limited (Reclamation) and Paramount Centrispun Castings
Private Limited (Paramount) with the Company has been sanctioned by the
Hon'ble High Court of Gujarat, Ahmedabad vide its order dated 08.05.2009.

The Scheme has become effective with effect from 20.05.2009 and has been
implemented with effect from the Appointed Date i.e. 01-04-2008. The
Company has given the accounting effects of the Scheme of Amalgamation of
the above two Companies in its Annual Results for the year ended 31s' March
2009 and therefore in view of this, the previous year's figures are not
comparable with this year's figures.

7. CAPITAL EXPENDITURE OUTLAY:

During the year under review, the Company has incurred Rs. 6671.55 Lacs
(including Rs.667.95 Lacs of Capital work-in-progress) on Capital
Expenditure.

8. HUMAN RESOURCE POLICY:

Company takes pride of its highly motivated and committed team of
employees, some of them with the Company, since inception. While the
employees strength have increased sizably with addition of Moraiya unit,
instilling confidence and encouraging long term bonds, the Company offered
higher remunerations to both, existing as well as new employees. On their
part the employees performed to their full potential and contributed to the
growth and development of the Company.

9. BUSINESS PROSPECTS:

The Company is operating in a high technology niche Engineering segment,
involving design & manufacturing of impact, abrasion and wear resistant,
Mill Internals in high chromium metallurgy. These Mill Internals are
consumable parts in the process of Grinding / Crushing in the Mills in the
Cement Industry, Mining Industry and Utility and quarry industries.

Within India, the Cement Industry has shown continued rise in production,
thanks to growth in infrastructure segment. Similarly, Utility Industry
(Thermal Power Plants) is also growing owing to deficit in the Power
Generation. Mining is essential for extraction of core minerals, which are
the Raw Material for various ferrous and non-ferrous Industries. The Mining
activity continues to sustain production levels within India. This trend is
reflected in several other developing economies. Nonetheless, the global
recession has had adverse impact on cement and mining sectors particularly
in developed countries. This trend continues in global markets which may in
very near future affect requirement of company's products particularly for
exports till de-stocking of inventories takes place and subsequent
improvement in markets.

The Company has succeeded in building a business model which is hedged to a
large extent against external conditions because of the following:

1. There are only a few recognized suppliers, who are manufacturing the
products manufactured by the Company.

2. Majority of the Company's business comes from the 'replacement' demand
which is not linked to the economic capital spending cycles and new
projects

3. The Company supplies to three different industries across geographies -
in Cement, Mining and Utility industries and a down turn in some part of
the world will always be negated by the boom in another.

4. The top customers does not account for more than 10% of Sales.

5. Diversification into quarry industries has shown positive results thanks
to superiority of company's products viz-a-viz conventional alloys.

10. FUTURE EXPANSION:

The Greenfield project at Moraiya has now been commissioned. Your company
is targeting to increase the production capacity upto around 2,00,000 tons
so as to become effective and available in the fiscal year 2010-11. This
would be done through a cap-ex of around Rs.40 crores which will be funded
through internal cash generation.

11. INTELLECTUAL PROPERTY RIGHTS:

To protect our intellectual property, we have filed one more patent in the
United States of America. The patents filed in previous years are under
examination and opposition process and we are taking steps to get them
approved.

12. SUBSIDIARY COMPANIES:

As required under the Listing Agreements with the Stock Exchanges and in
accordance with the Accounting Standard 21 (AS-21), Consolidated Financial
Statements being prepared by the Company include financial information of
its Subsidiaries.

In accordance with the provisions laid down in Section 212 of the Companies
Act, 1956, the Company is required to attach the Annual Accounts of the
subsidiary Companies to its Annual Accounts.

On an Application made by the Company, the Government of India, Ministry of
Corporate Affairs vide its letter No. 47/373/2009-CL-III dated 141h May
2009 granted exemption to the Company from ttaching the audited accounts of
the subsidiaries to this Annual Report for the Financial Year ended 31s'
March 2009 subject to the compliance of terms and conditions as mentioned
in their letter.

The Company has Subsidiaries in India and abroad. A statement containing
brief financial details of these companies (other than Reclamation and
Parmount, which have merged with the Company) for the year ended 31st March
2009 forms part of this Annual Report. The annual accounts of the
Subsidiary Companies will be available for inspection by any investor at
the Registered Office of the Company. The Annual Accounts of the Subsidiary
Companies and the related detailed information will be made available to
the investors of the Company seeking such information at any point of time.

