Annual report - Sobha Developers - 2008-2009

SHOBHA DEVELOPERS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

To
The Members,

The Directors have pleasure in presenting the Thirteenth Annual Report on
the business and operations of the Company together with the Audited
Accounts for the financial year ended March 31, 2009.

Financial Highlights (Rs. in Million)

Particulars 2008-09 2007-08

Net sales and other income 9,917.05 14,362.77

Profit before interest, depreciation 2,867.70 3,674.11
and tax

Finance charges 1,052.14 614.92

Depreciation 360.33 350.40

Profit before tax 1,455.23 2,708.79

Provision for tax-current 374.00 453.00

- fringe benefit 4.00 5.50

- deferred (20.00) (33.02)

Wealth tax 0.45 0.30

Net profit after tax 1,096.78 2,283.01

Add: Balance of profit brought 2,418.74 1,249.73
forward

Profit available for appropriation 3,515.52 3,532.74

Appropriations -

Proposed dividend 85.29 555.00
(Includes tax on dividend)

Transfer to General Reserve - 250.00

Transfer to Debenture Redemption 171.00 309.00

Reserve

Balance carried to Balance Sheet 3,259.23 2,418.74

Result of operations

The Financial year 2008-09 has been challenging due to sudden changes in
the global and Indian economy resulting in kind of economic downturn where
sales decreased along with pressureon the profit margins.

The Company's total income has decreased from Rs. 14,362.77 million to
Rs.9,917.05 million, a decrease of 30.95 0/o over the last financial year.
The profit after tax has come down from Rs 2,283.01 million to Rs.1,096.78
million resulting in a decrease of 51.95 0/o.

The decrease in profit has been accentuated by lesser sales coupled with
increase in financing costand reduction in the profit margins.

Dividend

Your Directors have recommended dividend of Re.1 for every equity share of
Rs. 10 each resulting in a dividend rate of 100/o for the financial year
2008-09.

Business

The Company's main operations consist of:

1. Development and construction of residential and commercial projects.

2. Contractual projects

The summary of the projects completed and ongoing as on March 31, 2009 has
been detailed in the Management Discussion Analysis Report.

Subsidiaries

There are no subsidiaries of the Company within the meaning of Section 4 of
the Companies Act, 1956 except investments as detailed in the financial
statements forming part of the Annual Report.

Investments

During the year under review, the Company along with Pan Atlantic
Investments Limited has invested in the development of the 1000/0 FDI
compliant project in Hosahalli, Bangalore through a Special Purpose Vehicle
company, Sobha Developers (Pune) Private Limited. The Company holds 190/0
of the equity share capital in Sobha Developers (Pune) Private Limited.

Human resources

During the year, the Company has rationalized the workforce consequent to
the downturn in the economy. However the Company continues to develop and
retain the best available talent. Training and motivational programs are
being continuously imparted to all the employees working throughout the
organization. TheCompany strives to implement the best HR practices so as
to ensure that talent retention is ensured atall levels.

Employee relations continued to be cordial and harmonious at all levelsand
in all divisionsoftheCompany.

Quality

The Department of Quality and Safety holds the responsibility to monitor
all quality and safety works in the various projects of the Company and to
introduce latest construction technology so as to enable the delivery of
the Company's projects at par with relevant specifications, norms and
standards.

The department focuses on construction qualityand safetyaspects,
infrastructure execution, on civil maintenance works, on geotechnical
aspects, drawing detail development and on importing/implementing new tools
and material for process upgradation.

Corporate governance

Your Company believes in adhering to the highest standards of Corporate
Governance and has been benchmarking its policies with the best corporate
practices. A detailed report on Corporate Governance and a Certificate from
the Practicing Company Secretary regarding compliance with conditions of
Corporate Governance has been furnished in theAnnual Report.

Directors

There are six directors on the Board of Directors of the Company.

During the year under review, Mr. N.S. Raghavan and Mrs. Sobha Menon have
resigned from the Board of Directors effective from January 31, 2009.

The Directors place on record their sincere appreciation to Mr. N.S.
Raghavan and Mrs. Sobha Menon for their valuable services and contribution
rendered to the Company.

By the terms of Articles 107, 108 and 109 of the Articles of Association,
Mr. Anup Shah and Dr. S.K. Gupta, Independent Directors, are liable to
retire by rotation at the ensuing Annual General Meeting and being
eligible, offer themselves for reappointment.

Brief resumes of the Directors proposed to be re-appointed, their expertise
in specific functional areas and names of the companies in which they hold
directorship/membership/chairmanship of the Board Committees, as stipulated
under clause 49 of the listing Agreement with the Stock Exchanges have been
provided as an annexure to the Notice convening theAnnual General Meeting.

Reclassification of share capital

During the year under review, the authorized share capital of the Company
was reclassified to 150,000,000 (one hundred and fifty million only) Equity
Shares of Rs. 10/- (Rupees ten each) and 5,000,000 (Five million only)
Preference Shares of Rs. 100/-(Rupees one hundred each).aggregating to
Rs.2,000,000,000/- (Rupees two thousand million only). The approval of the
members was obtained in the extraordinary general meeting of the Company
held on September 22, 2008.

Rights issue

The Board of Directors at its meeting held on August 19, 2008, had resolved
to augment the long term resources of the Company by way of a rights issue.
The approval of the members was obtained vide a special resolution passed
in the extraordinary general meeting held on September 22, 2008.

The Company received an amount of Rs. 475 million from the promoters of the
Company as an advance towards share subscription.

However, due to adverse market conditions, the Company had not proceeded
with the same.

The Company had obtained approval from the Reserve Bank of India for
extension of time for repatriation of the said money till September 30,
2009.

Debentures and commercial paper

During the year under review, the Company has issued Redeemable Non
Convertible Debentures amounting to Rs. 1,950 million and redeemed
Redeemable Non Convertible Debentures amounting to Rs. 2,819.90 million.
The Company has not issued any Commercial Paper during the financial year.
The Company has during the year under report extinguished Commercial Paper
amounting to Rs. 2,000 million.

Fixed deposits

During the year under review, your company has not accepted or renewed
anyfixed Deposit from the public.

Auditors

The Auditors, M/s S.R.Batliboi &Associates, Chartered Accountants, retire
at the ensuing Annual General Meeting and have confirmed their
eligibilityand willingness to accept office, if reappointed.

The Auditors have made certain observations in their report and the Board
would like to bring your attention as follows:

1.Paragraph 4 of the Auditors Report:

The Company had obtained approvals from the members in the extraordinary
general meeting held on September 22, 2008. The promoters had brought in
Rs. 475 million as advance share subscription amount. The Company has not
proceeded with the Rights Issue due to the adverse market conditions, and
intends to repay the amount so received from the promoters within the
extended time allowed bythe Reserve Bankof India.

2. Paragraph 5 of the Auditors Report:

The Company based on legal opinion from a reputed law firm had entered into
certain transaction. How ever Registrar of Companies has directed that the
prior permission of Central Government was required a/s 297 of the
Companies Act, 1956. The Company proposes to seek for condonation of delay
a/s 621 A of the Companies Act, 1956. These transactions have been done on
arms length basis in the normal course of business. The Directors feel the
above transaction were not prejudicial to the interest of the Company.

3. Clause iii(a) and iii(b) of the Annexure referred to in Paragraph 3 of
the Audit Report:

The transactions in the nature of loans referred above were undertaken by
the Companywhen the status of the Companywas a Private Company. These
transactions were done within the framework of applicable laws and in the
normal course of business. These transactions are not prejudicial to the
interests of the Company. The Company has been making adequate disclosures
for these transactions at appropriate places.

4. Clause iv of the Annexure referred to in Paragraph 3 of the Audit
Report:

The Company is in process of implementing a new ERP Suite which commenced
during the year 2008 which covers the entire operations of the Company
spread over 10 cities involving projects under implementation aggregating
to more than 15 million sft., of construction. The Board of Directors are
confident of solving the integration issues and through this process
ensuring a proper internal control system commensurating with the size and
operations of the business will beachieved.

5. Clause ix (a) and (b) of the Annexure referred to in Paragraph 3 of
theAudit Report:

Due to the general downturn in the economy, the Company had to appropriate
the available cash flows to the ongoing projects of the Company resulting
in delays in the payment of certain statutory dues during thefinancialyear.

6. Clause xi of the Annexure referred to in Paragraph 3 of the Audit
Report:

Due to a slowdown in the market in which your Company is operating the
Company had requested its lenders to reschedule or roll over its near term
obligations. The Company had made these requests much before the due dates
of repayment and in accordance with the applicable monetary policies
initiated by the Reserve Bank of India. These rollover has been consented
by the lenders.

Corporate social responsibilityand community service

Your Company is a responsible corporate citizen and is committed to
corporate social responsibility. A separate section titled 'Corporate
Social Responsibility Statement' forms the part of the Annual Report.

Awards

Your Directors are glad to report the awards received during the financial
year 2008-09 bythe Company:

i. Builders Association of India, Pune Centre has awarded the 'Best of the
Best' Award for the Employee Care Centre (ECC), Infosys Technologies
Limited, Hinjewadi, Pune under the Well Built Structure Competition, 2008.

ii. Construction World recognized the Company as one of India's 'Top 10
Builders' at the Construction World Architect 8r Builder Awards, 2008 in
Mumbai.

iii. Mr P.N.C. Menon, Chairman, received the 'Pravasi Bharatiya Samman
Puraskar' from the Government of India.

ISO 14001 and OHSAS 18001

During the year, the Company was certified Environmental Management System
ISO 14001:2004 and Occupational Health and Safety Assessment Series OHSAS
18001:2007 compliant by Bureau Veritas Certification India Private Limited.

Code of conduct compliance

Pursuant to Clause 49 of the Listing Agreement entered with the Bombay
Stock Exchange Limited and the National Stock Exchange of India Limited,
the declaration signed by the Managing Director affirming compliance with
the Code of Conduct the by Director's and senior management personnel, for
the financial year 2008-09 is annexed and forms part of the Directors and
Corporate Governance Report.

Disclosure of employees

As required under Section 217(2A) of the CompaniesAct, 1956 read with the
Companies (Particulars of Employees) Rules, 1975 as amended, the names and
other details have been furnished in an Annexure to this Report.

Conservation of energy, research and development, technology absorption,
foreign exchange earnings and outgo:

By the terms of Section 217 (1) (e) of the CompaniesAct, 1956 read with the
Companies (Disclosure of Particulars in the Report of Board of Directors)
Rules, 1988, the particulars of conservation of energy, technology
absorption, foreign exchange earnings and outgo are
setoutasanAnnexuretothis Report.

Additional information to shareholders

Your Company provides the latest information on Company projects, matters
of interest to investors, financials etc on its
websitewww.sobhadevelopers.com

Cautionary statement

Statements made in the Report, including those stated under the caption
'Management Discussion and Analysis' describing the Company's plans,
projections and expectations may constitute 'forward looking statement'
within the meaning of applicable laws and regulations. Actual results may
differ materially from those either expressed or implied.

