Annual Report - Asian Paints - 2009-2010

ASIAN PAINTS LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To
The Members

Dear Members,

Your Directors have pleasure in presenting the 64th Annual Report of your
Company and the Audited Accounts for the financial year ended 31st March,
2010.



FINANCIAL RESULTS:

(Rs. in Crores)

Asian Paints Limited Asian Paints Limited
Group Consolidated

2009-10 2008-09 Growth 2009-10 2008-09 Growth
(%) (%)

Sales and
Operating
Income (Net) 5125 4270 20 6681 5464 22

Operating Profit 1154 621 86 1368 721 90

Less: Interest 14 10 28 26

Less:
Depreciation 61 57 84 75

Profit before
Tax and
exceptional
item 1079 554 95 1256 620 103

Less:
Exceptional items (25) 6 (1) 1

Profit before
Tax and prior
period items 1105 548 102 1257 619 103

Add/(Less):
Prior period
items (0) (2) (0) (2)

Profit before
Tax 1105 546 102 1257 617 104

Less: Provision
for Taxes 330 184 373 197

Profit After Tax 775 362 114 884 420 111

Less: Minority
interest - - 48 22

Net Profit
attributable
to shareholders
of the Company 775 362 114 836 398 110

Add: Balance
brought forward
from the
previous year 230 200 230 200

DISPOSABLE
PROFIT 1005 562 1066 598

That the
Directors
recommend for
appropriation
as under:

Dividend -
Interim 82 62 82 62

- Final 177 106 177 106

Tax on
Dividend 44 28 44 29

Transfer to
General Reserve 102 136 163 171

Balance carried
forward to
Balance Sheet 600 230 600 230

STANDALONE FINANCIALS:

Net sales and operating income for the standalone entity increased to
Rs.5,125 crores from Rs. 4,270 crores in the previous year - a growth of
20%. The operating profit (PBDIT) increased by 86%, from Rs. 621 crores to
Rs.1,154 crores. The profit after tax for the current year is Rs. 775
crores as against Rs. 362 crores in the previous year, a growth of 114%.

Exceptional item of current year includes Rs. 5.77 crores being the write
back of provision for diminution in the value of investments in the
Company's wholly owned subsidiary Asian Paints (International) Limited,
Mauritius in consequent to the buy back of 41,00,000 shares at US$ 1 per
share by Asian Paints (International) Limited.

Exceptional item of current year includes Rs. 19.69 crores being the
reversal of provision made towards dimunition in the value of investments
in the Company's wholly owned subsidiary Asian Paints (International)
Limited, Mauritius, based on management's assessment of the fair value of
its investments.

CONSOLIDATED ACCOUNTS:

In accordance with the Accounting Standard (AS 21) and other Accounting
Standards issued by the Institute of Chartered Accountants of India as well
as Clause 32 of the Listing Agreement, Consolidated Financial Statements
presented by your Company include financial information of all its
subsidiaries.

The Consolidated Financial Statements of your Company for the year ended
31st March, 2010 include results and financial statements of certain
overseas subsidiaries of your Company for a fifteen month period from 1st
January, 2009 to 31st March, 2010, in order to align the accounting year of
those subsidiary Companies with your Company. Thus, these figures are not
comparable with the corresponding figures for the previous year.

The Ministry of Corporate Affairs (MCA) has granted your Company, exemption
under Section 212(8) of the Companies Act, 1956, from attaching the
financial statements of the subsidiary companies in India and abroad, both
direct and indirect, to the balance sheet of your Company for the financial
year 2009-10. A statement of summarised financials of all subsidiaries of
your Company, pursuant to the approval under Section 212(8) of the
Companies Act, 1956, forms part of this report. Additional information in
respect of the annual report and the financial statements of the subsidiary
companies of your Company will be made available to members on request. The
annual accounts of the subsidiary companies are open for inspection by the
members at the Registered Office of the Company. The accounts of individual
subsidiary companies will also be hosted on our website www.asianpaints.com

DIVIDEND:

Your Company, during the financial year 2009-10, declared and paid an
interim dividend of Rs.8.50 per equity share in the month of October, 2009.
In addition, your Directors recommend payment of Rs. 18.50 per equity share
as the final dividend for the financial year ended 31st March, 2010. If
approved, the total dividend (interim and final dividend) for the financial
year 2009-10 will be Rs. 27 per equity share; Rs.17.50 per equity share was
paid as dividend for the previous year.

TRANSFER TO RESERVES:

Your Company proposes to transfer Rs.102.19 crores to the general reserve.
An amount of Rs. 600 crores is proposed to be retained in the profit and
loss account.

MANAGEMENT DISCUSSION AND ANALYSIS:

A detailed review of operations, performance and future outlook of your
Company and its businesses is given in the Management Discussion and
Analysis.

CORPORATE GOVERNANCE:

Your Company is compliant with the requirements of the Clause 49 of the
Listing Agreement. Necessary disclosures have been made in this regard in
the Corporate Governance Report. A certificate from the Joint Statutory
Auditors of your Company regarding compliance with the requirements of
Corporate Governance as stipulated under Clause 49 of the Listing Agreement
is attached to this report.

SECRETARIAL AUDIT:

As a good Corporate Governance practice, your Company had appointed Dr.
K.R. Chandratre, Practicing Company Secretary to conduct Secretarial Audit
pursuant to provisions of Section 383A of the Companies Act, 1956, for the
financial year 2009-10. Dr. K.R. Chandratre has submitted the Report
confirming compliance by the Company with all the applicable provisions of
corporate law.

AMALGAMATION OF A WHOLLY OWNED SUBSIDIARY:

As disclosed by your Company in the Annual Report for the year 2008-09,
Technical Instruments Manufacturers (India) Limited (TIM), a 100%
subsidiary of your Company had filed an application before the Hon'ble
Bombay High Court for its merger with your Company. The Hon'ble Court
sanctioned the scheme of amalgamation and passed the final order on 24th
July, 2009. Accordingly, TIM has ceased to carry on any operations and has
been merged with your Company effective 1st April, 2009.

FIXED DEPOSITS:

Your Company has not accepted any fixed deposits during the year 2009-10
and there are no outstanding fixed deposits from the public as on 31st
March, 2010.

