Annual Report - Asian Paints - 2010-2011

ASIAN PAINTS LIMITED

ANNUAL REPORT 2010-2011

DIRECTOR'S REPORT

Dear Members,

Your Directors have pleasure in presenting the 65th Annual Report of your
Company and the Audited Accounts for the financial year ended 31st March,
2011.

FINANCIAL RESULTS
(Rs. in Crores)

Asian Paints Limited Asian Paints Limited
Group
Consolidated
2010-11 2009-10 Growth 2010-11 2009-10 Growth
(%) (%)
Sales and Operating
Income (Net) 6322.24 5125.08 23.4 7706.24 6680.94 15.3

Operating Profit 1232.66 1153.71 6.8 1395.60 1367.90 2.0

Less: Interest 15.35 13.76 22.23 28.47

Less: Depreciation 94.48 60.74 113.13 83.56

Profit before Tax &
exceptional item 1122.83 1079.21 4.0 1260.24 1255.87 0.3

Add/(Less):
Exceptional item - 25.46 - - 1.15

Profit before Tax 1122.83 1104.67 1.6 1260.24 1257.02 0.3

Less: Provision
for Taxes 347.68 330.17 378.89 373.11

Profit After Tax 775.15 774.50 0.1 881.35 883.91 (0.3)

Less: Minority interest - - - 38.11 48.27

Net Profit attributable
to shareholders of the
Company 775.15 774.50 0.1 843.24 835.64 0.9

Add: Balance brought
forward from the
previous year 600.00 230.00 600.00 230.00

DISPOSABLE PROFIT 1375.15 1004.50 1443.24 1065.64

That the Directors
recommend for
appropriation as under:

Dividend - Interim 81.53 81.53 81.53 81.53

- Final 225.41 177.45 225.41 177.45

Tax on Dividend 50.11 43.33 50.11 43.33

Transfer to General
Reserve 418.10 102.19 486.19 163.33

Balance carried forward
to Balance Sheet 600.00 600.00 600.00 600.00




STANDALONE FINANCIALS

Net sales and operating income for the standalone entity increased to Rs.
6,322.24 crores from Rs. 5,125.08crores in the previous year - a growth of
23.4%. The operating profit (PBDIT) increased by 6.8%, from Rs. 1,153.71
crores to Rs. 1,232.66 crores. The profit after tax for the current year is
Rs. 775.15 crores as against Rs. 774.50 crores in the previous year.

CONSOLIDATED FINANCIALS

The consolidated sales and operating income net of discounts and excise
duty increased to Rs. 7,706.24 crores from Rs. 6,680.94 crores - growth of
15.3%. Net profit after minority interest for the group for the current
year is Rs. 843.24 as against Rs. 835.64 crores in the previous year.

CONSOLIDATED ACCOUNTS

The Ministry of Corporate Affairs (MCA) by General Circular No. 2/2011
dated 8th February, 2011, issued a direction under Section 212(8) of the
Companies Act, 1956 that the provisions of Section 212 shall not apply to
Companies in relation to their subsidiaries, subject to fulfilling certain
conditions mentioned in the said circular with immediate effect. The Board
of Directors of your Company at its meeting held on 10th May, 2011,
approved the Audited Consolidated Financial Statements for the financial
year 2010-11 in accordance with the Accounting Standard (AS-21) and other
Accounting Standards issued by the Institute of Chartered Accountants of
India as well as Clause 32 of the Listing Agreement, which include
financial information of all its subsidiaries, and forms part of this
report. The Consolidated Financial Statements of your Company for the
financial year 2010-11, are prepared in compliance with applicable
Accounting Standardsand where applicable Listing Agreement as prescribed by
the Securities and Exchange Board of India.

The annual accounts and financial statements of the
subsidiary companies of your Company and related detailed information shall
be made available to members on request and are open for inspection at the
Registered Office of your Company. Your Company has complied with all the
conditions as stated in the circular and accordingly has not attached the
financial statements of its subsidiary Companies for the financial year
2010-11. A statement of summarized financials of all subsidiaries of your
Company including capital, reserves, total assets, total liabilities,
details of investment, turnover, etc., pursuant to the General Circular
issued by Ministry of Corporate Office, forms part of this report.