Acknowledgments

Your Directors would like to place on record their sincere thanks to the
Company's clients, vendors, investors and bankers for their continued
support to the Company during the year. The Directors wish to place on
record their appreciation of the contributions made by employees at all
levels.

We thank the government of India, state governments and other government
agencies for their support and look forward to their continued support in
future.

For and on behalf of the Board of Directors

Ravi Menon J.C. Sharma
Vice Chairman Managing Director

Place: Bengaluru
Date : May 18, 2009

Annexure to directors report

i. Conservation of energy

(a) Energy conservation measures taken

1. Energy efficient lighting system in place e.g. CFL/FTL fittings are
being used in all offices/sites.

2. Energy efficient lighting system is designed for the residential
projects.

3. Parallel operations of lifts is being carried out to achieve energy
conservation.

4. VFD's/ VAV and variable load chillers are selected for the new office
building.

5. Green energy (Solar energy) utilization for lighting common areas in the
residential projects.

6. Effective preventive and predictive maintenance system is in place for
maintaining all energy intensive equipments i.e. DG Sets for energy
generation, cranes, hoists, loaders, excavators, trucks and other transport
vehicles.

7. Fuel metering system is in place to track the consumption of fuel.

8. Designing buildings which use the natural light as the main source of
lighting.

(b) Additional investmentsand proposals, if any, being implemented for
reduction in consumption of energy

The Company thrives to construct energy efficient structures which use
natural lighting in their residential and contractual projects.

(c) Impact of measures at (a) and (b) above for reduction of energy
consumption and consequent impact on the cost of production of goods

As the Company is primarily engaged in the construction and development of
residential and contractual projects, the impact of the measures at (a) and
(b) above for reduction of energy consumption cannot be quantified.

Total energy consumption and energy consumption per unit of production:

2008-09 2007-08

Electricity

1. Purchased (Units in million) 13.34 11.68

Total Amount (Rs. in million) 70.61 61.82

Rate/Unit (Rs.) 5.29 5.29

2. Own Generation through Diesel 1.05 0.56
Genset (Units in million)

Total Amount (Rs. in million) 14.62 7.83

Rate/Unit (Rs.) 13.92 13.98

ii. Technology absorption

The Company uses German tools, water proofing techniques, European
standards for the construction activity of the Company. The Company uses
both indigenous and imported technologies for implementation in its
projects. The Company has derived the benefits in the form of cost
reduction, lesser customer complaints and increased quality of the end
products. Import of technology from the European countries is a continuous
feature and has been fullyabsorbed.

iii. Research and development (R & D)

Areas in which R&D has been carried out bythe company

1. Use of Pre fabrication to increase reliability.

2. The organization of the work with the help of scheduling, structuring of
workforce in tandem with job description and closing time gaps to ensure
efficiency.

3. More in depth planning of construction activities/ procedures which in
turn result in stable levels of quality.

4. Standardization of building element and parts introducing rules and
regulations based on national 8r international standards and internal
classifications.

5. Self compacting concretetrials and RMC research.

6. Advanced cracktreatment using glassfiber mesh.

7. Polyurethane grouting forstructural rehabilitation.

8. Piling technology (Design parametersand execution).

9. Dynamic cone penetrometer soil compaction test.

10. PCM (Project Closure and Maintenance) software development.

11. Safety statistics, accident tracking system and categorization as per
statutory requirements.

Benefits derived as a result of theabove R&D

The benefits derived from the above ensure that the final product delivered
bythe Company adheres to the world class standards.

Future plan of action

The success of R & D initiatives in the construction industry depends very
much on selecting the right method of construction, type of machines and
kind of materials. It also depends on integrating the planning and training
process within the Company and is understood asan ongoing process.

Expenditure on R&D

The R & D activity of the Company forms part of the project cost and cannot
be quantified separately.

iv. Foreign exchange earningsand outgo

(a) Activities relating to export; initiatives taken to increase exports;
development of new export markets for products an services; and export
plans:

The Company caters to the domestic market only and has not undertaken any
activities relating to export; initiatives to increase exports; development
of new export markets for products, services or formulated any export plans

(b) Total foreign exchange used and earned.

Total expenditure in foreign exchange : Rs. 3.40 million

Total income in foreign exchange : Nil

Forand on behalf of the Board of Directors

Ravi Menon J.C. Sharma
Vice Chairman Managing Director

Place: Bengaluru
Date : May 18, 2009

Management Discussion and Analysis

A. Economic scenario

a. Global economy

The world has witnessed the worst ever recession during the year, perhaps
worse than the Great Depression of the 30's. It has been reported that in
the past five quarters alone 40 percent of the world's wealth has been
eroded. According to the Asian Development Bank, the current economic
crisis has erased USD 50 trillion in global wealth. Age old banks and
financial institutions could not be saved despite mammoth efforts. The fall
of the U.S. banking sector, which is reported to have lost USD 1.8 trillion
sent shivers down the entire global banking system. Net shortfall after
receiving the original federal bailout funds was still a staggering USD 400
million. The economic deceleration has compelled employers to slash
salaries as well as resort to widespread retrenchment across industries,
shaking the financial security and soundness of families and thereby their
confidence. Fiscal deficit of countries has deepened without exception.
Some economists feel that the worst is not yet over and the slowdown is
likely to take a further toll on world economies while some are positive
that a revival is not too far away. Governments of various countries have
come out with maximum stimulus packages to cushion the impact of recession
and absorb some of the losses. The burning issue is also being addressed
collectively through forums like G-20 and IMF.

b. Indian economy

India has been no exception from the adverse effects of the global economic
recession. The major fallout of the recession in the developed countries
has been its impact on the inflow of capital to emerging nations including
India, which started drying up and resulting in net outflow of capital.
Industries and services sectors were denied the required funding for not
only growth but even for their day-to-day operations. Industrial growth
declined sharply and so did foreign trade. The worst hit industries have
been real estate and construction, IT/ITES sectors, traditional exports of
diamonds, textiles etc. However, Indian banking sector due to the
conservative and pragmatic policies of the government of India and the RBI
has not been so affected by recession as its counterparts in the developed
countries. Positive and timely measures initiated by the government and RBI
have resulted in controlling inflation well above expectations.
Availability of funds to the cash-strapped sectors has improved with a
complimentary decline in interest rates. Installation of a stable
government at the center and the continuity of reforms are expected to
certainly help the country to face the situation more effectively. It is
widely expected that India is in a much better position than many other
economies to achieve an early and fast recovery. The international Monetary
Fund has recently opined that 'the Indian economy, facing slowdown amid
global financial slowdown in expected to rebound by end of 2009'.

c. Real estate -global

The sub-prime crisis which surfaced in the US early on is considered the
forerunner of the economic recession in that country. It soon engulfed the
entire global economy. The real estate sector, thus, was the first casualty
in the global meltdown. Defaults in payments coupled with a sharp fall in
property prices resulted in the crash of the markets. Funding bythe banking
system into the sector dried up totally. Demand has fallen considerably,
and construction activity has come to a standstill in many countries which
consequently eroded customer sentiment deeply. It is widely believed that
the recovery of global real estate sector will take longer to recover than
the global economy.

d. Real estate- India

Indian real estate industry had experienced phenomenal growth just before
the global meltdown hit it during the last year. Industry majors had highly
leveraged their positions to acquire land banks for expansion of their
operations. The recession blocked the inflow of funds so critical for
expansion. This was exacerbated by the slowdown of the market where buyers
who were lapping up whatever was on offer in the boom time suddenly became
waryand sceptical and started avoiding the market. It is important to note
that the slowdown in Indian real estate has more to do with the sentiment
in tune with the international scene than with fundamentals. India is
significantly different from other countries of the world. Genuine demand
exists for good quality homes. The government has also been sympathetic to
the industry with various stimuli being offered.

Considering the present economic condition, buyers are deferring their
decision to acquire property and are more likely to invest once economy
recovers and buyer confidence is restored. Judging from the pronouncements
made by the government from time to time, we can expect more positive and
concrete fiscal steps which will result in providing the required support
to this sector for an early recovery.

e. Future outlook

The country is currently excited with the prospect of a stable and
aggressively pro-reforms government at the centre. Combating economic
downturn and restoration of economic growth are going to be the top
priorities for the new government. Inflation, which has been controlled
effectively, is expected to be held in check. Interest rates have started
its movement southwards and buyers will be attracted to borrow at cheaper
rates of interest. In the long term, supplywill be moderated to be in line
with the demand and the gap currently existing on account of unsold stocks
is likelyto be bridged. New project launches with innovative products and
aggressive marketing will be the new strategy for this sector. Success will
depend on the ability of the enterprise to convert its land bank to
projects in theshortestpossibletimespan.

B. Company general business profile, strengths and strategy initiatives,
future outlookand new business opportunities

The Company has achieved in a short span of time the enviable status of
being one of the leading real estate players in India. It is engaged in
residential and commercial construction apart from undertaking contracts
from major clients, especially from the IT sector. Residential projects
include luxury and super luxury residential apartments, villas and row
houses. Standard facilities such as a well-equipped club house, swimming
pool, gymnasium, game courts and recreation centre are provided in all
projects. The projects are spread out in various localities catering to
different client profiles. In 2007 it had made its move towards a pan-India
presence. The Company is currently undertaking projects in Karnataka,
Kerala, Tamil Nadu, Andhra Pradesh, Maharashtra, Orissa, Haryana,
Chandigarh and Himachal Pradesh and have plans to enter other states as
well.

In the present economic scenario, the Company has been able to hold its
head high due to its pre-eminent strengths in quality construction, project
execution capabilities, transparentand honest dealings, aggressive
marketing strategy and above all a strong customer-centric approach.
Customer delight has been the Company's 'Mantra', with a dedicated team of
professionals serving the customers' interests from the time the sale is
made until after delivery and the conclusion of the mandatory post-delivery
warranty period of one year. Cost optimization is a continuous affair in
order to pass on the benefits to the customer and value engineering plays a
major role towards meaningful cost reduction. Innovation is given the
highest priority as also is the implementation of time-tested and well-
documented processes and best proven practices. The economic slowdown has
not diluted the efforts in this direction and has in fact reinforced the
resolve to be more productive and effective in continuing to offer the
discerning customera high value-for-money product.

While the entire real estate industry has been starved of adequate funding
for their operations, the Company has managed to restructure its short term
debts into long term ones. Efforts are also on to reduce debt by raising
equity so as to improve the gearing. The operating cash flow continues to
be positive.

The slowdown had impacted the pace of some of the real estate projects
initially. Subsequently however, the project progress has picked up
momentum with more than 9 million Sft. under construction in various
stages. This will ensure continuous stream of inflows fortheCompany.