13. INSURANCE:

The Company has taken adequate insurance coverage of all assets and stocks
against various calamities viz. fire, flood, earthquake, cyclone etc.

14. DEPOSITS:

The Company has not accepted deposits from the public during the year under
review, within the meaning of Section 58A of the Companies Act, 1956.

15. INDUSTRIAL RELATIONS:

With all the statutory compliances, the Company maintained its image of
being a progressive and compliant Company. Industrial relations maintained
were excellent with regular interaction with the business and industry
fraternity, through prestigious institutions like, Confederation of Indian
Industries, Gujarat Chamber of Commerce and Industries and Ahmedabad
Management Association. This helped securing Company interests in various
matters and for keeping abreast with latest development in the business and
industry.

16. ENVIRONMENT - SAFETY - HEALTH:

Safety was a key word and safe operating practices and safe work for all,
were the KRAs. With regular tool box meetings at shop floors level, all our
awareness and involvement were achieved and personnel protective equipments
and health check ups contributed to safety and good occupational health of
employees. Conditions for environmental clearance and GPCB consent were
fully complied with.

17. INTERNAL CONTROL AND AUDIT:

Company has a proper and adequate system of Internal Control commensurate
with its size and the nature of its operation to ensure that all assets are
safeguarded and protected against loss from unauthorised use or disposition
and those transactions are authorised, recorded and reported correctly.

During the year under review, Internal Audit of the Company has been
carried out by a firm of Chartered Accountants.

18. CORPORATE GOVERNANCE:

In line with the Company's commitment to good Corporate Governance
Practices, your Company has complied with all the mandatory provisions of
Corporate Governance as prescribed in Clause 49 of the Listing Agreement
with the Stock Exchanges.

A separate report on Corporate Governance and Practicing Company
Secretaries Report thereon are included as a part of the Annual Report.

19. MANAGEMENT'S DISCUSSION AND ANALYSIS (MDA):

MDA covering details of operations, International markets, Research and
Development, Opportunities and Threats, etc. for the year under review is
given as a separate statement, which forms part of this Annual Report.

20. DIRECTORS:

Mr. Vinod Narain and Dr. S.R. Ganesh, Directors of the Company retire by
rotation at the ensuing Annual General Meeting and being eligible, offered
themselves for re-appointment.

Dr. S. Srikumar was appointed as an Additional Director of the Company by
the Board of Directors in their meeting held on 20th January 2009 and
vacates the office of the Director at the ensuing Annual General Meeting
pursuant to the provisions of Section 260 of the Companies Act, 1956.
Notice has been received from a member under Section 257 of the Companies
Act, 1956 together with necessary deposit proposing his intention for the
appointment of Dr. S. Srikumar as the Director of the Company.

The Board recommends the re-appointments of Mr. Vinod Narain, Dr. S.R.
Ganesh and of Dr. S. Srikumar as Directors of the Company.

Pursuance to Clause 49 of the Listing Agreement, brief resumes of Mr. Vinod
Narain, Dr. S. R. Ganesh and Dr. S. Srikumar, together with their expertise
in specific functional areas and names of the Companies in which they hold
office of a Director and / or the Chairman / Membership of Committees of
the Board, is given in the Notice of the Annual General Meeting.

21. STATUTORY AUDITORS:

Members are requested to appoint Statutory Auditors for the current year
and fix their remuneration. M/s. Talati & Talati, Chartered Accountants,
the Company's Auditors will retire at the conclusion of the ensuing Annual
General Meeting and being eligible offer themselves for re-appointment.

22. PARTICULARS OF EMPLOYEES:

The particulars of employees, as required under Section 217 (2A) of the
Companies Act, 1956 are given as an Annexure-A to this report.

23. PARTICULARS OF ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN
EXCHANGE EARNINGS AND OUTGO:

The additional information regarding conservation of energy, technology
absorption and foreign exchange earnings and outgo, stipulated under
Section 217 (1) (e) of the Companies Act, 1956 are given as an Annexure-B
to this report.

24. DIRECTORS' RESPONSIBILITY STATEMENT:

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

(i) in the preparation of the Annual Accounts, the applicable accounting
standards have been followed;

(ii) sound accounting policies have been selected and applied consistently
and judgments and estimates made that 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 ended 315' March 2009 and the Profit and Loss Account
for the year ended on that date;

(iii) 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;

(iv) the Annual Accounts have been prepared on a going concern basis.