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

DIVIDEND

During the financial year 2010-11, your Company declared and paid an
interim dividend of Rs. 8.50 per equity share in the month of November,
2010. In addition, your Directors recommend payment of Rs. 23.50 per equity
share as the final dividend for the financial year ended 31st March, 2011.
If approved, the total dividend (interim and final dividend) for the
financial year 2010-11 will be Rs. 32.00 per equity share; Rs. 27 per
equity share was paid as dividend for the previous year.

TRANSFER TO RESERVES

Your Company proposes to transfer Rs. 418.10 crores to the general reserve.
An amount of Rs. 600 crores is proposed to be retained in the profit and
loss account.

MANAGEMENT DISCUSSION AND ANALYSIS

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

CORPORATE GOVERNANCE

During the financial year, Asian Centre for Corporate Governance and
Sustainability at its 11th International Conference on Governance and
Sustainability held in February, 2011 recognised your Company's Audit
Committee as Best Audit Committee for the year 2010. Your Company places on
record its appreciation for the Audit Committee for its outstanding
contribution in promoting the philosophy and culture of good governance and
sustainable development in your Company.

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

SECRETARIAL AUDIT

Dr. K. R. Chandratre, Practicing Company Secretary conducted Secretarial
Audit pursuant to provisions of Section 383A of the Companies Act, 1956,
for the financial year 2010-11. Dr. K. R. Chandratre has submitted the
Report confirming compliance with the applicable provisions of Companies
Act, 1956 and other rules and regulations issued by SEBI/other regulatory
authorities for Corporate law.

EXPANSION OF THE JOINT VENTURE WITH PPG INDUSTRIES INC., USA, AND
ACCELERATION OF GROWTH OF THE NON-DECORATIVE COATINGS BUSINESS

During the year 2010-11, your Company has decided to enhance its fourteen
year relationship with PPG Industries Inc., USA (PPG), one of the world's
leading coatings and specialty products company in order to accelerate
growth of the non-decorative coatings businesses in India. As part of this
arrangement, your Company and PPG have decided to enhance the existing
presence in India by expanding the current 50-50 joint venture
relationship, Asian PPG Industries Limited (APPG), by partnering in all
segments of the coatings space in India except decorative coatings and also
establish a second 50:50 joint venture.

APPG currently services the Indian transportation coatings markets and this
change will expand its scope to additionally service the industrial liquid,
marine and consumer packaging markets. The second joint venture will
service the protective, industrial powder, industrial containers and light
industrial coatings markets.

The formation of the second Joint Venture involves certain statutory and
procedural formalities to be complied with. As a first step to the joint
venture formation, a new company named AP Coatings Limited (100% owned
subsidiary of your Company) was formed. Till the formation of new Joint
Venture, the Industrial business of your Company as well as the business of
Asian Paints Industrial Coatings Limited (APICL, your Company's wholly
owned subsidiary carrying on the business of powder coatings) will be
carried out by AP Coatings Limited.

AP Coatings Limited along with two Indian subsidiaries of PPG will merge
into APPG and thereafter, certain businesses will demerge into the new
50:50 Joint Venture Company. This arrangement is subject to regulatory
approvals and pending filling of applications and petitions for merger and
demerger in accordance with Section 391 to 394 of the Companies Act, 1956,
before the Hon'ble High Court(s) and the subsequent sanction by the
respective High Court(s).

Your Company will have effective management control in the second joint
venture while PPG will take the lead in APPG. This would enable utilization
of respective strengths in order to capture the growth in infrastructure
development and globally driven markets in India.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits during the year 2010-11
and there are no outstanding fixed deposits from the public as on 31st
March, 2011.