INSURANCE:

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

SALES TAX DEFERMENT BENEFIT:

Your Company continues to avail sales tax deferment benefit for the
expanded capacity at Kasna plant for which eligibility certificate for
Rs.38.2 crores has been received. A sum of Rs. 3.2 crores has been availed
during the year 2009-10 and with this, the total amount of deferment
availed upto 31st March, 2010 is Rs. 30.6 crores.

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION:

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

FOREIGN EXCHANGE EARNINGS AND OUTGO:

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

PERSONNEL:

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

DIRECTORS' RESPONSIBILITY STATEMENT:

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

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

* The accounting policies have been selected and applied consistently and
the judgments and estimates made, are reasonable and prudent, so as to give
a true and fair view of the state of affairs of the Company as on 31st
March, 2010 and of the profit and loss of the Company for that period.

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

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

DIRECTORS:

As mentioned in the Annual Report for the year 2008-09, your Company
appointed Mr. P.M. Murty as the whole-time Director with effect from 5th
March, 2009 and as Managing Director & CEO of your Company with effect from
1st April, 2009. Mr. Ashwin Choksi, Mr. Ashwin Dani and Mr. Abhay Vakil,
were appointed as Non-Executive Chairman, Non-Executive Vice-Chairman and
Non-Executive Director, respectively, with effect from 1st April, 2009.

During the financial year 2009-10, the Board of Directors appointed Mr. S.
Ramadorai as an Additional Director with effect from 16th September, 2009.

Your Directors recommend the appointment of Mr. S. Ramadorai as a Director
of your Company at the forthcoming Annual General Meeting.

Mr. Hasit Dani, Non-Executive Director, has resigned as a Director of the
Company effective 3rd June, 2010. The Board places on record its
appreciation for his contribution to the Company as a Director during his
association with the Company.

In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Company, Mr. Mahendra Shah, Mr. Mahendra
Choksi and Ms. Tarjani Vakil are due to retire by rotation at the
conclusion of the forthcoming Annual General Meeting and being eligible,
offer themselves for reappointment. Appropriate resolutions for their
reappointment are being placed before you for your approval at the ensuing
Annual General Meeting. The brief resume of the aforesaid Directors and
other information have been detailed in the Notice, forming part of this
report. Your Directors recommend their reappointment as Directors of your
Company.

AUDITORS:

M/s. Shah & Co., Chartered Accountants and M/s. B.S.R. & Associates,
Chartered Accountants, Joint Auditors of your Company are due for
retirement at the ensuing Annual General Meeting and are eligible for
reappointment. Your Directors recommend their reappointment for the ensuing
year. The Statutory Auditors of your Company have submitted a certificate
to your Company that they have subjected themselves for the peer review
process of the Institute of Chartered Accountants of India for the
financial year 2009-10.

COST AUDITOR:

The Board of Directors at their meeting held on 25th July, 2009, appointed
Ms. Ketki Visariya as the Cost Auditor of the Company for the financial
year 2009-10 to conduct the audit of the cost records of the Company. The
Company has also received approval from the Central Government for
appointing Ms. Ketki Visariya as the Cost Auditor of your Company for the
financial year 2009-10.

APPRECIATION:

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

For and on behalf of the Board

Ashwin Choksi
Chairman

Place : Mumbai
Date : 3rd June, 2010

Annexure to Directors' Report:

Form A:

Disclosure of particulars with respect to Conservation of Energy:

Particulars 2009-10 2008-09

A. Power and fuel consumption:

1. Electricity:

a. Purchased Units ('000 KWH) 30,550 30,076

Total Amount (Rs. in Crores) 14.20 14.08

Rate per unit 4.65 4.68

b. Own Generation:

Through diesel Generator:

Units ('000 KWH) 7,390 7,734

Units per ltr. of diesel oil 3.30 3.36

Cost/unit (Rs.) 10.19 10.14

Natural Gas:

Units ('000 KWH) 6,572 5,801

Units per nm3 3.33 3.34

Cost/unit (Rs.) 4.66 3.87

2. Coal:

Quantity (in MTs) 15,688 14,783

Rs. in Crores 5.98 6.76

Average rate/MT (Rs.) 3,812 4,576

3. Diesel:

Quantity (in KL) 1,485 1,651

Rs. in Crores 5.10 6.06

Average rate/KL (Rs.) 34.34 36.72

4. Furnace Oil:

Quantity (in MTs) 978 883

Rs. in Crores 2.42 2.47

Average rate 24.71 27.94

5. Natural Gas:

Quantity (in '000 cubic m.) 3,379 2,553

Total Amount (Rs. in Crores) 4.69 2.97

Average rate 13.88 11.62

B. Consumption per unit of production:

Electricity Furnace Oil Natural Gas

2009-10 2008-09 2009-10 2008-09 2009-10 2008-09

Paints 98 104 2 2 5 4
Phthalic 45 113 - - 62 55
Penta 646 966 1 0 - -

Gas Coal Diesel

2009-10 2008-09 2009-10 2008-09

Paints - - 4 4
Phthalic - - -
Penta 3 3 - -

Form B:

Disclosure of particulars with respect to Technology Absorption:

Research and Development (R&D):

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

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

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

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

* Upgradation of existing product and processes.

* Technology support of all overseas units.

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

* Development of new application techniques for various substrates.

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

* Development of new analytical test methods, characterization techniques.

* Collaborative development with vendors, academia and institutes.

* Development of domain expertise to expedite product development.

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

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

* Development of Royale with Teflon offers an extraordinary stain
resistance for interior.

* Developed new Royale Luster Emulsion which offers the customer the choice
of using water based paint.

* New colored tint bases introduced in ACE to improve upon the shade
offerings.

* Productivity improvement achieved in Satin range.

* Approval and commercialization of rapid recoat system comprising of 2K
epoxy primer, 2K epoxy MIO intermediate and 2K polyurethane top coat for
transformer application at selected OEM's.

* Development and commercialization of 2K acrylic polysiloxane top coat for
infrastructure segment.

* Development of colored (red, green and blue) hot melt thermoplastic road
marking paint for dedicated lanes for buses, cycle, parking bays etc.