Corporate houses like Infosys, Hewlett Packard, Dell, Contel, Taj Group of
Hotels, HCL, BOSCH etc. are some of the names that have been engaging the
Company's services to build their commercial complexes. The Company has
made record delivery of twenty six contractual projects during the year
aggregating to 5.91 million Sft. When the turnover from real estate has
come down due to the economic slowdown, the contractual income has come to
the rescue of the Company. This stream continues to provide the prospect of
a steady income flow in the years to come.

The Company's business model is very robust and pragmatic. Inhouse facility
is available for all major construction activity. Stringent quality norms
are being followed at every stage of construction activity starting with
designs. The Company is perhaps the only fully backward-integrated real
estate company with inhouse facilities for architectural, structural,
infrastructure, electrical, mechanical, plumbing and environmental design,
supply of woodwork, glazing and metal works and concrete products such as
blocks and pavers. Its manufacturing facilities are spread over 600,000
Sft. and have the most modern plant and equipment to provide high quality
inputs required in construction. These manufacturing units have, apart from
ensuring quality supply of inputs for captive consumption, branched out to
obtain significant shares from outside jobs. While the focus remains on the
core business of real estate development and construction, the company has
successfully diversified into interior business and manufacturing and
marketing of spring mattresses under the brand name of 'Sobha Restoplus',
The Company is excited with the response received for its products and
plans to soon expand its range.

Utmost importance is given to client satisfaction. While the Company
markets its products directly to the customers through a dedicated
marketing team, it is ablysupported in after-sales service by a unique team
of Customer Relationship Management (CRM). They are fully qualified and
trained to look after the customers' diverse requirements for their
complete satisfaction. High levels of ethics and transparency are
maintained in dealing with the clients to improve their confidence in the
brand and the company. World class building techniques with the aid of
modern technology are employed bythe Company to ensure delivery of quality
products.

To summarize, despite the despondency brought in by the global economic
crisis, the Company with its cutting edge technology, strong bias for
undiluted quality of its processes and products, backward-integrated
operations, high project capabilities, strict adherence to laws and
statutes, transparency in dealings, focussed customer-centric approach and
a highly professional management and motivated and dedicated human
resources, is in a strong position to tide over the current crisis. With
the proactive and progressive policies being practiced by the Government it
is hoped thatthe currentscenariowill change forthe better sooner than
later. The Company and its management will leave no stone unturned to
achieve this.

Project details of the Company

Summary of projects completed, ongoing and forthcoming as on March 31, 2009
is as under

Residential

- Completed : 38 projects aggregating 10.73 million Sft.

- Ongoing : 31 projects aggregating 9.31 million Sft.

Commercial

- Completed : 12 projects aggregating 1.74 million Sft.

Contractual

- Completed : 140 projects aggregating 18.30 million Sft.

- Ongoing : 34 Projects aggregating 5.84 million Sft.

C. Financial condition

The overall performance of the Company during the current financial period
was impacted adversely due to the general economic slowdown. The net sales
of the Company stood at Rs. 9,747 million and net profit before tax was Rs.
1,455 million. A summary of financial results for the financial period
2008- 09 is presented elsewhere in this report.

Sources of Funds

1.Share capital

The present share capital of the Company consists of equity shares of the
facevalue of Rs.10/-each and redeemable preference shares of Rs.100/-.

The Authorised Share Capital is Rs. 2,000 million, divided into 150 million
equity shares of Rs. 10/- each and 5 million redeemable preference shares
of Rs.100/-each.

The issued, subscribed and paid up equity share capital as of March 31,
2009 was Rs. 729.02 million, same as in the previous year. The Company did
not have any preference shares outstanding as of March 31, 2009.

The equity shares of the Company are currently listed on NSE and ESE in
India. The market capitalisation of the Company (based on NSE closing rate)
as of March 31, 2009 was Rs. 5,770 million (Previous year Rs.44,011
million).

2. Reserves and Surplus:

Asummaryof reserves and surplus is provided in the table below:

As on March 31,

2009 2008

a. Capital Redemption Reserve 87 87

b. Securities Premium 5,639 5,639

c. General Reserve 700 700

d. Debenture Redemption Reserve 480 309

e. Profit and Loss Account 3,260 2,419

Total 10,166 9,154

a. Capital redemption reserve

This reserve was created for redemption of redeemable preference shares
during 2006-07. As of March 31, 2009, this was at Rs. 87 million, same as
in the previous year.

b. Securities premium

There was no change in the share premium account of the Company during
theyear.

c. General reserve

Astatementof movement in theGeneral Reserve isgiven below:

(Rs. in Million)

As on March 31,

2009 2008
Balance beginning of year 700 450

Add: Transfer from P & L Account - 250

Balance end of year 700 700

d. Debenture redemption reserve

The Company has created Debenture Redemption Reserve amounting to Rs.171
million during theyear,outoftheprofitsofthe Company for the year, to
provide for redemption of non convertible debentures.

e. Profit and loss account

The balance retained in the profit and loss account as of March 31, 2009
was Rs. 3,260 million after providing the proposed dividend of Rs. 73
million and dividend tax of Rs.12 million. The bookvalue per share has
increased to Rs. 149.45 as of March 31, 2009 from Rs. 135.57 as of March
31, 2008.

3. Secured and unsecured loans:

During the period under review, the Company has increased its borrowings
from Rs. 17,631 million to Rs.19,122 million. The details regarding
borrowings raised and repaid during the year 2008-09 are given below.

(Rs. in Million)

Year ended March 31

2009 2008

Balance as on April 1, 2008 17,631 5,837

Borrowed during the year 13,267 18,616

Repaid during the year 11,788 6,822

Interest accrued & due 12 -

Balance as on March 31, 2009 19,122 17,631

The securities offered for these borrowings are shown in the Notes
toAccounts of theAnnual Report.

Application of funds

4. Fixed assets

Astatement of movement in fixed assets is given below:

(Rs.in Million)

As on March 31

2009 2008 %
Change

Land 66.36 66.36

Buildings 428.76 332.27 2.90

Plant and machinery 2,090.47 1,985.98 5.26

Furniture and fixtures 40.12 35.33 13.55

Vehicles 82.95 84.63 (1.99)

Computers & office equipment 158.11 149.55 5.72

Capitalized software 63.45 57.16 11.00

Gross Block 2,930.22 2,711.28 8.07

Less: Accumulated depreciation 1,198.02 841.78 42.32

Net block 1,732.20 1,869.50 (7.34)

Add: Capital Work-in-progress# 515.64 272.49 89.23

Net fixed assets 2,247.84 2,141.99 4.94

Depreciation

as % of revenue 3.63 2.44

as % of average gross block * 13.08 14.27

# The capital work-in-progress as of March 31, 2009 and 2008 represents
advances paid toward acquisition of fixed assets and the cost of assets not
put to use.

* Excluding land

a. Capital expenditure

The Company incurred an amount of Rs.468 million (Rs.549 million in the
previous year) towards capital expenditure comprising of additions to gross
block of Rs. 225 million and Rs.243 million on account of increase in
capital work in progress. The capital expenditure was funded out of
borrowings and internal accruals.

b. Additions to gross block

During the year, the Company added Rs. 225 million to the Company's gross
block comprising of Rs.105 million for investment in plant 8r machinery, Rs
96 million in Buildings, Rs 7 million in computer software and the balance
of Rs 17 million in computers, office equipments, furniture and fixtures
and vehicles etc. During the previous year, the Company added Rs.385
million to the gross block comprising of Rs. 264 million investment in
plant and machinery, Rs.46 million in computer software and the balance of
Rs.75 million in otherassets.

c. Retirement of assets

During the year, the Company retired/transferred various assets with a
gross block of Rs. 6 million and a net book value of Rs. 2 million. During
the previous year, the Company retired / transferred various assets with a
gross block of Rs. 8 million and a net book value of Rs.4 million.

d. Capital expenditure commitments

The Company's capital expenditure commitment stood at Rs. 17 million, as of
March 31, 2009 as compared to Rs. 41 million as of March 31, 2008.

5. Investments

a. Subsidiary

During the year, there is no change in investment made by the Company to
the partnership firm 'Sobha city'. Details are provided in the notes to
accounts (Schedule-19, Point No.22). The consolidated financials for the
current year reflects its share of revenue and profits.

b. Other investments

During the year there has been no change in the other non-trade investments
exceptforinvestmentofRs.0.1 million in equityshares of Sobha Developers
(Pune) Pvt Ltd and sale of 1,006 equity shares of Tata Steel Ltd.

c. Investment in liquid mutual funds

The Company has bought and sold investment in liquid Mutual funds of Rs.571
million during the current year, details are given in the Notes to
Accounts. (Schedule 19, Point No.23)

6. Deferred tax assets

The Company recorded deferred tax assets of Rs. 31 million as of March 31,
2009 compared to Rs. 11 million as of March 31, 2008. Deferred tax
assets/liability represent timing differences in the financial and tax
books arising from depreciation on assets and expenditure under section 43B
of IncomeTaxAct., 1961, which are allowed in the year of payment. The
deferred tax assets will be recovered from future taxable income.

7. Inventories

The inventories have gone up from Rs.7,879 million as at March 31, 2008 to
Rs.10,492 million as at March 31, 2009. A major portion of inventory is
attributed to work-in-progress of Rs.10,207 million in the current year end
as compared to Rs.7,235 million in previous year. This is mainly due to the
non recognition of sale value related to land and construction portion of
unfinished on-going real estate projects and will be recognized in
subsequentyears of sale.

8. Sundrydebtors

Sundry debtors amounted to Rs. 3,553 million (without considering advance
of Rs. 1,672 million) as of March 31, 2009 as compared to Rs.5,452 million
(without considering advances of Rs.1,068 million) as of March 31, 2008.
Since the ownership of apartments is transferred to the clients upon full
settlement of their dues, the Company considers these debtors as good and
realizable. Further the debtors outstanding more than six months were only
Rs.786 million (Rs.415 million in the previous year) out of the total
receivables of Rs.3,553 million (Rs. 5,452 million in the previous year).
It can thus be seen that the sundry debtors has been brought down
considerably.

9. Cash and cash equivalents

The cash balance includes the cash maintained at various branches and
imprest cash maintained at various projects for day to day expenses. The
bank balance includes the balance in various current accounts maintained
with various banks/locations. The deposit account represents deposits for
short tenures and margin money towards loan escrow account and other non-
fund based utilization of limits. The deposit includes the accrued interest
and outstanding (if any) as of the balance sheet date. The Company's
investment policy is to invest surpluses with banks and financial
institutions for short-term maturities and also with liquid mutual funds.
The balance under this head is Rs.211 million as on March 31, 2009 as
compared to Rs. 126 million as on March 2008.

10. Loans and advances

Loans 8r advances has increased from Rs.17,282 million as on March 31, 2008
to Rs. 18,956 million as on March 31, 2009. This is mainly due to increase
in advance towards purchasing land at Rs.17,958 million (as on March 31,
2009) from Rs. 16,248 million (as on March 31, 2008). Advances are
primarily towards amount paid in advance for value and services to be
received in future. The Company considers the advances/ deposit for land
good as the advances have been given based on arrangements/ Memoranda of
Understanding executed by the Company and the Company/ seller/ intermediary
is in the course of obtaining clearand marketable titles free from all
encumbrances.

