Annual Report - SRF - 2009-2010

SRF LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Yiour Directors are pleased to present the 39th Annual Report for the year
ended 31 March 2010.



Financial Results

(Rs crore)
2009-10 2008-09

Net Sales 2181.08 1800.82
Profit Before Interest, Depreciation & Tax (PBIDT) 649.40 394.34
Less: Interest & Finance Charges (Net) 64.24 49.00
Gross Profit 585.16 345.34
Less: Depreciation 131.25 99.40
Profit Before Tax (PBT) 453.91 245.96
Less: Provision For Taxation
including Deferred Tax Charge 144.49 82.68
Profit After Taxation (PAT) 309.42 163.28
Add: Profit Brought Forward 482.07 442.20
Surplus available for appropriation 791.49 605.48

Appropriation:
(Rs crore)
2009-10 2008-09

Interim dividend on Equity Shares 84.71 62.53
Corporate Tax on Dividend 14.39 10.63
Amount transferred to General Reserve 35.00 20.00
Amount transferred to Debenture Redemption Reserve 30.25 30.25
Profit carried to Balance Sheet 627.14 482.07
Total 791.49 605.48

Equity Dividend:

The Board of Directors of the Company has not recommended any final
dividend. During the year, your Company has paid two interim dividends each
of Rs 7 per share aggregating to Rs 14 per share.

Operations Review:

Net sales of the Company grew by 21.12 per cent from Rs 1,800.82 crore in
2008-09 to Rs 2,181.08 crore in 2009-10. Profit before interest,
depreciation and tax (PBIDT), including other income' increased from Rs
394.34 crore in 2008-09 to Rs 649.40 crore in 2009-10.

Profit before tax (PBT) increased by 84.55 per cent from Rs 245.96 crore in
2008-09 to Rs 453.91 crore in 2009-10. After accounting for the provision
on taxation of Rs 144.49 crore, which includes deferred tax liability and
provision relating to earlier years, profit after tax (PAT) grew by 89.50
per cent from Rs 163.28 crore in 2008-09 to Rs 309.42 crore in 2009-10.

Management Discussion and Analysis:

A detailed section of the Management Discussion and Analysis forms part of
the Annual Report. A review of the Businesses is also given in that
section.

Subsidiary Companies:

Restructuring of shareholding in international subsidiaries

Your Company had setup two international holding companies in Netherlands -
SRF Global B.V. and SRF Tech textile B.V. to realign and restructure the
investment in overseas operating entities.

The entire shareholding in SRF Technical Textiles (Thailand) Ltd and SRF
Industex Belting (Pty) Limited, which were earlier held by SRF Overseas
Ltd, a wholly owned subsidiary of the Company was transferred to SRF Tech
textile B.V. w.e.f April 1, 2010. Consequently, these two operating
entities became subsidiaries of SRF Tech textile B.V.

SRF Global B.V.

SRF Global B.V. has reported a loss of Euro 0.20 lakhs during the year
2009-10 on account of administrative expenses. During the year, SRF Global
B.V. has set up a wholly-owned subsidiary viz. SRF Tech textile B.V. in
Netherlands.

SRF Tech textile B.V.

SRF Tech textile B.V. has reported a loss of Euro 0.005 lakhs during the
year 2009-10 on account of administrative expenses.

SRF Technical Textiles (Thailand) Ltd.

SRF Technical Textiles (Thailand) Ltd. (SRFTTT), a wholly owned subsidiary
of SRF Tech textile B.V. is a company incorporated in Thailand and engaged
in the manufacture and distribution of nylon tyre cord. For the year 2009-
10, the turnover of the Company was THB 1548.31 million and net profit was
THB 33.38 million.

SRF Industex Belting (Pty) Ltd.

SRF Industex Belting (Pty) Ltd. (SRFIB), a wholly owned subsidiary of SRF
Tech textile B.V. is a company incorporated in South Africa and engaged in
the manufacture of belting fabrics. For the year 2009-10, the turnover of
the Company was ZAR 122.03 million and net profit was ZAR 15.31 million.

SRF Overseas Ltd. (SRFO)

SRFO, a wholly owned subsidiary operating out of Dubai, is an arm of the
Technical Textiles Business (TTB) targeted at the markets of Middle East,
Europe and Africa. During the year 2009-10, turnover of the Company was AED
99.64 million and the Company incurred a loss of AED 0.66 million.

Other Subsidiaries

SRF Transnational Holdings Ltd. made a profit (PAT) of Rs 10.66 lakhs
during the year 2009-10. This profit was mainly on account of dividend and
interest income.

SRF Properties Ltd. earned a net profit (PAT) of Rs 9.13 lakhs during the
year 2009-10.

SRF Holiday Home Limited (formerly SRF Infrastructure

Limited) has made a loss of Rs 4.55 lakhs during the year 2009-10. It has
entered into an agreement for purchase of a villa in Kasauli for use by the
officers of SRF Group as a holiday home.

SRF Fluorochemicals Limited has not started any operations.

SRF Energy Limited has not started any operations.

SRF Fluor Private Limited too has not yet started operations and has
reported a loss of USD 7960 during the year 2009-10. The loss is on account
of administrative expenses.

