Annual Report - Amara Raja Batteries - 2009-2010

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your directors have pleasure in presenting their report together with the
audited accounts for the financial year ended March 31, 2010.



Financial highlights:

(Rs. million)
Particulars For the year ended
March 31, March 31,
2010 2009

Profit after tax 1,670.33 804.79
Add: Profit brought forward from last year 2,572.80 1,928.43
Profit available for appropriation 4,243.13 2,733.22
Appropriation
General reserve 167.03 80.48
Dividend (Including dividend tax) 289.77 79.94
Surplus carried to balance sheet 3786.33 2,572.80

Performance:

During the year under review, the Company achieved a gross turnover of Rs.
16,910.84 million as against Rs.15,794.10 million. Other income for the
year was at Rs. 170.17 million as against Rs. 80.56 million of the previous
year. The net sales for the year ended March 31, 2010 was Rs.14,652.10
million, as against Rs.13,131.79 million for the corresponding period of
the previous year thereby achieving a growth of 12%. The Profit Before Tax
(PBT) stood at Rs. 2,546.35 million as against Rs.1,226.59 million and
Profit After Tax (PAT) at Rs. 1,670.33 million as against Rs. 804.79
million.

The financial year 2009-10 was a significant year for the Company in terms
of growth in profitability. The net profit during the year has grown by
107% over the previous financial year.

Industrial battery unit:

The Company's industrial battery unit witnessed double digit growth in
sales volume during the financial year 2010. During the year, the installed
capacity of Medium VRLA was enhanced from 1.20 million to 1.80 million
units per annum. The Company continues to enjoy its preferred supplier
status from leading telecom operators. The industrial battery unit's two
leading brands viz., PowerstackTM and QuantaTM have continued its brand
preference in Telecom, UPS and other user segments viz., ITES, Railways,
Power Control, Solar etc. The Company's market share in telecom continued
to increase during the year under review and was at 32% at the end of the
financial year.

Automotive battery unit:

During the year, the Company's automotive battery unit revenue and volume
grew by 20% over the previous financial year 2008- 09. The growth in sales
volume outpaced the industry growth both for automotive and motor cycle
batteries. The Company was able to maintain its market share both in OEM
and aftermarket aided by its focus on channel building, realignment of its
product portfolio and brand awareness programmes. The Company received the
permit to use the 'Diamond Mark' from the Kenya Bureau of Standards and
received 'Gulf Standard Organisation Certification' from the Directorate
General of Specifications and Measurements, Ministry of Commerce and
Industry, Sultanate of Oman, for its automotive batteries.

During the year the Company launched its second variant in the category of
motor cycle batteries (with VRLA technology) under the name of 'Amaron Pro
Bike RiderTM BETA series' with 48 months warranty in the aftermarket. The
BETA series would enhance the product portfolio in addition to the existing
variant - ALPHA with 60 months warranty.

In 2009-10, the Company expanded its Amaronr network to over 200
franchisees and 18000 retailers and strengthened the presence through 700
PowerZoneTM outlets in semi-urban and rural locations.

A detailed report on both industrial and automotive battery businesses and
their outlook is covered under Management Discussion and Analysis Report
(MDAR) which is part of the directors' report.

Finance:

The Company's financial position continues to be comfortable with its debt
equity ratio at 0.17:1. As at March 31, 2010 the Company's cash balance was
healthy at Rs. 624.67 million. During the year under review, the Company
has reduced its long term liabilities (secured loans) to Rs. 272.95 million
as against Rs. 2,078.32 million of previous year. The Company pre closed
the term loans availed from Citibank and Bank of Nova Scotia aided by
improved cash flow.

Credit rating:

During the year under review, CRISIL based on its evaluation, upgraded the
rating for term loan and cash credit to 'AA/Stable' from AA-/Stable and
reaffirmed the ratings for the letters of credit and bank guarantees as
P1+.

The improved rating affirms the Company's financial strength and positive
business scenario.

Dividend:

The board of directors at their meeting held on May 19, 2010 adopted a
dividend policy to pay dividend (excluding dividend tax) upto 15% of the
net profit after tax (PAT) of the Company. The board of directors
recommended a dividend @ 145% on the paid up equity share capital of the
Company, i.e. Rs. 2.90 per equity share of Rs. 2/- each for the financial
year ended March 31, 2010.

The dividend, if approved, would involve an outflow of Rs. 248 million
towards dividend and Rs. 42 million towards dividend tax, resulting in a
total cash outflow of Rs. 289 million.

The register of members and share transfer books of the Company will remain
closed from July 22, 2010 to July 29, 2010 (both days inclusive) for the
purpose of determination of the members entitled for dividend. The annual
general meeting of the Company is scheduled to be held on Thursday, July
29, 2010 at 3.00 PM at the registered office of the Company.

Transfer to reserves:

In accordance with the provisions of the Companies Act, 1956 read with
Companies (Transfer to Reserves) Rules, 1975, your directors propose to
transfer a sum of Rs. 167.03 million to the general reserve out of the
profits earned by the Company. A sum of Rs. 3786 million is proposed to be
retained in the profit and loss account.

Awards and recognitions:

Your directors have pleasure in reporting the following awards and
recognitions the Company received during the year under review:

1. Best Employer Award in the Electronics Industry category by Employer
Branding Institute of India'.

2. 'Continuous Innovation in HR Strategy at Work' (National Round) and for
'Excellence in HR through Technology' (Regional round) by Employer
Branding Institute of India'

3. 'Best Telecom Equipment Manufacturer' under the category of VRLA battery
by BSNL (a government undertaking) Telecom Quality Assurance Circle,
Bangalore.

4. 'Quality Excellence' for the year 2009 by Indus Towers Limited.

Directors:

In accordance with the provisions of Section 256(1) of the Companies Act,
1956 and Article 105(a) of the Articles of Association of the Company, Mr.
P. Lakshmana Rao and Mr. Nagarjun Valluripalli, are liable to retire by
rotation at the ensuing annual general meeting and being eligible offer
themselves for re-appointment.

The board has recommended the re-appointment of Mr. Jayadev Galla as the
Managing Director of the Company for a further period of five years
commencing from September 1, 2010, subject to the approval of shareholders
at the ensuing annual general meeting. Necessary resolutions are being
placed before the shareholders at the ensuing annual general meeting for
their consideration and approval.

A brief resume, expertise and details of other directorship(s) etc.,
relating to appointment and reappointment of directors are provided in the
notice of the ensuing annual general meeting.

Mr. Jorge A Gonzalez was appointed as director of the Company with effect
from November 1, 2009 in the casual vacancy caused by the resignation of
Mr. Raymond J Brown in terms of Section 262 of the Companies Act, 1956.

Mr. Raymond J. Brown had tendered his resignation and the same was accepted
by the board with effect from November 1, 2009.

Mr. Frank E. Kraick, who was appointed as alternate director to Mr. Raymond
J. Brown vacated his office in terms of Section 313 and related provisions
of the Companies Act, 1956 with effect from November 1, 2009.

The board wishes to place on record its grateful appreciation and
acknowledgement for the valuable contributions rendered by the outgoing
directors during their tenure.

Mr. Tony. W. Huang was appointed as an alternate director to Mr. Jorge A
Gonzalez in terms of Section 313 of the Companies Act, 1956 with effect
from May 19, 2010.

Mr. Rohit Kochhar was appointed as an alternate director to Mr. Shu Qing
Yang in terms of Section 313 of the Companies Act, 1956 with effect from
May 19, 2010.

Auditors:

The board, on the recommendation of the audit committee, has proposed that
M/s. E.Phalguna Kumar & Co, Chartered Accountants, Tirupati and M/s.
Chevuturi Associates, Chartered Accountants, Vijayawada, be re-appointed as
the joint statutory auditors of the Company. Necessary resolution is being
placed before the shareholders for their re-appointment at the ensuing
annual general meeting. The Company has also received from the auditors
confirmation to the effect that their re-appointment, if made, would be in
accordance with the limits as prescribed in Section 224 (1B) of the
Companies Act, 1956.

Cost auditor:

In terms of Section 233B of the Companies Act, 1956 and as per the
Government's directives, Mr. A.V.N.S. Nageswara Rao, was appointed as the
cost auditor of the Company to conduct the cost audit for the financial
year 2009-10.

For the year 2010-11 the Company re-appointed Mr. A.V.N.S. Nageswara Rao as
the Cost Auditor of the Company. The Company has since received the
approval of the Central Government for the appointment of Mr. A.V.N.S.
Nageswara Rao as the cost auditor of the Company for auditing the cost
records of the Company for the financial year 2010 -11.

Corporate Governance:

The Company's corporate governance practices have been detailed in a
separate section and are annexed to and forms part of this annual report.
The certificate from the auditors' on the compliance of corporate
governance code as required under clause 49 of the listing agreement is
also attached as annexure and forms part of this report.

Management Discussion and Analysis:

Management Discussion and Analysis Report, highlighting the performance and
prospects of the Company's business, forms part of this annual report.

CEO and CFO Certification:

As required under clause 49 (V) of the listing agreement, the CEO/CFO
certification on the accounts of the Company as given by Mr. Jayadev Galla,
Managing Director and Mr. K. Suresh, Chief Financial Officer forms part of
this annual report.