25. 'GROUP' FOR INTER-SE TRANSFER OF SHARES:

As required under Clause 3(e) of the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeover) Regulations 1997, persons
constituting 'Group' (within the meaning as defined in the Monopolies and
Restrictive Trade Practices Act, 1969) for the purpose of availing
exemption from applicability of the provisions of Regulation 10 to 12 of
the aforesaid SEBI Regulations are given in Annexure C attached herewith
and the said Annexure C forms part of this Annual Report.

26. ACKNOWLEDGEMENT:

Your Directors thank the Company's customers, vendors, bankers, auditors,
investors and Government bodies for their continued support during the
year. Your Directors place on record their appreciation of the
contributions made by employees at all levels. Your Company's consistent
growth was made possible by their hard work, solidarity, co-operation and
support.

For and on behalf of the Board,

Place: Ahmedabad (Rajendra S. Shah)
Date : 25th June 2009 Chairman


ANNEXURE - 'B' TO THE DIRECTORS' REPORT

Information under section 217(1)(e) of the Companies Act, 1956 read with
Companies (Disclosure of particulars in the report of Board of Directors)
Rules, 1988 and forming part of the Directors' Report for the year ended
31st March 2009.

FORM - A

A) CONSERVATION OF ENERGY

a) Modification of Liner Heat Treatment furnace from LDO fired to PNG fired
has reduced the Energy cost by 20%.

b) Replacing Conventional Screw Air Compressor with Technologically
advanced Screw Air Compressor with inbuilt VFD has reduced Energy
Consumption from 52 KWH to 39 KWH i.e. Energy saving of 25%.

c) Provision of 5000 KVAR HT Capacitors has improved AIA-Ml Power Factor
from 0.95 to 0.99 which resulted in 2% rebate in Electricity Bill.

I. POWER & FUEL CONSUMPTION:

Particulars Current Year Previous Year
2008-2009 2007-2008

1. Electricity

a) Purchased Units 99599486 63510349
Total Amount (Rs. in Lacs) 6424.41 3169.80
Rate / Unit / (Rs.) 6.45 4.99

b) Own Generation
Through Diesel Generator Unit 79706 102945
Unit per Litre of Diesel Oil 3.07 2.53
Cost / Unit (Rs.) 12.09 15.64

c) Through Steam Turbine /Generator
Units N.A. N.A.
Units per Litre of Fuel/Oil/Gas/ N.A. N.A.
Cost/Unit (Rs.) N.A. N.A.

2. Coal (Specify Quantity and where used)

Quantity (in Tons) N.A. N.A.
Total cost (Rs.) N.A. N.A.
Average Rate/(Rs.) N.A. N.A.

3. Light Diesel Oil

Quantity (in Kilo Litre) 842020 2229636
Total Amount (Rs. in Lacs) 277.87 695.90
Average Rate (Rs.) 33.00 31.21

4. Others/Internal Generation - PNG

Quantity (Unit) (SCM) 150301 N.A.
Total Cost (Rs. in Lacs) 38.12 N.A.
Rate/Unit (Rs.) 25.36 N.A.

II. CONSUMPTION PER UNIT OF PRODUCTION:

Particular Current Year Previous Year
2008-2009 2007-2008

Product

Castings Unit (Tonnes) 72436 43536

(Excluding production on job work, Nil
[Previous Year 112288 Tonnes]

Electricity per Ton of Castings (Units) 1375 1459

FORM - B

(B) TECHNOLOGY ABSORPTION

I. RESEARCH & DEVELOPMENT (R & D):

a) Specific areas in which R & D carried out by the Company.

* New design of inserts developed for inserted rolls for thermal power
plants.

* New alloy developed for hollow balls. b) Benefits derived as a result of
the above R & D.

* New design is expected to offer better performance of inserted rolls.

* Hollow balls in new alloy has increased the life of the component. c)
Future plans of action.

* Concepts of new design of insert to be applied for rolls used in other
applications.

d) Expenditure on R & D (Rs. in Lacs).

1. Capital - Nil
2. Recurring - Nil
3. Total - Nil
4. Total R & D expenditure as percentage of total turn over - Nil.

II. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION:

a) Efforts in brief made towards technology absorption, adaptation and
innovation.

* Adaptation of 'polymer quenching technique' for grinding media.