The Central Government vide its letter No. 47/238/2010-CL-III dated 22nd
April, 2010 has under section 212(8) of the Companies Act, 1956, exempted
SRF from attaching a copy of balance sheet, profit and loss account,
auditor's report and directors' report of its subsidiary companies and
other documents required to be attached under Section 212(1) of the Act to
the balance sheet of the Company. Details of subsidiary companies required
to be published in the Annual Report as per the said letter are given
separately in the Annual Report.

Directors

M V Subbiah and Piyush G Mankad are retiring by rotation at the ensuing
Annual General Meeting and being eligible, offer themselves for
reappointment. Brief resume of the Directors offering themselves for re-
appointment are furnished in the explanatory statement to the notice of the
ensuing Annual General Meeting.

Directors' Responsibility Statement

Pursuant to the requirements of Section 217(2AA) of the Companies Act,
1956, it is hereby confirmed:

(i) that in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures;

(ii) that the Directors have selected such accounting policies and applied
them consistently and made judgements and estimates that were 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 or loss of
the Company for the period under review;

(iii) that the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and

(iv) that the Directors have prepared the annual accounts for the year
ended 31st March 2010 on a going concern' basis.

The Company is controlled by Arun Bharat Ram Group ('Promoter Group') being
a group as defined under the Monopolies and Restrictive Trade Practices
Act, 1969. The Promoter Group consists of various individuals and corporate
bodies who are in a position to and who jointly exercise control over the
Company. A list of these individuals and corporate entities is as follows:

a) Arun Bharat Ram; b) Ashish Bharat Ram; c) Kartikeya Bharat Ram; d)
Shiela Bharat Ram; e) Manju Bharat Ram; f) Vasvi Bharat Ram; g) Radhika
Bharat Ram; h) KAMA Holdings Ltd. (Formerly SRF Polymers Ltd.); i) SRF
Polymers Investments Ltd. (formerly SRF International Ltd.); j) Skylark
Investments & Trading Pvt. Ltd.; k) Narmada Farms Pvt. Ltd.; l) Bhairav
Farms Pvt. Ltd.; m) Shri Educare Ltd.; n) KAMA Realty (Delhi) Ltd.; o) Shri
Educare Maldives Pvt. Ltd.; p) Karm Farms Private Ltd.; and q) Srishti
Westend Greens Farms Private Ltd.

Buy-back of Shares

During the year, your Company completed the buy-back of shares announced by
the Board of Directors at its meeting held on 25 April 2008. An aggregate
of 73,81,425 equity shares at an average market price of Rs 94.83 per share
were bought back absorbing a total amount of Rs 69.99 crore (Rs 70 crore
approximately) i.e., the 100 percent of the maximum buy-back size.

The Board of Directors at its meeting held on 28.07.2009 announced another
buy-back of fully paid up equity shares for an amount not exceeding Rs 65
crore at a maximum price of Rs 160/- per share from the open market through
stock exchanges.

SEBI vide its letter no. SEBI/CFD/DCR/BB/ SC/190277/2010 dated 8.1.2010,
after considering the facts of the matter, has opined that the Company is
eligible to make a second buy-back offer only after completion of 365 days
from the date of completion of the preceding offer of buy-back. It had
therefore advised the Company to withdraw the proposed buy-back offer.

Consequently, the Board of Directors at its meeting held on 19.1.2010 had
decided to withdraw the buy-back offer. A public notice to this effect was
released in the newspapers for the information of the shareholders.

Listing of Equity Shares

SRF's equity shares are listed at the Bombay Stock Exchange Ltd. and the
National Stock Exchange of India Ltd.

Corporate Governance

Certificate of the auditors of your Company regarding compliance of the
conditions of corporate governance as stipulated in Clause 49 of the
Listing Agreement with the stock exchanges is attached to the report as
Annexure 1.

In compliance with the requirements of Clause 49(V), a certificate from
Managing Director and the President & Chief Financial Officer was placed
before the Board.

All Board members and Corporate Leadership Team (CLT) have affirmed
compliance with the Code of Conduct for Board and Senior Management
Personnel. A declaration to this effect duly signed by the Managing
Director is enclosed as a part of the Corporate Governance Report. A copy
of the Code is also placed at the website of the Company (www.srf.com).

Consolidated Financial Statement

In accordance with the accounting standard (AS-21), your Directors are
pleased to attach the consolidated financial statements, which form part of
the Annual Report and Accounts.

Accounts and Audit

The auditors, M/s Deloitte Haskins & Sells retire at the conclusion of the
39th Annual General Meeting and being eligible, offer themselves for re-
appointment. The observations of the auditors are explained wherever
necessary in appropriate notes to the accounts.

Cost Audit

Prakash Kumar Varma, Cost Accountant, has been reappointed to conduct cost
audit of the accounts maintained by the Company in respect of its nylon
products for the financial year 2010-11.

Internal Control System

The Company's internal control system includes audit and verification of
compliance with defined policies and procedures by Internal Audit Function.
The internal auditors independently evaluate the adequacy of internal
controls and audit the sample of the transactions in value terms.
Independence of the audit is ensured by the direct reporting of internal
audit function to the Audit Committee of the Board.