Transfer to the Investor Education and Protection Fund:

In terms of Section 205A read with Section 205C of the Companies Act, 1956,
an amount of Rs. 616,911/- being unpaid/unclaimed dividend pertaining to
the financial year 2001-02 was transferred to the Investor Education and
Protection Fund (IEPF) on October 13, 2009.

Further the unclaimed/unpaid dividend relating to the financial year 2002-
03 is due for remittance on September 05, 2010 to the Investor Education
and Protection Fund during the financial year 2010-11.

Fixed deposits:

The Company has not accepted any deposits from the public in terms of
Section 58A of the Companies Act, 1956 during the year under review and
hence there were no outstanding deposits as on March 31, 2010

Health, safety and environmental protection:

The Company has complied with all the applicable environmental laws and
labour laws. The Company continues to be certified under ISO-14001 for its
environment management system. The Company has been complying with the
relevant laws and has been taking all necessary measures to protect the
environment and maximise employee health and safety.

Industrial relations:

During the year under review, the industrial relations remained cordial and
stable. The directors wish to place on record their appreciation for the
excellent cooperation received from all employees at all levels.

Particulars of Employees:

The statement giving particulars of employees who were in receipt of
remuneration in excess of the limits prescribed under Section 217 (2A) of
the Companies Act, 1956 read with the Companies (Particulars of Employees)
Rules, 1975, as amended, is given in the annexure to the directors' report.

However, in terms of the provisions of section 219 (1) (b) (iv) of the
Companies Act, 1956, the directors' report is being sent to all the members
of the Company, excluding the aforesaid information. The said information
would be filed with the Registrar of Companies and also would be available
for inspection by the members at the corporate operations office of the
Company. Any member interested in obtaining such particulars may write to
the Company Secretary of the Company.

Conservation of energy, technology and foreign exchange:

The particulars of conservation of energy, technology absorption, foreign
exchange earnings and outgo required to be disclosed under the Companies
(Disclosure of Particulars in the Report of 54 Amara Raja Batteries Limited
the Board of Directors) Rules, 1988 are annexed hereto and forms part of
this report.

Directors' Responsibility Statement:

Pursuant to Section 217(2AA) of the Companies Act, 1956, the directors
confirm that, to the best of their knowledge and belief:

* in the preparation of the profit & loss account for the financial year
ended March 31, 2010 and the balance sheet as at that date ('financial
statements'), applicable accounting standards have been followed;

* appropriate accounting policies have been selected and applied
consistently and such judgements and estimates that are reasonable and
prudent have been made so as to give a true and fair view of the state of
affairs of the Company as at the end of the financial year and of the
profit 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. To ensure this, the Company has
established internal control systems, consistent with its size and nature
of operations. In weighing the assurance provided by any such system of
internal controls its inherent limitations should be recognised. These
systems are reviewed and updated on an ongoing basis. Periodic internal
audits are conducted to provide reasonable assurance of compliance with
these systems. The audit committee meets at regular intervals to review the
internal audit function;

* the financial statements have been prepared on a going concern basis.

Acknowledgement:

The board wishes to place on record its sincere appreciation for the
continued assistance and support extended to the Company by its customers,
vendors, investor's, business associates, banks, Government authorities and
employees.

The directors acknowledge with gratitude the encouragement and support
extended by the shareholders.

On behalf of the Board

Place: Hyderabad Dr. Ramachandra N Galla
Date : May 19, 2010 Chairman

Annexure to Directors' Report

Particulars as per the Companies (Disclosure of Particulars in the Report
of the Board of Directors) Rules, 1988 and forming part of the directors'
report for the year ended March 31, 2010

A. Particulars of conservation of energy:

The Company continues its ongoing efforts on energy conservation through
upgradation of process technology, effective production scheduling and
installation of efficient equipment, resulting in energy savings.

Form A:

Form for disclosure of particulars with respect to conservation of energy

A. Power and fuel consumption 2009-10 2008-09
1. Electricity
(a) Purchased
Unit (Kwh) 98,562,983 86,219,983
Total Amount (Rs.) 249,370,519 213,587,029
Rate / Unit (Rs.) 2.530 2.477
(b) Own generation
(i) Through diesel generator
Unit (Kwh) 2,539,973 72,080
Unit per litre of diesel 37.98 35.88
Cost/Unit (Rs.) 13.85 17.15
(ii) Through steam turbine/generator - -
2. Coal - -
3. Furnace oil - -
4. Others
(a) LPG
Units (Kgs) 224,367 191,420
Amount (Rs.) 9,978,644 9,279,930
(b) Acetylene - Commercial units
(Cubic Mtrs) 21,053 22,553
Amount (Rs.) 3,664,095 3,779,660
(c) Oxygen Units (Cubic Mtrs) 39,746 45,850
Amount (Rs.) 853,637 937,863
B Electricity consumed in Kwh 4,631 4,540
per lakh of Ampere hour produced

B. Technology absorption:

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

* Bench marking of competitor batteries

* Conservation of raw materials/energy

* Development of import substitutions and new products for different
applications

* Exploration of environmental friendly operations/ materials

* Material development activity for enhanced battery performance

* Quality improvement to reduce field failures

* Studies on alternate technologies

* Technology up-gradation to make the batteries robust and high end
performer

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

* Developed and commercialised super premium power stackTM battery for
cellular and power control applications

* Developed long life VRLA Batteries for hybrid/off-grid applications

* Improved productivity in automotive grid casting by process improvements

* Designed and deployed automotive battery for newly introduced Ford Figo
car

* Acquired new OEM accounts-Escorts Limited in tractor division and Lucas
in two wheeler division

* Acquired International accreditation from Kenya bureau of standards and
Gulf standard organisation for automotive batteries

* Introduced redundancy batteries for railway AC coach application

* Productionised several environment friendly materials/ processes to make
the product environment friendly

03. Future plan of action:

* Develop LM tubular batteries for motive power application

* Develop high performance sub 300 Ah VRLA batteries for telecom, power and
motive applications

* Develop motor cycle batteries (AGM version) for OE application.

* Develop automotive batteries for stop-start vehicle application

* Develop AGM Battery technology for automotive application

* Improve the reuse and recycling methods in the manufacturing process

04. Expenditure on R&D (Revenue and Capital) during 2009-10:

(Rs. Million)
Particulars 2009-10 2008-09

1. Capital 5.060 1.509
2. Recurring 12.228 8.823
Total 17.288 10.332
Total R&D expenditure as
percentage of total turnover 0.10% 0.07%

C. Technology absorption, adaptation and innovation:

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

* Developed long life VRLA Batteries for hybrid/off-grid applications

* Designed and deployed automotive battery for newly introduced Ford Figo
car

* Introduced redundancy batteries for railway AC coach application

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

* Cost reduction

* Environmental protection

* Energy conservation

* Enhanced performance and reliability of the product

* Enhanced market share

* Foreign exchange earnings

* Penetration into newer markets

* Resource saving

Information regarding Imported technology:

a) Technology Imported The Company has imported technology for
the manufacture of automotive (SLI)
batteries from Johnson Controls Inc. USA

b) Year of Import 1998

c) Has the technology Yes. Further, latest developments in the
technology are absorbed and implemented
from time to time with the help of
Johnson Controls Inc., USA when and
where required

d) If not fully absorbed, areas
where this has not taken place,
reasons therefore and future Not Applicable
plan of action

D. Total foreign exchange used and earned:

(Rs. Million)
Particulars 2009-10 2008-09
1. Foreign exchange used 5,316.51 4,056.75
2. Foreign exchange earned - sales 521.57 440.54

MANAGEMENT DISCUSSION AND ANALYSIS

Global economy:

The year 2009 witnessed the harsh fallout of the unprecedented global
economic turmoil. As per IMF estimates (January 2010), global economic
growth contracted around 0.8%, led by the advanced economies which
contracted 3.2% while emerging economies declined 400 bps to 1.7% in 2009
(2.1% in 2008). The intensity of the global meltdown in 2009 would have
been harsher but for China and India. The cumulative efforts of most
governments curtailed the depth, span and intensity of the economic
catastrophe, although the possibility of some economies defaulting
continues to haunt the world.

IMF estimates suggest a positive economic rebound in 2010 with the global
economy projected to grow at 3.9%; advanced economies is expected to grow
530 bps to an estimated 2.1% while the emerging world is expected to grow
390 bps to about 6%. Further, WTO projects world trade to expand 9.5% with
the advanced world increasing 7.5% and the emerging world 11%.

Emerging world rules the future:

Over the last decade, the global economy was primarily driven by the
emerging world, China and India being the two most important contributors.
This trend is expected to sustain. This is because of an important reality
- emerging economies have multiple engines catalysing their economic
growth: demographic advantage, growing industrialisation and increasing
urbanisation. Through the global meltdown, the advanced economies suffered
the most and are expected to take the longest to revive. The emerging
economies on the other hand, displayed their resilience and retrieved the
global economy from the brink, strengthening their prospects of becoming
preferred investment destinations.

