VA Tech Wabag - Annual Report - 2010-11

VA TECH WABAG LIMITED

ANNUAL REPORT 2010-2011

DIRECTOR'S REPORT

Dear Shareholders,

Your Directors are pleased to present their Sixteenth Report together with
the audited accounts of your Company for the year ended 31st March, 2011.



Financial Highlights:
(Rs. in thousands)
Description 2010-11 2009-10

Gross Turnover 7,321,734 7,009,679

Profit before Interest & Depn. (EBITDA) 896,717 860,420

Profit Before Taxation 837,908 680,406

Provision for Tax 285,322 270,611

Profit After Taxation 552,586 409,795

Proposed Dividend (123,183) -

Transfer to General Reserve (55,259) -

Profit/(Loss) brought forward 1,052,902 643,107

Retained Profit carried forward 1,427,046 1,052,902
to the following year

Dividend

Your Directors are pleased to recommend a dividend of Rs. 10/- per Equity
Share (200%) of the face value of Rs. 5/- each for the financial year 2010-
11. The dividend, if approved at the ensuing Annual General Meeting, will
be paid to Shareholders whose names appear on the register of members of
the Company as on 1st July, 2011. The equity dividend outgo for the
financial year 2010-11, inclusive of tax on distributed profits would
absorb a sum of Rs. 12.32 Crores.

Operations and Business Performance:

Your Company has achieved a Gross turnover of Rs. 732.17 Crores in the year
2010-11 as against Rs. 700.97 Crores for the previous financial year
registering an incremental increase of Rs. 31.20 Crores, thereby recording
a growth rate of 4.5% over previous year. All the SBUs (Strategic Business
Unit) except IBG (International Business Group) recorded good growth
against last year in terms of turnover. MBG (Municipal Business Group)
registered 14% growth, IWG (Industrial Water Group) registered 44% growth
and OBG (Operations Business Group) registered 21% growth against last
year. IBG's turnover growth was mainly affected due to delay in Order
booking on the Dambula project which however has been received and taken to
order book as of 31st March, 2011. Your company carries an order backlog of
Rs. 2,465 Crores to execute in the following financial years.

Your company has achieved Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) of Rs. 89.67 Crores for 2010-11 against Rs. 86.04
Crores for the previous financial year registering a growth of 4.2% and
Profit After Tax (PAT) of Rs. 55.26 Crores as against 40.98 Crores
registering a growth of 35%. The significant growth in PAT was achieved on
account of lower interest costs due to better negotiations and control,
higher interest income due to judicial investment strategy and lower
depreciation. The board has recommended a 200% dividend which is Rs. 10/-
per equity share of the face value of Rs. 5 each.

Your Company has a 'Asset Light' model. During the year, the company has
ventured into Built Own Operate Transfer (BOOT) space through partnerships.
The Company's Management is of the view that increased focus on O&M
(Operations & Maintenance) service business and support from low cost
economies coupled with Multi Domestic Units formation, would show
significant improvements in the results of the Company. Alliance with
Sumitomo, Japan and Zawawi Group, Oman would pay rich dividends in the
years to come. The company will utilize cash for strategic
acquisition/inorganic growth model to make inroads into various business
segments and across different geographies.

Awards & Recognitions:

The Company received the prestigious GWI Global Water Award for the year
2010 recognizing our contribution made in the international water arena.
The coveted award was presented by Mr. Kofi Annan, former Secretary General
of the United Nations in Berlin on 18th April at the Global Water Summit
2011.

Your Company was adjudged as the Best Exit Company for Private Equity of
the year 2010 in an online survey conducted by the Asian Venture Capital
Journal, Hong Kong. The Company was also adjudged as the Best Water Company
for the year 2010 under Water and Waste Water Segment by Frost & Sullivan.

Sustainability:

The ISO 14001:2004 & OHSAS 18001:2007 certification to your Company
demonstrates our commitment to the society at large, by excelling in our
environmental performance and protecting the safety and well being of our
employees. This is carried out by promoting healthier and safer working
practices besides focusing on the sustainability. It is pertinent to note
that 380 WABA Gites were trained on HSE awareness, systems & procedures,
risk assessment methodology, operational control procedures and emergency
preparedness.

Initial Public Offer:

To further augment the capital base for future growth plans, your Company
made an Initial Public Offering of 36,07,581 equity shares of the face
value of Rs. 5 each during the year. This Issue, which constitutes
approximately 34.37% of the fully diluted post issue paid up share capital
of your Company, comprised a fresh issue of 9,54,198 equity shares of Rs. 5
each and an offer for sale of 26,53,383 shares.

The Issue which was priced at Rs. 1,310 per share, received an overwhelming
response and was oversubscribed by over 30 times. The shares were listed on
National Stock Exchange of India Limited and Bombay Stock Exchange Limited
on 13th October, 2010. The listing of shares has enhanced your Company's

brand name and visibility in the marketplace.