3. Further plan of action:

Your Company considers the development of technical capabilities to sustain
its competitive position in the market place of primary importance. In
order to address the needs of the customers in a rapidly changing market
place, your Company will continue to strengthen its technical programs and
the skills of its technical personnel. Building on earlier activities that
have paid off, your company will continue to develop advanced technical
capabilities and technology platforms to support its product plans, improve
its manufacturing and open new applications.

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

(Rs. in Crores)

Particulars 2009-10 2008-09

Capital 1.21 25.90

Recurring 28.43 27.46

Total 29.64 53.36

Net Sales and operating income 5,125 4,270

R & D expenditure as % of net sales and
operating income 0.58% 1.25%

Technology absorption, adaptation and innovation:

All developments were done indigenously.

Foreign exchange earnings and outgo:

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

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

For and on behalf of the Board

Ashwin Choksi
Chairman

Place : Mumbai
Date : 3rd June, 2010

Chairman's Letter

Dear Shareholders,

'True success can be defined by one's ability to adapt to changing
circumstances.'

The events during the past financial year have once again underlined the
fact that the environment is very unpredictable and the challenge for the
Company's management is to adapt to this reality. We have to develop the
capability to manage the ever changing environment and have the flexibility
to take advantage of the opportunities as they emerge and deal effectively
with new risks. The year 2009-10 began on a somber note with the prospects
for most economies looking very bleak; however, the series of aggressive
measures by Governments and Central Banks across the globe led to improved
financial conditions and fears of a large scale global depression abated.
Although, the extent of improvement has varied across the globe, emerging
economies like India saw a smart bounce back with a surge in optimism and
confidence.

Your Company has been able to respond to the challenges of this dynamic
business environment, seize every opportunity and come out trumps - this is
clearly reflected in our financial performance during the year.

Our Decorative business achieved remarkable growth due to strong demand
witnessed across segments and geographies in the country. As demand for our
products boomed especially in smaller towns, we responded effectively by
gearing up the organization. During the year, we continued to focus on
building strengths and capabilities for the future with renewed emphasis on
customer satisfaction, product mix improvement and dealer network
expansion. A lot of our energies in the recent past have been directed
towards aligning our processes and people towards customer centricity and
continuously upgrading our products. The emphasis has been to build a
culture within the organization that strives to create an emotional connect
with the consumers by understanding their ever changing needs and
delivering a superior painting and decor experience.

Anticipating continued buoyancy in demand, your Company commissioned its
new paint manufacturing facility at Rohtak, Haryana in April 2010, with an
initial capacity of 150,000 KL per annum. Further, the capacity of the
Sriperumbudur Plant in Tamil Nadu has been increased to 140,000 KL per
annum. Your company has acquired land for setting up its next paint plant
at Kesurdi in the Satara District of Maharashtra; the first phase of which
will be commissioned by the end of 2012-13.

The business had margin expansion during the last year; indeed, margins
were at an all time high. This was largely due to benign raw material
prices and the appreciating Rupee. However, I must bring to your attention
that since the beginning of the financial year 2010-11, we have already
been witnessing a spurt in raw material prices and volatility in exchange
rates. Availability of some key raw materials is also a cause of worry.
Hence, our assessment is that the high margins seen in financial year 2009-
10 are not sustainable going forward.

Industrial activity in the country, gripped by the slowdown in the first
half, witnessed a revival in the latter part of the year and sales of our
industrial coatings business also picked up. Leading this revival were the
automotive and consumer durable segments which witnessed good demand. Your
Company is well poised to capture the emerging opportunities that lies
ahead in this segment, given the large spend on infrastructure and
industrial activity that is bound to ensue in India in the coming years.

While the Indian economy fared well and quickly resumed its growth
trajectory, it was a mixed bag for countries where our international
subsidiaries operate. Some of those economies were still grappling with the
after-effects of the global meltdown. Defying the odds were our units in
Egypt, Bangladesh and Nepal, which did exceedingly well in spite of the
challenging circumstances. Some other subsidiaries faced very challenging
times - notably our units in UAE and the Caribbean region. For the first
time, the International Business Unit recorded a Profit Before Tax (PBT) of
more than Rs. 100 crores in a calendar year. The business unit is now well
positioned to capitalize on the future, having consolidated its operations
after divesting its loss making units in Thailand, Malaysia, Hong Kong and
China.

India is in the process of an economic transformation. It may not be a
continuous and smooth surge forward, but the direction is unmistakable. The
focus on infrastructure, education and healthcare would be critical in
meeting the objective of equitable distribution of growth and would provide
an impetus to a sustained growth trajectory. It is imperative that as a
nation we recognize that we need to deal imaginatively with this as well as
issues around water, energy and environmental degradation. In many parts of
the country these have already reached crisis proportions.

In this regard, the role of corporates in shouldering social responsibility
is also critical. Asian Paints has been committed towards undertaking
initiatives in the areas of Health Care, Environment and Education as a
part of its Corporate Social Responsibility (CSR) programme. We will
continue to raise the bar of our CSR initiatives in an effort to give back
to the society a part of what we have received in terms of support and
goodwill.

As I stated earlier, today the business environment is becoming more and
more complex, dynamic and uncertain. Just when the fears of global
recession were receding, the fragility of the South European economies has
again started raising concerns about the sustainability of the recovery
process.

But these are developments that we have little control over. What we can
control, are our actions. Like all well managed companies, we need to
anticipate change and be flexible enough to adapt ourselves to the dynamic
environment. What gives us confidence is the support of all our
stakeholders, specially the ability of our immensely talented pool of
people, who have time and again proved their mettle to provide us the
competitive edge.

The goodwill that Asian Paints enjoys with all its stakeholders is a result
of the enduring relationships that it has been able to build on the bedrock
of strong values and trust. The Company's essential character revolves
around values based on transparency, integrity, professionalism and
accountability. Asian Paints has always followed the highest standards of
corporate governance by benchmarking its practices with the best in the
world. For us good governance goes beyond mere compliance to law of the
land to proactively taking measures to raise existing standards. As we
strive to keep pace with growth opportunities in India and abroad, you can
be sure that we shall continually update and strengthen our governance
structures and systems and pay particular attention to Risk Management
Systems.