Fixed Deposits

Your Company discontinued accepting/ renewing fixed deposits since 14
August 2004. Deposits accepted from Public which have matured and are
unclaimed are being reflected under 'Unclaimed fixed deposits (including
interest)' in Current Liabilities & Provisions (Schedule 8 to the annual
accounts).

Personnel

As required by the provisions of Section 217(2A) of the Companies Act, 1956
read with Companies (Particulars of Employees), Rules, 1975, as amended,
the names and other particulars of employees are set out in the Annexure 2
to the Directors' Report.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings &
Outgo:

The details as required under the Companies (Disclosure of Particulars in
Report of Board of Directors) Rules, 1988 are given as Annexure 3 to the
Directors' Report.

Industrial Relations

The Company continued to generally maintain harmonious and cordial
relations with its workers in all its businesses.

Acknowledgements

Your Directors acknowledge with gratitude the co-operation and assistance
received from various agencies of the Central Government and the
Governments of Madhya Pradesh, Rajasthan, Tamil Nadu, Gujarat and
Uttarakhand, financial institutions and banks. Your Directors thank the
shareholders for their continued support. Your Directors also place on
record their appreciation of the contribution made by employees at all
levels.

For and on Behalf of the Board

Date : May 7, 2010 Arun Bharat Ram
Place : Gurgaon Chairman


Annexure 3: Annexure to Directors' Report (Pursusant to Section 217(1)(e)
of the Companies Act, 1956)

A. Conservation of Energy - Measures taken:

1. Technical Textile Business, Manali

* Saved 25200 KWh /month through the modification of electrical heating
system to biomass based Thermic Fluid Heating system in the poly steam
super heater.

* Saved 7834 KWh/ month through the installation of chilled water coil
system in place of reciprocating R22 chiller.

* Saved 1080 KWh/ month by the introduction of on / off interlock for fresh
air blower and PRS oil circulation pumps in dipping.

2. Technical Textiles Business, Gwalior

* Saved 75000 KWh/month in Compressed air system with introduction of VFDs
and running of compressors for low and high pressure requirement in
separate headers.

* Saved 92160 KWh/month in spinning process by;

a) provision of additional insulation over cylinder and heating hood

b) reduction in blower CFM (Cubic Feet/Minute)

c) arresting heat loss in Godet Chamber Saved 96000 KWh/month in
refrigeration system with

a) increase in hot water temperature from 82 deg. to 89 deg. for usage in
VAM, and

b) increase in cooling tower approach with optimisation of blade angle

3. Technical Textiles Business, Viralimalai

Installed Lighting load energy saving devices (2 Nos of 18 KVA each) for
factory lighting, saving 2500 KWh/ month.

* Downsized Weft Twister Motor (SART Twisters) from 50 HP to 30 HP, saving
6500 KWh/month.

* Introduced timer in Dornier loom main motor to avoid idle running more
than 30 minutes, saving 900 KWh/month.

4. Technical Textiles Business, Gummidipoondi

* Achieved a saving of 4.15 lakh KWh of power by optimising the operation
of HT and LT centrifugal air compressors through a modification of piping
distribution network during half load operation of the plant.

* Achieved a saving of 6.26 lakh KWh of power by maximising the utilisation
of HT compressor for low pressure air services (9kg to 7kg) through
installation of Pressure reducing valve.

* Saved 7.5 lakh liters of water per month by recycling of treated plant
effluent through installation and commissioning of the new RO Plant.

5. Chemical Business

* Saved 120,000 units/ annum by replacing HFC cooling water pump from 110
KW to 75 KW

* Saved 45000 units/annum by installing 6 VFDs in CMS pumps

* Saved 31600 units/annum by modification in P-2 plant R-22 cooling system
and stopping 110 KW compressor

* Saved 22000 units/annum by installation of VFD in C-214 in P2 plant

* Saved 180000 units/annum by modification in heating circuit and
improvement in insulation quality resulted stopping one 50 KW heater

* Saved 90000 units/annum by modification in HFC Ammonia circuit

6. Packaging Films Business, Indore

* Saved 34,560 kwh/annum by changing Boiler FD fan motor rating from 15 kw
to 11 kw

* Saved 38,000 kwh/annum by reducing energy in co-extruder cooling water
system to 4.4 kw

* Saved 86,000 kwh/annum by reducing energy from TDO zones (10 kw)

* Saved 11,66,000 kwh/annum by reducing energy from the Pent house of TDO
to 135 kw

* Saved 1,90,000 kwh/annum by reducing energy from supply fan of TDO to 22
kw

* Saved 16,40,000 kwh/annum by optimisation of Erema machine and cutter

7. Packaging Films Business, Kashipur

* Saved 22000kwh/annum by replacing cast aluminum blades in cooling towers
with FRP (Fiber rain forced plastic)

* Saved 36000 kwh/annum by lowering the pressure setting in compressors
from 7.0kg/cm2 to 6.5kg/cm2

* Saved 3600 kwh/annum by replacing all 100 watts filament lamps with 12
watts CFLs

* Saved 20000kwh/annum by replacing old granulator in Erema

* Saved 15 KL FO by optimising the boiler efficiency & maintaining it at 86
to 87%