* Adaptation of natural gas as fuel for heat treatment furnace. b) Benefits
derived as a result of the above efforts.

* Polymer quenching offers advantage of pollution free work place and
product has better aesthetic appearance as compared to oil quenching.

* Gas fired furnace offers advantage of energy saving and operation is
cleaner.

c) Imported technology.

* No technological inputs were used from outside. All developments were in
house.

d) Foreign Exchange Earnings and outgo:

(Rs. in Lacs)
Particulars Year ended Year ended
31.3.2009 31.3.2008

i) Total foreign exchange used 6152.15 4466.03
ii) Total foreign exchange earned 49182.21 27305.94

For and on behalf of the Board,

Place: Ahmedabad (Rajendra S. Shah)
Date : 25th June 2009 Chairman

ANNEXURE - 'C' FORMING PART OF THE DIRECTORS' REPORT

Following is the list of persons constituting 'Group' {within the meaning
as defined in the Monopolies and Restrictive Trade Practices Act, 1969) for
the purpose of availing exemption from applicability of the provisions of
Regulations 10 to 12 of Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 as provided in
Clause 3 (e) of the said Regulations.

Particulars
1. Welcast Steels Limited
2. Vega Industries (Middle East) F.Z.E.
3. Vega Industries Limited, U.K.
4. Vega Industries Limited, U.S.A.
5. Vrindavan Alloys Private Limited.
6. Keyur Financial Services Private Limited
7. Mr. Bhadresh K. Shah
8. Mrs. Gita B. Shah
9. Mrs. Khushali B. Shah
10. Mrs. Bhumika B. Shah

For and on behalf of the Board,

Place: Ahmedabad (Rajendra S. Shah)
Date : 25th June 2009 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS

A. INDUSTRY OVERVIEW

Infrastructure is the pivot on which economic development of any country
rests. Cement, mining and utilities are the basic drivers of
infrastructure development. Mill Internals manufactured by the Company
find application in the above mentioned industries.

The Company basically employs alloy-casting process for manufacture of the
products, which require designing of alloys in relation to end
application. The casting process is followed by precision heat treatment
to develop required end properties. Therefore, Company can generally be
classified as a foundry. The industry produces a specific range of high
chrome mill internals which are used as wear parts in the crushing /
grinding operations in the mills/plants of Cement, Mining and Utility
industries, therefore the market prospects are linked with the requirement
of these industries.

The demand of our products is driven by maintenance requirement market and
project requirement market. Outlook in both areas of demand is healthy.

Presently, the Company is mainly focusing on the Cement and Mining segment
outside India, however, in India, it is servicing all the three segments.

B. SWOT ANALYSIS

The Company is uniquely positioned as a supplier of High Chrome Mill
Internals on a global scale, on account of the following competitive
strengths:

* Focus on the combination of Metallurgy, Design and Applications.

* Comprehensive solutions based approach, as distinct from supply of
commodity products.

* Focus on technology research and development.

* Worldwide presence in more than 60 countries, being directly in front of
the customers through a net work of overseas marketing subsidiaries in the
Middle East, Europe and USA and warehouse facilities.

* Low cost of production.

* Strategic commercial partnerships with leading OEMs and customers.

* A management team comprising of Technocrats, Professionals and
Consultants having rich experience in High Chrome Mill Internals industry.

WEAKNESS/THREATS

* Inability to scale up the capacities rapidly owing to extremely high
importance of absolutely zero failure rate of the products expected by the
customers, requiring close monitoring of the quality.

* Issues related to logistics, particularly with the increasing volumes of
the products.

* Current global slow down owing to massive de-stocking witnessed in the
cement and mining industries which may impact the short term performance
of the company.

OPPORTUNITIES AND STRATEGIES

* To tap the opportunities available in the global Mining segment and the
Cement, Mining & Utility segment in India.

* To expand the Cement market by adding new geographies and also by
focusing on widening of product-portfolio in the cement business.

* To widen the basket of minerals by focusing on solutions for Copper,
Gold and Platinum in addition to Iron Ore Mining in the global markets.

* To maintain and further strengthen our capabilities of Research &
Development activity.

* To focus more on strategic relationship / commercial partnerships with
international groups.

C. SEGMENTWISE PERFORMANCE

The Company primarily operates in only one segment i.e. manufacturing of
High Chrome Mill Internals. However, from the market stand point, to give
a better understanding of our market positioning, it may be mentioned that
in F.Y. 2008-09, 43% of the total consolidated sales came from within
India and balance 57% came from outside India.

