Annual Report - Hyderabad Industries - 2009-2010

HYDERABAD INDUSTRIES LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

TO
THE SHAREHOLDERS

The Directors have pleasure in presenting their Report and the Audited
Accounts of the Company for the year ended 31st March 2010.




FINANCIAL RESULTS Rs. in lacs

2009-2010 2008-2009

Profit before Interest,
Depreciation, Exceptional

Items and Taxation 15772.12 9393.46

Less: Interest 625.14 941.90

Depreciation 1554.71 1398.30

Profit before Exceptional
Items & Taxation 13592.27 7053.26

Exceptional Items 18.37 110.62

Profit after Exceptional Items 13573.90 6942.64

Taxes (4602.08) (2533.81)

Profit after Tax 8971.82 4408.83

Balance as per last year 5181.10 2145.36

AVAILABLE FOR APPROPRIAT10N 14152.92 6554.19
APPROPRIATION

General Reserve 8493.30 500.00

Interim Dividend on Equity Shares 447.75 -

Proposed Final Dividend on
Equity Shares 746.26 746.26

Corporate Dividend Tax 202.93 126.83

Balance carried to Balance Sheet 4262.68 5181.10

DIVIDEND

During the year the Board has declared an Interim Dividend of Rs. 6/- per
equity share (60% of the paid-up capital). Your directors are now pleased
to recommend a final dividend of Rs. 10/- per equity share (100% of the
paid-up capital) for your consideration and approval at the ensuing Annual
General Meeting of the Company.

With the proposed final dividend, the total dividend for the year 2009-10
would be Rs 16/- per share (160% of the paid-up equity capital).

The total dividend outgo would be Rs 1396.94 lacs (including dividend
distribution tax) as against Rs. 873.09 lacs - (100% of the paid-up equity
capital) for the year 2008-09.

HOMAGE TO LATE SHRI G.P. BIRLA

We, on behalf of all our stakeholders, wish to place on record our profound
sorrow and grief on the sad demise of Shri G.P. Birla on 5th March 2010.

He was a doyen in the industrial world and established a large number of
industries in various sectors in India and abroad like automobile, paper,
cement, electrical, building products and precision engineering products.
He was a noble hearted soul and a great philanthropist and established
several large foundations, hospitals and institutions for charitable and
educational purposes.

He was awarded 'Padma Bhushan' in the year 2006 by the Government of India
for his outstanding services to the nation. In his death, the country has
lost a great industrialist and a philanthropist.

OVERALL ECONOMY

The year 2009-10 started in a subdued note after the global economy
witnessed financial crisis and hefty bailout schemes. However with all-
round efforts by the Government of India to face challenge posed by the
Global Economy, the Indian Economy sailed through difficult times and
responded swiftly. The effectiveness of the policy measures became evident
as the year ended on a positive note with a GDP growth of around 7.2% in
2009-10. While most of the sectors have performed reasonably well in the
last year, the rural and semi-urban areas contributed significantly to our
growth on account of improvement in their net household income, which
enabled the Company to perform better.

PERFORMANCE

The year 2009-10 proved to be an another successful year in the history of
the Company in all metrics, resulting in higher sales revenues and profits.
The Company achieved a growth rate of 14% with overall Gross Turnover of
Rs. 756 crores during the year under review. The growth in turnover is
mainly attributed to better marketing efforts and the favourable market
conditions, both for sheeting and green building products. The Operating
Profit margin (PBIDT) improved from 15% to 22% during the year, as a result
of all round efforts by the team HIL.

Production and Sales, in quantity terms, of Fibre Cement Sheets have
increased by 15% and 5% respectively over the previous year. During the
year under review the industry growth of the Fibre Cement Sheets was
estimated to be around 6% over the previous year. Due to volatility in the
markets and rising price trends the input costs had gone up during the
year. However on account of various cost saving measures, improved quality
and better realisation, the Fibre Cement Sheet Business reported a
significant improvement in profitability during the year.