Asian Paints today stands in an enviable position because of its strengths
built up over the decades. We will build on these strengths and continue to
sustain the growth momentum by being innovative and agile, without
compromising on our ethical values and social responsibilities. We are well
placed to take advantage of the opportunities that the growth in the
country will provide.

I conclude by thanking my colleagues on the Board for their continued
support and guidance. Last but not the least, I thank you all for your
continued support.

Warm regards, Yours sincerely,

Ashwin Choksi
Chairman

Management Discussion and Analysis:

The financial year 2009-10 began with several apprehensions about the
global as well as the domestic macro environment. To cope with the global
financial crisis, which impacted the world economy in 2008-09, central
banks as well as Governments across developed and many emerging economies
reacted quickly with large interest rate cuts, massive injection of
liquidity and fiscal stimulus programmes. These measures helped in reducing
uncertainty, increasing confidence, fostering improvement in financial
conditions and allaying fears of a global depression. Whatever may be
individual views on the measures taken, these have helped recovery across
most parts of the world; certainly, the specter of a global depression
receded fairly rapidly. While the major emerging markets bounced back
quickly, even the developed world economies have seen a gradual or slow
rebound from the recessionary trend seen last year. There are serious
imbalances in Southern Europe that are major concerns; even so, the world
is probably on course for resumption of economic growth with the pace being
different from region to region. The major emerging economies of China,
India and Brazil have recovered well, growing only marginally lower than
earlier years. As prospects improved, commodity prices staged a comeback
from lows reached earlier and the world trade is beginning to look up.

From the beginning of financial year 2009-10, an upswing in economic
activity was seen. Industrial output saw a recovery with the Index of
Industrial Production (IIP) registering growth of 10.4% for the period
April 2009 - March 2010; significantly up from the 2.6% growth recorded in
the previous year. The Rupee also saw an uptrend and appreciated from
levels of Rs. 51 per USD in April, 2009 to around Rs. 45 per USD in March,
2010. The decisive mandate in the general elections also helped in bringing
about political stability and removing the uncertainty that was prevalent
in the country. Accordingly, the Indian economy is expected to record a GDP
growth of about 7.5% in financial year 2009-10. This is in spite of poor
monsoon in 2009.

Your Company has done well to seize the opportunities that this buoyant
economic environment provided, especially in India and this is reflected in
its financial performance during the year under review.

I. Products and markets:

PAINTS:

The performance of the Indian Paint Industry in 2009-10 was much better
than anticipated at the beginning of the financial year. The first half of
the year was better than expected and in the second half the Indian growth
story was seen in all sectors of the economy. Construction activity revived
and capital expenditure revived across sectors. A combination of good
demand and lower than expected raw material prices helped the paint
industry record excellent growth in revenues and even better growth in
profits. The market for all paints produced by companies in India, both big
and small, is estimated to have grown by about 18% by value over the
previous year. The growth for both decorative paints and industrial paints
would be high with industrial paints growing significantly in the
automotive and durable segments.

DECORATIVE PAINTS:

Decorative paints account for over 75% of the overall paint market in India
and include wall finishes for interior and exterior use, enamels, wood
finishes and ancillary products such as primers, putties, etc. Your Company
has shown a robust performance this year. Demand for Decorative Paints was
very good throughout the year.

The key feature of the financial year 2009-10, other than the remarkable
growth, was the fact that factors like benign raw material prices and
appreciating rupee resulted in expansion of margins in this segment.

Net sales grew ahead of volume sales due to lower excise duty in the year
and a richer product mix. Emulsion paints for interiors have been growing
much faster than distempers over the last decade. This trend continued in
2009-10. The Company's tie-up with DuPont USA to co-brand the Royale range
of Emulsions with Teflon worked to its advantage with the product doing
extremely well across markets. Exterior Emulsions too continued to grow
much faster than the overall paint demand powered by the Company's leading
brands Apex Ultima, Apex and Ace.

The Company's Signature Store 'Colour with Asian Paints' at Bandra in
Mumbai continued to attract a large number of consumers, who were able to
experience the possibilities with colour. The store has attracted many
consumers from Mumbai and other cities, professional decorators, architects
and designers resulting in many leads for Home Solutions.

Your Company continued to expand its network and provide several customer
friendly services so as to improve the quality of service to the end
consumer. Your Company made considerable investments in upgrading the
ambience of its dealers by refurbishing them with new visual branding. Your
Company has begun to establish a new chain of stores called 'Colour Ideas'.
These are existing dealers with whom your Company partners in making an
investment to makeover the shops to offer a slice of the 'Signature Store'
to consumers across the country who can thereby experience the same
inspiration to experiment with colours. There are now 12 'Colour Ideas'
stores across the country. These have met with a very enthusiastic response
from consumers. Your Company is now in the process of further expanding
this network of 'Colour Ideas' across the country.

A CRM (Customer Relationship Management) system has been deployed to
improve the customer complaint-handling process to ensure that complaints
are addressed and closed quickly and customer satisfaction is enhanced.

Your Company has continued to develop capability in colour and decor
marketing. The colour tools introduced have proved to be popular. Training
programmes for dealers have been conducted at many locations to facilitate
their usage. Your Company continued to invest in the area of colour with
the launch of ColourNext 2010. Several Colour Guides and Decor booklets are
available to consumers at retail outlets to enable them to make an informed
decision.

The expansion of the ColourWorld network continues unabated and today your
Company has more than 15,000 ColourWorlds offering a wide range of products
and shades to consumers even in many small towns across the length and
breadth of the country. Your Company expects that within 5 years,
substantial part of its sales would come from the ColourWorlds across the
country.

Prices of raw materials were lower than expected in the first nine months
of the year. However, there were signs of increase in raw materials prices
in the last quarter. This coupled with the increase in excise duty in the
budget, reduced margins. Your Company expects raw material prices to rise
during the year 2010-11.

In order to build the supply chain further to cater to the growth envisaged
in future, the first phase of the sixth Decorative Paint Plant at Rohtak,
Haryana, has been commissioned on 12th April 2010, as scheduled, at a cost
of approximately Rs. 500 crores with an initial installed capacity of
150,000 KL per annum. The capacity of this state-of-art Plant, located at
the Industrial Model Town (IMT) developed by Haryana State Infrastructure
and Industrial Development Corporation (HSIIDC) will be expanded in stages
to 4,00,000 KL per annum. The plant has been developed in an area of 130
acres of which 43 acres is green belt. The construction of this project was
started in July 2008 and was completed in 21 months.