Sub Division of Shares:

In order to improve the liquidity of your company's equity shares in the
stock markets and to make it more affordable for the small retail
investors, your Directors at their meeting held on 26th May, 2011, have
recommended sub-division (stock-split) of each equity share of the company
from the present face value of Rs. 5/- into face value of Rs. 2/- each
subject to the approval of the shareholders.

Corporate Governance Report:

Your Company has always been devoted to adopting and adhering to the best
Corporate Governance practices recognized globally. The Company understands
and respects its fiduciary role and responsibility towards stakeholders and
the society at large and strives hard to serve their interests, resulting
in creation of value and wealth for all stakeholders.

A report on Corporate Governance along with a certificate from the
statutory auditors of the Company regarding compliance of conditions of
Corporate Governance as stipulated under Clause 49 of the listing agreement
forms part of the Annual Report.

Management Discussion and Analysis Report:

A detailed analysis of the Company's operational and financial performance,
Domestic and International Projects undertaken, various initiatives taken
by the Company in key functional areas such as Human Resources and
Information Technology is separately discussed in the Management Discussion
and Analysis Report, which forms part of this Annual Report. This report
also discusses in detail, initiatives taken by the Company in the area of
Research and Development.

Stock Options:

In order to attract, retain, reward and motivate the employees to
contribute and participate in the growth and profitability of the Company,
your Company has formulated two stock option schemes viz., the ESOP Scheme
2006 and the ESOP Scheme 2010. The schemes are administered and implemented
in accordance with the directions of the Remuneration Committee of the
Board. Under the ESOP Scheme 2006, no options were granted during the year;
252,976 options were exercised by the employees post vesting. Under ESOP
Scheme 2010-436,929 options were granted on 20th August, 2010 to the
eligible employees and no options were exercisable, during the year.

Details required to be provided under the Securities and Exchange Board of
India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 are attached hereto as Annexure I and forms part of this
Report.

Directors:

In terms of Article 108 and 110 of the Company, Mr. Bhagwan Dass Narang and
Mr. Jaithirth Rao will retire by rotation at the ensuing Annual General
Meeting and being eligible, offer themselves for re-appointment in terms of
the provisions of Article 109 of the Articles of Association of the
Company.

Mr. Sumit Chandwani, Nominee Director of ICICI Venture Funds Management
Company Ltd. resigned as a Nominee Director on 31st May, 2011. The Board of
Directors on the same day appointed Mr. Sumit Chandwani as an Additional
Director on the Board with effect from 1st June, 2011. Mr. Sumit Chandwani
holds office up to the date of the ensuing Annual General Meeting.

As stipulated in terms of Clause 49 of the listing agreement with the stock
exchanges, brief resumes of Mr. Bhagwan Dass Narang, Mr. Jaithirth Rao and
Mr. Sumit Chandwani are provided in the report on Corporate Governance,
which forms part of this Annual Report. Your Directors recommend their
appointment/re-appointment at the ensuing Annual General Meeting.

Director's Responsibility Statement:

Pursuant to the requirement under Section 217(2AA) of the Companies Act,
1956, your Directors, based on the representations received from the
Operating Management, and after due enquiry, confirm that

i) In the preparation of the annual accounts, the applicable accounting
standards have been followed and no material departures have been made from
the same;

ii) They have, in the selection of the accounting policies, consulted the
Statutory Auditors and these have been applied consistently and reasonable
and prudent judgments and estimates have been made so as to give a true and
fair view of the state of affairs of the Company as at 31st March, 2011 and
of the profit of the Company for the year ended on that date;

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

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

Subsidiaries

As on 31st March, 2011, your Company had fifteen subsidiary companies:

i) VA TECH WABAG (Singapore) Pte Ltd

ii) VA TECH WABAG (Gulf) Contracting LLC, Dubai

iii) Beijing VA TECH WABAG Water Treatment Technology Co. Ltd.

iv) Engenharia Hidraulica de Macau, Limitada, Macao

v) VA TECH WABAG Algeria S.A.R.L., Algeria

vi) VA TECH WABAG Brno spol. s.r.o., Czech Republic

vii) VA TECH WABAG Deutschland GmbH, Germany

viii) VA TECH WABAG GmbH, Austria

ix) VA TECH WABAG (Hong Kong) Limited

x) VA TECH WABAG Tunisia S.A.R.L, Tunisia

xi) WABAG Wassertechnik AG, Switzerland

xii) WABAG Water Services (Macao) Limited, Macao

xiii) WABAG Water Services SRL, Romania

xiv) VA TECH WABAG Tecknolojisi Ve Ticaret Limited, Turkey

xv) VA TECH WABAG Egypt Limited, Egypt

More details on the operations of the company's overseas subsidiaries are
provided in the Management Discussion and Analysis Report.