D. OUTLOOK AND PROSPECTS

The Company is operating in a high technology oriented niche engineering
segment, involving manufacturing of impact, abrasion and wear resistant,
high chrome mill internal products used by cement, mining and utility
industries. The Company services the 'replacement' demand of these
industries and the OEM requirement for new capacities added.

* The 'replacement' market is strong thanks to the strong demand of metals
and cement.

* The OEM business is also poised for growth as new cement capacities are
being added not only in India, but in many other parts of the world.

The implementation of the ongoing Greenfield project at Moraiya is
complete, and both the phases with an aggregate capacity of 1,00,000 TP A
have been commissioned. The first phase of 50,000 MT. was commissioned in
June 2007 and the second phase of 50,000 MT in May 2008.

Fiscal year 2008-09 -particularly the second half of fiscal year 2008-09
witnessed on set of deep recessionary trends in the major global markets.
The countries which were particularly worst hit include North America,
South America, European Subcontinent as well as CIS countries. Since your
company is strongly present in the cement segment in all these major
markets, it has witnessed a temporary impact of this slow down in the
cement replacement demand from the above markets. This impact is likely to
be felt till the first half of the fiscal year 2009-10

Even on the mining front, since your company had focused strongly on Iron
Ore for its worldwide foray into mining business, significant slow down in
the iron ore production world wide resulted into a sizeable destocking
activity by the major iron ore mines, which affected your company's plan
to ramp up its production for servicing this segment in near term.

However, your company firmly believes that the long term prospects are
extremely bullish. Further, there are already earlier signs of some
recovery starting to happen in the second half of fiscal year 2009-10.

Your company has taken several initiatives for sustaining the growth
momentum. This include in the cement segment widening of market horizon
and focusing on multiple applications etc. On the mining front your
company has aggressively diversified into other minerals like Copper,
Platinum and Gold and the initial response is quite positive. The
commercial dispatches in the Copper and Platinum segment have already
begun.

Similarly on the utility front, your company has also started initiatives
for entering Chinese markets where your company has excellent solutions.

On the domestic marketing front, your company continues to enjoy a lion
share in all the three segments where it operates.

Thus, the long term prospects continue to remain very much bullish and
strong.

Your company is targeting to increase the production capacity upto around
2,00,000 tons so as to become effective and available in the fiscal year
2010-11. This would be done through a cap-ex of around Rs.40 crores which
will be funded through internal cash generation.

E. RISKS AND CONCERNS

Given its large exports, the Company is exposed to foreign exchange rate
fluctuation risk. The Company has started hedging the risk in a systematic
manner, so as to mitigate the same.

Another major area of risk is with regard to fluctuation in the raw
material prices. However, the Company has converted major portion of its
contracts from fixed price to fluctuating price regime. Again, the Company
is closely monitoring the price movements and is regularly buying the raw
materials during low price cycles so as to average out the impact of price
fluctuations.

The Company is exposed to certain operating business risks, similar to
most manufacturing companies, which is mitigated by regular monitoring and
corrective actions.

F. INTERNAL CONTROL SYSTEM AND THE ADEQUACY

The Company has proper and adequate system of internal controls
commensurate with its' size and nature of operations to provide reasonable
assurance that all assets are safeguarded, transactions are authorized,
recorded & reported properly and to ascertain operating business risks,
which is mitigated by regular monitoring and corrective actions.

The internal control system has been designed so as to ensure that the
financial and other records are reliable and reflects a true and fair view
of the state of the Company's business.

A qualified and independent Audit Committee of the Board of Directors
actively reviews the adequacy and effectiveness of internal control
systems and suggests improvements for strengthening them.

G. FINANCIAL PERFORMANCE REVIEW

The financial performance of the Company as a whole (on consolidated
basis) is as under:-I. Consolidated Performance

An analysis of the consolidated performance of the Company is given below:

(a) Physical Production

The production achieved is as under:
(Qty. in M.T.)
Product F.Y.2008-09 F.Y.2007-08

High Chrome Mill Internals 103570 88166

It will be seen that in physical terms, the Company has achieved 17.47%
growth in F.Y.2009 over the F.Y. 2008.