INSURANCE

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

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

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

FOREIGN EXCHANGE EARNINGS AND OUTGO

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

PERSONNEL

The Ministry of Corporate Affairs by notification dated 31st March, 2011,
issued the Companies (Particulars of Employees) Amendment Rules, 2011,
which amended the limits of remuneration of the employees mentioned under
Companies (Particulars of Employees) Rule, 1975. Accordingly, as per the
Companies (Particulars of Employees) Amendment Rules, 2011 and the
provisions of Section 217(2A) of the Companies Act, 1956, details of the
names and other particulars of employees drawing remuneration aggregating
to more than Rs. 60,00,000 (Rupees Sixty Lacs Only) per annum and Rs.
5,00,000 (Rupees Five Lacs) per month, are required to be attached to this
report. However, as per the provisions of Section 219(1)(b)(iv) of the
Companies Act, 1956, the Report and Annual Accounts of your Company sent to
the shareholders do not contain the said annexure. Any shareholder desirous
of obtaining a copy of the said annexure may write to the Company Secretary
at the Registered Office of the Company.

DIRECTORS' RESPONSIBILITY STATEMENT

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

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

* The accounting policies have been selected and applied consistently and
the judgments and estimates made, are reasonable and prudent, so as to give
a true and fair view of the state of affairs of the Company as on 31st
March, 2011 and of the profit and loss of the Company for that period.

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

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

DIRECTORS

Mr. P. M. Murty, Managing Director & CEO of your Company was awarded the
CEO of the Year' by Business Standard for the year 2009-10. Mr. P. M.
Murty was felicitated by the Hon'ble Prime Minister Shri Manmohan Singh in
New Delhi on 25th March, 2011. Your Company congratulates Mr. P.M. Murty
for this recognition and is proud of his contribution to the growth of your
Company.

Mr. Deepak Satwalekar was recognised and awarded the Best Independent
Director-2010' by the Global Advisory Board of Asian Centre for Corporate
Governance & Sustainability at its 11th International Conference on
Governance and Sustainability held in February, 2011. Your Company
congratulates Mr. Deepak Satwalekar for this recognition.

As disclosed in the last year's Annual Report, Mr. Hasit Dani resigned as a
Non-Executive Director of your Company on 3rd June, 2010. During the
financial year 2010-11, the Board of Directors appointed Mrs. Ina Dani as
an Additional Director with effect from 27th July, 2010. Mrs. Ina Dani is
being appointed as the Director of your Company at the forthcoming Annual
General Meeting. Your Directors recommend her appointment as a Director of
your Company.

In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Company, Mr. Dipankar Basu, Mr. Deepak
Satwalekar, Mr. Amar Vakil and Mr. R. A. Shah retire by rotation at the
conclusion of the forthcoming Annual General Meeting and being eligible,
offer themselves for re-appointment. Appropriate resolutions for their re-
appointment are being placed before you for your approval at the ensuing
Annual General Meeting. The brief resume of the aforesaid Directors and
other information have been detailed in the Notice. Your Directors
recommend their re-appointment as Directors of your Company.

AUDITORS

M/s. Shah & Co., Chartered Accountants and M/s. B S R & Associates,
Chartered Accountants, Joint Auditors of your Company are due for
retirement at the ensuing Annual General Meeting and are eligible for re-
appointment. Your Directors recommend their re-appointment for the ensuing
year. The Statutory Auditors of your Company have submitted a certificate
to your Company that they have subjected themselves for the peer review
process of the Institute of Chartered Accountants of India for the
financial year 2010-11.

COST AUDITOR

Your Company has received approval from the Central Government for
appointment of Ms. Ketki Visariya, as the Cost Auditor of the Company for
the financial year 2010-11 to conduct the audit of the cost records of the
Company. Futher, the due date for submission of Cost Audit Report for the
FY 2010-11 is 27th September, 2011.

APPRECIATION

Your Directors wish to thank and place on record their appreciation for all
the employees at all levels for their hard work, solidarity, co-operation
and support during the year. Your Directors wish to place on record their
appreciation to customers, shareholders, vendors and bankers for their
continued support.