As required under the provisions of Section 212 of the Companies Act, 1956,
the statement containing details of Company's subsidiaries is attached and
forms part of this Annual Report.

In terms of general exemption provided by the Central Government vide
General Circular No.2/2011 dated 8th February, 2011, read together with
General Circular No.3/2011 dated 21th February, 2011, issued by the
Ministry of Corporate Affairs, copies of Balance Sheet, Profit and Loss
Account, Directors' Report and Auditors' Report of the subsidiary companies
have not been attached with the Balance Sheet of the Company. The Board of
Directors at their meeting held on 26th May, 2011 has consented for not
attaching the balance sheet of the subsidiaries to the Annual Accounts of
the Company. The Company's accounts are presented in compliance with the
conditions set out in the said circular. The documents pertaining to the
Company's subsidiaries shall be provided on request to any member, desiring
to have a copy, on receipt of request by the Company Secretary, at the
Registered Office of the Company.

Auditors:

M/s. Walker, Chandiok & Co, Chartered Accountants, retire as Statutory
Auditors of the Company and has given their consent for re-appointment. The
shareholders will be required to elect Auditors for the current year and
fix their remuneration. As required under the provisions of Section 224(1B)
of the Companies Act, 1956, the Company has obtained a written certificate
from the above Auditors proposed to be re-appointed to the effect that
their re-appointment, if made, would be in conformity with the limits
specified in the said section. The observations of the Auditors, together
with the Notes to Accounts referred to in the Auditor's Report, are self-
explanatory and do not call for any further explanations from the
Directors.

Public Deposits:

Your Company has not accepted any deposits from the public or its employees
during the year under review.

Loans and advances:

Your company has not made any loans or advances to its subsidiaries, which
is required to be disclosed in the annual accounts of the company pursuant
to clause 32 of the listing agreement.

Internal Control System:

The Company has a well placed, proper and adequate internal control system,
which ensures that all assets are safeguarded and protected and that the
transactions are authorised recorded and reported correctly. The Internal
Auditors of the Company independently evaluate the adequacy of internal
controls and concurrently audit the majority of the transactions in value
terms. Independence of the audit and compliance is ensured by direct
reporting of Internal Auditors to the Audit Committee of the Board.

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

Your Company continuously strives to conserve energy, adopt environment
friendly practices and employ technology for more efficient operations. The
particulars relating to the energy conservation, 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 and forms part of this Report.

Corporate Social Responsibility (CSR):

Your Company as a responsible organisation seeks to meaningfully contribute
to the socio-economic well being and development of the communities and the
ecosystem that it interacts with in carrying out its business. The CSR
activities are presently carried out in the areas of education, health and
environment at the Company's various project locations.

Particulars of Employees:

The Company had 2 employees who were in receipt of remuneration of not less
than Rs. 60,00,000 during the year ended 31st March, 2011 or not less than
Rs. 5,00,000 per month during any part of the said year. However, as per
the provisions of section 219(1)(b)(iv) of the Companies Act, 1956, the
Directors' Report and Accounts are being sent to all the Shareholders of
the Company excluding the Statement of particulars of employees. Any
Shareholder interested in obtaining a copy of the Statement may write to
the Company Secretary at the Registered Office of the Company.

Acknowledgements:

Your Directors take this opportunity to thank the Company's customers,
shareholders, suppliers, bankers, financial institutions and the Central
and State Governments for their unstinted support. The Directors would also
like to place on record their appreciation to employees at all levels for
their hard work, dedication and commitment.

For and on behalf of the Board

Rajiv Mittal Sumit Chandwani
Managing Director Director

Place: Chennai
Date : 31st May, 2011

Information to be disclosed under Securities and Exchange Board of India
(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 and forming part of the Directors Report for the year
ended 31st March, 2011.

ESOP 2006 ESOP 2010

a. Number of options granted 398,021* 436,929

Each option carries the Each option carries
right to the holder to the right to the
apply for the equity holder to apply for
shares of the company the equity shares
at Rs. 200. of the company at
Rs. 900.
b. Pricing formula Pursuant to the split
and bonus of Equity
shares effected on
September 19th, 2009,
the exercise price was
adjusted to Rs. 89.

c. Options vested 3,78,525* Nil
(no. of shares)

d. Options exercised 3,33,931*
(no. of shares)

e. Total number of shares 3,33,931*
arising as a result of
exercise of options
(no. of shares)

f. Options lapsed (no. 23,277* 22,332
of shares)
The options granted and None
vested and the exercise
price have been adjusted
for the split in the face
g. Variation of terms value of the equity
of options from shares Rs. 10 per
share to Rs. 5 per share
and for issue of bonus
shares

h. Money realised by exercise
of options (Amount in Rs.) Rs. 297,10,864 Nil

i. Total number of options
in force (no. of shares) 40,813* 414,597

j. Employee details of
options granted to

i) Senior Managerial Employee
(includes key managerial
personnel) (no. of shares)** 11700* 34700

ii) Employee who received
more than 5% of options
granted during the year None None

iii) Employee who received None None
options during any one year
equal to excess of 1% of
issued capital of the
company at the time of grant

k. Diluted earnings per
share pursuant to issuance
of options under ESOP

l. The company had been Rs. In Lacs Rs. In Lacs
using intrinsic value
method of accounting ESOP
expenses as prescribed by
SEBI (Employees Stock Option
Scheme) Guidelines, 1999 to
account for Stock Options
issued under Employee Stock
Option Plan 2006.