Our brand 'Charminar' established over six decades as a superior brand
based on quality, strength and durability, continues to enjoy premium brand
equity in the market. The Fibre Cement Sheet Industry is estimated to grow
at about 8% in financial year 2010-11 on account of increased income in
rural areas coupled with various initiative by Government by way of low-
cost/affordable housing scheme for the betterment of the rural population.
With the additional capacities established and planned further during the
year, your Company is confident of maintaining its market leadership.

With the special focus given to the Company's GREEN BUILDING PRODUCTS
DIVISION during the earlier year, the Company could garner the attention of
the new generation builders/consumers of the products across India. The
market growth for Aerocon Panels has improved considerably during the year.
Thermal Insulation segment also reported a reasonable growth during the
year. However the AAC Blocks division, on account of increased competition
and aggressive pricing by the competitors as well as slackness in the
construction industry for the major part of the year, witnessed a decline
in revenues. With more focus towards environment protection and
sustainability across all Industries and your company being a pioneer in
promoting Green Building Products, coupled with various other inherent
advantages of the products, the Company is confident to attract a larger
customer base going forward. To face the competition in marketing and
staying ahead with the curve, the Green Products Division substantially
increased its sales team and embarked on new marketing strategies for its
various products and is also working with different verticals in the market
to increase the awareness of the products and grow the revenue.

The production in quantity terms of Aerocon Panels has increased by 40% and
the sales have increased 22% respectively over the previous year.

Production and Sales, in quantity terms, of AAC Blocks have decreased by
10% and 17% respectively over the previous year.

Production and Sales, in quantity terms, of Thermal Insulation products
have increased by 16% and 13% respectively over the previous year.

NEW PROJECTS

As part of our market share retention strategy, the Company is constantly
exploring the option of enhancing the capacity at its existing location and
also to set up new plants in new strategic locations to keep pace with the
growing demand for our products.

During the year under review the Company has started commercial production
of its second Line at Kondapally village near Vijayawada, AP. Setting up of
a new unit at Golan, near Surat, Gujarat for manufacture of AAC Blocks was
completed in a record time of 14 months and trial production was started in
March 2010. After satisfactory completion of trial runs, we expect the
plant to start its commercial production during mid of May 2010. This will
help the company to cater to the growing market for AAC Blocks in the
western part of the country, as the demand for this product is expanding
due to its inherent advantages of light weight, good compressive strength
heat and sound insulation and faster rate of construction.

MANAGEMENT DISCUSSION & ANALYSIS REPORT

A Report on Management Discussion & Analysis is appended as Annexure (IV)
to this report as per the requirements of Listing Agreement with the Stock
Exchange(s).

DIRECTORS

In accordance with the provisions of Companies Act, 1956 and the Articles
of Association of the Company, Mr. P. Vaman Rao and Mr. Krishnagopal
Maheshwari, Directors of the Company will retire by rotation at the ensuing
Annual General Meeting and, being eligible, will be offering themselves for
re-appointment.

For Directors seeking re-appointment in the forthcoming Annual General
Meeting of the Company; the particulars as required to be disclosed in
accordance with Clause 49 (Corporate Governance) of Listing Agreement,
forms part of Corporate Governance Report.

DIRECTORS' RESPONSIBILITY STATEMENT

Directors' Responsibility Statement as required under the provisions of
Section 217 (2AA) of the Companies Act, 1956 is given in the Annexure (I)
attached hereto and forms part of this Report.

CORPORATE GOVERNANCE

The Company has been making every effort to improve governance and
transparency in the conduct of business. Your Company is committed to good
Corporate Governance with ethical corporate practices. As per the
requirements of Listing Agreement with the Stock Exchanges, a Compliance
Report on Corporate Governance for the year 2009-10 and a Certificate from
the Auditors of the Company are furnished as part of this Annual Report.

HUMAN RESOURCE DEVELOPMENT

The various efforts and initiatives being taken by the Company to grow the
top line and improve operational efficiencies will be possible with a
highly motivated and a competent team. The Company is continually striving
towards these objectives. The Industrial Relations at all plants of the
Company continued to be cordial. As an important part of HR initiatives,
continued focus is being given on training and development of people in the
Company and in creating an environment of learning.