* Saved 10000 kwh/Annum by replacing DC servomotors with AC servomotors

Power and fuel consumption 2009-10 2008-09

Electricity

a) Purchased

- Total units (000 KWH) 174,469.38 136,318.85
- Total amount (Rs lakhs) 7,650.28 5,767.72
- Rate/Unit (Rs) 4.38 4.23

b) Own Generation

Through Diesel (000 KWH) 6,604.23 3,917.67

- Units per KL of Diesel Oil 4,252.27 3,277.63
- Cost/Unit (Rs) 9.00 11.29
- Through Furnance Oil (000 KWH) 42,725.08 31,241.79
- Units per KL of furnance Oil 4,179.11 4,255.22
- Cost/Unit (Rs) 5.93 7.20
- Through Coal 39,035.89 33,482.30
- Unit per MT of Coal 829.43 777.19
- Cost/Unit (Rs) 4.17 4.06
- Through Windmill (000 KWH) 25,023.52 25,664.60
- Total amount (Rs lakhs) 81.77 78.98
- Cost/Unit (Rs) 0.33 0.31

Others

a) Fuel (for oil boiler)

- Quantity (K. Litres) 9,060.40 4,530.78
- Total cost (Rs lakhs) 2,246.27 1,156.93
- Rate/Unit of KL (Rs) 24,792.24 25,534.91

b) LPG

- Quantity (K. Litres) 3,444.26 1,855.77
- Total cost (Rs lakhs) 1,265.86 811.83
- Rate/MT (Rs) 36,752.77 43,746.09

1 Electricity (KWH/MT)

- Yarn 2071.94 2105.20
- Fabric 3607.24 3215.66
- Fluorochemicals 907.37 813.16
- Chloromethanes 385.67 406.54
- Polyester Films 1223.60 1099.85

2 LPG (Kgs/MT)

- Fabric 92.56 94.39

3 Steam (MT)

- Yarn 2.93 3.08
- Fabric 2.93 3.08
- Fluorochemicals 1.59 1.37
- Chloromethanes 1.44 1.58

B. Technology Absorption

Research & Development

SRF's Chemicals R&D is actively engaged in development of many new
molecules at its Bhiwadi and Chennai R&D centers. The new pilot plant is
now in operation for development / scale-up of new Fluoro-specialities
chemicals / molecules. The plant that was under commissioning during the
previous year has been successfully commissioned and the products have
successfully been delivered to large multinational customers. One more
project based on in-house technology development is under implementation at
Bhiwadi site. Design work for new projects to come up at Dahej site is in
progress. SRF Chemicals' R&D teams are actively developing many more
compounds for the Pharma and agro industry.

Expenditure on R&D 2009-10 2008-09
(Rs lakhs) (Rs lakhs)

Capital 536.61 380.82
Revenue 1374.86 1156.54
Total 1911.47 1537.36
Total R&D expenditure as per cent of turnover 0.88% 0.85%

C. Foreign Exchange Earnings and Outgo

Particulars 2009-10 2008-09
(Rs lakhs) (Rs lakhs)

Foreign Exchange Earnings 56224.44 65856.22
Foreign Exchange Outgo 60827.81 55140.14
Net Foreign Exchange Earning / (outgo) (4603.37) 10716.08

MANAGEMENT DISCUSSION AND ANALYSIS

The revival of the Indian economy came close on the heels of a year of a
short-lived slowdown, which was undoubtedly unprecedented in terms of both
severity and reach. SRF utilised this period to improve its internal
efficiency and hence was better prepared to reap the benefits when the
economy became favourable during 2009-10.

Highlights of SRF's financial performance:

* net sales from operations up by 21.12 per cent from Rs 1800.82 crore in
2008-09 to Rs 2181.08 crore in 2009-10

* profit before depreciation, interest (net) and tax up by 64.68 per cent
from Rs 394.34 crore in 2008-09 to Rs 649.40 crore in 2009-10

* profit after tax (PAT) up by 89.50 per cent from Rs 163.28 crore in
2008-09 to Rs 309.42 crore in 2009-10

* earnings per share up by 98.37 per cent from Rs 25.78 in 2008-09 to Rs
51.14 in 2009-10

This Management Discussion and Analysis of your company's financial
condition and results of operations contains forward-looking statements
regarding future events and future results. These are based on previous
year's performance, current expectations, estimates, forecasts, and
projections about the industries in which it operates and the beliefs and
assumptions of the Company's management.

Businesses

SRF has a portfolio of established businesses in industrial intermediates.
Over the past few years, the Company has also developed new businesses in
Packaging Films and Fluorospecialities as part of its long-term strategy
for growth. It classifies its main businesses as: Technical Textiles
Business (TTB), Chemicals & Polymers Business (CPB) and Packaging Films
Business (PFB).

Technical Textiles Business

Technical Textiles Business (TTB), which includes tyre cord fabrics,
belting fabrics, coated & laminated fabrics, and industrial yarns continues
to be SRF's largest business segment, contributing over 50 per cent to the
total sales of the Company. During 2009-10, sales of the business have
grown from Rs 904.97 crore in 2008-09 to Rs 1199.68 crore.