Net Profit after Tax as
reported in audited accounts 5,525.86 5,525.86

Add: Stock Option
Compensation expenses
charged in above
reported profit 60.55 Note 3

Deduct: Stock Option
Compensation Expenses
determined under
Fair Value Method 73.36 Note 3
(Black Scholes Model)

Net Profit after tax
as adjusted 5,513.05 5,525.86

Impact on profit (i.e.
profit would have
been lower by) -12.81 0

Earning Per Share (in Rs.) Nil

As reported

Basic 55.78 Nil

Diluted 55.66 Nil

As adjusted

Basic 55.67 Nil

Diluted 55.54 Nil

Impact on EPS

Basic 0.11

Diluted 0.12

m. Weighted Average
Fair Value per option:

- Per intrinsic value method 217 Nil

- Per fair value method 157.54 Nil

The fair value of each
option is estimated using
the Black Scholes model
after applying the following
weighted average assumptions:

Risk free interest rate 7% Nil

Expected life 3 to 4.5 years Nil

Expected Volatility 70% to 130% Nil

Expected Dividend Yield Nil Nil

Price of underlying shares
in the market at the time
of option grant/fair
value Rs. 417 Nil

Note 1:

*The options have been adjusted for split and bonus of the Equity shares
effected on September 19th, 2009

Note 2: **Details of Options granted to Senior Employees

Patrick Andrade 17200
Rahul Jaiswal 12000
K N Gokhale 5500

Out of 17200 Options granted to Mr. Patrick Andrade, 11700 were granted
under ESOP 2006 Scheme.

Note 3: Since the options have not been vested as on 31st March, 2011, the
disclosure of Intrinsic value, Fair value and exercise price are not
provided.

For and on behalf of the Board

Rajiv Mittal Sumit Chandwani
Managing Director Director

Place: Chennai
Date : 31st May, 2011.

Annexure II to the Directors' Report for the year ended 31st March, 2011

Particular as per the Companies (Disclosure of particulars in the Report of
the Board of Directors) Rules, 1988 and forming part of the Directors'
Report for the year ended 31st March, 2011.

A. Conservation of energy:

a. Energy Conservation measures taken:

The company has successfully commissioned green energy waste water
treatment plants and is operating and maintaining these plants at optimum
efficiency.

b. Additional Investments and proposals, if any, are being Nil implemented
for reduction of consumption and energy:

c. Impact of the measures taken/to be taken at (a) & (b) above for
reduction of energy consumption and consequent impact on the cost of
production of goods:

About 60% of running cost of waste water treatment plants mentioned above
is power and this is a significant power saving apart from gaining carbon
credits to our customers.

d. Total energy consumption and energy consumption per unit of production
as per Form-A of the Annexure to the Rules in respect of industries
specified in the schedule:

N.A.

B. Technology absorption:

e. Efforts made in technology absorption

Research & Development (R & D) }
}
1. Specific areas in which Research & }
Development is carried out }
}
2. Benefits derived as a result of }
the above R & D }
}
3. Future plan of action }
}
4. Expenditure on R & D }
}
(a) Capital }
}
(b) Recurring } Please refer
} to R & D section
(c) Total } of the Annual Report
}
(d) Total R&D expenditure as a }
percentage of total turnover }
}
5. Technology absorption, }
adaptation and innovation }

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

(2) Benefits derived as a result of Product development & cost
the above efforts, e.g., product reduction
improvement, cost reduction, product
development, import substitution, etc.;

(3) In case of Imported technology
(imported during the last 5 years
reckoned from the beginning of the
financial year), following
information may be furnished:

(a) Technology imported : N.A.

(b) Year of Import : N.A.

(c) Has technology been fully absorbed : N.A.

(d) If not fully absorbed, areas where : N.A.
this has not taken place, reasons therefore
and future plans of action.

C. Foreign exchange earnings and outgo:

(e) Activities relating to exports, : The company continues to
initiatives taken to increase exports, strive to improve its
development of new export markets export earnings. Further
for products and services; and export plans; details in respect of
exports are set out
elsewhere in the report

(f) Total foreign exchange For the year ended
used and earned: 31st March, 2011 (Rs. '000)

Earning in Foreign Exchange : 617,338
Expenditure in Foreign Currency : 362,374

For and on behalf of the Board

Rajiv Mittal Sumit Chandwani
Managing Director Director

Place: Chennai
Date : 31st May, 2011.