AUDITORS

The present Auditors of the Company, M/s. S.R. Batliboi & Co., Chartered
Accountants, have expressed their unwillingness to be re-appointed as
Auditors of the Company on their retirement at the forthcoming Annual
General Meeting. The Board records its appreciation for the assistance and
guidance provided by them during their long tenure with the Company. The
Board recommends the appointment of M/s. S.R. Batliboi & Associates,
Chartered Accountants as Auditors of the Company.

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

Particulars with respect to Conservation of Energy, Technology Absorption
and Foreign Exchange Earnings and Outgo as required under Section 217(1)(e)
of the Companies Act, 1956, read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are given in
the Annexure (II) attached hereto and forms part of this Report.

PARTICULARS OF EMPLOYEES

In terms of the provisions of Section 217(2A) of the Companies Act, 1956,
read with the Companies (Particulars of Employees) Rules, 1975 as amended,
the names and other required particulars of the employees are set out in
Annexure (III) attached hereto and forms part of this Report.

TOTAL PRODUCTIVE MAINTENANCE (TPM)

The Company has adopted Total Productive Maintenance (TPM) practices in
four of its plants during the year under the guidance of Confederation of
Indian Industry. The said practices are continuously followed in the
respective areas during the year under review also which has helped the
Company to improve operational efficiencies and better utilization of the
available resources. Company has plans to implement TPM across all the
units in the forthcoming year. Your Directors are confident that the
continued practice of the said methodology will help the Company to improve
productivity, ensure quality, reduce costs and improve profitability in the
coming years.

ACKNOWLEDGEMENTS

Your Directors wish to thank all the Shareholders, the Company's Customers,
Business Associates, Trade Partners, Bankers and Suppliers for the
continuous support and cooperation extended by them.

The Directors also wish to place on record their appreciation of all the
employees for their commitment and contribution towards achieving the goals
of the Company.

On behalf of the Board of Directors

C.K. BIRLA
Chairman

Place: New Delhi
Date : 5th May, 2010

Annexure (I): Directors' Responsibility Statement

Pursuant to the requirement of Section 217(2AA) of the Companies Act, 1956,
and on the basis of compliance certificate received from the executives of
the Company and subject to disclosures in the Annual Accounts, as also on
the basis of the discussion with the Statutory Auditors of the Company from
time to time, and to the best of their knowledge and information furnished,
the Board of Directors states:

i) That in preparation of the Annual Accounts for the year ended 31st
March, 2010; all the applicable Accounting Standards prescribed by the
Institute of Chartered Accountants of India have been followed along with
proper explanation relating to material departures, if any.

ii) That the Directors have adopted such accounting policies, as selected
in consultation with Statutory Auditors, and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to give
a true and fair view of the state of affairs of the Company at the end of
the financial year and of the profit of the Company for the financial year
ended March 31st 2010.

iii) That the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956, for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities.

iv) That the Annual Accounts for the year ended 31st March, 2010, has been
prepared on a going concern basis.

On behalf of the Board of Directors

C.K. BIRLA
Chairman

Place: New Delhi
Date : 5th May, 2010

Annexure II

Annexure (II): Statement of particulars under the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988.

Conservation of Energy

Your Directors recognize the importance of conserving energy at all
locations. To conserve and optimize the use of energy, the Company has been
installing the energy efficient blowers, vacuum pumps, backwater pumps and
other equipments in existing plants. Energy efficient lighting system and
modernized mechanical devices/systems were also installed for optimum usage
of power. Strict control exercised during operation of the plants is aimed
at reduction in usage of fuel. In pursuit of reducing carbon footprint,
your Company has taken a small step towards using renewable fuel in place
of Furnace oil in one of the plant. Further areas of improvement are being
constantly pursued as part of ongoing program to optimize usage of energy.