11. Current liabilities

Sundry creditors include creditors for goods, services and expenses,
advance from customers and interest accrued but not due etc. This has
increased to Rs.5,556 million as on March 31, 2009 from Rs.4,771 million as
on March 31, 2008. Unclaimed dividends represent dividends paid, but not
encashed by shareholders, and are represented bya bank
balanceoftheequivalentamount.

Advances received from customers denote monies received for the delivery of
the final products at future dates and amount received forwhich income
hasyetto be recognized in the books of accounts.

12. Provisions

Proposed dividend represents the final dividend recommended to the
shareholders by the Board of Directors of the Company. Upon approval by the
shareholders, this will be paid after the Annual General Meeting. Provision
for Corporate dividend tax denotes the taxes payable on dividends.
Provisions for compensated absences represent an amount equivalent to
earned leave standing to the credit of employees' account.

D. Operations review

1. Income

The Company is one of the leading real estate development and construction
companies in India, which focuses on residential and contractual projects.
Sales have come down during the year as compared to previous year due to
economic slowdown and recession which affected most to our construction
business. For the purpose of analysis, the revenue can be categorized as
follows:

(Rs. in Million)

Income from Year ended March 31 Change
Operations 2009 2008 %

Income from property 5,796 8,533 - 32
development, sale of land
and development rights

Income from contractual 2,299 3,887 - 41
activity

Income from manufacturing 1,676 1943 - 14

Share in profits of partnership 68 67 1
firm (post tax)

Total 9,839 14,430 - 32

The Company is following a prudent accounting policy in recognizing
revenue.

Revenue in respect of real estate property development is recognized based
on the project cost actually incurred as a proportion of total estimated
project cost and the proportion of the estimated saleable area in the
project in respect of which bookings have been made. However, if the actual
project cost incurred is less than 250/0 of the total estimated project
cost, no income is recognized in respect of that project in the relevant
fiscal period. Land costare not included forthe purpose of computing
percentage of completion. Estimates of saleable area and the related income
as well as project costs are reviewed periodically. The effect of any
changes in the estimates is recognized in the financial statements forthe
period in which such changes are determined. The company has so far
delivered 50 residential and commercial projects having 12.47 million Sft.
There are 31 ongoing projects with 9.31 million Sft The company has plans
to launch 24 more projects aggregating 17.53 million Sft.

Revenue from sale of land and development rights is recognized upon
transfer of all significant risks and rewards of ownership of such real
estate/property, as per the terms of the contracts entered into with
buyers, which generally coincides with the firming of the sales
contracts/agreements.

Revenue in respect of contractual projects is recognized on the basis of
completion of a physical proportion of the contract work, agreements
entered into by the Company with its customers, and based on certification
by the clients. The Company has so far delivered 140 contractual projects
having 18.30 million Sft.

Revenue from sale of materials from Manufacturing Divisions like Interior,
Glazing 8r Metal Works, Building Materials are recognized when the
significant risks and rewards of ownership of the goods have passed to the
buyer which coincides with dispatch of goods to the customers. Service
income is recognized on the basis of completion of a physical proportion of
the contract work and based on certification bythe client.

The Company's share in profits from a firm where the Company is a partner
is recognized on the basis of such firm's audited annual accounts, as per
terms of the partnership deed. As per the deed, the Company has invested
Rs.200 million towards capital for 700/o share in the profits in FY 2007-08
and the other partner Tree Hill Estates Pvt Ltd. has invested Rs.200
million towards capital and Rs.400 million towards loan for 300/o share in
the profit of the firm. This has been arranged for the projects in
Thrissur.

2. Other Income

This has increased from Rs.71 million to Rs.170 million in the current year
mainly due to incentive received for pre-payment of loan.

3. Expenditure

The total expenditure with respect to the yearly revenue is given as
follows:

(Rs. in Million)

2009 % 2008 %

Revenue from operations (net) 9,747 100.00 14,291 100.00

Cost of sales 4,504 46.21 7,725 54.05

Personnel expenses 1,009 10.35 1,025 7.17

Operating and other expenses 1,537 15.77 1,939 13.57

Depreciation/amortization 360 3.69 350 2.44

Financial expenses 1,052 10.79 615 4.30

Total 8,462 86.81 11,654 81.53

3.1 Cost of Sales

(Rs. in Million)

2009 % 2008 %

Revenue 9,747 100.00 14,291 100.00

Cost of sales
Land cost 2,453 25.17 3,900 27.29

Construction cost 3,492 35.83 6,370 44.57

Raw material 958 9.82 1,229 8.60

Production expenses 298 3.05 288 2.02

Decrease/(increase) (2,697) (27.67) (4,062) (28.42)
in inventories

Total Cost of of Sales 4,504 46.20 7,7255 4.06

Cost of sales has come down to 46.20/o in the current year as compared to
54.1 0/o in the previous year due to various efforts made by the company
for cost reduction i.e. developing sources for alternate material and
alternate suppliers, efficient procurement and usage of material, improving
productivity, rationalization of workforce and close controlling and
monitoring of overheads etc.

a. Land cost

The company while obtaining clear and marketable title free fromall
encumbrances and transfer of legal title in its name, charge the amount to
land cost from Loans and Advances paid to the seller/intermediary. When
income is not recognized for the undivided share of land, it is transferred
to Work-in-Progress.

b. Construction cost

Construction cost mainly consists of materials towards civil, electrical
and finishing works. Due to lower sales volumes overall cost has reduced to
Rs. 3,492 million from 6,370 million in the current year. Further as per
the Company's accounting policy, once the materials are purchased for a
project, it is charged to that particular project cost. As a result, any
cost associated with unrecognized revenue is transferred to Work-in-
progress.

c. Rawmaterial

For the same reasons discussed hereinabove raw materials cost has reduced
to Rs.958 million from Rs.1,229 million in the current year. This cost
includes the net materials consumed for Concrete, Interior and Glazing
Divisions.

d. Production expenses

This expense includes the following heads of expenses for the manufacturing
divisions during the year.

(Rs. in Million)

Concrete Interior Glazing Total
Products

Direct wages 6.86 102.51 127.37 236.74
Power and fuel 4.36 12.59 2.17 19.12
Labour charges 0.36 12.01 3.17 15.54
Other direct expenses 0.00 18.90 7.37 26.27
Total 11.58 146.01 140.08 297.67

e. Decrease/(increase) in inventories

As explained earlier, the cost associated with un-recognized revenue is
transferred to work-in-progress. This includes the construction cost and
land cost. During the year the work-inprogress has reduced to Rs. 2,697
million from Rs. 4062 million. The revenue from the work-in-progress will
get realized in subsequent years based on the stage of completion and sales
of those projects.

3.2 Personnel expenses

The personnel expenses have reduced to Rs.1,009 million from Rs.1,025
million in the current year as compared to last year. This is mainly due to
combined effect of revisions in salaries and reduction in Manpower. The
total strength has reduced to 2,082 as on March 31, 2009 from 3,308 as on
March 31, 2008. The expenses include salaries and bonus, provision towards
gratuity and leave encashment, providentfund and staff welfare expenses.

3.3 Operating and other expenses

The operating expenses have reduced to Rs.1,537 million in the
currentyearfrom Rs.1,939 million of the previous year.

(Rs.in Million)

Particulars 2009 % 2008 %

Revenue 9,747 100.00 14,291 100.00
Electricity charges 43 0.44 56 0.39
Insurance charges 22 0.23 54 0.38
Sales tax and others 419 4.30 767 5.37
Freight outwards 37 0.38 43 0.30
Donation 95 0.97 100 0.70
Registration expenses 251 2.58 241 1.69
- flats
Rent 139 1.42 136 0.95
Legal and 81 0.83 107 0.75

professional charges

Repairs and 31 0.32 23 0.16

maintenance

Advertisement and 158 1.62 143 1.00
sales promotion
expenses

Travelling and 88 0.90 97 0.67
conveyance

Miscellaneous 173 1.77 172 1.20
expenses

Total 1,537 15.76 1,939 13.56

4. Operating profits

The Company earned an operating profit (EBIDTA) of Rs. 2,868 million,
representing 28.90/0 of total revenues as compared to Rs. 3,674 million,
representing 25.6 0/o of total revenues during the previous year. The
reduction in EBIDTA is around 220/0 over the previous year.

5. Interest

The Company has charged interest to profit and loss account of Rs.1,052
million and Rs. 615 million for the years ended March 31, 2009 and 2008
respectively. An amount of Rs.1,731 million and Rs. 897 million were
inventorised / capitalized for the said period. The increase in interest is
due to increase in borrowing cost and quantum of borrowings.

6. Depreciation and amortization

The Company has provided Rs.360 million and Rs.350 million towards
depreciation and amortization for the years ended March 31, 2009 and 2008
respectively, representing 3.630/o and 2.440/0 of revenues. The
depreciation as a percentage of average gross block (excluding land) was
13.080/o and 14.270/o for the years ended March 31, 2009 and 2008
respectively.

7. Provision for taxes

The details of provision for taxes areas follows:

(Rs.in Million)

Year ended March 31

2009 2008

Current tax 374.00 453.00

Deferred tax credit (20.00) (33.02)

Wealth tax 0.45 0.30

Fringe benefits tax 4.00 5.50

Total Provision 358.45 425.78

% on PET 24.6% 15.7%

% on Total Revenue 3.6% 3.0%

The Corporate tax provision was lower for the year ended March 31, 2009
compared to the previous year due to low profit before tax. Deferred tax
asset created during the year will be recovered from futuretax liability.

8. Net profit

The net profit after tax was Rs.1,097 million for the year ended March 31,
2009 as compared to Rs.2,283 million for the year ended March 31, 2008
showing a decline over previous year.

(Rs.in Million)

Year ended March 31

2009 2008

Total Revenue 9,917 14,363

PET 1,455 2,709

PAT 1,097 2,283

PET as % of revenue 14.7% 18.9%

PAT as % of revenue 11.1% 15.9%

9. Liquidity

The Company's growth has been financed through cash generated from
Operations and debt. The Company's policy is to maintain sufficient cash
balance to fund the ongoing projects requirement, the operational expenses
and other strategic initiatives like land acquisition.

The Company's investment policy is to invest surpluses with banks and
financial institutions for short-term maturities and also with liquid
mutual funds. The Companyaims to maintain adequate cash balances to meet
the strategic objectives while earning adequate returns.

10. Related party transactions

These have been discussed in detail in the notes to the financial
statements in this report.