MANAGEMENT DISCUSSION AND ANALYSIS

Overview:

VA TECH WABAG Ltd. (WABAG) is a multinational player in the water treatment
industry with market presence in India, the Middle East, North Africa,
Central and Eastern Europe, China and South East Asia through our principal
offices in India, Austria, Czech Republic, China, Switzerland, Algeria,
Romania, Tunisia, UAE, Libya and Macao. The company is headquartered in
Chennai and conducts our global operations through our subsidiaries and
branch and representative offices. WABAG shares strategic and technical
expertise across its subsidiaries that allows research, operational and
marketing synergies.

WABAG offers complete life cycle solutions including conceptualization,
design, engineering, procurement, supply, installation, construction and
O&M services. WABAG provides a range of EPC and O&M solutions for sewage
treatment, drinking and industrial process water treatment, effluents
treatment, sludge treatment, desalination and reuse for institutional
clients like municipal corporations and companies in the infrastructure
sector such as power, steel and oil and gas companies.

Global Water Market Outlook:

Water and waste water sector continues to be an attractive investment
portfolio due to various factors-urbanisation, industrialisation and
population explosion. The growth of water market in Asia Pacific region is
driven by growing population densities. In Middle East, the driver is
scarcity and the Chinese market will get a boost with massive Government
spending. Sea water desalination will keep on attracting investments to
augment the installed capacity from 66 million m3/day to 120 million m3/day
by 2016. The main market for desalination will be Middle East nations,
China and coastal India. The graph below charts the investment trend around
the globe:

Sri Lanka and Philippines have been identified as two new high potential
markets in the SEA region and WABAG has been focussing on this for quite
sometime. WABAG Austria and WABAG India have stepped up their joint efforts
in Turkey and Saudi Arabian markets where the outlook for new projects are
very positive. WABAG China set up is strengthened with a number of
strategic alliances to explore bigger opportunities in this growing market.

Management Assessment of Business Environment:

WABAG is in a sound position to capitalize from its presence in multiple
countries, despite odds faced in some of the emerging markets. The focus
would be shifted to growing markets such as Saudi, Qatar, Turkey and China.

For the last one year, WABAG has been actively building relationships in
SEA region and recently secured two projects in Philippines and well
positioned to secure a few more contracts. WABAG has set up a wholly-owned
subsidiary in Philippines to demonstrate its commitment to the high growth
markets.

WABAG has been successful in securing its first order from Sri Lankan
Government for a major project.

WABAG is steadily increasing its market presence in Oman. Also, WABAG is in
the process of setting up a Joint Venture company in Oman for promoting the
O&M business in this region. Furthermore, having been pre-qualified for
some of the large projects in Syria, WABAG is making its presence felt by
securing a maiden project in Syria.

Overview of Business Segments:

The company has four Strategic Business Units (SBU) whose performance
details are highlighted below.

Municipal Business Group (MBG):

The Municipal Business Group (MBG) provides water and sewage/waste water
treatment solutions to Municipalities/Government organisations. It also
executes waste water projects for industrial clients. MBG is the largest
SBU in the company. MBG also supports the Industrial Water solutions group
by providing the front end package in industrial process water treatment
plants.

MBG had a satisfying year both in terms of order intake as well as project
execution. The Andhra Pradesh Power Generation Corporation (APGENCO)
awarded the contract for the entire water management of the Balance of
Plant (BoP) package for the two 660 MW power projects at Rayalaseema and
Kakatiya.

The Company has also signed a contract with Indian Oil Corporation Limited
(IOCL) for setting up an Effluent Treatment and Recycle Plant for Paradip
Refinery. This is the largest waste water recycle project in India for a
grassroot refinery. Repeat orders from IOCL go to show the customer
confidence in our capability to handle large complex projects.

For the year 2011-12, the major source of revenue would accrue from
APGENCO, IOCL and Chennai Metrowater projects.

The successful handing over of the high purity potable water supply plant
to the Commonwealth Games Village, New Delhi is a high point. This water
treatment plant built to stringent quality and housekeeping standards was
delivered as per schedule and supported the athletes from the Commonwealth
nations. The WTP projects under the auspices of Kerala Water Authority at
Meenad and Pattuvam have been successfully commissioned.

The prestigious membrane based sea water desalination project awarded by
Chennai Metropolitan Water Supply and Sewerage Board is progressing well.
Other major projects making satisfactory progress are the large sewage
treatment plants, part of Yamuna River Clean up programme. This has given
the company rich learning experience in revamping an old plant that is more
than 25 years old and thus creating a reference for exploiting this segment
of the market.