For and on behalf of the Board

Ashwin Choksi
Chairman

Mumbai
10th May, 2011

ANNEXURE TO DIRECTORS' REPORT

FORM - A

Disclosure of particulars with respect to Conservation of Energy:

Particulars 2010-11 2009-10

A. Power and fuel consumption

1. Electricity

a) Purchased

Units (000 KWH) 29,262 30,550
Total Amount (Rs. in Crores) 14.89 14.20
Rate per unit (Rs.) 5.09 4.65

b) Own Generation

Through diesel Generator

Units (000 KWH) 18,276 7,390
Units per ltr of diesel oil 3.53 3.30
Cost/unit (Rs.) 10.24 10.19
Natural Gas
Units (000 KWH) 6,430 6,572
Units per nm3 3.32 3.33
Cost/unit (Rs.) 5.23 4.66

2. Coal

Quantity (in MTs) 18,182 15,688
Rs. in Crores 8.66 5.98
Average rate/MT (Rs.) 4,761 3,812

3. Diesel

Quantity (in KL) 1,642 1,485
Rs. in Crores 6.21 5.10
Average rate/KL (Rs.) 37.82 34.34

4. Furnace Oil

Quantity (in MTs) 1,209 978
Rs. in Crores 3.61 2.42
Average rate (Rs.) 29.88 24.71

5. Natural Gas

Quantity (in 000 cubic m.) 3,514 3,379
Total Amount (Rs. in Crores) 5.73 4.69
Average rate (Rs.) 16.40 13.88

B. Consumption per unit of production

Electricity Furnace Oil Natural Gas
2010-11 2009-10 2010-11 2009-10 2010-11 2009-10

Paints 110 98 3 2 4 5
Phthalic 62 45 - - 69 62
Penta 120 646 - 1 - -

Coal Diesel
2010-11 2009-10 2010-11 2009-10

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

Form - B

Disclosure of particulars with respect to technology absorption:

Research and Development (R&D):

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

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

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

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

* Upgradation of existing product and processes.

* Technology support of all overseas units.

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

* Development of new application techniques for various substrates.

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

* Development of new analytical test methods, characterization techniques.

* Collaborative development with vendors, academia and institutes.

* Development of domain expertise to expedite product development.

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

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

* Productivity improvement in manufacture of machine colorants.

* Opacity improvement for select Premium Gloss Enamel shades.

* New factory made shade in the Premium Gloss Enamel range, Mahogany was
launched.

* Royale Luster Emulsion was launched.

* Productivity improvement and energy savings in water based paint
manufacture.

* Two textured finishes - Pebbletex and Crosstex for exterior application
launched.

* PU Pallette Metallic launched.

* Royale Play Stucco launched.

* Developed Economical Mono coat Stoving Black Enamel for 3 Wheeler
industry.

* Developed Polyester Amino mono coat for automotive OEM segment.

* Developed Fleet PU range of Enamels for Auto Refinish market.

* Development of high solid high build splash zone epoxy coating capable of
offering DFT up to 1500 micron in single coat by airless application.

* Development of 2K tough elastomeric polyurethane membrane for car park
deck coating.

* Development of 3K heavy duty self levelling water based polyurethane
flooring.

* Development of ambient cure high build heat resistant polysiloxane
coating having dry heat resistance up to 600 deg C.

* Development of rapid recoat epoxy MIO intermediate suitable for recoating
within 90 mins.

* Development of high strength epoxy repair mortar for industrial concrete
floorings.

3. Further plan of action:

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

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

(Rs. in Crores)
Particulars 2010-11 2009-10

Capital 3.67 1.21
Recurring 32.23 28.43
Total 35.90 29.64
Net Sales and operating income 6,322 5,125
R & D expenditure as % of net sales and operating income 0.57% 0.58%

Technology absorption, adaptation and innovation:

All developments were done indigenously.

Foreign exchange earnings and outgo:

Your Company's exports primarily consist of Di-pentaerythritol and
Monopentaerythritol to USA, South America and Europe. The Di-
pentaerythritol is used mainly as an additive in the manufacture of
lubricants and refrigerants and theMonopentaerythritol is mainly used in
the manufacture of explosives. The demand for your Company's products from
these markets was stable during the year.