Tyre Cord Reinforcements

SRF manufactures a basket of reinforcement fabrics for tyre. It's main
product is, however, the nylon tyre cord fabrics (NTCF), which is used in
the reinforcement of bias tyres. The slowdown in demand of NTCF which began
during the second half of 2008-09 affected your company in a limited way.
Building on its internal efficiencies, the Company very quickly ramped up
the production from the very beginning of the financial year when things
turned favourable. SRF was thus able to service the increased demand of the
market and in the process posted a robust growth of around 30 per cent
year-on-year (YoY) in NTCF segment of the Technical Textiles Business.

The acquisition of the tyre cord unit in Thailand has started showing
immediate results. SRF has been able to turn around this unit within a year
of taking over and during 2009-10 this unit generated positive cash flows.

SRF has also earned the unique distinction of commissioning India's first
polyester industrial yarn (PIY) plant. The plant has the capability to
manufacture high modulus low shrinkage (HMLS) polyester yarn and an
assortment of high tenacity and low shrinkage yarns for various industrial
applications. With this, SRF is poised to serve the growing segment of
polyester tyre cord fabric used in the reinforcement of radial tyres
forpassenger cars and light commercial vehicles.

Belting Fabrics

Belting fabrics, which are used as reinforcement material for conveyor
belts, have been witnessing a stable demand. Over the past five years,
volume in this segment for your company has increased at a compounded
annual growth rate (CAGR) of about 8 per cent. SRF continues to be the
market leader in India in this segment with a domestic market share of
around 50 per cent and has a significant presence in other regions,
including Europe.

Your company continues with its long-term strategy of attaining global
leadership by manufacturing products closer to customers in belting fabrics
business. Having strengthened its position in the mining hub of the African
continent following the acquisition of a company in South Africa in July
2008, your company is now poised to enter new markets such as South
America. Through the use of TQM practices your company turned around this
unit which has generated healthy returns.

Coated & Laminated Fabrics

Coated fabrics are used in a wide range of applications including
protective covers, dynamic tarpaulins, static covers, auto-canopies and
awnings. Building on its 17 per cent growth recorded during the slowdown
year of 2008-09, the business further raised the bar by taking the figure
to 32 per cent during 2009-10.

Recognising the opportunity in this product, SRF made a maiden entry into
the laminated fabrics segment by setting up a production facility at
Kashipur. With the commencement of commercial production during end Q4
2009-10, SRF today offers a basket of products in this segment for
agriculture, Industrial applications and display solutions (signages) for
advertising industry.

Your company has recently obtained board approval to enhance the capacity
of coated fabrics by 170 lakh square metre per annum at SRF's existing
plant location in Gummidipoondi with a total investment of approximately Rs
143 crore. The new facility will offer new products such as lacquered
tarpaulins and fabrics for tensile structures and awnings as well as Poly
Urethane (PU) coated fabrics, which are fast emerging applications in
India.

Industrial Yarn Business (IYB)

The Industrial Yarn Business manufactures high tenacity nylon 6 yarn with
deniers ranging from 210 D to 1890 D. Major applications of this yarn
(other than tyre cord) are mechanical rubber goods, fishing nets, stitching
threads, defense applications and luggage fabrics.

With the commissioning of the polyester industrial yarn project, SRF is
able to offer a basket of industrial yarns (nylon and polyester) for
conveyor belts, transmission belts, hose, rope and geo-textile
applications.

Over the next few years, the business plan would address both the tyre and
non-tyre industrial yarn segments leading to the introduction of value-
added products.

Outlook

The bus and truck tyre segment, which accounts for nearly 65 per cent of
SRF's NTCF sales, currently has 10 per cent radialisation. Investments in
radial capacity are coming up and even if all the announced investments for
radial tyres fructify, the most optimistic level of radialisation is likely
to be around 30 per cent by 2014-15. Given an economic growth of 7-8 per
cent, with such extensive radialisation, our study confirms that the demand
for NTCF would continue to grow for next 10 years. This growth will come
largely from non-bus & truck tyre segments such as two-wheeler, offthe-
road (OTR) and tractor tyres.

India is emerging as the largest producer of motor cycles in the world and
the tyres used for these vehicles use nylon tyre cord fabric. The passenger
car tyre radialisation in India as well as all developing countries have
reached a mature level now. This would open up opportunities to grow in
polyester tyre cord fabrics. SRF is well poised to grow in this segment
with the commencement of commercial production of high modulus low
shrinkage (HMLS) polyester yarn and fabric. SRF has initiated approval
process of this product with all tyre majors and already commenced
commercial supplies to some of the Indian tyre companies.

In belting fabrics, given the expectation of high growth in the domestic
mining industry and infrastructure sectors such as power and construction,
the outlook is very positive in India. This augurs well for SRF, which has
over 50 per cent share of this business in the domestic market.

Coated fabrics, which has been a small business for SRF is now poised for
growth. With the introduction of laminated fabrics in 2010-11 and the
approval for setting up a new plant forcoated fabrics, the revenues of this
segment are expected to rise several folds.

Having established strong cash flows from operations last year, the TTB is
in the process of evaluating various options to grow its topline
substantially in the coming years through a diverse product portfolio.