The possibility that Asia could become the world's largest economic region
by 2030 is not idle speculation. It seems very plausible based on what Asia
has already achieved in recent decades: emerging Asia's share of world
trade has doubled and of world GDP tripled in just the past two decades.

Indian economic overview:

Double-digit industrial growth saw the Indian economy expanding 7.4% in
2009-10, despite drought and a global slowdown. The gross domestic product
(GDP) was Rs. 4,464,081 crore (at 2004-05 prices), surpassing the earlier
estimate of 7.2% growth over the previous year's Rs. 4,154,973 crore.

The Indian economy's stellar performance was driven by the manufacturing
sector's robust performance on the back of government and consumer
spending. The sector emerged as the best performer, growing 10.8% in 2009-
10 as against 8.9% in 2008-09, outpacing the services sector. While
manufacturing activity pushed the growth, agriculture grew 0.2% during the
year as opposed to a 0.2% estimated decline, despite the worst drought in
three decades, floods in some areas and resulting impact on kharif crop
production.

As on March 26, 2010, India's foreign exchange reserves stood at USD
277'.04 billion, an increase of USD 24.71 billion over the same period in
the previous year (source: Reserve Bank of India's Weekly Statistical
Supplement). India received FDI worth USD 20.92 billion during April-
December 2009, taking the cumulative amount of FDI inflows to USD 127.46
billion in December 2009, according to the Department of Industrial Policy
and Promotion.

Government estimates suggest that the indian economy will grow 8.5% in
2010-11, driven by better farm output and global recovery. However, slower
growth in the service sector, widening fiscal deficit, rising inflation,
volatile exchange rate and a probable impact on balance of payments arising
out of crude prices remain serious concerns of the indian economy.

Impact of economic resurgence:

Auto: Automobile production touched record highs in 2009-10 on the back of
positive consumer sentiment. Car production rose 25%, the fastest in six
years, to 19.50 lakh and motorcycle production climbed 26% to 84 lakh. In
the passenger car segment, volumes of the two car majors, Maruti and
Hyundai Motors, grew 33% and 18% year-on-year.

Telecom: According to the Department of Industrial Policy and Promotion
(DIPP), the telecommunication sector, which includes radio paging, mobile
services and basic telephone services, attracted foreign direct investment
(FDI) worth Rs. 108,110 million in 2009-10, a growth of 17.12% over the
previous year. In March 2010, Bharti Airtel bought the African operations
of Kuwait-based Zain Telecom for USD 10.7 billion, driving the Indian
player into the league of top ten telecom players globally. According to
the Economic Survey 2009-10, the production of telecom equipment in value
terms increased from USD 9 billion in 2007-08 to USD 10.53 billion in 2008-
09 and is expected to be USD 12.4 billion in 2009-10.

IT & ITeS: The aggregate revenue from the T-BPO industry is expected to
grow by over 5% and reach USD 73.10 billion in 2009-10 compared with USD
69.40 billion in 2008-09. The IT-ITeS industry's contribution to the GDP
increased from 6% in 2008-09 to 6.10% in 2009-10 (Source: Department of
Information Technology).

Indian battery market:

The domestic storage battery market (organised sector) is estimated at
about Rs. 65 billion at current lead prices, comprising industrial
batteries (Rs. 32 billion) and automotive batteries (Rs. 33 billion)
businesses. Moreover, the unorganised sector is estimated at Rs. 20-25
billion. The automotive battery business accounts for about 55% of sales
value, while the industrial battery business accounts for the remaining
45%.

The automotive battery business can be further divided into the OEM and
aftermarket sectors. Demand for automotive batteries largely depends on the
growth of automobile OEMs and the aftermarket. During the year under
review, the automotive batteries market grew about 30% in OEM and about 10%
in the replacement market. The OEM and replacement markets are expected to
experience about 18% growth in the segment OEM and 11% in the aftermarket
segment in 2010-11.

The growth in the industrial batteries business is driven by infrastructure
and technology-related industries such as telecommunications, UPS and
power. VRLA technology caters to 75% of the industrial storage battery
market. The ongoing slowdown in telecom impacted the offtake and price of
VRLA batteries, after healthy growth in the recent three-four years. The
market for UPS batteries is expected to grow about 10% in 2010-11, aided by
a reviving momentum in the services sector and e-initiatives of the
Government(s) of India.

BUSINESS ANALYSIS:

What we achieved in 2009-10:

* Witnessed a 20% growth in revenues and volume over 2008-09

* Launched second variant of motorcycle battery (Amaron Pro Bike RiderTM
Beta series) based on VRLA technology with a 48-month warranty in the
aftermarket

* Expanded its network to 200 franchisees and over 18,000 retailers in
Amaronr format

* Enhanced the presence of PowerZoneT to over 700 outlets across semi-urban
and rural locations

* Ranked among the top 100 franchise opportunities by The Franchising
World' for Amaronr Business Model

* Received battery product approval for Ford's small car Figo and Escorts
Ltd. for tractors

* Developed and commenced supplies to the first Indian micro hybrid vehicle
(Scorpio) from Mahindra & Mahindra

* Completed the design and development of a micro hybrid programme for Tata
Motors' Ace vehicle

* Entered into a development agreement with Honda, Japan, for motor cycle
VRLA batteries

Business overview:

The Automotive Batteries Unit commenced operations with technology from
Johnson Controls Inc., joint venture partner and the world's largest
manufacturer of automotive batteries. It pioneered the Valve Regulated Lead
Acid (VRLA) technology in India's automotive battery segment, the key
differentiator in an otherwise cluttered Indian automotive battery market.
Based on the technology, the unit created an unmistakable brand recall:

* Introduced the zero-maintenance automotive batteries for the first time
in India

* Pioneered the 60-month warranty battery for the first time in India's
automotive battery space

The unit's revenue accrue primarily from the aftermarket segment,
accounting for about 65% of sales volume while the balance is contributed
by sales to OEMs and exports. ABD is a preferred supplier to automobile
OEMs for diverse platforms with a 27% market share and enjoys a sizeable
presence in the aftermarket segment (26% market share in the organised
sector) through its own brands and private label programs like Bosch and
Lucas. The Amaronr brand is well accepted in various countries across
indian Ocean Rim spanning Southeast Asia, the Middle-East, Asia and East
Africa.

Products and applications:

ABD caters to all segments of the automotive industry, ranging from
passenger cars, MUVs, tractors and commercial vehicles (automotive
batteries) to motorcycles and scooters (motorcycle batteries) - both self-
start and kick-start. ABD offers an array of automotive batteries to OEMs
and the aftermarket with warranties ranging from 12 to 60 months to suit
diverse customer requirements.

Some key features that make Amaronr a preferred brand are long life, BIC
vents for enhanced safety, highest cranking power and a 60-month warranty.

The PowerZoneTM brand provides customised batteries for rural applications.
The brand also offers complete power solutions for automobiles and homes,
making it a one-stop shop for all power needs - quality product at
competitive prices.

At the shop floor:

Automotive Batteries Business Unit manufacturing facility in Tirupati
houses six assembly lines, while its motorcycle battery manufacturing
facility has two assembly lines. The batteries are manufactured in a QS
9000, ISO 14001 and TS 16949-certified plant, using world-class technology
and stringent quality parameters. During 2009-10, the following initiatives
helped optimise operational processes:

Amaron's Product range

Brand User segment Warranty period

PRO Passenger cars 60 months
FLO Passenger Cars 48 months
GO Passenger cars 36 months
BLACK Passenger cars 18 months
FRESH Passenger / MUV 12 months
HI-WAY Commercial vehicles 24 months
HARVEST Tractors 24 months
SHIELD Inverters 24 months

Productivity improvements:

* Institutionalised a scientific production planning mechanism, which
facilitated maximum equipment throughput

* Introduced a new charging system, which reduced cycle time in the
formation area and ensured equal charge in all cells for enhanced product
quality

* Enhanced the capacity of acid dilution plant to support growing captive
needs

* De-bottlenecked the formation area of the automotive battery plant

* Optimised pasting operations for improved productivity

* Reduced power consumption by eliminating wastage

Quality improvements:

* Extended the online (real time) SPC technique usage in the plate
preparation area for better quality control

* Sustained the TPM programme to reduce breakdowns and increase machine
uptime

* Underwent World Class Manufacturing systems' assessment by Frost &
Sullivan

* The Company received the permit to use the 'Diamond Mark' from the Kenya
Bureau of Standards and received 'Gulf Standard Organisation Certification'
from the Directorate General of Specifications and Measurements, Ministry
of Commerce and Industry, Sultanate of Oman, for its automotive batteries.

Consequently, average capacity utilisation improved in both the automotive
and motorcycle battery plants during the year.

Distribution network:

In 2009-10, the Amaronr network expanded to more than 200 franchisees and
18,000 retailers, and PowerZoneTM network to over 700 outlets. The Company
launched Amaronr Pitstops in urban areas and PowerZoneTM outlets in semi-
urban and rural areas. The Amaronr Pitstop format was ranked among the top
franchising opportunities in ndia. The Company's unconventional marketing
channel comprises auto mechanics, lube retailers and small shop-owners.