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

For and on behalf of the Board

Ashwin Choksi
Chairman

Mumbai
10th May, 2011

MANAGEMENT DISCUSSION AND ANALYSIS

The global economy staged a remarkable rebound in the last financial year
reducing the fears of a double-dip recession that some had forecast in
2009. The recovery was aided by the continuation of stimulus measures
adopted during 2008-09 by developed as well as emerging economies including
India. Increased liquidity in the developed economies impacted sentiment
and boosted consumption as well as investment. Emerging markets neared
their pre-recession growth levels on the back of domestic demand and
buoyant exports while developed economies began to show pickup in demand.
However, globally, the year was also characterized by periods of high
uncertainty. The sovereign debt crisis that engulfed Greece and Ireland
also threatened a number of other euro economies jeopardizing the stability
of global financial markets. Short term policy interventions by the
concerned governments did help to avert a crisis situation but a lot still
needs to be done for any significant fundamental improvement in the
financial conditions of some of these countries. During the second half of
the year, mass uprisings in Egypt, Libya and some other MENA countries sent
crude prices over the USD 100 per barrel mark. Brent spot, an important
indicator for crude went up by 41.7% during the year and 22.1% during the
last quarter of FY 2010-11. The environment continues to remain challenging
on this front.

India maintained its growth momentum on the foundation of relatively strong
fundamentals of the economy. The year saw one of the highest rates of
inflation in recent times and RBI increased the repo rates and reverse repo
rates from 5% and 3.50% to 6.75% and 5.75% respectively in a bid to curb
inflation. However, strong domestic consumption and buoyant exports,
enabled GDP to grow by around 8.5% during 2010-11. The rupee also remained
range bound against US dollar to the comfort of both the exporters and the
importers.

1. PRODUCTS AND MARKETS

The paint industry volume in India has been consistently growing at more
than 15% per annum for some years now. The strong growth was supported by a
favourable monsoon and good industrial growth especially in the automotive
sector. Growth in turnover was significantly higher than the volume growth
as large price increases had to be effected during the year.

In International Business, political turmoil in Egypt and Bahrain impacted
business conditions in these countries during the last quarter of the year.
While South Asian markets fared relatively better, the impact of economic
slowdown persisted in some of the other international markets where your
Company operates.

DECORATIVE PAINTS

Decorative paints (including interior and exterior wall finishes, enamels,
wood finishes and ancillary products) constitutes around 72% of the paint
market in India. 2010-11 was a good year for the paint industry and your
Company too did well.

Sharp increase in raw material prices was one of the key concerns
identified by your Company for FY 2010-11 and as expected, it posed
significant challenges throughout the year. The recovery of the global
economy leading to a revival of demand especially in countries like India,
China and the U.S., coupled with the rise in crude prices and shortage of
key raw materials has led to a steady increase in prices across all
categories of raw materials. In India, factors like power shortages,
increase in labour and transportation cost also contributed to the
inflation. The overall impact of inflation during the year was in excess of
13%. This was countered through price increases at regular intervals (five
in all totaling over 12% for the year). Fortunately, this substantial
increase in prices did not affect demand which continued to be robust.
Margins, however, were under severe pressure during the year and continue
to be a concern going forward.

Net Sales grew ahead of volume sales on account of higher realizations due
to a richer product mix as well as price increases. Emulsions have been
growing much faster than the other categories of paints. Your Company saw
success with many premium products like Apex Ultima, Royale, Royale Shyne,
Royale Play, Polyurethane wood finishes and water based enamels.

After the overwhelming response to your Company's Signature Store at
Mumbai, your Company has decided to invest in another store at Connaught
Place, New Delhi which will be opened shortly.

Your Company continued to expand its dealer network across all parts of the
country. The expansion of Colourworld network also continued unabated with
more than 18000 of your Company's dealers being covered currently. Most of
the emulsion paint sale is happening through this network. Considerable
investments were made in upgrading over 3000 retail outlets with the
overall objective of improving the ambience, providing better service and
more information to consumers at these outlets.

Your Company also significantly expanded the chain of stores called Colour
Ideas', where the consumer is provided with an environment wherein he can
experience what colour can do to his home. Here he is also provided with
Colour Consultancy Services.

Consumers have responded very positively to this retail chain and your
Company is in the process of expanding it across the country. During the
year, your Company launched a number of new products. Water based wood
finishes launched in North India would be launched across the country in a
phased manner. New textured finishes for the exteriors - Duracast Pebbletex
and Crosstex were launched and met with good response from builders/
contractors for large projects.

After commissioning of the Rohtak Plant in April 2010, the total installed
paints capacity in India stands at close to 6,00,000 KL. The synthetic
resins and polymer capacity was also augmented by 50,000 MT in FY 2010-11.