The capacity of the Company's Sriperumbudur Plant in Tamil Nadu, has been
raised to 140,000 KL per annum and emulsion making capacity in the plant
was enhanced to meet the requirements fully. The Distribution Centre at
Sriperumbudur Plant has been commissioned and land for the centre at
Patancheru Plant has been procured. With the completion of the Distribution
Centre at Patancheru Plant over the next nine months, your Company would
have modernized its vast distribution system, making it possible to service
its 30,000 strong distribution base more effectively, with lower levels of
inventory.

Your Company has procured land for setting up a manufacturing facility for
Decorative Paint in Kesurdi, Maharashtra. Necessary steps are being
undertaken to obtain all the requisite approvals from the concerned
authorities for setting up the Paint Plant.

INDUSTRIAL COATINGS:

AUTOMOTIVE COATINGS: ASIAN PPG INDUSTRIES LIMITED:

In 1997 your Company and PPG Industries Inc. formed Asian PPG Industries
Limited (APPG), a 50:50 joint venture, which services the Automotive OEM,
Auto Refinish and certain industrial coatings markets in India.

Domestic sales of passenger vehicles grew impressively during the year
2009-10. Automakers supported this performance by introducing new models
and offering attractive pricing. Exports too complimented the domestic
growth story by registering a growth of 33%. The low base effect of the
previous year was also visible in the growth figures. Indian Two Wheelers
Industry crossed the 10 million mark in 2009-10, on the back of upsurge in
domestic demand as well as exports.

The impact of continuing efforts by customers to reduce costs in view of
rising raw material costs was arrested through product development,
formulation efficiency, effective sourcing, substitution and cost reduction
measures. These developments have resulted in improved sales as well as
bottom line performance during the year under review.

Total gross sales after discounts but before excise duty increased to Rs.
476.88 crores from Rs. 420.94 crores in the previous year - a growth of
13.3%. The profit after tax increased to Rs. 28.52 crores from Rs.14.43
crores representing a rise of 98%. The consolidated sales were Rs. 490.39
crores and the profit after tax was Rs. 30 crores.

The sales of Faaber Paints Private Limited (FPPL), a wholly owned
subsidiary of APPG, grew by 35.8% to Rs. 15.01 crores from Rs. 11.05
crores; Profit Before Tax of Rs. 2.13 crores was up from Rs. 0.28 crores in
the previous year.

Your Company feels that the business will continue to see good growth and
remains optimistic about the prospects of APPG's performance in future.

NON AUTO INDUSTRIAL COATINGS:

The Non Auto Industrial Coatings market is serviced by your Company through
its Growth Business Unit and a wholly owned subsidiary, Asian Paints
Industrial Coatings Limited (APICL). Your Company is present in several
major product segments in this market to harness the potential growth
opportunities in these segments.

Although the Indian economy started showing signs of resurgence from the
second quarter of financial year 2009-10, capital expenditure spends by
corporates followed with a lag. Business from maintenance painting declined
compared to the previous year and the Industrial Coatings business of your
Company mirrored this industry trend. However, there has been an
improvement in sales in the second half of the year in Industrial Liquid
Paints.

Business from the larger projects and from engineering contractors and
fabricators has been important contributor to industry growth. Pitching for
business involving medium to high value protective coating products in
specific projects, has been an important feature during the financial year
2009-10. Business generation efforts from OE (Original Equipment) customers
manufacturing light and heavy industrial goods have shown some results in
the second half of the year. There has been an intense competition for
business among the major companies in the larger projects.

The profits from the Industrial Liquid Paints business were good in the
year. There has been a conscious and successful effort to improve the gross
contribution from the entire range of Industrial Liquid Paints by
increasing the sales of higher range products. Material costs were also
benign for most part of the year and tight control was exercised over
costs. There has been an increase in material costs primarily in the last
quarter of the year under review, which is likely to continue through the
financial year 2010-11. This will impact the margins and contributions, as
price increases are implemented in industrial coatings with a considerable
lag.

The Industrial Paints plant at Taloja near Mumbai completed its third year
of operation in February 2010, and has today developed the capability to
satisfactorily manufacture the entire range of industrial products. The ISO
14001 environmental certification audit was conducted at the plant by
personnel from BVQI and the plant has been awarded this certification.

ASIAN PAINTS INDUSTRIAL COATINGS LIMITED:

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

The size of the domestic Powder Coating market is estimated at around
38,700 MT in the financial year 2009-10. While the demand was subdued in
the initial part of the financial year 2009-10, the market saw improved
demand in the second half of the year, with white and brown goods leading
the way. Higher focus on business from OEM manufacturers increased the
Company's share of business and share of growth in these accounts. Some
business was generated from emerging product technology domains such as
fast cure and low bake powder coatings.

Material costs were benign, aided by the appreciation of the Rupee against
the Dollar during the year.

The Powder Coating plants at Sarigam in Gujarat and Baddi in Himachal
Pradesh have an integrated Quality and Environment Management System and
are certified under the ISO 9000 and ISO 14001 standards. APICL also
received the DSIR (Department of Scientific and Industrial Research)
recognition for its Research and Development facility at Sarigam.

INTERNATIONAL OPERATIONS:

The impact of the financial crisis was more marked in countries where your
Company has international operations than in India. Although the situation
improved as the year progressed, it severely impacted demand for paints
across most markets. Despite this, the performance of the International
operations has been good.

During the year, Berger International Ltd (BIL) your Company's subsidiary,
has divested its stake in its subsidiaries in Malaysia, Thailand and Hong
Kong after evaluating the prospects of its operations in these countries.
Likewise, the subsidiary in China was divested in April 2010.

Asian Paints (International) Limited, the Mauritius based wholly owned
subsidiary of your Company, bought back 4.1 mn of its shares held by your
Company for a consideration of Rs.19.5 crores resulting in an exceptional
income of Rs. 5.8 crores for your Company.