Total energy consumption and energy consumption per unit of Production as
per 'Form A' of the Companies (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988:

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

Units (lacs KwH) 20.75 19.64

Total amount (Rs. in lacs) 92.20 88.46

Rate/Unit (Rs./KwH) 4.44 4.50

b. Own Generation

i) Through Diesel Generator

Units (lacs KwH) 17.00 9.71

Units per Litre of Diesel Oil 3.20 3.20

Cost/Unit (Rs.) 9.72 10.12

ii) Through Steam Turbine/
Generator - -

2. Coal - -

3. Furnace Oil/LDHS
Quantity (K.Ltrs.) 1432 1480

Total amount (Rs. in lacs) 334.76 341.29

Average Rate (Rs./K-Ltrs.) 23371 23063

4. Others/Internal generation - -

(B) Consumption per unit of production

Thermal Insulation Products (Refractories)

Electricity (KwH/MT.) 645 575

Furnace Oil/LDHS (Litres./MT.) 714 739

Coal - -

FORM B

Form for disclosure of particulars with respect to Technology Absorption:

Research and Development (R&D)

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

a. Improving cost effectiveness and quality of products through new,
improved manufacturing processes, productivity improvements and automation.

b. Effective utilization of resources like energy, water and waste
materials.

c. Development of new, improved and value added products.

d. Developing new mix of raw materials for better product attributes and
lower costs.

e. Use of cost effective raw materials and indigenization.

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

a. Usage of cost effective raw materials resulted in cost savings.

b. Introduction of value added products to increase customer base.

3. Future Plan of Action:

Continuation of work in areas specified at S.No.l to further improve our
products, develop new products and product technologies.

4. Expenditure on R&D:

2009-2010
(Rs. In lacs)

a. Capital Nil
b. Recurring 108.10
c. Total 108.10
d. Total R&D expenditure as a
Percentage of total net turnover 0.15%

Technology Absorption, Adaptation and Innovation:

1. The Company is continuously endeavoring to upgrade its technology from
time to time in all aspects through in-house R&D primarily aiming at
reduction of cost of production and improving the quality of the product.
The Company has successfully achieved results in reducing the cost of
production, power consumption and improving technical efficiencies.

2. Particulars of imported technology (imported during the last 5 years
reckoned from the beginning of the financial year): None

Foreign Exchange Earnings and Outgo:

Efforts to identify export opportunities for the products of the Company
continued during the year under review. The Company is exploring other
offshore markets to increase the quantum of exports, particularly in the
Middle East, Asian, Far East and African countries.

Total Foreign Exchange used and earned:

2009-10

A. Foreign Exchange Earned (Rs. in lacs)

Export of Goods (FOB) 400.00

Others 50.12

Total 450.12

B. Foreign Exchange Used

Raw Materials, Components, Spares
and Capital Goods (CIF) 17559.99

Other matters 240.19

Total 17800.18

On behalf of the Board of Directors

C.K. BIRLA
Chairman

New Delhi, 5th May, 2010

MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW

The year 2009-10 was a notable year world wide as most of the developed
economies were yet to come out of the recession on account of unprecedented
financial crisis which unfolded during earlier year. Though the year begun
amidst un-certainity, coordinated efforts by the Governments across the
globe over a wide range of fiscal measures mitigated the effects of
recession to a large extent. The Indian Economy which also felt the heat of
global recession during 2008-09 started recovering during the earlier part
of the year, and turnaround was noticeable from third quarter onwards.

The Government of India with renewed mandate from public during last
Parliamentary elections, continued to dedicate its full support to revive
the economy from the slowdown. The various stimuli and fiscal controls
introduced by the Government during 2008-09 continued during the major part
of year under review and this helped to maintain the impetus towards
revival. Adequate liquidity in the system limited the actual impact of
slowdown to a great extent. The resilience of the Indian Economy was
demonstrated during the year as India was one of the earliest few emerging
markets to bounce back swiftly from the slowdown and report a modest GDP
growth.

All the sectors of the Indian Economy witnessed a decent growth during the
year under review, especially the manufacturing and service related sectors
witnessed a strong rebound. Though some of the input costs are on a rising
trend, various cost cutting measures initiated by Companies helped them to
report better performance.