Brand initiatives:

* Launched a pan-India TV commercial for eight weeks across 35 television
channels in seven languages (for the first time the advertisement was
featured in six regional languages apart from English)

* Conducted the Mystery Shopper' and Display Contest' for the motorcycle
battery brand across the retail network

* Conducted the Whistle Campaign' for the motorcycle battery brand,
enhancing brand awareness

* Initiated free auto electrical diagnostic camps and deployed branded vans
to enhance brand visibility across major Tier and II cities

* Retained Narain Karthikeyan, Armaan Ebrahim, Karun Chandok and Aditya
Patel as brand ambassadors

* Organised scholarship programs for the three winners of Amaron Karting
Challenge Season 2, helping graduate them to higher karting and racing
levels

* Conducted a Funk My Ride' online design contest for designing Amaron
Karts and Racer's branded costume

Optimism:

The revival in India's automobile industry and the government's thrust on
road building will catalyse industry growth. Factors like low vehicle
penetration, increasing GDP growth and growing competition will enhance the
price-value proposition for customers, widening the market.

Low vehicle penetration: India's low passenger vehicle and two-wheeler
penetration per 1,000 people at 11 and 66 represent an opportunity.

Investments accelerating volumes: The Indian automobile industry expects to
invest up to Rs. 80,000 crore in fresh capacity in four years and car
manufacturing capacity is set to rise to 57 lakh units by 2015, according
to Ernst & Young, as the industry sustains a 10-15% CAGR.

Replacement market: Generally, an automobile battery lasts for about three
years, creating the need for replacement. Robust sectoral growth projection
provides an attractive opportunity in India's replacement market.

Road ahead, 2010-11:

* Enhance manufacturing capacities, both in automotive and motorcycle
battery plants, by 20% and 100%

* Invest in low-cost automation, enhancing productivity and quality

* Extend reach and improve brand visibility

Category 2003-04 2004-05 2005-06 2006-07

Passenger vehicles 989,560 1,209,654 1,308,913 1,544,850
Commercial vehicles 275,040 350,033 391,078 519,982
Three wheelers 356,223 374,414 434,424 556,126
Two wheelers 5,629,663 6,575,584 7,569,573 8,469,345
Grand Total 7,250,486 8,509,685 9,703,988 11,090,303

Category 2007-08 2008-09 2009-10

Passenger vehicles 1,767,867 1,838,249 2,334,363
Commercial vehicles 549,006 416,870 566,430
Three wheelers 500,660 497,020 619,093
Two wheelers 8,052,056 8,395,768 10,510,331
Grand Total 10,869,589 11,147,907 14,030,217

[Source: SIAM]

What we achieved in 2009-10:

* Registered a 15% growth in revenues

* Increased MVRLA battery capacity from 1.2 to 1.8 million units per annum

* Consolidated manufacturing assets for LVRLA and MVRLA product lines

* Developed small VRLA batteries for commercial and household applications

* Expanded MVRLA product range

* Launched 6V/120 Ah monoblock battery for train lighting applications in
Indian Railways

* Garnered a higher market share in the telecom segment, under challenging
market conditions

Business overview:

The Industrial Batteries Business Unit manufactures Valve Regulated Lead
Acid (VRLA) batteries, catering to the growing needs of the telecom, UPS
back-up, railways and power utility sectors. Its strong ties with leading
customers resulted in 34% CAGR over the past four years leading to 2009-10.
Today, the unit is a preferred battery supplier to all major telecom
infrastructure and service providers, one of the largest battery suppliers
to Indian utilities and preferred partner of multinational telecom
equipment manufacturers and power companies. Over the recent years, the
unit established a competent marketing and service network - 75 strong
Authorised QuantaTM Alliance (AQuA) partners with pan-India reach - to
cater to the growing UPS segment. Across the last two years, the unit
doubled the capacities of both LVRLA and MVRLA product lines, enabling
scale efficiencies in manufacturing operations.

Products and applications:

IBD's products straddle large (PowerStackTM), medium and small VRLA
batteries (QuantaTM). The unit's product portfolio comprises products with
capacities ranging from 4.5 Ah to 5,000 Ah. While both PowerStackTM and
QuantaTM medium VRLA product range were established as the preferred choice
of many customers, small VRLA batteries were introduced only during the
last quarter of 2009-10.

In the telecom sector, the batteries support switching and transmission
(wireline and wireless) networks; the Indian Railways uses these batteries
for train lighting, coach air conditioning and signalling. In the power
sector, the batteries support generation, transmission and distribution
networks. The UPS batteries support IT and ITeS operations; they form a
part of UPS systems, which provide backup power and regulate power supply
to critical equipment during voltage fluctuations. Small VRLA batteries
find application in small UPS and emergency lamps.

Brand Rating Applications

PowerStackTM 2V / 100 Telecom exchanges, power stations,
- 5600 Ah oil and gas, Indian Railways and
other industrial applications

QuantaTM 12V / 4.5 UPS segment, IT and ITeS industry,
- 200 Ah corporate and hotels, among others

PowerSleekTM 12V / 100 Wireless telecom networks,
(Front Terminal -150 Ah UPS application and niche
Access) applications

Shop floor:

The industrial batteries unit's manufacturing facility is ISO 9001 and SO
14001-accredited and periodically audited by client representatives. The
manufacturing infrastructure is built with state-of-the-art equipment and
robust process control measures.

During 2009-10, the unit optimised operational efficiency through the
following initiatives:

* Shifted its medium VRLA battery lines from the automotive plant to the
industrial batteries plant, consolidating industrial battery manufacturing
under one roof

* Reduced battery charging cycle time by 20% through a novel pasting
chemistry

* Integrated planning process with SAP, leading to accurate planning and
timely course correction

* Developed a special purpose machine in-house, saving significant capital
expenditure

* Installed power factor control equipment, leading to significant energy
savings

* Reduced lead scrap generation and increased re-utilisation

* Established 28 Quality Circles for process improvement

* Initiated TPM and various Continuous Improvement (CI) programs

Current outlook:

The industrial battery market is largely influenced by demand in telecom
and UPS segments while renewable energy and motive power sectors are likely
to emerge as new growth drivers.

Telecom: The Indian telecom market came of age last year, emerging as one
of the world's fastest growing and most competitive markets. But intense
competition in the wireless-dominated telecom services in the country also
forced operators to reduce tariffs to the brink of sustainability. As a
fallout, operators will pursue new revenue-generating opportunities as the
subscriber growth rates will moderate. Tariff stability, potential M&As,
launch of 3G/BWA services and introduction of mobile number portability are
some of the key developments that will characterise the telecom industry
dynamics during FY11. While the network expansion will focus on reaching
rural subscribers, the corresponding challenges in power supply management
in power deficit geographies will trigger more innovative products,
services and business models in the telecom network power solutions. With
ndia's tower population crossing over 350,000 across the country, network
expansion activity slowed; the focus of tower operating companies is on
enhancing efficiency and maximising utility by increasing the tenancy
ratio. The demand for batteries is expected to be moderate with marginal or
flat growth, with battery replacement cycle driving demand. As the battery
industry witnessed significant additions in capacity by existing suppliers
as well as new entrants, supply outstripped demand requirements, creating
unfavourable pricing trends in the industry. While this put a pressure on
margins, the Company is leveraging its strong customer relationships to
enhance market share and sustain volume growth.

UPS - Large scale computerisation of banking networks and government
departments, aggressive growth in the IT sector and increasing demand for
data services catalysed UPS sales. Hence, battery demand in this segment
witnessed over 15% CAGR across the last five years. PC sales, server sales
and laptop sales continued to see a healthy growth in demand at 15% CAGR.
Addition of high powered data centres in telecom, IT, BFIS and government
sectors, continued growth in ATM population at 18% CAGR and massive
government-funded projects such as Accelerated Power Development and Reform
Program (APDRP), National e-Governance Plan (NeGP), will continue to drive
the demand for UPS batteries.

The Company is rightly poised to capitalise on this opportunity with the
recently expanded capacity for UPS batteries, countrywide AQuATM channel
network and strong OE supply relationships. We outpaced market growth
significantly with 28% market share in FY10 and will continue to drive
volumes aggressively. While imports sources and upcoming players will
continue to exert a pressure on realisations, we will leverage our product
and channel strengths to emerge as a market leader over the next couple of
years.

Optimism:

The industrial battery unit is expected to grow owing to a sizeable growth
in the following core customer segments.

Telecom: The Indian telecommunications industry is one of the fastest
growing in the world. According to the Telecom Regulatory Authority of
India (TRAI), the number of telecom subscribers in the country reached
621.28 million as on March 31, 2010, an increase of 3.38% from 600.98
million in February 2010. With this, the overall teledensity (telephones
per 100 people) touched 52.74.

The wireless subscriber base increased to 584.32 million at the end of
March 2010 from 564.02 million in February 2010, registering a growth of
3.6%. According to a report published by Gartner Inc. in June 2009, the
total mobile services revenue in India is projected to grow at a compounded
annual growth rate (CAGR) of 12.5% from 2009-2013 to exceed USD 30 billion.
Indian's mobile subscriber base is set to exceed 771 million connections by
2013, growing at a CAGR of 14.3% in the same period from 452 million in
2009.