Chemicals and Polymers Business

The manufacturing operations of SRF's Chemicals Business are located at
Bhiwadi, in Rajasthan, about 70 kilometres from New Delhi. The Business
derives its revenue from sale of fluorine-based refrigerants,
chloromethanes, and the fast-growing specialty fluorochemicals business. It
also includes receipts based on the destruction of the greenhouse gas,
Hydrochlorofluorocarbons (HCFC-23) and the sale of CERs generated by such
destruction under the mechanism defined under the Kyoto Protocol.

The global market for carbon credits continues to be encouraging. The year
also saw fluorospeciality business generating operating profits for the
first time.

During 2009-10 the Chemicals Business posted strong margins riding on the
constrained commodity availability globally. The challenges in sourcing of
raw materials were matched by the rising finished goods prices.

The prospects of further growth in the fluorospecialities business remain
encouraging and the Company continues to invest in this R&D intensive,
technologically-driven business segment.

Refrigerants

Refrigerants are primarily used as the cooling medium by the air-
conditioning and refrigeration industry. SRF continues to be one of the
larger and more credible players in the industry globally. It is the market
leader with about 40 per cent share in the domestic market. Exports of the
business are spread across 45 countries worldwide, and account for over 80
per cent of the volumes produced.

SRF's refrigerants portfolio includes Hydrochlorofluorocarbons (HCFC-22),
the new-generation refrigerant Hydrofluorocarbon (HFC-134a), and the
refrigerant blend R404a. SRF has been aligning its product mix in line with
the changing market trends and emerging environmental awareness, and has
the only manufacturing plant in India producing HFC-134a. This puts SRF in
a different league versus competitors who import the product in bulk and
use refilling plants for re-packaging and distribution, with no control
over the manufacturing process.

Chloromethanes

SRF's main products in the chloromethanes business are methylene chloride,
chloroform and carbon tetrachloride (CTC). While chloroform is internally
consumed for manufacturing HCFCs, methylene chloride is sold in the
domestic market. Carbon tetrachloride, which is an ozonedepleting
substance, is now sold domestically only for feedstock use in line with
your company's commitments under the Montreal Protocol.

Through in-house technical innovations, the Company has achieved a
favourable market-oriented product mix in its manufacturing process, to
cope with declining market demand for CTC and increasing demand for
methylene chloride. This has helped the Company in optimising production
and improving overall profitability. In 2009-10, the chloromethanes segment
contributed substantially to the business' profitability, driven by
constrained international availability of methylene chloride.

Fluorospecialities

Fluorine-based specialty chemicals are finding increasing usage in the
fields of agrochemicals, pharmaceuticals and performance products. Building
on its presence in the fluorine chemistry industry for almost two decades,
SRF had entered the space of specialty fluorine chemistry in 2003-04. The
focus has been to leverage the Company's expertise to produce intermediates
and advanced intermediates, which are used to manufacture Active
Pharmaceutical Ingredients (APIs) and agrochemicals by its customers.

To take on process development for new molecules at the scale necessary to
support the Business' growth plans, the strength of R&D and process
engineering have been significantly augmented, in terms of people,
infrastructure and management. Today, a number of products are in the
advanced stages of development and the business is closely engaged with
buyers for most of these products.

Engineering Plastics

Engineering Plastics, a group of polymers comprising polyamides (N6 & N66),
poly butelyne thalate (PBT) and poly carbonates (PC), had good growth
during the year due to improved demand. The Company achieved the highest
ever volumes and increased its market share during the year. There was a
steep rise in the market demand mainly due to automotive and construction
industry witnessing a steep revival. This had a direct impact on growth and
profitability of the business. A new polymer, PBT, which is used by some of
the high-growth segments like compact fluorescent lamp (CFL) was
successfully stabilised during the year. Due to competitive market
situation, margins had been under pressure.

The Business continues to enhance its skills in R&D and new product
development, thereby reducing cost of processing and developing high end
grades. The Company has also undertaken the development work of poly
carbonate-based engineering plasticsand started commercial sales in the
fourth quarter of the year.

Outlook

The Chemicals Business has been re-inventing itself over the last few
years. From being a commodity player in the refrigerant gas space, this
business is rapidly expanding into specialty fine chemicals, deriving value
from leadingedge R&D and intellectual property, rather than low-cost
production alone.

The commodity product portfolio is also evolving and focusing on producing
and delivering new-generation HFCs and HFC blends to the market, instead of
CFCs and HCFCs. The business believes this evolution to be both necessary
and welcome, and will position the Company optimally for the next stage of
growth, in both commodities and specialty fine chemicals.

During 2010-11, the business looks to expand its production capacity for
both refrigerants and chloromethanes, and set up new production facilities
for multi-purpose chemicals at Dahej, in Gujarat, which will be the site of
choice for most new investments.

In fluorospecialities too, the business will set up new projects every
year, thereby building the product portfolio, reputation and credibility
with the global agrochemical and pharmaceutical majors who are the key
customers.