As per the revised key economic indicators the GDP growth for the year
2009-10 is projected at around 7.2% (Source: RBI). With the all round
efforts of the Central Government and the Reserve Bank of India through its
fiscal and monetary measures to revive growth, the Indian economy is
expected to deliver a GDP growth rate of around 8% in financial year
201011, which gives confidence that Indian Economy is set to achieve double
digit growth in the next few years to come.

INDUSTRY AND COMPANY TREND

The building products industry has witnessed a reasonable growth during the
year mainly on account of sustained rural demand on the back of adequate
disposable incomes and Government sponsored schemes. In the urban area,
which are the main markets for our green building products, customer
preference for our energy saving and light weight products stimulated the
demand despite a significant slowdown in the real estate sector.

The Fibre Cement Sheet business is poised for growth over next few years on
account of anticipated migration from thatched and tiled roofing to more
refined roofing. Thatched roof is not waterproof, and poses a fire hazard
besides needing regular replacement. Tiled roof needs continued maintenance
and is not safe. Therefore, whenever the economic conditions improve, the
first choice of the rural poor is to replace the roof over their head with
the affordable, waterproof, heat insulating and long lasting fibre cement
roof sheets.

The implementation of the UIN Programme is expected to further boost income
for the rural poor thereby increasing the potential market for usage of
fibre cement sheets in rural areas. The Government of India, with an aim to
provide adequate shelter to the rural poor has introduced programmes like
Indira Awas Yojna (63% higher allocation in FY11 compared to last year),
Golden Jubilee Rural Housing Finance Scheme, Pradhan Mantri Adarsh Gram
Yojana, Productive Housing in Rural Area and Rural Housing Fund which is a
positive note for the industries in the roofing sector.

With a healthy growth in GDP and expectations of a robust demand in the
future from Rural India on account of projects like NREGA & UIN leading to
higher disposable income in the hands of the rural population the industry
expects to achieve double digit growth (in the range of 10%), in the
following years.

Factoring the estimated growth in demand, all the leading players in the
industry are contemplating expansion plans by augmenting capacity at
strategic locations. Besides this new players are also entering this field.

Your Company also gets better realisation of the product from the market on
account of its improved quality characteristics, easy availability and
premium brand image. Our Green Products are also garnering the attraction
of the building community in the last few years and having decent
profitability margins. With focused approach on better marketing efforts,
cost reduction measures and productivity improvement through TPM practices,
the Company could report 14% growth in its gross revenue during the year
under review over the previous year. The significantly improved PBIDT
margin for the year, as a percentage of net sales was at 22% as compared to
15% in the previous year.

Your Company is also continuing its thrust on the Green Building Products
Division. The new plant which is being set up in Golan, near Gujarat for
manufacture of AAC Blocks is expected to increase the market share in
western India. AAC Blocks with its inherent advantages such as a favourable
weight to compressive strength ratio, usage of flyash and energy saving
property are fast becoming the choice of the new generation builders. With
the right pricing we anticipate this product to witness significant growth
in volumes as builders convert from their conventional bricks to our green
AAC Blocks, especially with the realty sector recovering from the slowdown.

The Company continues to concentrate on critical areas of operation during
the current year also. The capacity added in Balasore for Fibre Cement
Sheets during last year garnered decent market size in Orissa which has
also helped the company to reduce its logistics costs. The Thermal
Insulation product also received a good response from the market thereby
maintaining its leadership position.

The sheeting industry saw several new capacities being put up during the
year, which put pressure on pricing and sales volumes. This has posed
significant challenges for the Company in marketing its products. Despite
this your Company was able to achieve a growth rate of 5% in quantity
terms, which is in line with the industry growth rate of around 6%.

The second half of the year witnessed an increase in the trend of demand
for the Green Products on the back of revival of the economy. While the
overall market showed a flat or marginally positive growth, your Company
registered reasonable growth in its Aerocon Panels and Thermal Insulation
products. The demand for Green Building Products is increasing the world
over on account of serious concerns about the environment and the impact on
energy consumption, and hence our Green Products Division is also expected
to do well in future.