This optimism is derived from the following estimates:

* According to a study conducted by Nokia, the communications sector is
expected to emerge as the single largest component (15.4% by 2014) of the
country's GDP.

* Following 3G spectrum availability, about 275 million Indian subscribers
will use 3G-enabled services; the number of 3G-enabled handsets will reach
395 million by end of 2013 (source: Evalueserve), necessitating investments
in adequate telecom infrastructure.

* According to Frost & Sullivan, fixed line revenues are expected to touch
USD 12.2 billion while mobile revenues will reach USD 39.8 billion in
India, necessitating additional network rollout.

* Government of India set a target of 40% teledensity for rural India by
2014.

* India currently has around 350,000 telecom towers which will provide
enough replacement for batteries.

Information technology: The Indian information technology sector shows
attractive promise.

* As per NASSCOM:

- India's IT-BPO industry is estimated to aggregate revenues of USD 73.1
billion in FY 2010 (IT software and services industry accounting for USD
63.7 billion).

- Government's IT spend stood at USD 3.2 billion in 2009 and is expected to
reach USD 5.4 billion in 2011.

- e-Governance is a USD 9 billion business opportunity.

* According to McKinsey, the exports component of the industry is expected
to reach USD 175 billion in revenue by 2020 and the domestic component
could touch USD 50 billion by 2020.

* According to Gartner, India's IT end-user spending is expected to grow at
a CAGR of 14.8% (2007-12), generating USD 110 billion in business potential
in 2012.

Railways: The government's priority is to expand pan-India railway
connectivity and modernise its facilities with an estimated Rs. 2,000
billion investment in the Eleventh Plan. The railway budget 2010-11 set in
motion multiple initiatives like the following:

* Acquisition of 18,000 new wagons

* Introduction of 101 suburban services in Mumbai area; introduction of 54
new train services, 28 passenger train services, 9 MEMU and 8 DEMU
services, six long route Duronto trains and four short distance Duronto day
trains

* Modernisation and augmentation of CLW capacity to 275 locomotives and
commissioning a diesel multiple unit factory in Sankrail

Indian Railways intends to set up a new coach factory at Rae Bareli with an
annual capacity of 1,000 coaches graduating

India to a railway equipment manufacturing hub for southern Asia and Africa
and add 17,500 coaches to cater to growing demand.

Power sector: India's per capita power consumption was low at 704 kwh in
2008-09 against a global average of 2,800 kwh. Estimates suggest that India
Inc. lost Rs. 43,205 crore in revenues in 2008-09 owing to power shortages
(source: MAIT and Emerson Network Power). The government initiated the
following steps to correct the situation:

* Revised the incremental power capacity target from 78,577 MW to 92,700 MW
during the Eleventh Plan (2007-12) with the objective of raising per capita
consumption to 1,000 kwh by 2012

* Increased budgetary allocations for the Revised Accelerated Power
Development and Reforms Programme (RAPDRP) from Rs. 2,230 crore in 2009-10
to Rs. 5,130 crore for 2010-11

* Announced new tariff norms for power utilities - initiated by the Central
Electricity Regulatory Commission (CERC) - for 2009-14, which are expected
to stimulate capacity creation

* Planned 100,000 MW of fresh capacity for the twelfth plan

Solar sector:

* National Solar Mission, launched with a vision to make a Solar India',
is creating avenues for the growth of the solar sector, thereby creating
additional demand for standby power.

* The solar photovoltaic sector, as an alternate source of power, grew 68%
since 2003-04.

* The Indian government set a target of 20,000 MW of solar energy
generation by 2022.

ATM service:

ATMs have an abysmally low penetration in India due to the high cost of the
machine and unfavourable weather and power supply to run the ATM. Even
after having commissioned 45,000 ATMs, india has one of the lowest ATM
densities in the world of just 35 (1 ATM for 28,570 people). ATM
transactions jumped 40% after RBI allowed account holders to access any ATM
across the country without any charge for five withdrawals up to Rs. 10,000
a month. Automation and technology service providers increased their focus
on this emerging market by providing low-cost ATMs. The next three to five
years will see a higher ATM penetration in India.

Road ahead, 2010-11:

* Sustain market share in telecom

* Launch FAT batteries for the telecom segment

* Introduce batteries (12V) with higher capacity for UPS segment in IT and
ITeS sectors

* Consolidate market share in train lighting applications for Indian
Railways

* Explore opportunities to establish a presence in other industrial battery
user segments

* Create road map for reaching out to focused markets in Indian Ocean Rim
geography

* Enhance operational efficiencies and implement aggressive cost management
strategies

Supply chain management:

The Company strives to build and maintain sustainable relationship with its
supply chain to support existing and future business needs. Supply chain
management is critical for a number of reasons:

* Vendor management is essential as nearly 60 to 65% of sales value
accounted by material cost. It encompasses the procurement of key materials
like lead, separator and polypropylene from global and domestic vendors.

* Products must be delivered to OEMs just-in-time, ensuring on-time
deliveries to several customers and retail outlets at different parts of
the country, optimising distribution costs.

Raw material sourcing: The key input and major cost element in battery
comprises lead and lead alloys. Around 60% of the Company's lead
requirement is imported with prices linked to LME average monthly price.
During 2009-10, lead prices started at USD 1,383 per tonne in April 2009
and peaked at USD 2,368 per tonne in January 2010. The table on the
previous page shows the price movements of lead over a two-year period from
2008 to 2010.

To secure uniform supplies of key materials at optimal cost, the Company
implemented the following initiatives:

* Entered into a supply agreement for almost 100% of the estimated quantity
as per the business plan.

* Sourced materials through a defined procurement process, ensuring
sourcing at an optimal cost; explored procurement synergies with its JV
partner

* Ensured that the junk batteries collected were processed through Ministry
of Environment and Forests (MoEF-) certified smelters and converted into
usable resources

* Negotiated improved credit terms with suppliers with a price variation
clause

Logistics: The Company optimised logistic costs through the following
initiatives:

* Improved truck loading factor by redesigning pallet sizes and intelligent
space management

* Entered into annual contracts with all service providers with a risk
purchase clause, leading to service dependability

* Established performance benchmarks among service providers

* Tracked consignment arrival and departure to reduce CFS charges

Distribution and warehouse: Of the Company's 29 warehouses, four are
managed by the Company and the rest by Clearing and Forwarding Agents
(CFAs). A systematic approach towards CFA performance monitoring,
compliance with first-in first-out (FIFO) process and 5S practices enabled
cost optimisation in warehouse management and secondary freight.

Research and development:

The Company's research and development focuses on futuristic energy
solutions that enhance the price-value proposition. The R&D team
consistently focused on technology excellence, creating products complying
with exacting standards and customer needs.

* Developed and commercialised a super premium PowerStackTM battery for
telecom and power control applications

* Developed long-life VRLA batteries for hybrid/off-grid applications

* Enhanced productivity in automotive grid casting through process
improvements

* Designed and deployed battery for the newly introduced Ford FIGO

* Introduced redundancy solution for back-up power in railway AC coach
applications.

Human resources:

The Company's strong focus on people continues to be reinforced through a
well thought-out strategy:

Facilitating achievement of business objectives in an invigorating work
environment through continual enhancement of employee engagement,
development and performance.

All people initiatives and programmes are aligned with the business needs
of the automotive and industrial battery units.

During 2009-10, the Company was recognised for its HR strategy by the
Employer Branding Institute of India through the following awards:

* Best Employer Award in the Electronics Industry category- All India

* Award for Continuous Innovation in HR Strategy at Work - National Round

* Award for Excellence in HR through Technology- Southern Region

The organisation remains young with the average age of employees at 31
years as on March 31, 2010. The total number of employees on the Company's
payroll as on March 31, 2010 was 2,493.

Strategic business unit formation and people alignment:

During the course of the year, the organisation restructuring was carried
out wherein two strategic business units were formed-automotive and
industrial batteries business-with the objective to enhance focus and
value. The Strategic Business Unit (SBU) structuring was implemented to
better serve the demands of each business, which has unique customers and
competitors needing specific leadership focus and attention to grow beyond,
thereby higher ability to take advantage of business opportunities in
related segments and markets, rapid customer service and product cycles,
among others. Clear reorganisation and alignment initiatives were taken up
to form leadership teams for both SBUs. The organisation is proud of having
appointed SBU heads from internal talent and most leaders from within each
SBU.

Talent acquisition:

The exclusive talent acquisition cell continued its focus on acquiring and
inducting talent across the organisation. The SBU leadership teams hold the
primary responsibility of building their respective business teams.

Nava Pratibha' programme, a unique program wherein fresh talent is
inducted in a systematic and structured way, was well-executed during the
last year. Nava Pratibha covers workmen, staff and management levels
through customised programs like Amara Raja Training Scheme (ARTS), Amara
Raja Graduate and Technician Training Programme (ARGTP) and Amara Raja
Graduate Engineer Trainee (GET), Management Trainee (MT) Programme (ARGMP).

AReInduction:

The Company's intranet-based e-induction enables the on-boarding process
that a new employee is required to complete within three days of joining.
It is designed with quizzes and interactive content to ensure faster
alignment to the organisation.