In the first year of its operations, Rohtak Plant produced in excess of
80,000 KL of paints. Continuing ahead with its capacity expansion plans,
your Company will increase the installed capacity at the Rohtak Plant from
150,000 KL per annum to 200,000 KL per annum by fourth quarter of FY 2011-
12.

Construction has also commenced at Khandala near Pune (in Maharashtra) for
the seventh Decorative Paints plant with an initial capacity of 300,000 KL
per annum of paints with an investment of around Rs. 1000 crores. The plant
will be commissioned sometime around the last quarter of FY 2012-13. The
Khandala plant can be expanded to 400,000 KL per annum later.

These capacity additions would enable your Company to adequately meet the
envisaged demand in the Indian market. The availability of power supply is,
however, a matter of concern in Rohtak while in other plants, the
reliability of continuous supply can be an issue. Your Company is,
therefore, forced to rely on self generated power in these locations, which
is not cost effective.

Construction of the Distribution Centre at Patancheru Plant is also
underway and by the second half-year of FY 2011-12, all Plants would have
an operating Distribution Centre allowing complete migration to the new
Distribution Model which would facilitate higher service levels at lower
levels of inventory.

INTERNATIONAL OPERATIONS

The financial year 2010-11 began on a challenging note. The International
markets where your Company operates in, continued to be impacted by the
economic slow down, although the South Asian countries were relatively less
impacted. In addition, political turmoil in Egypt and Bahrain has impacted
business conditions in these countries in the last quarter of the year.

Asian Paints International Limited, the Mauritius based subsidiary of your
Company, bought the 80% stake in Samoa Paints Limited held by its
subsidiary Taubmans Paints Fiji Limited for a consideration of US$ 0.5
million.

The focus in the International operations during the year was on
strengthening position in the market place by initiatives to improve
customer centricity, expanding the dealer network, improving service
levels, introducing new products and installing additional dealer tinting
systems. Emphasis was also placed on tighter management of credit risk and
improving internal efficiencies in all areas of operations including
working capital, fixed assets, overheads and material cost. Sharp focus was
accorded to enhance safety standards.

Material prices during the year were volatile and saw an inflationary trend
due to shortages in critical raw materials and rising prices of crude oil.
The impact of inflation was mitigated to some extent by formulation re-
engineering, economies of scale in purchasing, inventory build up and
reducing losses in manufacturing.

The revenue from paint sales of the overseas operations of the group for
the year is Rs. 975 crores as compared to Rs. 979 crores during the
previous year April 2009 - March 2010.

Profit after tax for the overseas operations of the group during the year
is Rs. 87.9 crores compared to Rs. 104.7 crores during the previous year
April 2009 - March 2010.

The revenue from paint sales of Berger International Limited, a subsidiary
listed on the Singapore Stock Exchange has decreased by 16% to S$ 108
million (equivalent to Rs. 372 crores) from S$ 129 million (equivalent to
Rs. 430 crores).

The group operates in the following geographies:

Region Countries

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

The region wise performance is detailed below:

Caribbean

During the year under review, the revenue from paint sales has decreased by
3% to Rs. 157 crores from Rs. 161 crores. Adjusted for exchange rate
impact, the revenue from paint sales has increased by 0.2%. PBIT (Profit
before interest and tax) for the region has increased by 12% to Rs. 12
crores. An all round slow down in construction activity and reduction in
tourism had a severe impact on the Caribbean economies and hence the top
line performance of the region was impacted. However, all the subsidiaries
in the region have been profitable.

Middle East

During the year under review, the revenue from paint sales has decreased by
4% to Rs. 516 crores. Adjusted for exchange rate impact, the revenue from
paint sales has increased by 2%. PBIT for the region has decreased by 38%
to Rs. 65 crores.

The Middle East region is the largest operating region for the group
outside India. The region now contributes 52% of the revenue from overseas
operations. All the economies in the region have been impacted by the
global recessionary trend with the impact being the most severe in UAE.
Additionally, the performance of the subsidiaries in Egypt and Bahrain was
also affected in the last quarter due to the political turmoil in those
countries. However, all the subsidiaries have made profit.