The focus in International Operations during the year was on realigning the
portfolio by divesting identified units, strengthening the position in the
market place by expanding the network, installing additional dealer tinting
systems and introducing new products, managing credit risk and improving
internal efficiencies in all areas including working capital, customer
service level, reduction in material losses in manufacturing, implementing
standard practices and enhancing overall safety standards. Material prices
remained low for a greater part of the year due to the global slowdown and
have started firming up towards the end of the year.

The International operations for the period January to December 2009 have
earned a profit before Tax (PBT) of over Rs. 100 crores for the first time.
The subsidiary in Oman declared a dividend for the first time, during the
year.

The accounting year of all subsidiaries, except Asian Paints (Nepal) Pvt.
Limited, which hitherto was 'January - December', has been aligned to the
'April - March' year followed by the parent Company. Consequently, the
current financial year of all overseas subsidiaries is a 15 month period
ended 31st March, 2010.

For the purpose of consolidation, Asian Paints (Nepal) Pvt. Limited has
changed its accounting year from 14th January - 13th January to 14th March
- 13th March, during the year. Accordingly, being the first year of
transition, the transactions of this company for fourteen months (i.e. 14th
January, 2009 to 13th March, 2010) have been included in the consolidated
accounts of your Company.

During the 15 month period (January 2009 - March 2010), paints sale was
Rs.1,201 crores. For the 12 month period (January 2009 - December 2009),
sale increased by 9% to Rs. 986 crores. Adjusted for exchange rate impact,
the revenue growth from paint sales is flat for the period January 2009 -
December 2009. New product sale in volume terms constituted approximately
2.7% of total paint sales and over 1400 dealer tinting systems have been
installed so far in various subsidiaries.

Profit after tax for the overseas operations of the group during the 15
month period is Rs.116 crores. Corresponding figure for the 12 month period
(January 2009 - December 2009) is Rs. 95.2 crores compared to Rs. 42.8
crores during the previous year. The divestments of subsidiaries during the
year resulted in an exceptional gain of Rs. 1.2 crores.

The revenue from paint sales of BIL, a subsidiary listed on the Singapore
Stock Exchange, for the 15 month period was S$ 160 million (equivalent to
Rs. 536 crores). The revenue from paint sales for the 12 month period
(January 2009 - December 2009) has decreased by 13% to S$ 135 million
(equivalent to Rs. 455 crores) partly due to the divestments made during
the year. BIL has earned a profit after tax for the 12 month period
(January 09'- December 09') of S$ 3.4 million (equivalent to Rs. 12 crores)
as compared to S$ 2.8 million (equivalent to Rs. 9 crores) during the
previous year. The profit after tax for the 15 month period (January 2009 -
March 2010) is S$ 4.0 million (equivalent to Rs.13.5 crores).

The group, post the divestments, operates in the following geographies:

Region Countries

Caribbean Barbados, Jamaica, Trinidad & Tobago
Middle East Egypt, Oman, Bahrain & UAE
South Asia Bangladesh, Nepal & Sri Lanka
South East Asia Singapore
South Pacific Fiji, Solomon Islands, Samoa, Tonga & Vanuatu

The region wise performance is detailed below:

CARIBBEAN:

During the 15 month period (January 2009 - March 2010), the region achieved
a sale of Rs. 196 crores. The global economic meltdown had a severe impact
on the Caribbean economies and hence the performance of the region was
adversely affected. The revenue from paint sales has increased by 2% to
Rs.167 crores in the 12 month period (January 2009 - December 2009).
Adjusted for exchange rate impact, the revenue from paint sales has
decreased by 1%. PBIT (profit before interest and tax) for the region has
increased by 108% to Rs. 12 crores during this period. All the subsidiaries
in the region have made profit. The higher profit is due to the
substantially better performance of the subsidiaries in Jamaica and
Barbados.

MIDDLE EAST:

During the 15 month period (January 2009 - March 2010), the region achieved
a sale of Rs. 652 crores. For the 12 month period (January 2009 - December
2009), the revenue from paint sales has increased by 15% to Rs. 534 crores.
Adjusted for exchange rate impact, the revenue from paint sales has
increased by 3%. Although all the economies in the region have been
impacted by the global recessionary trend, the impact has been most
prolonged in Emirates. PBIT for the region has increased by 80% to Rs. 101
crores in the 12 month period (January 2009 - December 2009).

The Middle East region is the largest operating region for the group
outside India. The region now contributes 54% of the revenue from overseas
operations. All the subsidiaries in the region have performed well. All the
subsidiaries have registered good increase in profit, while the subsidiary
in Egypt continues to be the biggest profit contributor in the region.

A new plant is being built in Egypt with an initial capacity of 50,000 KL
per annum and will be expanded to 150,000 KL in phases. It is expected to
be commissioned by July, 2010. The plant will be fully equipped to comply
with all the applicable safety and environmental regulations.

SOUTH ASIA:

During the 15 month period (January 2009 - March 2010), the region achieved
a sale of Rs. 187 crores. For the 12 month period (January 2009 - December
2009), revenue from paint sales has increased by 28% to Rs.147 crores.
Adjusted for exchange rate impact, the revenue from paint sales has
increased by 18% during this period. The PBIT for the region has increased
by 115% to Rs. 18 crores in this period.

All subsidiaries in the region have performed well. Expansion of the
ColorWorld dealer network and increased influencer interactions through
painter-dealer meets has helped all the subsidiaries to achieve healthy
sales growth.

SOUTH EAST ASIA:

During the year under review, the economies in the region were severely
impacted by the global meltdown. The subsidiaries in China, Malaysia, Hong
Kong and Thailand were divested. On account of the divestments being
effected at different points of time during the year, sales figures are not
comparable with those of the previous year. During the 15 month period
(January 2009 - March 2010), the region achieved a sale of Rs. 96 crores.

The subsidiary in Singapore had performed well and revenue during the 15
month period (January 2009 - March 2010) was Rs. 61 crores.

For the 12 month period (January 2009 - December 2009), the sales has
increased to Rs.49 crores. The subsidiary has achieved a PBIT growth of 38%
over the previous year for this period.

SOUTH PACIFIC:

During the 15 month period (January 2009 - March 2010), the region had a
sale of Rs. 85 crores. For the 12 month period (January 2009 - December
2009), paint sales increased by 7% to Rs. 67 crores. Adjusted for exchange
rate impact, the revenue from paint sales has increased by 9%. The PBIT for
the region has increased by 54% to Rs. 9 crores during this period.