The program has separate modules on the Amara Raja Group, for all the
companies in the group, CSR and a separate module dedicated for people
development. The modules are structured in a manner to provide all
necessary information to familiarise the new recruit on the different
companies' products, processes and the various milestones.

Learning and development:

Amara Raja Learning & Development Calendar (ARLDC) captures the development
needs of the people at all levels and anchors the programs. ARLDC
integrates the needs arising out of performance appraisals, TQM and TPM

initiatives. During the year, specific in-house programmes were anchored to
build both technical and soft skills.

Employees were also nominated for specialised learning and development
workshops/seminars organised by external learning institutions/agencies

Respective SBU teams anchored their specific team building workshops to
help them align with their customer needs and the overall business needs.
The team workshops were also anchored to generate togetherness and harmony
in achieving the business objectives that they set for themselves as an SBU
as well as the Company at large.

Employee engagement:

The Company's endeavour to get closer to the employees' minds and hearts,
and understand what they feel and perceive started with the launch of AR-
Speak survey comprising 19 dimensions in 2008. During the year, a similar
employee engagement survey was anchored in August 2009 and 99.83% of people
participated in the survey. Based on survey inputs, change action plans
were drawn up at various levels across the organisation and actions are in
progress as per plan.

The change action was driven at three levels to ensure a broad-based
representation and the philosophy of positive change was made a habit among
all. The leadership team members comprised Change Leaders' for their
respective functions. These leaders have Change Champions' who will in
turn be leading a team of Change Owners'.

The change owners are leaders of small teams that develop and implement the
change action plans at the grass-root level of front line staff or workmen
at shop floor. The Company has an AR-Speak ambassador to monitor the change
action plans and support the teams. One AR-Speak convener worked along with
the ambassadors to ensure the rollout of the entire plan.

Specific change action plans based on the low scores and the criticality of
the dimension, that is specific to a function/ department, were developed
and implemented across the Company.

HR portal:

ARG-HR portal, the employee's intranet portal serves as the window of HR to
the organisation with up-to-date information on important events and
milestones and details of the policies. The portal has an active learning
forum, an interactive facility to give feedback or ask any query monitored
closely and responded to immediately.

CII-HR excellence on site assessment in the organisation:

The organisation adopted the Confederation of Indian Industry-Human
Resources (CII-HR) Excellence Model. For the first time, during March 2010,
the organisation participated in an external on site assessment. The
assessment by external assessors (appointed by CII) was on the HR strategy,
processes and practices based on the HR excellence model. This assessment
will enable the Company to excel further in human resources and performance
processes, practices and capabilities.

Information technology:

Information technology is an integral part of the business. Most of the
processes and operations in the organisation are fully integrated. The
Company continued to invest significantly in IT assets during the year. The
Company implemented SAP (ECC6.0), covering sales and distribution,
production and planning, purchase, inventory, finance, costing, quality,
plant maintenance, project systems and customer service. More than 50
locations (branch offices and warehouses) including head office and
corporate operations office, went live simultaneously in February 2010.

High-end, high-availability Unix servers were used, supported by redundant
connectivity to optimise ERP performance. The Company expects to accrue
benefits arising out of change in ERP from the current financial year. The
Company focuses on improving security and enhancing productivity. During
the year, ageing voice and switching equipment were replaced with advanced
equipment to enhance efficiency at the plant locations.

During the current financial year, the Company will embark on the
implementation of application software like Business Objects (BO), Customer
Relationship Management (CRM) and Franchisee Management System.

The Company performed creditably in 2009-10. While net sales increased 12%,
net profit more than doubled.

The financial statements were prepared to comply, in all material respects,
with the requirements of the Companies Act, 1956, guidelines issued by the
Securities and Exchange Board of India (SEBI) and Generally Accepted
Accounting Principles (GAAP) in India. The financial statements were
prepared under the historical cost convention on an accrual basis. The
accounting policies were consistently applied by the Company and were in
line with those used in the previous years. The estimates and judgments
used in the preparation of financial statements have been made on prudent
and reasonable basis to reflect in a true and fair manner the substance of
transactions, and reasonably present the state of affairs, profits and cash
flow for the year.

Highlights, 2009-10 Absolutes

* Net sales increased 12% from Rs. 13,132 million in 2008-09 to Rs. 14,652
million in 2009-10

* EBITDA grew 44% from Rs. 2,056 million in 2008-09 to Rs. 2,965 million in
2009-10.

* PBT increased from Rs. 1,227 million in 2008-09 to Rs. 2,546 million in
2009-10.

* PAT more than doubled (107%) from Rs. 805 million in 2008-09 to Rs. 1,670
million in 2009-10.

Derivatives:

* EBITDA margin grew 458 bps from 15.66% in 2008-09 to 20.24% in 2009-10.

* PBT margin grew 804 bps from 9.34% in 2008-09 to 17.38% in 2009-10.

* PAT margin improved 527 bps from 6.13% in 2008-09 to 11.40% in 2009-10.

* ROCE grew 1389 bps from 30.62% in 2008-09 to 44.51% in 2009-10.

Implications:

* Net sales grew 12% even as capital employed remain constant - every rupee
invested generated higher returns

* Average interest cost (8.5%) was way below Return on Capital Employed
(ROCE) - every rupee borrowed realised higher return.

* Highest ever dividend payout (145%) - better return on shareholder
investment

* Commendable debt-equity ratio at 0.17 times - ability to mobilise funds

Revenue analysis:

Net sales grew 12% from Rs. 13,132 million in 2008-09 to Rs. 14,652 million
in 2009-10. The lead-adjusted revenue growth for the year was 20%. The
increase in revenue was due to:

* Double-digit volume growth in the ndustrial and Automotive battery units

* Capacity expansion in the Medium VRLA, + additional sales volume

Revenue mix between Industrial and Automotive battery units continue to be
around 50% each. Exports contributed Rs. 522 million (3.56%) to revenues in
2009-10 against Rs. 441 million (3.36%) in 2008-09.

Other income:

Other income increased 111% from Rs. 81 million in 2008-09 to Rs. 170
million in 2009-10, largely due to an exchange gain of Rs. 121 million (70%
of other income). Dividend income increased from Rs. 2 million in 2008-09
to Rs. 21 million in 2009-10, consequent to investment of surplus cash in
liquid funds. Other income comprised 7% of profit before tax in 2009-10.

Cost analysis:

Material costs: Material consumption, as a percentage of net sales,
improved from 66.19% in 2008-09 to 60.21% in 2009-10 aided by operational
efficiency and lower lead base for the year 2009-10 compared to 2008-09.
Purchase of trading goods represent the cost of Home UPS private labels
under the PowerZoneTM brand for sales through PowerZoneTM outlets along
with inverter batteries. During 2008-09, purchase of trading goods
comprised imported motorcycle batteries for sale through PowerZoneTM
outlets. There were no such purchases during 2009-10.

Employee cost: Employee cost increased from Rs. 516 million (3.93% of net
sales) in 2008-09 to Rs. 624 million (4.26% of net sales) in 2009-10,
representing an increase of 21%. The increase is driven by a higher
employee base necessitated by an enhanced volume of operations and annual
pay revisions.

Manufacturing expenses: Expenses under this head increased 20% from Rs. 488
million in 2008-09 to Rs. 588 million in 2009-10 primarily due to an
increase in power and fuel costs, increased volumes, and higher repair and
maintenance costs (including stores and spares consumed) warranted by TPM
initiatives. Power costs increased from Rs. 249 million in 2008-09 to Rs.
299 million in 2009-10 due to power outages during summer, which
necessitated the use of DG sets and increased volumes.

Selling expenses: Selling expenses increased 17% from Rs. 960 million in
2008-09 to Rs. 1,120 million in 2009-10 primarily on account of revision in
warranty estimates on sales which are under warranty, to augment sufficient
provisions towards future liabilities. There is an increase in freight
outward costs (24%) and sales commission (54%) due to higher volume of
sales and inflationary impact in freight rates.

Administrative expenses: Administrative expenses increased 37% from Rs. 414
million in 2008-09 to Rs. 566 million in 2009-10 arising out of higher
managerial remuneration (commission on profits) to Managing Director and
Non-Executive Chairman driven by higher profitability. Further, the Company
took a policy decision to raise contribution to 0.2% of net sales or 2% of
PBT towards CSR initiatives through recognised trusts. Thus, contribution
to CSR initiatives was around Rs. 40 million during the year.

Interest: Interest cost for 2009-10 was down by around 2/3rd from Rs. 182
million in 2008-09 to Rs. 68 million in 2009-10, supported by improved cash
flow accruing from higher profitability and a better control on working
capital. The Company repaid high-cost debts and hardly availed fund-based
working capital facilities from banks during the year.

Margins:

The Company's earnings before interest, depreciation and taxes (EBITDA)
margins increased from 15.66% in 2008-09 to 20.24% in 2009-10 and the
profit before tax (PBT) increased by 107% from Rs. 1,227 million in 2008-09
to Rs. 2,546 million in 2009-10. The margin improvements came from better
sales realisation, softening lead prices, cost rationalisation and
optimisation measures. Such measures included a control over material,
marketing and distribution costs, besides a concerted effort on operational
efficiencies.