OUTLOOK FOR THE COMPANY

The Company's business consists of the following Product Groups:

(A) BUILDING PRODUCT GROUP

1. Fibre Cement Sheeting Business Division

a. Fibre Cement Corrugated Sheets (PVA and Chrysotile Fibre)

b. Flat Products

2. Green Building Products Business Division

a. Autoclaved Aerated Concrete Blocks (Light Weight Bricks)

b. Aerocon Panels

(B) THERMAL INSULATION PRODUCT GROUP

a. Calcium Silicate Insulating Materials

During the year under review the Fibre Cement Sheets continued to be major
contributor to the Company's turnover. The Company is one of the leading
manufacturers of Fibre Cement Sheets in India with an estimated market
share of about 20%. Although Industry recorded a growth of about 6%, during
the year under review, your company has registered a growth of 5% in line
with the industry standards. The Company faced severe competition in the
market from competing substitute products, such as, GI Corrugated Sheets on
account of fall in steel prices.

However, Fibre Cement Sheets are gaining popularity as they are better
insulator of heat, less-expensive, safer, need no maintenance and last
longer when compared to competing roofing material.

Based on projections on GDP growth and internal assessments, the Fibre
Cement Sheet Industry is likely to grow at 8% per annum in the current
year. To retain our leadership position, the Company has established an
additional line at Vijayawada and the commercial production has commenced
in the month of July 2009.

In order to participate in the future growth opportunities and to retain
its share, the Company is evaluating setting up of new plants at a
strategic locations and to increase the production capacities of existing
plants. This would enhance the availability of its products to the customer
and reduce logistic costs. The Company is also further strengthening its
marketing and distribution network.

The market for AAC Blocks is directly dependent on the construction of
multistory apartments and commercial buildings in particular. Our product
and the brand Aerocon is well known and accepted among the users of AAC
blocks. The size of the market did not grow in the previous year due to the
slump in the real estate business that was evident all over the country.
The construction business also saw existing projects slowing down. This had
an overall effect on our volumes. However with recovery of the real estate
sector we expect the demand to start growing henceforth.

Aerocon Panels continued to grow and has improved its share of business
both in the partition and prefabricated office and housing segment. Due to
the recessionary trends seen in the real estate and industrial business
very few new commercial space was created and modification of existing
space was rare. Sectors involved in creating infrastructure started
attracting reasonable investment. Due to this and the increased marketing
activities undertaken by the company this division was able to grow inspite
of the slump in the potential sectors. We expect this product to gain
better acceptance and show improved revenues in the future.

Demand for insulation products continue to be good due to fresh investments
for green field projects as well as replacement and modernization of plants
in the Cement, fertilizer, Petrochemical and other industries. Our product
Hysil continued to have a large share of this market. Our capacity
expansion plans will ensure we continue to maintain this position.

Our Company is perceived as a multi product and multilocational company in
the market. We work closely with the end customer/user and this has yielded
desirable results. Our complete solution approach provides the customers
with various products and services integrated with application support to
meet needs of the customer. We have undertaken considerable efforts
increasing awareness of the benefits of our Green products and this will
continue to help us offer better value to customers and get them to
differentiate our products.

RESEARCH AND DEVELOPMENT

The Company continues to place great importance to Research and Development
(R&D) and Innovation for new product development, process improvements,
business continuity, new applications development, cost reduction and
enhancement of product quality to global standards. The Company's R & D
Centres have one of the finest testing facilities in India. The Research
and Development (R&D) Centres of the Company is recognized by the
Department of Scientific and Industrial Research, Ministry of Science and
Technology, Government of India. The enhanced and fully dedicated team is
actively working with our Business Development team to identify the new
areas of interest and improve the process and performance of the product at
affordable prices.

RISKS

The Company has established a formal Risk Management Plan. A Corporate Risk
Management Committee has been constituted which goes into the process of
risk assessment, its mitigation, monitoring and reporting. Implementation
and review of the risk management initiatives are periodically reported to
the Board, which helps in identification of new risk areas, their impact on
the business of the Company and to initiate risk mitigation strategies, as
may be necessary well in advance to reduce the impact of the risk in our
business process.

The main raw materials required for building products of the Company are
OPC Cement, Raw Chrysotile, Fly-ash and Lime.