The green field plant in Egypt with an initial capacity of 50,000 KL per
annum is now fully operational. The plant has been designed to eventually
produce 150,000 KL per annum.

Asia

For the year under review, revenue from paint sales has increased by 20% to
Rs. 240 crores. Adjusted for exchange rate impact, the revenue from paint
sales has increased by 21%. The PBIT for the region has decreased by 10% to
Rs. 24 crores.

Expansion of the Color World dealer network and increased influencer
interactions through painter-dealer meets coupled with the recovery in the
construction sector has helped all the subsidiaries to achieve healthy
sales growth. All the subsidiaries have made profit.

South Pacific

For the year under review, revenue from paint sales has increased by 4% to
Rs. 75 crores. Adjusted for exchange rate impact, the revenue from paint
sales has increased by 5%. The PBIT for the region has increased by 16% to
Rs. 13 crores. All the subsidiaries in the region have made profit.

INDUSTRIAL COATINGS

Automotive Coatings: Asian PPG Industries Limited (APPG)

Your Company has a 50:50 Joint Venture (JV) with PPG Industries Inc., which
was formed in the year 1997, for manufacturing Automotive OEM, Refinish and
certain other Industrial Coatings. APPG is the second largest automotive
coatings supplier in the country.

The Indian automobile industry witnessed a phenomenal growth during FY
2011-12, reaching sales of almost 3 million passenger vehicles. Indian
automobile market is on course to a high growth trajectory owing to the
overall economic fundamentals and increasing disposable income of the
working class. Good market conditions have helped APPG further strengthen
its presence in the market. Total sales increased to Rs. 616.48 crores in
FY 2010-11 from Rs. 476.88 crores in FY 2009-10 - a growth of 29.3%. The
profit after tax rose to Rs. 33.03 crores from Rs. 28.58 crores
representing a growth of 15.6%. The consolidated sales were Rs. 637.77
crores and the profit after tax was Rs. 33.62 crores in FY 2010-11.

Faaber Paints Private Limited (FPPL), a wholly owned subsidiary of APPG,
reported sales of Rs. 23.26 crores in FY 2010-11 as compared to Rs. 15.0
crores in the previous year. Profit after tax declined to Rs. 0.7 crores as
compared to Rs. 1.47 crores in the previous year.

Major improvements were effected in appearance, quality and durability of
products offered to customers during FY 2010-11. Measures adopted to
contain costs and expand volume of business paid off and helped APPG
achieve its targets in spite of concerns on raw material prices and
availability. Competition amongst the coatings suppliers is also giving
leveraging power in the hands of the customer forcing prices down. APPG's
strategy of offering better value to its customers by providing superior
products and service has enabled it to deliver superior results. In its
maiden foray outside India, APPG has also decided to enter the Sri Lankan
Auto Refinish market by setting up its own subsidiary. This wholly owned
subsidiary is expected to be operational by July 2011.

The licensed capacity of the facility at Sriperumbudur is 10,400 KL per
annum; the present installed capacity is 7,500 KL per annum. APPG has
decided to further expand the capacity of the plant to 9,140 KL at a cost
of approximately Rs. 30 crores.

The prospects of continuing high price of fuel and uncertain economic
conditions have led to doubts about sustainability of the pace of growth
that the automotive industry has witnessed in the recent past. However,
while there may be a slow down temporarily owing to high base effect, APPG
is confident about the long term prospects of the industry and feel that it
is in a position to take advantage of the growth in the market.

NON AUTO INDUSTRIAL COATINGS

The non auto industrial coatings market is serviced by your Company through
its Growth Business Unit(GBU) and a wholly owned subsidiary, Asian Paints
Industrial Coatings Limited (APICL). The major product segments are -

* Protective Coatings

* General Industrial Coatings

* Road Marking Coatings

* Floor Coatings

* Powder Coatings

Demand for industrial products improved in the second half of FY 2010-11
against a modest increase during the first half, peaking towards the end of
the fiscal year. The improvement in demand was mainly on account of various
projects reaching the stage of painting during the second half of the year.

Your Company's strategy of focusing on sales of middle to high end products
has resulted in an improvement in the mix of products sold. There has been
an increase in the weighted average selling price on account of the
improved product mix.