Cost management:

The Company is striving to implement Total Cost Management (TCM) approach
to drive efficiency. TCM is a systematic and structured approach to
control, reduce and eliminate costs. It involves:


* Identifying and measuring the cost of resources consumed in performing
significant activities

* Determining the efficiency and effectiveness of the activities performed;
identifying, evaluating and implementing the most appropriate methodologies
to enhance competitiveness.

* Selecting and implementing various tools of cost management as
appropriate to the strategies and operations of the business

During the year under review, the Company approached Confederation of
Indian Industry (CII) to assess the current state of the Company's cost
management systems and effectiveness. TCM wing of CII conducted on-site
assessment and accorded level 3 (out of 5 levels) certification which is
Operational-Operational focused'. The Company will continue to strengthen
its systems and process and implement new cost management tools and
techniques to reach next level of maturity which is TCM Enabled-Continuous
improvements' while working towards the achievement of Exemplary' - the
highest hierarchy in CII-TCM model.

Dividend policy:

The Company has, over the years, consistently distributed dividend, taking
into account the cash generating capacities, expected capital needs of the
business and strategic considerations. For 2009-10, the Board recommended a
dividend of 145% (Rs. 2.90 for every share of Rs. 2 each) as against 40%
(80 paise for every share of Rs. 2 each) declared in the previous year. The
payout ratio stands at 14.85% compared with 8.45% of the previous year. The
Board also adopted a dividend payout policy of distributing upto 15% of
eligible profits every year.

Sources of funds Capital employed:

Capital employed (net of capital work in progress, non-trade investments
and cash and bank balances) in the business, increased marginally by 0.4%
from Rs. 5,685 million as on March 31, 2009 to Rs. 5,709 million as on
March 31, 2010 despite increase in volume of business and relatively higher
lead base in Q4 FY 2010 compared with Q4 FY2009. As a result, return on
average capital employed increased from 31% in 2008-09 to 45% in 2009-10.

Net worth:

Shareholders' funds (net worth) increased 34% from Rs. 4,056 million as on
March 31, 2009 to Rs. 5,437 million as on March 31, 2010, arising out of
higher profitability and surplus plough-back. Return on average net worth
improved from 22% in 2008-09 to 35% in 2009-10.

Equity capital: The Company's equity capital comprised 85,406,250 equity
shares of Rs. 2 each. The promoters' and joint venture partner's holding
accounts for 26% each as on March 31, 2010. Equity capital includes
28,468,750 shares issued as bonus shares' by capitalising reserves. The
share price of the Company shot up from Rs. 36.65 as on March 31, 2009 to
Rs. 164.20 as on March 31, 2010 with a market capitalisation of Rs. 14,024
million.

Reserve and surplus: Reserves and surplus increased 35% from Rs. 3,885
million as on March 31, 2009 to Rs. 5,266 million as on March 31, 2010
through a Rs. 1,380 million plough back of operational surplus in 2009-10
as against Rs. 725 million in 2008-09. The book value per share stood at
Rs. 63.65 as on March 31, 2010 against Rs. 47.49 as on March 31, 2009.

Loan funds:

Dependence on borrowed funds declined from Rs. 2,859 million as on March
31, 2009 to Rs. 912 million as on March 31, 2010 due to judicious
deployment of operational earnings towards debt repayment and prepayment of
high-cost debts. As a result, the debt-equity ratio (without adjusting for
free cash) declined from 0.70 as on March 31, 2009 to 0.17 as on March 31,
2010. Of the Rs. 912 million loans outstanding as on March 31, 2010 only
Rs. 273 million was interest bearing at an average rate of 6%.

Correspondingly, interest cost declined 62.87% from Rs. 182 million in
2008-09 to Rs. 68 million in 2009-10. The improved credit rating (AA-
/Stable to AA/Stable) assigned by CRISIL will enable the Company to
leverage, as and when required, in a cost effective manner.

2007-08 2008-09 2009-10

Debt equity 0.95 0.70 0.17

Application of funds:

Fixed assets:

Gross block increased from Rs. 4,271 million as on March 31, 2009 to
Rs.4,911 million as on March 31, 2010 primarily due to the capacity
expansion of MVRLA batteries from 1.20 million units to 1.80 million units
per annum. Correspondingly, depreciation increased 24% from Rs. 346 million
in 2008-09 to Rs. 429 million in 2009-10. The Company provided depreciation
on the Straight Line Method in accordance with Schedule XIV of the
Companies Act,

1956. Accumulated depreciation, as a percentage of gross block, was 38% as
on March 31, 2010, reflecting asset newness. Fixed assets turnover of the
Company increased from 4.67 times in 2008-09 to 4.79 times in 2009-10.

Capital work-in-progress declined from Rs. 396 million as on March 31, 2009
to Rs. 227 million as on March 31, 2010. Capital work in progress comprised
payment for the purchase of land in Uttarakhand.

Investments:

The Company's investments declined from Rs. 471 million as on March 31,
2009 to Rs. 161 million as on March 31, 2010 due to the sale of short-term
investments in SBI mutual fund units. All other investments were long-term
in nature.

Working capital:

Working capital declined 9% from Rs. 3,417 million as on March 31, 2009 to
Rs. 3,120 million as on March 31, 2010 despite an increase in sales volume
and comparatively higher lead base in Q4 FY 2010. Improvement in working
capital was on account of improved realisations of receivables, better
credit terms from vendors and the rationalisation of inventory holdings
across all storage locations. The Company's working capital fund-based
limit of Rs. 1,000 million sanctioned by banks remained unutilised for most
part of the year following improved cash flows.

Inventories: Inventories increased 35% from Rs. 1,608 million as on March
31, 2009 to Rs. 2,176 million as on March 31, 2010 primarily on account of
higher lead cost in Q4 FY2010 compared with FY2009. LME lead price average
for Q4-FY2010 was USD 2,221/MT as against USD 1,158/MT for Q4-FY2009.
inventories included material in transit and stores and spares.

Debtors: Debtors increased 17% from Rs. 2,078 million as on March 31, 2009
to Rs. 2,423 million as on March 31, 2010. Days Sales Outstanding (DSO)
improved from 48 days as on March 31, 2009 to 41 days as on March 31, 2010
owing to a shift in aftermarket sales from credit to cash-and-carry, and
overall improvement in collection process aided by credit control
initiatives.

Cash and bank balances: Cash and bank balance as on March 31, 2010 included
Rs. 160 million in fixed deposits and Rs. 7.1 million in margin money
against performance bank guarantee(s). All bank balances were duly
confirmed by the respective banker and reconciled with the balance in the
books of accounts.

Loans and advances: Loans and advances increased 25% from Rs. 870 million
in 2008-09 to Rs. 1,087 million in 2009-10 on account of an increase in
advance tax payments, resulting in of higher profitability.

Creditors: Creditors increased from Rs. 937 million as on March 31, 2009 to
Rs. 1,375.66 million as on March 31, 2010 due to better terms from vendors
and also on account of higher lead prices in Q4 FY 2010. There were no
outstanding, as on March 31, 2010, to vendors who fell under the category
of micro and small enterprises.

Provision for taxation: Provision for income tax, including deferred tax,
increased from Rs. 415 million in 2008-09 to Rs. 874 million due to more
than a 100% increase in profits. The Company has also set aside marginal
amount of Rs. 2 million towards the earlier year's income tax liability.
Since Fringe Benefit Tax (FBT) was abolished, there was no provision for

FBT in 2009-10 whereas Rs. 6.70 million provision was made in 2008-09.

Internal controls:

The Company has adequate internal control systems and processes to ensure
smooth functioning of operations ably supported by Enterprise Resource
Planning platform for all business processes. Control mechanism
facilitates:

* Review of long-term business plans, annual plan and capital investments

* Adherence to all applicable accounting standards and policies

* Periodic review and rolling forecasts

* Proper accounting and review mechanism

* Compliance with all applicable statutes, listing requirement and internal
policies and procedures

* Audit at frequent intervals is being carried out by an external audit
firm covering all statutes and compliance requirement

* IT systems with adequate in-built controls and security

The Company is availing the services of an external audit firm to conduct
periodic internal control review and audit. The audit findings and
management responses are placed before the Audit Committee for review and
guidance.

Risk is an expression of the uncertainty about events and the possible
outcomes that could have a material impact on performance and prospects of
any enterprise. As a responsible corporate, it is the endeavour of the
management to minimise risks and maximise returns.

At the heart of ARBL's risk mitigation is a comprehensive and integrated
risk management framework that comprises a clear understanding of strategy,
policy and initiatives, prudential norms, structured reporting and control.
This approach ensures that the risk management discipline is centrally
initiated by the senior management but is prudently decentralised across
the organisation, percolating to managers at various organisational levels,
helping them mitigate risks at the transactional level.

The consistent implementation of this framework is stringently monitored by
the compliance team, supplemented by audits and ongoing review leading to
an accurate understanding of the organisation's position.

As a result, from the various available options, only those business
decisions are taken that balance risk and reward, ensuring that revenue
generating initiatives are consistent with the risks taken. This approach
to risk management conforms to the Company's strategic direction and is
consistent with shareholders' desired total returns, credit rating and
desired risk appetite.