E. Risks and threats to business

The real estate sector has been severely impacted due to the economic
slowdown. This sector requires large amount of funds for investment which
has further brought the sector under pressure. Slowdown in industry
generallyand specificallyto ITand job losses are having adverse impact on
the sector. Difficulty in getting finance at reasonable cost may hamper the
business. Due to volatility in economic conditions investors may not be
interested to invest in this sector. 1Nhile these concerns are valid to
some extent, the Company believes that large real estate players will be
able to control the situation because of their skills, competencies,
professional managementand demand supplygap.

F. Strategy

Important business strategy of the Company includes the following:

a. Tailor made projects for group of clients

The Company is in touch with a group of clients to serve their requirements
with tailor made projects. The project will be conceived, developed
designed and constructed in line with the specific requirements of the
proposed group of clients. The Company is also working on the concept of
affordable housing to reap the benefits of its brand image by focusing on
middle class clients in prime locations. The Company is hopeful of getting
good responsefrom this newsegmentofclients.

For quick realization of its inventory various offers are being made by the
Company with convenient terms and conditions to attract new customers.
Projects are also conceived for sale of plotted land and sale of land bank.

Further, the Company is having a strong land bank in various strategic
locations which will be a major strength for the Company once the economy
revives.

b. Increased business for contractual projects

The Company has successfully executed various contractual projects with
very reputed clients and established its competency and capability. Clients
include Infosys, HCL technologies, DELL, Hewllet Packard, Taj group of
hotels, MICO, Contel etc. The Company believes that it will be able to use
its strength, superior product qualityand project execution capabilitiesfor
increasing business by adding more corporate housesas its clients.

c. Sale of plotted development land

The Company has planned for sale of plotted development land resulting in
quick cash realization, reduction in inventory and improvement in sales
revenues.

d. High Standard of quality

The Company has developed its brand image because of its abilityto deliver
quiz products to the utmost satisfaction of the customers. The Company uses
world class building techniques and employs international expertsto ensure
high level of quality.

e. Cash Flow

The Company has been able to manage its cash flow successfully in the
present scenario. During the financial year 2008-09, the operating cash
flow remained positive throughout. Most of the loans due for repayment
during the financial years 2008-09 and 2009-10 have been rescheduled,
giving major relief. Further cash flow is being planned for the next two
years to enable the Company to make payment of loans, operational expenses,
fixed overheads and financial charges etc.

The Company has taken various initiatives to arrange the required funds for
future requirements i.e. sale of land and development rights, attracting
investments for specific projects and diluting promoter's stake etc. The
Company is confident that the above initiatives taken by it will give
desired results in the next six to nine months and adequate cash will be
available with the Company to discharge itsfinancial obligations.

G. Human resource management

Astrong brand image has been builtthanks to the high standard of quality
products delivered by the Company. This could not have been possible but
for the dedicated professional and experienced manpower resources of the
Company. The Company ensures best work environment and equal opportunities
with better prospects of career developmenttoallitsemployees.
Besttalentisattractedand retained bythe Company. It has created a state-of-
the-art facility for technical and managerial training of its employees to
groom their professional knowledge and managerial abilities. The Company
has also established a Training Academy to provide technical training to
tradesman and these trained tradesmen are offered preferential employment
with the Company. Human Resources department is following best practises to
motivate the workforce.

H. Information technology

The Company is continuously working and concentrating on IT to get maximum
benefit for the organization. The Company has been able to use a good ERP
system successfully. All branches and regional offices all across India are
well connected ensuring timely and qualitative collection and dissemination
of business information. The Company has been able to manage such a large
size of business successfully only because of excellent information
technology systems and processes.

I. Internal control system and their adequacy

The Company has an in-house internal audit department which examines and
ensures adequate internal checks and control procedures. It also ensures
proper accounting, records authorisation, control of operations and
compliance of law.

The Company has a strong reporting system which evaluates and forewarns the
management on issues related to compliance. Further the Company is
continuously working to improve and strengthen internal check and control
system to align with the expected growth in operations.

J. Riskmanagement

The Company is taking care of its risk management through robust risk
management system. Risks are being identified to achieve its strategic
business objective; plans are made, implemented and monitored to
mitigatesuch risks.

K. Compliancewith local laws

The Company believes strongly in complying with the laws of the land where
it operates. The Company has a well-established legal set up for ensuring
compliance with all statutes which are applicable periodically to its
operations/ ventures. The legal department is responsible for getting
various sanctions and approvals pertaining to the projects. Any other
approvals or permissions related to specific operations are either handled
by corporate legal cell or bythe concerned department.

L. Cautionary statement

In accordance with the Code of Corporate Governance approved by the
Securities and Exchange Board of India, shareholders and readers are
cautioned that in the case of data and information external to the Company,
no representation is made on its accuracy or comprehensiveness though the
same are based on sources believed to be reliable. Utmost care has been
taken to ensure that the opinions expressed by the management herein
contain its perceptions on the material impacts on the Company's operations
but it is not exhaustive as they contain forward-looking statements which
are extremely dynamic and increasingly fraught with risks and
uncertainties. Actual results, performances, achievements or sequence of
events may be materially different from the views expressed herein.

Annual Report - 2008 - 2009 - Hotel Leela

HOTEL LEELAVENTURE LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

TO
THE MEMBERS

Your Directors have pleasure in presenting the Twenty-Eighth Annual Report
of the Company together with its Audited Statement of Accounts for the year
ended 31st March, 2009.

1. Financial Results:

The Company's performance during the year under review is summarised below:

Rupees in crores

Financial Year Financial Year
2008-09 2007-08

Income from Sales, Services and
other Income 582.16 589.10

Operating and other expenses
(before interest and depreciation) 296.58 284.90

Interest 26.73 35.56

Profit before Depreciation 258.85 268.64

Depreciation 63.29 49.09

Less: Withdrawal from
Revaluation Reserve 8.37 3.75

Less: Translation Difference
Account 10.47 -

Profit before Tax 193.45 223.30

Provision for Taxes/Fringe
Benefit Tax/Deferred Tax 47.58 73.18

Profit after Tax for the year 145.87 150.12

Prior Period Adjustments - Net (0.89) (1.56)

Profit of erstwhile Kovalam
Hotels Limited for the year 2006-07 - 1.43

Profit after Tax 144.98 149.98

Balance brought forward 201.44 193.39

Loss on erstwhile Kovalam Hotels
Limited for the Pre-amalgamation
period - (30.83)

Amount available for Appropriation 346.42 312.55

Appropriations:

Dividend on Equity shares 15.11 18.89

Tax on proposed Dividend 2.57 3.21

Transfer to General Reserve 11.00 89.01

Transfer to Capital Redemption
Reserve 30.00 -

Balance carried to Balance Sheet 287.74 201.44

EPS Basic (in Rs.) 3.84 3.97

EPS diluted (in Rs.) 3.13 3.11

2. Revaluation of Land Assets:

During the year, the Company had carried out revaluation of its land
properties by a reputed valuation consultant firm in order to assess the
intrinsic value of the same on the basis of realisable value as determined
by the valuer and the additional valuation amount has been credited to
revaluation reserves. The financial statement contain detailed particulars
and disclosures in this regard.

3. Buy Back of Foreign Currency Convertible Bonds:

During the financial year under review, the Reserve Bank of India
liberalized ECB Guidelines enabling the Companies to buy back their
outstanding Foreign Currency Bonds. Taking advantage of Liberalisation in
the global slowdown time, the Company managed to buy back a sizeable number
of its outstanding Euro and Dollar Bonds, which were issued by the Company
earlier, at a price substantially discounted as compared to the issue price
and the book value of the Bonds. The Bonds, bought back under the
'Automatic Route', were cancelled as per guidelines issued by the Reserve
Bank of India. The particulars of the repurchase and position of
outstanding FCC Bonds as on 31st March, 2009 are summarized below:

Particulars Euro Bonds US$ Bonds

Face Value Outstanding
Bonds as on 1.4.2008 * 51.40 Million US$ 100 Million

Face Value of Bonds * 12.20 Million US$ 33 Million
repurchased

Current Face Value of * 39.20 Million US$ 67 Million
Outstanding Bonds

Maturity Sep. 2010 April 2012

4. Issue of Secured Redeemable Non-convertible Debentures:

During the year under review, the Company has raised Rs.150 crores by issue
of Secured Redeemable Non-convertible Debentures on Private Placement Basis
from Institutional Investors/Banks for business needs. These NCDs have been
listed on the Wholesale Debt Market segment of the Bombay Stock Exchange
Limited. These NCDs are rated 'CARE A+' by Credit Analysis & Research
Limited, indicating adequate safety for timely servicing of debt
obligations and carry low risk.

5. Dividend on Equity Shares:

Your Directors are pleased to recommended a dividend of Rs.0.40 (previous
year Rs.0.50 per share) per equity share of Rs.2/- each, subject to the
approval of the shareholders at the ensuing AGM. The dividend would involve
a cash outgo of Rs.15.11 crores towards dividend and Rs. 2.57 crores
towards tax on dividend.

In terms of the Provisions of Investor Education and Protection Fund
(Awareness and Protection of Investors) Rules, 2001, the Company has
transferred unpaid/unclaimed dividends and principal/interest on debentures
aggregating Rs.10.29 lakhs to the IEPF during the financial year under
review.

6. Review of Operations:

The overall performance of the Company has been satisfactory during the
year under review considering the overall global economic slowdown. The
total income stood at Rs.582.16 crores (including income from discount on
redemption of Bonds) compared to Rs.589.10 crores in the previous year.

The revenues of the Company from its various units are summarized as under:

Rs. in crores

Name of the Unit 2008-09 Percentage Percentage
of revenue 2007-08 of revenue

The Leela, Bangalore 176.72 40% 215.49 43%
The Leela, Mumbai 145.49 33% 177.39 35%
The Leela, Goa 61.82 14% 60.94 12%
The Leela, Kovalam 53.67 12% 51.15 10%
Total 437.70 100% 504.97 100%

The Average Room Rates in the city of Bangalore came down by 12% and in
Mumbai by 6% during the year. However, the Company's overall ARR increased
by 8%. As in the past, this year also, the Company maintained its market
dominance in terms of revenue, ARR and Occupancy in Bangalore, Goa and
Kovalam.

7. Product Enhancement:

In our endeavor to be one of the best in its class, we continue to invest
resources in renovation and upgradation of our properties, service
standards and deploy the latest technological advancements.

Recently renovated 66 rooms, catagorised as Conservatory Rooms at our Goa
property are being very well received by our guests. Further enhancements
of facilities and renovation works at other rooms are also going on.

Health club and Spa at our Mumbai property were renovated during the year
with the contemporary technology and concepts in guidance with ESPA of
London. Lobby and some key public areas were also renovated at this
property.

The Company has also revamped and refurbished guest-rooms and public areas
at its Bangalore and Kovalam properties.

8. Marketing Alliances:

The Company has marketing alliances with Germany based Kempinski Group of
Hotels, US based Preferred Hotel Group effective June 2008, and is also a
member of Global Hotel Alliance based in Geneva, Switzerland.