The prices of OPC cement have been volatile in the recent past and even its
availability has become a constraint in some regions. The Company continues
to work on strengthening our supplier base.

The safe use of Chrysotile Asbestos has been scientifically established as
posing no health risk to the workers in fibre cement plants, and with no
risk to its users. However some of these unethical lobbyists have been
contracted to spread false rumours for vested business interests. The
lobbying for banning asbestos by some groups with vested business interests
continued throughout the year. In fact the protest intensified during the
year as lobbying groups started approaching semi-judiciary authorities and
other associations with false allegations and reports for imposing the ban
on the usage of asbestos. Misguiding information about health effects of
chrysotile asbestos continues to be quoted by Ban asbestos group
unabatedly. Asbestos industry in India, and your company rely upon the
evidence based health facts and have proven in the last 25 years that
chrysotile asbestos can be used safely under controlled conditions under
which it poses no risk to its workers and users.

The Company has one of the best systems for dust suppression, dust
extraction and dust collection. The fibre dust levels measured in all units
of your Company are much lower than internationally specified permissible
levels. At these levels of exposure, and with available evidence from
studies conducted on employees of fibre cement industry using Chrysotile
fibre under similar conditions, the Company is confident that there should
not be any risk of asbestos related disease in the employees.

The Asbestos Information Centre (AIC) and Asbestos Cement Products
Manufacturing Association (ACPMA), promoted by Indian Manufacturers have
been advocating safe/controlled use/health hazard potentials programs and
campaigns to highlight the differences between the safe White Asbestos
(Chrysotile) and other (Blue and Brown) types of Asbestos. The educational
campaigns and appropriate representations made by these bodies have
resulted in better appreciation of scientific facts amongst the policy and
decision makers. The possibility of restriction or ban on use of Chrysotile
fibre (Chrysotile Asbestos) therefore seems remote.

Fly-ash which is procured from the thermal power stations either free or at
low cost earlier is now available through the tender mechanism at higher
cost, resulting in increased cost for the Company.

BUSINESS SEGMENT ANALYSIS

The Company's business can broadly be classified into two groups i.e.
Building Product Group and Thermal Insulation Product Group.

(A) BUILDING PRODUCT GROUP

This segment consists of Fibre Cement Corrugated Sheets, Flat Products,
Autoclaved Aerated Concrete Blocks (Light Weight Bricks) and Aerocon
Panels. Fibre Cement Sheet is the main product accounting for about 85% of
Company's sales Revenue.

Production and Sale of Fibre Cement Sheets during the year under review was
771639 MT and 729767 MT respectively.

During the year the Company has set up an additional line at Vijayawada for
manufacture of Fibre Cement Sheets. The product available from this
facility will help the Company in servicing the southern markets more
effectively and cost lower freight costs.

The pressure on sales volumes and prices of Fibre Cement Sheets will
continue due to additional capacities being created country-wide. The
Company is confident of attaining a respectable share in the future growth
with it's recognized and established brand of CHARMINAR, efficient
marketing infrastructure and product distribution network.

The AAC Blocks and Aerocon Panels are gaining increased recognition as
green building products. The new plant for AAC Blocks at Golan will cater
the urban centers in Maharashtra and Gujarat. The marketing team has also
been strengthened to take up new challenges poised by the competition going
forward. Due to a few recent entrants, the pricing for AAC Blocks will pose
a challenge but the Company is preparing itself to take up this challenge
and protect its market share. The Aerocon panels are gaining increased
acceptability and are expected to achieve double digit growth in the
forthcoming year.