Industrial Water Business Group (IWG):

The growth for IWG would be mainly from two sectors, i.e. Power sector and
from refinery/petrochemicals especially from the recycling and reuse
market.

IWG has major projects in the power sector viz; Korba (1x500 MW),
Krishnapatnam (2x800 MW), Adani (5x600 MW), Rayalseema (1x600 MW) and
Kakatiya (1x600 MW). IWG has been in the forefront by successfully
commissioning 20 MLD Industrial Sea Water Desalination Plant for Adani
Power project (5x600 MW). IWG is also executing total water management
project for the country's super critical 800 MW power plant implementing
Sea Water Desalination, Demineralization and High Pressure Condensate
Polishing. IWG has made a foray into steel sector by bagging an order from
Essar Steel.

International Business Group (IBG):

IBG's first membrane based sea water desalination plant has been
successfully commissioned at Duqm, Oman and it has also handed over the
plant to the customer. IBG also successfully commissioned thermal
desalination plant on the Indonesian island of Java for Suralaya project.

IBG is strengthening its presence in Oman with the award of contract of
Majis Sea Water Desalination project and this marks the third project in
this country. The revenue source for 2011-12 would be from Sri Lanka,
Philippines and Oman and therefore IBG is strengthening its presence in
these key markets.

IBG secured the prestigious order from National Water Supply and Drainage
Board for Greater Dambulla Water Supply Scheme, Sri Lanka. Since this order
intake was secured at the end of the year, no sales could be achieved out
of this project.

Operation and Maintenance Business (OBG):

Operation and Maintenance business is a thrust area for WABAG and this is
handled out of OBG. This SBU not only operates and maintains WABAG plants
but also plants built by competitors. While Design Build Operate (DBO) type
of contracts are the main source of order intake for OBG, the SBU has also
made significant progress in securing standalone O&M contracts which grew
by more than 100% during the year. During the year OBG started its
operations in Oman in joint venture with local partner. OBG is also
exploring the market in South East Asia.

During the year, OBG secured some prestigious projects like O&M of T3
Terminal at Indira Gandhi Airport at New Delhi. The Airport is the most
sophisticated in India and ranks sixth in its category globally. OBG also
made a foray into the O&M of automobile plants by securing the orders at
the most modern plant of Renault Nissan near Chennai and two plants of
Maruti Suzuki Limited at Gurgaon and Manesar. The sea water desalination
plants at the Nuclear plant at Kalpakkam near Chennai are run and
maintained by OBG. It also secured a prestigious order from Chennai
Petroleum Corporation Ltd (CPCL) for operation and maintenance of water and
waste water facilities of its large Oil Refinery.

Overseas Subsidiaries:

WABAG's overseas subsidiaries in Austria, Switzerland, Germany, Czech
Republic, Romania, Macao, Algeria, Tunisia, Egypt and Turkey serves mainly
the markets of MENA (Middle East and North Africa) countries, Central and
Eastern Europe, and Near East countries.

Over the years WABAG has built a strong presence in North Africa. During
the year, political unrest in Tunisia and Egypt had minor impact and
execution of existing projects were near normal. In Libya the political
uncertainty is continuing and site activities in four of our on-going
projects were suspended. In line with governmental directives WABAG
withdrew its expatriate employees from Libya and once normalcy is restored,
WABAG would resume its operations. New contract (signed and registered)
amounting to approximately 90 million is delayed coming into force. Company
has adequate export credit insurance cover apart from valid L/C for the
on going contracts.

During the year several prestigious projects were successfully completed
such as AI Wasia 200 MLD reverse osmosis treatment facilities for brackish
water in Saudi Arabia and the Brcko water treatment plant in Bosnia and
Herzegovina.

An important step towards group integration was the introduction of a new
ERP system, allowing precise project management and efficient reporting.

WABAG Turkey was established during the year with a core team of
experienced water engineers. With its 77 million inhabitants, fast growing
economy (+6% in 2010), and stable political climate Turkey is a key
strategic market for WABAG and a cornerstone of the growth strategy.
WABAG's past extraordinary performance in plants like Adana and Kayseri
paves way for growth of Turkey local market.

WABAG Tunisia was awarded a contract for the modernisation of an existing
wastewater treatment plant in Meknassy. The Sousse Nord project, a
municipal wastewater treatment plant for the tourist destination Sousse,
the third largest city in Tunisia, was finalised successfully. The market
potential is significant. WABAG's largest customer, state owned water
utility ONAS has an approved budget of around Euro 400M for the period
until 2014.

With more than 100 employees WABAG Algeria is WABAG's largest operation
(headcount) in the North Africa region. During the year WABAG successfully
completed the operations contracts for the plants Batna, Reghaia, Baraki
and EI Eulma and handed over meticulously maintained plants with well
trained operators to satisfied customers. In 2010 the Algerian government
launched new directives for public tendering process. While adapting to the
new rules WABAG's main public customers, ONA (wastewater) and ADE (drinking
water) awards of new projects were delayed. However, more than forty
projects are budgeted for the next three years providing great potential
for WABAG to add to the twelve projects already successfully delivered in
Algeria.