The directors are pleased to announce that the Company has entered into an
alliance with Preferred Hotel Group whereby all our hotels from June 2008
have become members of this luxurious collection under their most premier
segment Preferred Hotels and Resorts. The other segments in Preferred Hotel
Group are Preferred Boutique, Historical Hotels of America, Summit Hotels &
Resorts and Sterling Hotels.

This alliance, amongst others, will derive benefits for the Company of
Preferred Hotels and Resorts branding, greater recognition of brand in the
USA as premium and luxury hotels, opportunity to leverage additional 29
Global Sales Offices in the USA, Singapore, Hong Kong, Japan and Australia;
preferred relationship with four of the largest consortia - American
Express, CWT, BCD and Hogg Robinson, and also lower commission on receipts
through American Express Credit Card, which will result in substantial
savings; opportunities to participate in many more road shows in our main
source markets. The alliance will assist the Company to acquire more
international business and improve our competitive positioning in the
market.

Towards our endeavor to introduce world-class standards, we had entered
into an agreement with ESPA of London, one of the leading Spa management
companies in the world. ESPA manages our Spas at Mumbai, Bangalore, Goa,
Udaipur, and Delhi.

9. Expansion/Up-gradation Plans:

India is one of the fastest growing tourist markets in the world owing to
its splendid historical architecture, rich heritage and ancient culture
along with beautiful beaches and rural tourism, and the inherently rooted
concept of hospitality in form of 'Atithi Devo bhava'. In India, the
tourism industry is bound to grow stronger post the present recessionary
trend.

At present, your Company operates six hotels at the locations viz. Mumbai,
Bangalore, Goa, Kovalam, Udaipur and Gurgaon comprising 1523 guest rooms
and 90 serviced apartments.

The Operations in Gurgaon commenced during the financial year 2008-09. The
opening of Gurgaon hotel and residences heralded the arrival of the Company
in the Delhi National Capital Region. This property, with 322 guest rooms
and suites and 90 serviced residences, is operated under the 'The Leela
Kempinski' brand. This contemporary designed hotel with large banquet halls
and state of the art facilities has been well received by the business
clientele.

The Leela Palace Kempinski, Udaipur 'The Jewel by the Lake' was inaugurated
in April 2009 by Shriji Arvind Singhji Mewar, the Maharana of Mewar, Shri
Deepak Parekh, Chairman of HDFC and our Chairman Capt. C.P. Krishnan Nair
in the presence of Board Members, other celebrities and entrepreneurs.

This elegantly luxurious resort has 86 guest rooms and suites and is
located on the bank of Lake Pichola. With the opening of this resort, your
Company has established its presence in the significant Rajasthan market.

The upcoming projects of the Company under various stages of development
are as follows:

The Leela IT Park, Chennai:

* The Company is constructing a world class IT Park 'The Leela IT Park' at
MRC Nagar, next to the Company's upcoming Hotel in Chennai. The
construction of the building, with 13 floors, is at an advanced stage of
completion. This property is expected to be operational during the current
year.

The Leela Palace, Chennai:

* The Company is constructing 'The Leela Palace' hotel at MRC Nagar,
Chennai, facing the Bay of Bengal. The construction of this hotel, with 380
guest-rooms, is at an advanced stage of completion and its soft opening is
planned in the year 2010.

The Leela Palace, New Delhi:

* In order to fulfill the long felt need to have a presence in the national
capital, the Company is constructing a hotel at the prestigious diplomatic
enclave of Chanakyapuri, New Delhi. The construction activity is being
carried out in full swing and every effort is being made to ensure a soft
opening by July, 2010 i.e. prior to the Commonwealth Games.

The Ministry of Urban Development, Government of India has increased the
FAR for all hotels in the National Capital Territory of Delhi from the
normal permissible FAR of 150 to 225. With the additional FAR being
utilized, this hotel of the Company would be of about 250 guest rooms and
suites instead of 206 guest-rooms and suites as planned earlier, resulting
in substantial reduction in the cost per guest-room; making the project
more economically viable.

Other Projects:

The Company has acquired seven acres of land in close proximity to the Taj
Mahal, Agra.

The projects in Agra, Hyderabad and Pune are expected to be taken up in due
course and are likely to be operational in 2012/13.

10. Audit Observation:

The explanation given in the Notes to Accounts is self explanatory.

11. Awards and Accolades:

The Company has received the following awards during the year 2008 and
2009:

* The Leela Palace, Kempinski, Bangalore was awarded The best Eco Friendly
Five Star Deluxe Hotel in the country for the year 2009 by the Government
of India.

* For the first time ever The American Academy of Hospitality Sciences has
honoured Capt. C.P. Krishnan Nair, Chairman with Lifetime Achievement Five
Star Diamond Award 2009 in recognition of him as a visionary
environmentalist and hotelier dedicated to promoting social corporate
responsibility.

* WTA 2008 for The Leela Palace, Kempinski Bangalore as 'India's Leading
Business Hotel'.

* The Leela Palace, Kempinski Bangalore in the Conde Nast Gold List 2008
for the 'Best Rooms' in the world.

* The Leela Kempinski Kovalam Beach was conferred the 'Best Culinary
Establishment in Kerala' by India Exhibition and Conference Services (IECS)
for a second consecutive year.

* Pevonia Asia Spa Award for the Best Ayurvedic Spa (Hotel), 2008 - Divya
Spa at The Leela Kempinski Kovalam Beach.

12. Management Discussion and Analysis (MDA):

As required by Clause 49 of the Listing Agreements with the Stock
Exchanges, Management Discussion and Analysis Report is appended herewith
and forms an integral part of this report.

13. Corporate Governance:

As required by Clause 49 of the Listing Agreements, a separate section
containing the Report on Corporate Governance together with the Certificate
on the compliance with the conditions of corporate governance issued by a
Practicing Company Secretary are appended hereto and they form part of this
Annual Report.

As part of good Corporate Governance, the Company has voluntarily obtained
a Secretarial Compliance Certificate from a Practicing Company Secretary in
respect of compliance of all rules, regulations under the various
applicable provisions of the Companies Act, 1956 and the applicable
regulations under the Listing Agreement entered into with the Stock
Exchanges. A copy of the said certificate is also appended to this report.

14. Directors:

In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Company, Mr. M. Narasimham, Mr. C.K. Kutty,
Mr. R. Venkatachalam, and Mr. P.C.D. Nambiar, Directors of the Company,
retire by rotation at the forthcoming Annual General Meeting and being
eligible, offer themselves for re-appointment. Brief resume of the
Directors proposed to be re-appointed stating the nature of their expertise
in specific functional areas, their shareholding along with other relevant
details are given at the end of the Notice of the Annual General Meeting.
The Board commends their re-appointment by the members at the forthcoming
Annual General Meeting.

None of the directors of the Company are disqualified from being appointed
as directors as specified in section 274(1) (g) of the Companies Act, 1956,
as amended.

15. Auditors:

M/s. Picardo & Co., Chartered Accountants, Statutory Auditors of the
Company, retire at the ensuing Annual General Meeting. They have confirmed
their eligibility and willingness for re-appointment. The Company has
received a certificate from the Statutory auditors to the effect that their
re-appointment, if made, would be within the limits prescribed under
section 224(1B) of the Companies Act, 1956.

The Board commends their re-appointment as statutory auditors.

16. Particulars of Employees:

Information in accordance with sub-section (2A) of Section 217 of the
Companies Act, 1956 read with the Companies (Particulars of Employees)
Rules, 1975, as amended, forms part of this Report. However, as per
provision of section 219(1) (b) (iv) of the Companies Act, 1956, the
reports and the accounts are being sent to all the shareholders of the
Company excluding the statement of particulars of employees. The Company
will make these details available upon request by any member of the Company
interested in obtaining them on writing to the Company Secretary.

17. Wholly-owned Subsidiary Companies and Consolidated Financial
Statements:

During the year under review, the Company acquired a private limited
company together with immovable assets owned by the said company, which
included land in Agra, suitable for constructing a five star hotel. The
said company viz. Iskon Estates Private Limited has become a wholly-owned
subsidiary of the Company with effect from 10th January, 2009.

During the preceding year, the Company incorporated nine wholly-owned
subsidiaries. Since the eight subsidiaries could not meet their business
objectives, they had voluntarily applied for striking off their names from
the Register of Companies maintained by the Registrar of Companies,
Maharashtra, which has been approved during the year and hence their
accounts are not prepared separately.

In terms of the approval granted by the Central Government under Section
212(8) of the Companies Act, 1956 vide its letter No.47/227/2009-CL-III
dated 17.4.2009, copies of the Balance Sheet, Profit and Loss Account and
other documents of the three wholly owned subsidiary companies have not
been attached to the Annual Report of the Company. The Company will make
available these documents upon request by any member of the Company
interested in obtaining the same. Further, these documents will also be
available at the Registered Office of the Company for inspection by any
member of the Company. As required under the aforesaid approval, a
summarized statement of financial position of the subsidiaries has been
appended to this Annual Report.

The Consolidated Accounts, prepared in accordance with the Accounting
Standard 21 and Clause 32 of the Listing Agreement form part of this Annual
Report. The relevant statement as required under Section 212 of the
Companies Act, 1956 about the wholly-owned subsidiary companies is also
given elsewhere in this Annual Report.

18. Fixed Deposits:

The Company has not accepted any deposits from the Public or from the
shareholders.

19. Directors' Responsibility Statement:

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

(a) in the preparation of the annual accounts, the applicable accounting
standards have been followed and there are no material departure from the
same;

(b) the Directors had selected such accounting policies 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 as on 31st March, 2009 and of the profit of the Company for the
year;

c) they 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; and

(d) they have prepared the annual accounts on a 'going concern basis'.

20. Additional information in accordance with the provisions of Section
217(1)(e) of The Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of the Board of Directors) Rules, 1988.

(a) Conservation of Energy and Water:

Energy conservation continues to receive the highest priority throughout
the year. The Company monitors energy costs and periodically reviews the
consumption of energy and water. It also takes appropriate steps to reduce
the consumption through efficiency in usage and timely maintenance /
installation/upgradation of energy saving devices, like building management
system, dimmers, energy efficient pumps, and so on, wherever necessary.
During the financial year under review, the Company had installed 5
(previous year 11) more wind mills to generate power (a non-conventional
energy source) in the State of Tamil Nadu. The Company also plans to
install 3 wind mills each in the State of Maharashtra and Karnataka during
the current fiscal year.

To conserve ground water, your Company has implemented appropriate
rainwater harvesting projects at its locations. The Company has also
encouraged and invested in systems for recycling and refuse of water.

(b) Technology Absorption:

In the opinion of the Board, the required particulars, pertaining to
technology absorption in terms of Rule 2 of the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are not
applicable as the hotel forms a part of the service industry and the
Company does not have any significant manufacturing operations.

(c) Foreign Exchange Earnings and Outgo:

The Company has a strong commitment towards international business and
continues to be a huge net contributor of foreign exchange. The particulars
of foreign exchange earnings and outgo are given in the notes to accounts
on page no. 69.