Growth in the engineering plastics will continue to be driven by automobile
and electrical sector. Although the prevailing competitive situation may
adversely impact margins, theincreased per capita consumption is expected
to grow in the years to come. The Company is confident of retaining its
dominant position in the market by way of leveraging its customer-centric
approach and is setting up a dedicated product development lab which is
expected to improve margins and position the business for the high end
applications segment.

Packaging Films Business

SRF continued to follow its strategy of a judicious mix of international
and domestic sales, thus ensuring complete capacity utilisation. The
capacity expansion was completed during the year and the additional
capacity was fully placed in the market. As a result, revenues grew by 16
per cent in 2009-10 to Rs 336.48 crore. The full year impact of
thiscapacity addition will get reflected in the FY 2010-11.

Further, SRF has successfully converted its smaller line at Uttaranchal to
a swing plant for producing both thin and thick films. The latter are used
in the fashion industry. This swing capability gives SRF the flexibility to
produce either of the products depending on the market situation.

In addition, the project of backward integration into a resin plant is
progressing well and expected to come on stream during Q2 FY 2010-11.

Outlook

FY 2010-11 is a year of cautious optimism. While no major capacity
enhancements are expected worldwide, the uncertainty on the European
financial stability front remains a cause of concern. On the domestic front
demand growth rate is expected to remain at a healthy 12 per cent. New
capacities are also likely to be commissioned in India in the last quarter
of FY 2010-11.

SRF's strategy for the year will be to ensure timely start up of the
backward integration project and its full capacity utilisation. The long
term prospects of this business are encouraging and SRF will continue to
explore various organic and inorganic opportunities in this business to
maximise shareholders' returns.


Located at Manali, Tamil Nadu, the R&D centre of the TTB is equipped with
state-of-the-art facilities including pilot plants and testing
laboratories. Various in-house development projects have been initiated for
development of new products and new processes in the field of technical
textiles. Two new products are at an advanced stage of development and one
of the new products is being evaluated at a customer's plant. Besides,
several research projects are in progress with five leading academic and
research institutes in India.

Human Resources:

People Development activities continued the momentum gained in the last
year. At a strategic level, the emphasis was on integrating the
internationally acquired units to the SRF philosophy. The emphasis on
People Development continuedin other areas, with customised initiatives
like the ManagementEducation Programme and the SRF Leadership Programme. An
SRF-specific leadership framework was also defined to enable the
organisation identify, retain and develop future leaders to support its
business plans. Two significant initiatives undertaken during the year
included fine-tuning the induction and the mentoring processes and
implementation of uniform guidelines for all units.

At the operational level, the Human Resources Information System (HRIS) was
further strengthened and calibrated. The HRIS system now provides a low-
effort/high-accuracy, efficient database that is fast turning out to be a
decision support system for the organisation on the HR front.

SRF witnessed a sub-10 per cent attrition rate for the year.

SRF's Chemicals R&D is actively engaged in development of many new
molecules at its Bhiwadi and Chennai R&D centers. The new pilot plant is
now in operation for development/ scale-up of new fluoro-specialities
chemicals/molecules. The plant that was under commissioning during the
previous year has been successfully commissioned and the products have
successfully been delivered to large multinational customers. One more
project based on in-house technology development is under implementation at
Bhiwadi site.

Total Quality Management

SRF's quality management practices are based on three pillars - customer
satisfaction, systematic improvements in all processes and people
participation in improvements, all of which saw further progress during the
year.

Based on both internal quality improvements as well as joint projects with
customers that improved their efficiencies, SRF's tyre cord unit continued
to hold the overall number one position in the annual customer survey. With
close to 1000 enrolled people in our Problem Solving Programme and about
half of them certified in the methods, the in-house programme has now been
running quite successfully. The Company aims to enhance everyone's
capability in problem solving, and thereby improve organisational
capability to remain at the cutting edge of competition.

SRF's people participation initiatives of Kaizen, 5S and QC Circles
continue to stand out, with nearly 100% participation.

Kaizens have cumulatively crossed the 300,000 mark. QC circles from TTB
participated in 10 external events and won more than 60 awards at
competitions, the highest ever in a single year. The TQM way has helped
your company in seamless integration of newly acquired plants in Thailand
and South Africa.

Information Technology

SRF leverages Information Technology effectively to improve revenue,
productivity while reducing costs and risks of doing business.

The Company upgraded its ERP platform to a more recent version of Oracle
applications and database and migrated to a more stable platform. SRF also
deployed Oracle Process Manufacturing module in Packaging Films Business
and is concluding implementation in the Technical Textiles' Viralimalai
plant. This will provide end-to-end visibility of its entire value chain
from material procurement to production to sales of end products, thereby
leading to better utilisation of materials, improved inventories and
deliveries.

SRF continued its journey on Knowledge Management by setting up
collaboration and documentation websites on its intranet for many processes
and departments. Apart from reducing time spent in seeking information,
this is bringing about a change in the way the Company works with
information across its units.

Community Partnerships

SRF tirelessly aspires to be a conscientious corporate citizen, based on
trust, transparency and accountability. The Company, as a signatory to
Workplace HIV/AIDS Policy during 2005-06, continued with HIV/AIDS awareness
programmes. During this financial year, different business units covered
approximately 20,000 people including employees, contract labours, truckers
and communities residing in the nearby villages. As signatory of CII Code
of Conduct, SRF had launched an affirmative action in support of SC/ST
community across all of its Indian business locations.