WABAG Switzerland continues to earn a lot of reputation in the field of
advanced technology and is respected as expert for membrane technology for
both drinking and wastewater treatment. The company secured another
prestigious contract for a new membrane filtration drinking water plant on
Lake Zurich. The company is acting as the general contractor for the entire
treatment technology and is implementing a highly modern, multistage
process. For the famous tourist destination Zermatt WABAG Switzerland will
modernise and extend an existing wastewater treatment plant using Membrane
Bioreactor Technology. 2010/11 was a highly successful year and WABAG
Switzerland again marked its position as technology leader in Switzerland.

WABAG Czech Republic rebounded in 2010/11 with strong order bookings and
positive result after having suffered during the financial crises of
2008/09. Through arranging of a soft financing WABAG Czech Republic secured
one of its biggest projects ever, the Euro 10M waste water treatment
project Al Karaj in Iran. By winning strategic orders such as the
comprehensive modernisation of the process water treatment plant at the
Prunerov power station, as well as for the upgrade of the condensate
polishing plant at the Pocerady power plant WABAG Czech Republic has
reinforced its position as preferred supplier for water projects of the
major power companies in the country. The Prunerov WTP comprises
clarification, filtration, reverse osmosis, softening and demineralisation
and will produce 3,600 m3/d of boiler feed and condensate water, as well as
36,000 m3/d of cooling water and thus secure the operation of the steam
boilers.

WABAG Romania continues to successfully maintain and operate the refineries
Petrobrazi and Arpechim. As a result of the EU membership Romania is
accelerating investments in the water sector. To fully exploit the
potential of this growing market WABAG has moved its office to the capital
Bucharest. Additional sales staff has been recruited and WABAG is looking
forward to successful participation in both EPC and O&M tenders during
2011.

WABAG Macao received an extension of its contract to maintain and operate
the main sewage treatment plant in Macao.

WABAG China is targeting a few European soft loan projects.

Risk Management:

Risk Management forms an integral part of the business processes and the
company has a framework for assessment and mitigation that is embedded in
the decision making. These are periodically reviewed throughout the life-
cycle of the projects for their effectiveness.

Information Technology:

WABAG Information Technology systems across all locations consists of state
of the art hardware and software products facilitating productivity in
different facets of the company operations. The major companies in the
group are well integrated with secured MPLS VPN over which the ERP system
runs along with audio/video communications for effective collaboration.
Commensurate with this platform the required security systems are in place
at all locations to safeguard business data and communication.

WABAG has successfully completed ERP implementation in India and three of
its major European subsidiaries.

International Engineering Centre (IEC):

IEC focussed on consolidating the achievements since inception in 2008. It
started to support the international offices in the bidding and detailed
engineering. It helped Austrian subsidiary in detailed engineering of one
of its unique projects for building 'containerised MBR plants' in North
Africa. It also helped Tunisia subsidiary in bidding for some of the
projects in sea water desalination.

One notable achievement of last year was to start up one more engineering
centre in Baroda under IEC. This has become fully functional and is
currently catering to various projects of MBG.

Human Resources Management (HRM):

HRM focus has been on talent acquisition, talent transformation and talent
retention. As part of retention strategy, ESOP 2010 was launched. Around
760 eligible employees including those in overseas subsidiaries have been
granted ESOP. Productivity, being the key to personal progress and success
as well as to the organisation, HRM facilitates the goal setting process to
improve personal productivity.

Safety, Health and Environment:

The certification of our Company to ISO 14001:2004 & OHSAS 18001:2007 have
demonstrated our commitment to the society at large by excelling in our
environmental performance and protecting the safety and well being of our
employees and those working on behalf of our employees by promoting
healthier and safer working practices besides focussing on the
sustainability.

With this in view, 380 employees were trained on HSE awareness, systems and
procedures, risk assessment methodology, operational control procedures and
emergency preparedness. 42 Internal Auditors were trained to audit the
Integrated Management Systems.

Internal Control and its adequacy:

The internal control framework is an essential element of Corporate
Governance in WABAG India Ltd.

The Company has adequate internal control systems that are embedded in the

business processes. These are administered and enhanced through an
Enterprise Resource Planning (ERP) package. The Company has well documented
procedures and levels of authorization that govern the conduct of business
at various levels. The effectiveness of the internal control mechanism is
reviewed by independent internal audit function and by the statutory
auditors.

The Audit Committee of the Board reviews the functioning of the internal
audit and the implementation of recommended measures to improve the
internal control framework.