21. Acknowledgements:

The Board wishes to place on record its appreciation for the continued
support and co-operation received from the Government of India, especially
the Ministry of Tourism, the Airports Authority of India, various
Government regulatory authorities, Stock Exchanges, Financial Institutions,
Banks, State Governments of Maharashtra, Goa, Karnataka, Kerala, Tamil
Nadu, Rajasthan, Haryana, Andhra Pradesh, Uttar Pradesh, NCT Delhi and also
the Kempinski Group of Hotels, Preferred Hotel Group and Global Hotel
Alliance and other business and referral associates.

Your directors take this opportunity to express their sincere thanks to all
the investors, shareholders and stakeholders for the faith and confidence
they have reposed in the Company.

Your directors attribute immense importance to the contribution of our
family of staff - the people who work so loyally to give intrinsic values
to 'The Leela' brand. On behalf of the Board, I thank The Leela Team for
sharing our vision and philosophy; and for the dedication and commitment at
all levels to ensure that we remain in the forefront of our competitive
industry as one of the finest Hotel Groups in India.

On behalf of the Board of Directors

Place : Mumbai, Capt. C.P. Krishnan Nair
Date : 27th June, 2009 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS:

INDUSTRY STRUCTURE AND OUTLOOK:

The economic meltdown in the U.S., Europe and rest of the world has
affected the travel and tourism industry worldwide and in particular the
hotel Industry during the year 2008-2009.

The 26/11 attack in Mumbai further accumulated the problem and prompted a
number of foreign governments to issue travel advisories against travel to
India. As a result, the hotel Industry saw a marked drop in occupancies and
revenues. The growth in foreign tourists' arrivals which had recorded an
annual increase of about 13% in the last 3 years was down to 6% in 2008-09.

Due to several ways of cost-cutting measures adopted by the business
enterprises and others worldwide, travel to India and incomes of hotels may
continue to be affected during the current year too, until the recession in
the U.S., Europe and the rest of the world shows signs of abatement.

In India, the recent elections culminated in a stable Government, which
promises to deliver a slew of pro-active reform measures in its first 100
days in office. Thereafter, as reflected in the election manifesto, with
the proposed measures the Indian economy is poised to get a kick-start.
Also, the fiscal and monetary measures announced by the Government earlier
and the RBI in recent months are already showing its positive effects in
the economy. The Budget for 2009-10 is also expected to announce liberal
measures in the areas of F.D.I. limits, disinvestment in P.S.Us., etc. The
hotel industry is also hopeful that its long standing demand for inclusion
of hotels as an 'Infrastructure facility' under the Income Tax Act would be
accepted by the Government. It is expected that the economic growth rate in
India will be at a higher than the other emerging economies. This should
have a positive impact on the hotel industry with prospects for larger
number of business travelers and tourists.

Except for second half of fiscal year 2008-09, the travel and tourism
Industry in India has witnessed significant growth over the last several
years and that the economies get on to a higher growth trajectory.
According to a study by The World Travel and Trade Council, India is the
third fastest-growing tourist destination in the world. Another survey
conducted by a world-renowned consultancy firm has ranked India second in
the 'value for money index' in the tourism sector.

As the travel and tourism sector continues to remain one of the largest
economic activities in the world, with the hotel Industry providing
employment to 53 million people in the country, the highest in any sector,
the tourism industry is bound to bounce back as the global financial
conditions improve. It is expected that in the second half of the current
financial year, the global crisis is expected to begin easing and that the
economies get on to a growth trajectory. A recovery on financial situation
worldwide, it is hoped, would set the trend for increased business visits
and tourists' arrivals in India.

At present, there are about 1.2 million hotel rooms in India, of which the
star category hotels account for a mere 80,000 rooms. The country needs a
large number of premium hotel rooms and related infrastructure to meet the
demand as the situation gains momentum from the present situation. It is
expected that the travel and tourism sector, which contributes 6.1% to
India's gross domestic product (GDP) would generate further employment
opportunities. It is hoped that the tourism industry will be provided with
incentives to bridge shortfalls in guest rooms by granting to it the
'Infrastructure' status under Section 80IA of the Income Tax Act, as it is
the case with Airports, Ports, etc. The grant of such status would enable
the hotel industry to avail of long-term financial assistance from term
lending institutions with longer repayment schedules and moratorium period
since hotels are highly capital intensive by nature, especially because of
the spiraling land costs. It would also enable hotels to plough-back
profits that are tax exempt up to 100% for the first 10 years under this
Section for deploying further resources for setting up newer hotels.

The Commonwealth Games in October 2010 in New Delhi is expected to give a
fillip to the tourism industry. An estimated 30,000 guest-rooms are
required for this event in the National Capital Region of Delhi, in
addition to the existing 11,000 guest-rooms, to house the foreign visitors
visiting Delhi during the Commonwealth Games. It would also benefit other
tourist destinations, as a number of these visitors would also be likely to
undertake trips to such locations.

THE LEELA - DYNAMISM IN OUR STRIDES:

At present, your Company operates six hotels at Mumbai, Goa, Bangalore,
Kovalam (Kerala), Udaipur and Gurgaon totalling to 1,523 guestrooms and 90
serviced apartments.

The operations of the Gurgaon hotel commenced during the financial year
2008-09. The opening of Gurgaon hotel and residences heralded the arrival
of the Company in the Delhi National Capital Region. This property, with
322 guestrooms and 90 serviced residences, is operated by the Company under
the 'The Leela' brand.

The Leela Palace, Udaipur, was opened in April 2009. This resort is
strategically located on Lake Pichola. With the opening of this resort,
your Company has established its presence in the significant Rajasthan
market, which is part of the Golden Triangle.

The Company is making all-out efforts to commission its next hotel at
Chanakyapuri, New Delhi, again very strategically located near the
Diplomatic Enclave. It will have 250 guestrooms and suites and all the
facilities of a world-class luxury hotel. This hotel is scheduled to open
before the start of the Commonwealth Games in New Delhi.

The Company's Chennai hotel with 380 guest-rooms and suites facing the Bay
of Bengal is also being implemented and is expected to be ready for
operations in mid-2010.

The Company has already acquired land in Agra, Hyderabad and Pune. These
projects will be taken up in a phased manner after completion of the New
Delhi and Chennai projects.

With the completion of the projects at New Delhi and Chennai, the Group
will have eight properties, and with 2,703 guest-rooms in the luxury
category. It is Company's endeavors to ensure that all its hotels prove to
be market leaders in each of the locations, it operates.

Marketing Alliances:

The Company has Sales and Marketing alliances with Kempinski Hotels,
Europe's oldest Hotel Group, established in 1897, and is also a member of
The Global Hotel Alliance based in Geneva, Switzerland, which is an
alliance of high profile independent hotels worldwide.

The Company has entered into an alliance with Preferred Hotel Group whereby
all our hotels from June 2008 have become members of this luxurious
collection under their most premier segment Preferred Hotels and Resorts.
This will enable our hotels to acquire greater recognition of this brand in
the USA as premium and luxury hotels and would give opportunity to leverage
further 29 global sales offices in the USA, Singapore, Hong Kong, Japan and
Australia among others. This will also facilitate our relationship with
four of the largest consortia - American Express, CWT, BCD and Hogg
Robinson.

Towards our endeavor to introduce excellent facilities, we have entered
into an agreement with ESPA of London, one of the leading Spa management
companies in the world, for our Spas at Mumbai, Goa, Udaipur, New Delhi and
Chennai.

Risks and Concerns:

(i) General economic conditions:

The hotel business is dependent on global economic conditions as well as in
India. This sector has been affected by the global economic recession and
its revival is dependent on several economic factors all over the world.
Local market conditions, excess hotel room supply in some cities, reduced
international or local demand for hotel rooms, government policies and
regulations on taxation, etc. do affect the hotel business.

(ii) Socio - political risk:

In addition to the economic risk, your Company faces risks from the socio-
political environment internationally as well as within the country. As a
result, threat of terrorist activities, occurrences of infectious diseases,
natural calamities and so on, may affect the flow of foreign tourists to
India.

However, the UPA Government's second term augurs well for the political
stability and for introduction of economic reforms, which should give the
economy a much-needed kick-start for revival.

(iii) Competition from International Hotel Chains:

Having witnessed a high growth rate, the Indian subcontinent has become the
focus area of major international hotel chains. Several global players have
announced their plan to have tie-ups with developers and investors to
benefit from the demand-supply imbalance. These entrants are expected to
intensify the competitive environment. However, some of them have either
deferred or even sold the same considering the prevailing liquidity crisis
and overall market conditions.

(iv) Increased outbound travel:

Due to overall competitiveness of international airfares and higher
disposable income available with travellers, destinations such as, Europe,
Southeast Asia and Australia have become more affordable to domestic
travellers. This has increased the number of outbound travellers and it is
bound to present a mild risk to the hotel industry in India. In fact, the
number of outbound travellers from India has crossed about 7 million,
whereas the number of inbound foreign travellers to India is only about 5.1
million.

(v) Foreign exchange fluctuation risks:

Your Company keeps a close watch on its foreign currency exposure and
hedges currency risks in consultation with its advisors. Net foreign
currency and derivative instruments exposures are reviewed regularly.

Risk Management - Leveraging Our Experience:

Risk management is an integral part of the Company's business process. With
the help of experts in this field, risks are carefully mapped and a risk
management framework is evolved. Pertinent policies and methods are set
forth to mitigate such risks.

To counter risk from growing competition, your Company is renovating and
continuously repositioning its properties. It is also improving its service
standards, in consultation with international experts, to provide
exceptional services, consistently, across all its hotels.

Efficient Internal Control Systems:

Your Company has two prominent firms of Chartered Accountants as its
Internal Auditors. These firms carry out in-depth internal audits for each
operating unit. The detailed process of review not only ensures reliability
of control systems and compliances with applicable legislation, defined
policies and processes, but also reviews efficiency of systems and ensures
safeguarding of tangible and intangible assets. The Audit Committee of the
Board reviews the findings of the Internal Auditors and closely monitors
the implementation of their recommendations, by reviewing the compliance
reports furnished.

Human Resources and Industrial Relations - The Intangible Imperatives:

Your Company attaches highest importance to human resources and it focuses
on developing a performance culture throughout the organisation. Some of
initiatives undertaken by the Company, in this regard, are as follows:

* Performance Management System (based on Balanced Score Card) to measure
objectively the achievement in Key Result Areas.

* Variable salary package linked to performance.

* Providing opportunities to high performers for attending training
programmes and additional exposures.

* Web-based rewarding system called 'GEMS' (Guest Expectations: Manage and
Serve) with the objective of identifying high performers in guest services
and to reward innovative suggestions to improve guest services.

* Employee Satisfaction Surveys, with the help of internationally
recognised agencies to seek constant feedback from the employees to
ascertain their level of satisfaction and also to ensure that the employee
morale and motivation levels remain high.