Risk related to the corporate:

01. Inadequate funding arrangement 01could affect growth and working
capital requirement:

Mitigation:

* The Company's low 0.17 debt-equity ratio as on March 31, 2010 strengthens
its borrowing capacity for funding growth initiatives including working
capital.

* The Company has healthy relations with bankers, which provides adequate
financial avenues.

* The Company's improved credit rating facilitates access to adequate low-
cost borrowing options.

* The Company has working capital facilities of Rs. 1,000 million (fund
based) and Rs. 2,550 million (non fund based).

* The Company's working capital, as a percentage of net sales, declined
from 26.02% in 2008-09 to 21.29% in the 2009-10, highlighting the
efficiency in working capital cycle.

* The Company's standing in the capital market will enable timely fund
raising from markets.

02. Inability to manage growth could hamper shareholder value:

Mitigation:

* The Company restructured its business under two Strategic Business Units
(SBU) - the automotive SBU and the industrial SBU - for enhanced focus.

* The Company's SBUs function as independent business units but share
synergies, enhancing business efficiency.

* The Company focused on corporate brand building, succession planning,
team building, attractive benefit packages and need-based training and
development programs to attract and retain talent.

* The Company can engage and utilise the talent and guidance of group
corporate leadership team on critical missions and deployment of
appropriate policies and procedures.

* The Company will continue to strengthen information technology to support
growth.

* The Company demonstrated the ability to manage rapid growth in topline
and net profits at 46% and 80% CAGR respectively over the five years
leading to 2009-10.

03. Inadequate lead supplies could fir affect operations:

Mitigation:

* The Company entered into long-term supply contracts for 100% of its lead
requirement.

* The Company sources lead from Korea and Australia and also from large
Indian corporates, an adequate geographic derisking.

* The Company can leverage the relationship with its global JV partner for
sourcing lead.

* The Company added new lead supplying sources to strengthen its supply
lines for this essential commodity.

04. A non-compliance with environment related regulatory norms could affect
operations and result in financial burden

Mitigation:

* The Company has all necessary approvals and consent, and is in complete
adherence with conditions/requirements. i The Company continuously monitors
change in environmental regulations and ensures compliance.

* The Company is supported by JV partner to improve environmental standards
in and around the plant. i The Company strengthened its health, safety and
environment (HSE) department with appropriate talent induction.

Risks related to the industrial and automotive bateries units:

01. Slowdown in a particular sector (telecom) can impact performance:

Mitigation:

* The Company minimises its dependence on telecom by enhancing revenues
from the UPS segment; it increased medium VRLA battery capacity from 1.20
million units to 1.80 million units per annum.

* The Company's product performance and service make it a preferred vendor
for all telecom majors, enabling it to continue securing sufficient volume,
despite slowdown in the telecom sector.

* The Company intends to enter export markets with a premium range of
PowerStackTM and front terminal access batteries.

* The Company expects to explore new business opportunities in new products
and geographies.

02. Operational inefficiencies could affect production and profitability:

Mitigation:

* The Company's batteries are manufactured in a QS 9000, ISO 14001 and TS
16949-certified plant using world-class technology and stringent quality
control parameters.

* The Company undertook TPM projects, reducing breakdown and enhancing
machine uptime.

* The Company created Quality Circles involving shop-floor members leading
to higher productivity.

* The Company operated the plant at rated capacity to test plant peak
capability.

* The Company implemented Continuous Improvement (CI) initiatives to gain
efficiency.

03. Significant new competition could dent business and profitability

Mitigation:

* The Company pioneered the VRLA technology in the Indian battery space;
innovative and customer focused product offering and services positioned
the Company as a preferred vendor.

* The Company created a large product portfolio to suit diverse customer
needs.

* The Company maintained a prudent sales mix between industrial and
automotive battery businesses.

* The Company strengthened the Amaronr distribution network to 200
franchisees, 18,000 retailers and over 700 PowerZoneTM retail outlets in
the automotive battery space; employed over 75 dealers for distribution of
industrial QuantaTM batteries.

* The Company invested considerably in brand promotion through ATL and BTL
programmes.

* The Company has 27% market share in automotive OEM and 26% share in
organised replacement market, the second largest automotive battery
manufacturer.

* The Company is a dominant player in the telecom and UPS sectors with 32%
and 28% market share.

Amara Raja Group, in line with its core purpose, believes in delivering
high social impact on the communities around through all its businesses.

Amara Raja Group delivers its corporate social activities predominantly
through the following four vehicles

Rajanna Trust: This trust is promoted by the Galla family to honour the
ideals of Late Sri P. Rajagopal Naidu, freedom fighter, Parliamentarian and
an agricultural reformer. The major thrust areas for Rajanna Trust include:

* Farmers and agriculture
* Rural infrastructure
* Ecology and environment
* Women and family Health and sanitation
* Youth and employability
* Children and education
* Arts and culture

Mangamma and Gangulu Naidu Memorial Trust (Mangal Trust): This Trust is
promoted by the Galla family to honour the ideals and philosophies of the
Late Sri G. Gangulu Naidu, father of Dr. Ramachandra N Galla, Chairman,
Amara Raja Batteries Ltd. The major thrust areas include education,
training, health and sanitation. The Mangal Trust is predominantly engaged
in village transformation with a specific focus on Petamitta and
surrounding villages. This Trust works in coordination with the government,
Rajanna Trust and other agencies.

Krishnadevaraya Educational and Cultural Association (KECA): It is a
voluntary organisation based at Tirupathi, supported by Amara Raja Group
and its employees. Amara Raja Group and its employees are active
contributors to all major initiatives of this voluntary organisation. The
major thrust area for KECA is to promote education through scholarships,
sponsorship of needy students, special talent identification and support of
arts and culture.

Employee volunteering is a part of the Amara Raja culture and the Group
encourages all its employees to actively contribute in their individual
capacity, along with group CSR activities.

Commitment to corporate citizenship is expected behaviour for employees at
Amara Raja Group.

ARBL supports CSR activities through the aforesaid Trusts by extending
financial support in the form of donations. With a contribution of 0.1% of
turnover in the past, and considering the developmental activities
undertaken by the Company, the Board decided to contribute a higher of 0.2%
of turnover or 2% of profit before tax from 2009-10.

Quite a few employees in their individual capacity also contribute kind and
cash to support the Trusts.

Education:

The Mangal Trust acquired 80 acres during the year under review to
establish an industrial training institute in Petamitta village, expected
to be a full-fledged vocational training centre by 2012-13, when the first
batch commences. This centre will impart skills to unskilled youth and
create employability. Amara Raja Group manages two schools, one in
Petamitta village and another in Karakambadi, proximate to the
manufacturing facility of ARBL.

Health:

The Trust runs two hospitals, one veterinary and one Public Health Centre
(PHC) with requisite infrastructure. It applied to the government to
establish a primary health centre under the PPP agreement. During the
year, about 650 farmers were treated in a massive health programme
organised by the Amara Raja Group in association with Galla Foods Limited,
Apollo Hospitals, Dr. Reddy's Laboratories and five other pharmaceutical
companies. The farmers were provided a 60% concession and given priority
cards for identification.

Rural infrastructure:

The Trust constructed a number of community facilities - banks, telephone
exchange buildings, bus shelters, toilet blocks, visitors' rooms and roads
in the communities around the manufacturing facilities. The Trust also
embarked on major initiatives - encapsulated under a programme named
Grameena Vikasam' for the development of surrounding villages - such as
the construction of roads, rainwater storage tanks and supply channels,
among others.

Agriculture and irrigation:

Chittoor district, where the manufacturing facilities of Amara Raja group
are located, receives erratic annual rainfall. The Trust constructed 22
check dams and supply channels; it deepened existing ones to help farmers
increase the cultivable area in this region. This boosted ground water
levels, enhancing water availability for irrigation. Around 50 villages in
the Chittoor district benefited from this programme.

Donations made by the Amara Raja Batteries Ltd:

Financial year Total (in rupees)

2005-06 36,25,476
2006-07 59,48,000
2007-08 1,08,73,000
2008-09 1,36,69,200
2009-10 5,13,52,935 Total

8,54,68,611

Environment:

The Trust is developing a 222-acre hillock area in Pemmagutta by planting
medicinal trees for herbal-cure ailments, a social forestry initiative
which also provides livelihood to 40 tribal families. The Trust plans to
plant 50,000 saplings in five years; last year around 10,000 saplings were
planted, taking the total plantation to 19,000 plants till date.

Employment:

The Company is committed to do its best to enhance living conditions of
villagers in the neighbourhood of its manufacturing units by creating non-
migratory employment opportunities. This includes providing industrial
training to eligible villagers and the recruitment of qualified trainees.

Amaron Amaragaon:

ARBL sustained Amaragaon, a scheme adopted by the Company to bridge the
digital divide in rural India. It opened internet centres in collaboration
with an NGO Dristee, across four states. This initiative empowered the
rural population with IT and provided multiple earning opportunities,
including a superior marketing of products. ARBL, as part of its business
expansion, opened over 700 PowerZoneTM outlets across rural markets till
2009-10, creating additional employment in these areas.