As mentioned in the last annual report, the management will continue to
take all feasible steps to enhance the operating performance and the cash
flows from the overseas subsidiaries.

OTHERS:

Your Company has chemical business consisting of Phthalic Anhydride and
Pentaerythritol, manufactured at Ankleshwar in Gujarat and Cuddalore in
Tamil Nadu, respectively. These units were set up as backward integration
initiatives in the late eighties. They are not seen as growth drivers for
the Company and continue to be managed for value. During the year, 56% of
Phthalic Anhydride and 52% of Pentaerythritol production was consumed in-
house and the balance was sold in the open market.

The Phthalic Anhydride business showed good recovery from the steep drop in
demand experienced in 2008-09 and reported good profits in 2009-10. The
production and sales of Pentaerythritol was also satisfactory during the
year. A Zero Discharge system and a Captive Power Plant were installed in
the Pentaerythritol plant. The new captive power plant meets almost the
entire power requirement of the plant, while generating all the steam
required in the production process. This has led to substantial savings in
the expenses earlier incurred on power drawn from the state electricity
board.

II. Environment, health and safety:

Environment, Health and Safety (EHS) is one of the primary focus areas for
your Company. Your Company's EHS policy is to consider compliance to
statutory EHS requirements as the minimum performance standard and is
committed to go beyond and adopt stricter standards wherever appropriate.
Your Company focuses on pollution abatement, resource optimization and
waste minimization, which leads to sustainable development. Your Company
also gives priority and attention to the health and safety of its employees
and trains all the employees to work as per prescribed procedures designed
to meet all EHS requirements of the Company. Your Company endeavors to
educate its customers and the public on safe use of its products, on a
continous basis.

Due to continued focus, Sriperumbudur plant was presented with the Tamil
Nadu State Safety Award by Inspectorate of Factories, Tamil Nadu for
outstanding safety performance. The Research & Technology Centre of Asian
Paints at Turbhe, Navi Mumbai, was certified for ISO 18001 safety
standards. The plant at Bhandup, Mumbai, was formally appreciated by Mutual
Aid Response Group, Mumbai sub region for doing excellent work in the area
of Safety.

The Company's newly commissioned plant at Rohtak, Haryana, has been built
to very exacting and contemporary environment, health and safety standards.
Based on the British Safety Council safety standard, several safety
features have been incorporated in the design of the plant.

Your Company has always been an environmentally conscious manufacturing
Company and believed in resource conservation. After achieving 'Zero
Discharge' of industrial effluent, minimization of waste through reduction
at source and recycle/reuse was the key focus areas for your Company during
the year 2009-10. This resulted in reduction in specific generation of
effluents and solid wastes.

The Rohtak plant is designed for 'Zero Discharge' of industrial effluent.
The plant has a state of the art effluent treatment system, a reverse
osmosis plant and a multi-effect evaporator that allows the plant to
recycle more than 99% of the effluent back into the process. The plant has
provided about 43 acres of green belt and roof-top rainwater harvesting
structures to harvest 35 million liters of water every year. Solar PV
Panels have been installed which will light 75 LED street lights in the
plant saving around 25000 units of electricity every year. Also, a solar
water heating system has been installed generating 45000 liters of hot
water every day for process application which is not a standard industrial
practice. The administration building of the Rohtak plant has been built as
per the green building standards.

Your Company's six paint plants and the two chemical plants have ISO 14001
environmental certification, with Taloja plant being the most recent among
them to join the ISO 14001 certification during the year 2009-10. The
Sriperumbudur plant was awarded consents for expansion by the Tamil Nadu
Pollution Control Board without any increase in environmental pollution
load. The Penta plant at Cuddalore became a 'Zero Discharge' facility by
commissioning Reverse Osmosis unit followed by Multiple Effect Evaporator
and Agitated thin-film dryer. This implies that your Company's five paint
plants and one chemical plant have achieved 'Zero Industrial Discharge'
capability.

The Ankleshwar Plant was honoured with Gujarat Cleaner Production Award by
the Gujarat Cleaner Production Center and Department of Environment and
Forest, Government of Gujarat. Ankleshwar Plant was also presented with the
Award in the Chemical Sector for outstanding achievement in environmental
management by Greentech Foundation, India.

III. Human resources:

The employees of your Company are important and valuable assets and have
contributed significantly in achieving sustained growth over the years.
During the year 2009-10, significant advancements were made on multiple
fronts in different Human Resources (HR) processes. To enable better
interface, initiatives like introduction of HR Help Desk, Employee Self
Service and e-Learning applications were done during the year.

People development has been a key element in the DNA of your Company. While
each and every employee plays a part in scripting her/his 'Development',
certain focused activities are also carried out to ensure synergy and
growth.

e-Learning was introduced in your Company during the year 2009-10 to meet
the ever growing diverse developmental needs of the organization that is
spread across multiple locations. The year also saw the stabilization of
the Performance Management System that was put in place during the previous
year with greater ownership and competence.

During the year, the industrial relations at all the plants of your Company
continued to be cordial. The year that went by has seen your Company, move
many notches in putting in place the basics that automatically sets your
Company up for continuing and augmenting superlative people oriented action
in the years to come.

IV. Corporate social responsibility:

Today's business environment demands that corporates play a pivotal role in
shouldering social responsibility. You will be happy to learn that in the
year under review your Company executed several Corporate Social
Responsibility (CSR) programmes for the benefit of the communities where
your Company operates.

Your Company's CSR initiatives primarily focused on three core areas: Water
Conservation, Aged Care and Education.

The Total Water Management (TWM) Centre located in the premises of the
Company's manufacturing facility at Bhandup, Mumbai has been championing
the issue of water conservation; informing and demonstrating techniques of
water harvesting to the public at large. A large number of concerned
citizens ranging from representatives of government bodies, housing
societies, corporates and even school students have visited the TWM Centre
to obtain a holistic perspective on water management. The Company has also
organized and participated in numerous seminars to create awareness on this
fast depleting natural resource.