Strategic initiatives:

WABAG signed a landmark alliance agreement with Sumitomo Corporation, Japan
to strengthen its presence in Concession projects in water and waste water
treatment.

This alliance is a remarkable headway for WABAG to expand more into
concession type businesses, where the projects are capital intensive but
provide annuity business and higher margins in the long run. Sumitomo's
financial strength, network and expertise in implementing large scale
infrastructure projects would add superior value to WABAG, both
domestically and worldwide. This also accelerates Sumitomo's strategy to
have presence in water infrastructure business in India by having the
trusted and long term partner like WABAG.

In January 2011, WABAG has also signed a JV agreement with Zawawi Trading
Company LL.C (ZTC), well known business group in Sultanate of Oman to tap
the operation and maintenance business in the water space in Oman. The JV
company would target contracts for operation and maintenance of water and
waste water treatment plants, sewerage and water networks, pumping
stations, etc.

Cautionary Statement:

Certain statements in the Management Discussion and Analysis describing the
Company's objectives, projections, estimates, expectations or predictions
may be forward-looking statements within the meaning of applicable
securities laws and regulations. Actual results could differ from those
expressed or implied. Important factors that could make a difference to the
Company's operations include poor macroeconomic growth and consumer
confidence, pricing in the Company's principal markets, government
regulations, tax regimes, economic development within India/abroad and
other incidental factors.

Research & Development:

Innovation Strategy:

VA TECH WABAG numbers among the world's leading companies in the water and
wastewater technology sector. This position has been captured and is
maintained by proactive and efficient innovation management based on a
multi-domestic strategy. One of the major targets derived from this
strategy is the development and establishment of processes/technologies
that meet the specific requirements of each market of relevance.

Innovation Activities:

Apart from innovative application engineering for tailor-made customer
plants, WABAG conducts a range of focused R&D projects for the upgrading of
water, wastewater and sludge treatment processes/technologies.

The main R&D topics are membrane separation including fouling control, the
removal of micro-pollutants, energy-optimized processes and toxicity
prevention during industrial wastewater treatment.

In the field of membrane separation, projects are in the development phase,
which involve both the employment of ceramic membranes (CERAMOZONE(R),
CERAMOPUR(R)) and bio-fouling control upstream of reverse osmosis (ADSOPUR-
RO(R)).

Micro-pollutants removal for the advanced treatment of municipal secondary
effluents, contaminated groundwater (CARBOPUR(R), PACOPUR(R)) and digested
sludge (BIOZONE-ADr) is in the pilot stage.

For the energy optimised treatment and reuse of municipal wastewater, a
combination of anaerobic UASB and aerobic MBR treatment (ENOPUR(TM) has
been tested in India where the high wastewater temperatures are highly
favourable for this process.

An early warning system (NOTOPUR(TM) has been developed for the sustainable
treatment of industrial wastewater (e.g. refinery effluent). In particular,
this system prevents the poisoning of nitrifying bacteria by the toxic
constituents in certain partial wastewater streams.

Last, but not least, activities regarding the fine sieving of municipal
wastewater upstream of both membrane bioreactor treatment (MICROPUR-MBR(R))
and conventional activated sludge treatment (MICROPUR-CAS(R)) are worthy of
mention, while MICROPUR-MBR(R) guarantees the safe and reliable operation
of the MBR process and MICROPUR-CAS(R) provides substantial reductions in
the civil structures requirement.

Active and efficient intellectual property management safeguards the know-
how derived from WABAG's innovation activities. At present, the Group owns
more than 150 patents and over 100 trademarks.

Research & Development:

R & D Centres:

The R&D programs derived from our multi-domestic innovation strategy are
well coordinated and executed by three R&D centres in Vienna (WABAG
Austria), Winterthur (WABAG Switzerland) and Chennai (WABAG India).

Expenditure on R & D:

WABAG Group incurred a sum of Rs. 5.75 Crores during the financial year on
account of R&D programmes in three centres, namely, Austria, Switzerland
and India.

Co-operations with Universities and Development Partners:

The co-operation with national and international universities, as well as
with other development partners (e.g. technology companies), has been
further intensified and represents exemplary teamwork between outstanding
specialists.

The following are the most important universities and institutes with whom
we co-operate:

* Centre for Environmental Studies (CES) of Anna University, Chennai,India.

* Institute IWAR of Darmstadt University of Technology, Darmstadt, Germany.

* IWW Water Centre-Rheinisch-Westfalisches Institut fur Wasser, Mulheim,
Germany.

* Institute for Water Quality, Resources and Waste Management of Vienna
University of Technology, Vienna, Austria.

* Institute of Sanitary Engineering and Water Pollution Control of Vienna
University of Natural Resources and Life Sciences, Vienna, Austria.

* EAWAG-Swiss Federal Institute of Aquatic Science and Technology,
Dubendorf, Switzerland.


(R) = Research.