To realise its aspiration, SRF is involved in social engagement beyond
products and profitability through its social arm, the SRF Foundation. The
key focus areas in social engagement have been education, vocational
skills, health and natural resource management.

SRF Foundation with a range of developmental activities in implementation,
continued with its commitment to enrich the lives of its community. Among
other initiatives, the Foundation remains committed to providing access to
high quality education to students from both the privileged and less
privileged backgrounds through Shri Ram Schools (two in Gurgaon and one in
New Delhi), Lady Shri Ram College for Women in Delhi and SRF Vidyalaya in
Chennai.

Some of the key community development initiatives undertaken by the Company
are:

Mewat Rural Education Programme (MREP) - aims at providing holistic
improvement in 25 primary and 15 middle schools in the Nuh Block of Mewat
District of Haryana, in collaboration with the Government of Haryana.

Enhancing Early Education (3EP) - offers a teachers' development programme
for the pre-primary segment incorporating the successful innovative
methodology already in place in The Shri Ram Schools.

Shri Sambandh - an outreach programme for various partners who run
education programmes for deprived children.

Vocational Education Programmes - aims at creating employment opportunities
for the youth by way of providing skilled manpower to the industry.

Natural Resource Management (NRM) - aims at enhancing livelihoods of the
poor by harnessing underutilised land and water resources in Alwar
district, Rajasthan. The project entered the fourth year of implementation.

Internal Control Systems and Adequacy

The Company has a sound system of internal control in place, which assures
the Board of Directors and the management that there is a structured system
for:

* business planning and achievement of goals

* evaluating risks

* ensuring reliability of financial and operational reporting

* ensuring legal and regulatory compliance

* protecting company's assets

* prevention and detection of fraud and error

Interrelated control systems, covering all financial and operating
functions, assure fulfillment of these objectives. Significant featuresof
these controls include

* the planning system that ensures drawing up of challenging goals and
formulation of detailed strategies and action plans for achieving these
goals

* the risk assessment system that accounts for all likely

* threats to the achievement of the plans, and draws up contingencies to
mitigate them

* the review systems that track the progress of the plan

The Company uses Enterprise Resource Planning (ERP) supported by in-built
controls that ensures reliable and timely financial reporting. A well-
established internal audit system periodically reviews the controls and
compliance of laws and regulations, and the environment under which the
internal controls exist. All financial and audit control systems are also
reviewed by the Audit Committee of the Board of Directors.

The Company is fully committed to ensuring an effective internal control
environment. In an endeavour to enhance monitoring of internal controls,
the Company successfully implemented Controls Self Assessment (CSA) during
the year under review.

Risk Management

The objective of SRF's risk management framework is to identify potential
events that may affect the Company, and manage risks in order to provide
reasonable assuranceregarding achieving the Company's objectives. The Board
of Directors is apprised of the developments in risk management in the
Company on a periodic basis.

Strategic Risks

Strategic plans for the Company's businesses take into account likely risks
in the industrial environment from competition, changing customer needs,
obsolescence and technological changes. Annual plans that are drawn up
consider the risks that are likely to impact the Company's objectives in
that year, and the counter-measures put in place. All major new project
proposals include a view on risks and counter-measures, at thetime of
evaluation.

Operational Risks

To manage operational risks, SRF has well-documented policies and
procedures, which are followed in its day-today working. The Company has a
well-defined delegation of power and relies on a TQM system of control
points, comprehensive budgetary controls and review systems to monitor its
operations. In addition, internal audits verify compliance to defined
policies and procedures.

Financial Risks

With a diverse business portfolio, SRF is exposed to numerous risks. These
primarily emanate from foreign currency exchange risk from exports of its
products, imports of raw material and capital goods and servicing of
foreign currency debt. The management of opportunities and risks at SRF is
an integral part of the corporate governance system, not the task of one
particular organisational unit. Key elements of the risk management system
are the planning, budgeting, review and reporting and control processes.

SRF follows a conservative foreign exchange risk management policy to
minimise or eliminate the risks associated with operating activities. The
products used are mainly over-thecounter instruments at market quoted
pricing, particularly forward exchange contracts, foreign currency options
and interest-rate swaps, which are concluded with banks of repute.

The Company has laid down detailed policy guidelines to deal with all
aspects of financial risks viz. liquidity risks, credit risks and market
risks.

Information Technology Risks

The Company has set up adequate redundancy at the hardware and software
levels in the mission critical information systems like the ERP to keep
business going in the event of any disruption. As an additional precaution,
regular backup of data is taken to prevent any data loss in these critical
applications.

Cautionary Statement

Statements in this document relating to future status, events, or
circumstances, including but not limited to statements about plans and
objectives, are forward-looking statements based on estimates and the
anticipated effects of future events on current and developing
circumstances. Such statements are subject to numerous risks and
uncertainties and are not necessarily predictive of future results. Actual
results may differ materially from those anticipated in the forwardlooking
statements. SRF cannot be held responsible in any way for such statements
and undertakes no obligation to publicly update these forward-looking
statements to reflect subsequent events or circumstances.