(b) Sales Turnover (Consolidated)

The comparative position of sales turnover achieved by the Company is as
under :
(Rs. in Lacs]
Particulars F.Y.2008-09 F.Y.2007-08

Sales in India 44192.30 36584.66
Sales Outside India 58136.80 32533.49
Total 102329.10 69118.15

It will be seen that the total sales of the Company have increased by 48%
over the previous financial year. Further, sales in India have increased
by 21% over the previous financial year and sales outside India have
increased by 79% over the previous financial year.

(c) Key Performance Indicators (Consolidated)

An analysis of the key indicators as percentage to Sales is given below:

(Rs. in Lacs)
Particulars F.Y.2008-09 F.Y.2007-08

1. - Net Sales 102329.10 69118.15
2. Raw Materials Consumed (including Stores, 51000.42 33467.04
Spares & Trading Purchase)
- % of Sales 49.83% 48.42%
3. Employee Costs 4105.54 3123.42
- % of Sales 4.01% 4.52%
4. Other Expenditure 14073.95 17107.64
- % of Sales 23.53% 24.75%
5. EBIDTA 27165.55 19549.13
- % of Sales 16.55% 28.28%
6. Interest Cost 207.26 168.07
- % of Sales 0.20% 0.24%
7. Depreciation 2025.19 1357.86
- % of Sales 1.98% 1.96%
8. Profit Before Tax 24933.10 18023.20
- % of Sales 24.37% 26.07%
9. Profit After Tax 17431.20 13420.95
- % of Sales 17.03% 19.42%

II. Standalone performance:

The analysis of standalone performance of the Company is given below:

(a) Physical Production

The production achieved is as under:

(Qty. in M.T.)
Product F.Y.2008-09 F.Y.2007-08
j High Chrome Mill Internals 72354 55824
It will be seen that in physical terms, the Company has achieved 30 %
growth in F.Y.2009 over the F.Y. 2008.

(b) Sales Turnover (Standalone)

The comparative position of sales turnover achieved by the Company is as
under:
(Rs. in Lacs)
Particulars F.Y.2008-09 F.Y.2007-08

Sales in India 43103.73 32074.60
Sales Outside India 49182.21 27305.94
Total 92285.94 59380.54

It will be seen that the total sales of the Company have increased by 55%
over the previous financial year. Further, sales in India have increased
by 34% over the previous financial year and sales outside have increased
by 80% over the previous financial year.

(c) Key Performance Indicators (Standalone)

An analysis of the key indicators as percentage to Sales is given below:

(Rs. in Lacs)
Particulars F.Y.2008-09 F.Y.2007-08

1. - Net Sales 92285.94 59380.54
2. Raw Materials Consumed (including Stores,
Spares & Trading Purchase) 52183.53 34044.54
- % of Sales 56.55% 57.33%
3. Employee Costs 2569.92 1524.21
- % of Sales 2.78% 2.57%
4. Other Expenditure 17140.94 11727.80
- % of Sales 18.57% 19.75%
5. EBIDTA 22283.00 15895.25
- % of Sales 24.15% 26.77
6. Interest Cost 84.67 8.49
- % of Sales 0.09% 0.01%
7. Depreciation 1617.08 827.04
- % of Sales 1.75% 1.39%
8. Profit Before Tax 20581.26 15059.72
- % of Sales 22.30% 25.36%
9. Profit After Tax 13345.77 10831.02
- % of Sales 14.46% 18.24%

H) INDUSTRIAL RELATIONS AND HUMAN RESOURCE MANAGEMENT

The Company believes that human resource is the most important asset of
the organization. During the year under review, your Company continued its
efforts to improve HR related processes, practices and systems to align
these to the organizational objectives. Training and development of its
employees is ensured through on the job and outside training programs and
workshop.

The Company continues to attract excellent talent to further its business
interest. Industrial Relations continue to be cordial.

Cautionary Statement

Statements made in the Management Discussion & Analysis describing the
Company's objectives, projections, estimates, expectations may be 'Forward-
looking statements' within the meaning of applicable securities, laws &
regulations. Actual results could differ from those expressed or implied,
Important factors that could make a difference to the Company's operations
include economic conditions affecting demand supply and price conditions
in the domestic & overseas markets in which the Company operates, changes
in the government regulations, tax laws & other statutes & other
incidental factors.

None of the Senior Management personnel have Financial and Commercial
transactions with the Company, where they have personal interest, that
would / could emerge as potential conflict with the interest of the
Company at large.