Your Company continues to operate Mobile Medicare Units around the
Patancheru (Andhra Pradesh), Kasna (Uttar Pradesh), Sriperumbudur (Tamil
Nadu) and Ankleshwar (Gujarat) plants which provide health care to the
elders in the villages around the plant. These units provide regular
medical checkups and distribute medicines at nodal points in these villages
and if required, even go to the door steps of the needy elders in the
villages. In the area around the Sriperumbudur plant, this initiative is
being administered in collaboration with Help Age India, an NGO.
Additionally, other aids like dentures, cataract surgeries, hearing aids,
wheel chairs, walking sticks etc. are also being provided to the elderly.
Camps are also held to involve the elders in activities which provide them
joy and a feeling of inclusion within the society.

Your Company is also actively involved in upgrading the infrastructure
facilities in schools near its plants to facilitate proper and unhindered
education of children staying in villages in the vicinity of the plants.

V. Information technology:

During 2009-10, your Company has setup and stabilized two centralized
Customer Contact Centers for improving servicing to its dealers. The
contact centres have been provided with advanced telephony solutions with
integration with the Company's backend applications. This has allowed your
Company to standardize the order taking process and provide dealers with a
uniform, agile and improved experience of interacting with the Company.
This has also given the capability to improve the speed of enabling new
services being offered to the dealers and end consumers.

The Rohtak plant, which was commissioned in April 2010, has been
implemented using Advanced Manufacturing Execution Systems which optimizes
the material flow controls used in paint manufacturing. This will improve
the throughput of the plant and provide real time information visibility of
operations.

As stated above, with the increasing global focus on the environment and
its preservation, your Company has implemented an Environment, Health and
Safety (EHS) system to streamline the processes, monitor compliance to
standards and report on various control parameters.

While your Company continues to strengthen existing systems and processes
to drive efficiencies, during the year under review, your Company has also
invested towards building a robust infrastructure to manage structured and
unstructured information in the organization. This will be implemented in
phases in the next 18 months.

VI. Research & development:

Your Company is executing an integrated strategy for technology development
and deployment. The technology function is supporting your Company's
strategy around four missions: technology development, development of
substantially new products, productivity improvement and cost reduction.
The focus for your Company in the financial year 2009-10 had been to
exploit and leverage the results of technology development and platform
programmes and set the stage for a shift towards eco friendly products. A
number of those new concepts will be incorporated in products to be
launched next year. This is to allow the Company to meet its mid and long
term strategic goals. Those capabilities, built on the technology trends
and customers requirements, made possible the development of substantially
new products and productivity improvements in manufacturing. The technology
group also put a renewed emphasis on rejuvenating the products portfolio in
support of the joint venture. Furthermore, the integration of the overseas
technical groups has continued and their support has increased to leverage
the Company capabilities. The removal of lead has been extended to products
sold in overseas units.

Your Company will continue to strengthen collaboration with research
organizations to accelerate progress. Some of those programmes are bearing
fruits and will enhance the overall technical capabilities in the area of
resins and emulsions development. The Company has been successful in
increasing its presence in international forums through publications in
peer review journals. The recognition of the work of its scientists has
helped shape an image of the organization that attracts competent and
committed scientists. Your Company scientists were recognized with the
Gordon Award for their work in the area of self cleaning paints.

VII. Internal control systems and their adequacy:

Your Company is committed to ensuring comprehensive internal controls
across its operations to ensure that all assets are safeguarded and
protected against loss from unauthorized use or disposition. Towards this
end, it has deployed:

* A well-defined control structure using a mix of manual and automated
control systems.

* Well-defined procedures to carry out and approve financial transactions.

* Well-defined review mechanisms at different levels in the hierarchy on
all aspects of Company performance.

* Shared services model implemented for the Company with the objective of
improving controls and centralizing payments.

* Independent Internal audit department continuously monitoring and
reporting on the adequacy or otherwise of internal control processes across
the business units.

* A risk based approach towards developing an Audit Plan for the Company
and its subsidiaries which is presented to the Audit Committee for their
approval and feedback.

* A blend of process audits and operational audits covering both domestic
and international operations to ensure true and fair reporting and
compliance with regulatory requirements as well as internal policies.

* A mechanism to bring significant observations along with any action plan
identified by the management to the attention of the Audit Committee for
review and guidance at periodic intervals.

VIII. Risk and outlook:

The forces that are driving the current rebound are partly temporary in
nature, including major fiscal stimulus and central banks' support for
credit markets. A significant risk could be a premature exit from the
accommodative monetary and fiscal policies currently in place. In general,
the global economy still seems vulnerable with the ongoing upheaval on
account of sovereign debt crisis in the European Union, a pointer to the
imbalances prevalent in the world economy. If the growth trajectory
achieved so far is not sustained, it could have a significant impact on

sentiments and adversely impact consumer demand and consumption both in the
Indian as well as the International markets. Interest rates have already
started picking up across the world. This can have an adverse impact on
demand, particularly in interest rate sensitive sectors like housing and
automobiles. Also, if as a result of adverse geopolitical, economic or
natural conditions, the economies of countries where your Company has
significant presence do not perform well, the performance of the Company
can get affected. These risks are continually monitored while managing the
Company's overall operations.

However, the overall outlook for 2010-11 appears to be positive but
nevertheless challenging. In many of the emerging and developing economies,
activity is expected to be buoyant, largely driven by good internal demand
as well as the upturn in demand in the advanced regions. In most of the
advanced economies, the economic recovery is expected to continue, albeit
at a lower rate than in the past. While there are concerns with regard to
substantive reforms, infrastructural bottlenecks, insurgent activities
within the country, spiralling inflation on account of the food price
increases, etc. your Company believes that the economy would remain buoyant
in the medium term and is optimistic that the Indian economy will be able
to achieve a GDP growth in excess of 7.5%. Also, with early prediction of
normal monsoon in India, your Company expects rural economy to perform well
and support paint demand in rural areas. In addition, policy initiatives
like increasing the slabs of income tax exemption and renewed thrust on
infrastructure sector is expected to provide further support to paint
demand. The progress on key reforms, especially on taxation, needs to be
watched.

Your Company is optimistic about its performance in 2010-11, given that
these factors augur well for demand of paints in India as well as the other
International markets where your Company has presence. However, rising
input prices could make the operating margins achieved in the past year
unsustainable.