(B) THERMAL INSULATION PRODUCT BUSINESS GROUP

This group of Calcium Silicate based insulating materials services
industries such as cement, power, petrochemical, fertilizer plants etc. Due
to their superior properties and high quality, the company's products have
good acceptance over its substitutes. Efforts are being made for developing
new applications to expand the market size. The Company is in the process
of increasing the capacity from 6000 MT to 8400 MT at its Dharuhera plant,
which will help the Company to maintain its clientale and leadership
position in the market.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company believes that internal control is necessary concomitant of the
principle of governance that freedom of management should be exercised
within a frame work of appropriate checks and balances. The Company has
adequate internal control systems and procedures commensurate with the size
and nature of its business. Further the effectiveness of internal control
system is regularly tested by the Internal Audit department of the Company
and also by the external agencies engaged for this purpose. The Company has
a separate Internal Audit Department, which ensures operational control at
various locations of the Company on regular basis. Systems and procedures
of the Company are designed in such a way to check the transactions at the
next level and provide the necessary information to the management. The
internal control systems provide reasonable assurance with regard to safe
guarding the assets, promoting operational efficiencies and ensuring
compliance with various legal and regulatory provisions. The internal audit
department also reviews the existing deviations in reporting and is
continually addressing various points to plug any loop holes found in the
existing system. This process ensures that all transactions are
continuously monitored, reviewed and appropriate corrective actions are
initiated, to ensure accurate financial reporting.

The internal audit function covers the routine audit, management audit and
special audits which ensures that the systems are in place to closely
monitor and evaluate the efficiency and adequacy of internal control
systems.

The internal audit department conducts regular audits based on the annual
internal audit program approved by the audit committee of the Board
covering all functional areas and locations. Any irregularity or
significant issues are brought to the notice of the Audit Committee of the
Board along with the Action Taken/Proposed to be taken by the Management.
The composition and working of Audit Committee forms part of Corporate
Governance Report.

SYSTEMS

The Company has successfully implemented SAP as its ERP (Enterprise
Resource Planning) for its accounting operations through networking of all
locations under ERP and are now focusing on providing further value
addition to the internal and external customers with the available
technology. During the year 2009-10, your Company has successfully
implemented the Disaster Recovery System to safeguard the valuable
information stored in the data server, thereby ensuring un-interpreted use
of the technology and also gearing up to meet the future challenges going
forward.

HUMAN RESOURCES/INDUSTRIAL RELATIONS

The management of the company believes that the human resource is its most
valuable asset, which needs to be nurtured and equipped with necessary
tools to face the challenges posed by the dynamic business environment, on
an ongoing basis. The management of the Company is committed to the welfare
and career growth of its people. Senior management of the Company maintains
personal touch and a friendly approach in dealing with their colleagues.

The Company is utilizing diversified recruitment methodologies and sources.
It has stepped up its in-house training and development programs to develop
required competencies to meet the challenges of the future. The employee
relations with the bargainable staff have been reasonably cordial at most
of the plants.

The wage agreement with the respective unions at Jasidih has been completed
during the year under review. The wage agreement for the workers attached
to the Chennai & Timmapur units are under negotiation and management
expects an amicable settlement during the current year.

As at 31st March, 2010 the Company had 1838 employees.

ENVIRONMENT, HEALTH & SAFETY

It has been the Company's policy to give highest priority to safety,
employees health and environment protection. The Company believes that a
clean environment in and around the work place fosters health and
prosperity for the individual, the group and the community they belong to.
Regular medical examinations of employees and health care schemes are part
and parcel of all the Plant operations. Health surveillance of employees
adhering to national regulations and ILO recommendations is an ongoing
process. We ensure best environment engineering controls are adopted in the
factories and that we are successful in preventing occupational health
hazards. On environment front, the Company follows the best practices. The
Pollution control equipment installed in our Plants ensures achievement of
internationally best emission norms and is recommended to be followed
elsewhere in the world.

CAUTIONARY STATEMENT

Statements in the Directors Report including Management Discussion &
Analysis Report describing the Company's objectives, expectations or
predictions may be forward looking within the meaning of applicable
securities laws and regulations and reflects only the management's
perception and assessment. Actual results may differ materially from those
expressed in the statement and the Company assumes no responsibility in
respect of forward looking statements made herein which may undergo changes
in the future. Important factors that could influence the Company's
operations include global and domestic demand and supply conditions
affecting selling prices of finished goods, input availability and prices,
exchange rates, changes in government regulations, tax laws, economic
developments within the country and other factors such as litigation and
industrial relations.