* Several initiatives have been started in all the units of your Company
involving the employee as an individual; employee and his family; and
employee and the society. This has resulted in more engaged employees
leading to higher guest and employee satisfaction.

* Strengthening of the existing, 'Leela Management Training Program' as
well as a state-of-the-art facility called the 'Leela Centre for
Excellence', have enhanced your Company's capability to develop promising
talents and to attract young budding catering college graduates as well as
MBAs. This is also aimed at providing them with in-house training, so that
they can fill the requirements of the Company, due to its rapid expansion
plan. It is finally the high standards of service and operational
excellence, rendered by the dedicated employees of your Company that
enables it to be amongst the lop performing hotels in the country.

Industrial relations throughout the year were cordial in all units of the
Company. Periodic wage settlement agreements were entered into, with staff
representatives and unions at the units.

As on 31st March, 2009 the Company had 2,689 employees.

Cautionary Statement:

Statements made in the Management Discussions and Analysis, describing the
Company's objectives, projections, estimates, predictions and expectations
may be 'forward-looking statements', within the meaning of applicable
securities laws and regulations. As 'forward-looking statements' are based
on certain assumptions and expectations of future events over which, the
Company exercises no control, (he Company cannot guarantee their accuracy
nor can it warrant that the same will be realized by the Company. The
Company assumes no responsibility to publicly amend, modify or revise any
forward looking statements on the basis of any subsequent developments or
events or for any loss any investor may incur by investing in the shares of
the Company based on the 'forward-looking statements'.

Operating Performance and Financial Results:

The financial statement of your Company forms part of the annual report for
2008-09, the highlights of which are given below:

(i) Revenues:

The total revenue of the Company decreased by 12%, from Rs.589 crores to
Rs.517.52 crores, excluding extra ordinary income on discount on Redemption
of Bonds of Rs.64.64 crores.

Room and rental revenues decreased by 14%, from Rs.347.62 crores to
Rs.299.12 crores. The Average Room Rate (ARR) decreased by 4%, from
Rs.12,138 to Rs.11,610.

The Food and Beverage revenue decreased by 10%, from Rs.130.11 crores to
Rs.117.54 crores.

(ii) Operating expenses:

The operating expenses decreased by 4% to Rs.296.32 crores.

(iii) Earnings before Interest and Depreciation:

The KBIDTA decreased by 30%, from Rs.228.08 crores to Rs.159.04 crores.

(iv) Interest and Depreciation:

Interest Cost was reduced from Rs.35.56 crores to Rs.26.73 crores.

Depreciation for the year was Rs.54.92 crores against Rs. 45.34 crores in
previous year.

(v) Profit before Tax:

The Profit before Tax decreased by 13%, from Rs.223.30 crores Rs. 193.45
crores.

(vi) Profit after Tax:

The Profit after Tax, for the year 2008-09, decreased to Rs.144.98 crores,
from Rs.149.98 crores of 2007-08, declined merely by 3%.

Balance Sheet:

(i) Share Capital:

There was no change in the Share Capital of the Company, which stood at
Rs.75.56 crores, same as of the previous year.

(ii) Secured Loans:

Secured loans of the Company have increased to Rs.1818.62 crores, from
Rs.1291.11 cores on account of borrowing for various ongoing projects and
restatement of foreign currency term loans.

(iii) Unsecured Loans:

Unsecured loans have decreased to Rs.630.88 crores, from Rs.744.54 cores,
on account of buy back of outstanding Foreign Currency Bonds.

(iv) Fixed Assets:

The gross fixed assets of the Company have increased by Rs.1,809.08 crores
due to capital expenditure for the on going projects and capitalization of
exchange fluctuation on foreign currency term loans of Rs. 175.40 crores
and revaluation of land to the extent of Rs.1033.26 crores.

(v) Investments:

Increase of Rs.45.95 crores in the investments of the Company is mainly due
to acquisition of M/s. Iskon Estates Private Limited, which has since
become a wholly-owned subsidiary of the Company.

Persons constituting group coming within the definition of 'group' as
defined in the Monopolies and Restrictive Trade Practices Act, 1969 for the
purpose of regulation 3(1)(e)(i) of the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997,
includes the following:

1. Leela Lace Holdings Private Limited.

2. Leela Lace Software Solutions Private Limited

3. Leela Fashions Private Limited

4. Leela Scottish Lace Private Limited

5. Mrs. Laxmi Nair

6. Mrs. Madhu Nair

7. Ms. Amruda Nair

8. Krishnan Nair Leela Family Trust

9. Capt. C.P.K. Nair (in his individual capacity and as trustee of Krishnan
Nair Leela Family Trust)

10. Mrs. P.V. Leela Amma (in her individual capacity and as trustee of
Krishnan Nair Leela Family Trust)

11. Mr. Vivek Nair (in his individual capacity and as trustee of Krishnan
Nair Leela Family Trust)

12. Mr. Dinesh Nair (in his individual capacity and as trustee of Krishnan
Nair Leela Family Trust)

SECRETARIAL COMPLIANCE REPORT:

CIN : L55101MH1981PLC024097
Nominal Capital : Rs.180 Crores

To
The Board of Directors
Hotel Leelaventure Limited Mumbai.

We have examined the registers, records, books, forms, returns and
documents of Hotel Leelaventure Ltd. ('the Company') as required to be
maintained under the Companies Act, 1956 ('the Act'), the rules made there
under and also the provisions contained in the Memorandum and Articles of
Association of the Company ('the requirements') for the year ended 31st
March, 2009. Based on our examination as well as information and
explanation furnished by the Company to us and the records made available
to us, we hereby report that:

1. The requisite statutory registers and other records required under the
Act and the Rules made thereunder have been maintained in accordance with
the Art either in physical and electronic mode as applicable.

2. The requisite forms, returns and documents required under the Act and
the Rules made there under to be filed with the Registrar of Companies and
other authorities have been duly complied with.

3. The Company has a Board consisting of 15 members.

* Board of Directors: The Board has met 6 times and the minutes have been
recorded properly in the minutes book maintained for the purpose.

4. As required under the Listing Agreement and Companies Act, the Company
has the following Committees:

* Audit Committee: The Committee has met 5 times during the year under
review. The minutes are properly recorded.

* Share Transfer and Investors Grievance Committee: The Committee has held
two meetings and the minutes are properly recorded.

* Remuneration Committee has met once to decide about the appointment of
three relatives of the directors in the employment of the Company. The
necessary approval under Section 314 is to be obtained at the Annual
General Meeting to be convened.

5. The Annual general meeting for the year 2007-08 was held on 16th August,
2008. The minutes of the meeting have been properly recorded in the minutes
book maintained for the purpose.

6. The re-appointment of directors, who retire by rotation, has been made
in accordance with the Act.

7. Due disclosures under the requirements of the applicable statutes have
been made by the Company. The Company has also complied with the
requirements in pursuance to the Listing Agreements with the Stock
Exchanges. The Company has complied with SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations 1997 as amended from time to time. The
Company has filed statements with the Stock Exchanges under the regulation
8 (3) of the said Regulations within 21 days from 31st March, 2009 and from
the book closure date for the purpose of payment of dividend for the year
ended 31st March, 2008.

8. The Company has complied with the requirements of the Depositories Act,
1996 as amended pertaining to dematerialization of shares and wherever
required, share certificates have been issued and delivered to shareholders
within the statutory period and the transfers / transmissions thereof have
been carried out and registered as per the requirements.

9. The split shares for the split of one equity share of Rs.10/- each into
5 shares of Rs. 2/- each were exchanged for those shareholders who were
holding the shares in physical mode. The new certificates are being
exchanged as and when shareholders submit their old share certificates.

10. During the financial year, the Company has bought back Foreign Currency
Convertible Bonds of the face value of Euro 12.20 million and US$ 33
million under Automatic Route in compliance with applicable ECB Guidelines
as amended.

11. Declaration and payment of dividend during the year under review and
transfer of monies lying in unclaimed dividend account to the Investor
Protection and Education Fund, wherever applicable, have been duly complied
with as per the requirements of the Act.

12. The Company has complied with the provisions of Section 293(1) (a) and
293(1)(d) of the Act in respect of monies borrowed from financial
institutions and banks.

13. Charges created / modified / satisfied by the Company were notified to
the ROC and were entered in the Register maintained for the purpose during
the financial year ended 31st March, 2009.

14. The Company has complied with the provisions ol section 372A and other
provision of the Act in respect of guarantees given, loans granted to
companies including subsidiaries and investments by way of equity shares
made in subsidiaries and other companies during the financial year ended
31st March, 2009. The Company has, wherever required, obtained the
necessary approvals of the Board, Committee thereof, shareholders, the
Central Government or other authority(ies) as per the requirements of the
Act.

15. The Company has not accepted any Fixed Deposits during the year under
review. The dividend declared for the financial year ended 31s1 March, 2008
has been paid during the year under review. The Annual Return and the
Annual Reports have been filed with the ROC as required under the Act. The
Company has, therefore not defaulted in any of the Provisions of Section
274 (1) (g) of the Act, which would otherwise disqualify the Directors of
the Company from acting as a Director of any other Company.

16. The Company has complied with the relevant clauses of the Listing
Agreement with the Stock Exchanges pertaining to submissions of the
statements, documents, disclosure requirements, publication in newspapers,
press releases, Corporate Governance standards as prescribed in clause 49,
within the time limit specified in the Listing Agreement.

17. The Company has complied with the relevant provisions of SEBI
(Prohibition of Insider Trading) Regulations 1992 as amended from time to
time. The Company has within the time limit specified in the Regulations,
submitted the information received from the employees/directors/
stakeholders as shareholders with regard to any purchase or sale in excess
of requisite percentage of the paid up share capital to the Stock
Exchanges.

18. The Company has also instituted the Code of Conduct for Directors and
other Senior Executives of the Company and has complied with the said Code
as required under the Clause 49 of the Listing Agreement.

For V. Sundaram & Co.

V. Sundaram
Place : Mumbai, Practicing Company Secretary
Date : 27th June, 2009 COP - 3373

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4,825.5 +23.5

Foreign funds in buying mode

Inflow of Rs 1050 crore on 7 September 2009

Foreign institutional investors (FIIs) bought shares worth a net Rs 1050 crore on Monday, 7 September 2009 as against an outflow of Rs 56.90 crore on Friday, 4 September 2009.

FII inflow of Rs 1050 crore on 7 September 2009 was a results of gross purchases Rs 2952.80 crore and gross sales Rs 1902.80 crore. The BSE Sensex surged 327.20 points or 2.09% to 16,016.32 on that day.

FII inflow in September 2009 totaled Rs 175.30 crore (till 7 September 2009). Foreign funds had bought equities worth Rs 4028.80 crore in August 2009. FII inflow in calendar year 2009 totaled Rs 40,373.80 crore (till 7 September 2009).

There are a total of 1695 foreign funds registered with the Securities & Exchange Board of India (Sebi).