The inflationary trend in major raw material prices that had commenced in
the last quarter of fiscal year 09-10 continued through the year and prices
of most major raw materials increased steeply during the course of the
year. This trend was witnessed across almost all major raw materials such
as pigments, resins, solvents, oils and monomers. Increased raw material
costs combined with resistance from customers to accept the steep increase
in prices exerted pressure on margins through the year.

The Industrial Paints plant at Taloja completed its fourth year of
operations in February 2011. The first long term settlement with the
workers' union was negotiated and signed in January 2011. Though production
was affected during the negotiation process, particularly during the third
and fourth quarters of the fiscal year, the industrial relations situation
has normalized after the settelment and production levels have been
restored to expected levels. Production was stepped up at Toll
Manufacturers to cover the shortfall in production.

ASIAN PAINTS INDUSTRIAL COATINGS LIMITED

Asian Paints Industrial Coatings Limited (APICL), a wholly owned subsidiary
of your Company, is engaged in the manufacture and sale of Powder Coatings.
There was a modest improvement in demand conditions during the year and the
sales performance of APICL during the year reflected this market situation.
The two powder coating manufacturing facilities located at Sarigam
(Gujarat) and Baddi (Himachal Pradesh) operated satisfactorily to meet
market requirements.

As in the case of industrial liquid paints, a steep increase in the prices
of all critical raw materials such as epoxy and polyester resins and
pigments was seen during the year. Resistance from customers to the steep
price increases that were asked for resulted in pressure on margins.

PARTNERSHIP WITH PPG

Your Company has a long standing and successful relationship with PPG
Industries Inc. which is based in Pittsburgh, USA. It had formed a Joint
Venture (JV), Asian PPG Industries Ltd., with PPG in 1997, to cater to the
growing requirements of the global automakers entering into the Indian
market. APPG is now one of the leading coatings' suppliers in the
Automotive OE sector and is the leader in the Auto Refinish sector. PPG is
also present in other industrial businesses in India through its two
subsidiaries.

In order to further strengthen this relationship, your Company is in the
process of forming a second 50:50 Joint Venture with PPG, which will focus
on Protective Coatings, Light Industrial Coatings, Industrial Container
Coatings and Powder Coatings in the Indian market. This Joint Venture will
leverage the significant expertise, market presence and channel access of
your Company in the domestic market with the considerable global scale and
technology of PPG. Your Company will have effective management control of
this new JV.

APPG, the existing 50:50 JV in the area of transportation coatings, will
now additionally cover Marine Coatings, Consumer Packaging Coatings and
Other liquid industrial coatings segments. PPG will have effective
management control of this JV. Industrial Paints Plant (at Taloja) and
APICL's two powder coating plants at Sarigam and Baddi will continue to be
a part of your Company and APICL respectively and will not form a part of
the new JV. The JV's production requirements will continue to be produced
by these industrial plants under a tolling arrangement.

The formation of JV involves certain statutory and procedural formalities
to be complied with. As a first step to the JV formation, a new Company
named AP Coatings Limited (100% owned subsidiary of your Company) was
formed by your Company. Till the formation of new JV, the Industrial
business of your Company as well as the business of APICL will be carried
out by AP Coatings Limited.

AP Coatings Limited, along with the two companies of PPG in India, will be
merged into APPG and subsequently the relevant businesses demerged to form
the second 50:50 JV through a composite Scheme of Merger and De-merger as
approved by High Courts of respective jurisdictions of all the Companies
involved.

OTHERS

Your Company also produces Phthalic Anhydride and Pentaerythritol in
manufacturing facilities located at Ankleshwar (Gujarat) and Cuddalore
(Tamil Nadu), respectively. These units which were set up as backward
integration initiatives in the late 1980s, primarily cater to in-house
demand for these chemicals.

During the year FY 2010-11, 69% of Phthalic Anhydride and 54% of
Pentaerythritol produced by your Company was transferred for internal
consumption. The remaining quantity was sold in the open market.

Plant shut downs during the year owing to a planned catalyst change
operation and some unanticipated stoppages in plant operations resulted in
production of Phthalic Anhydride being lower than last year. The lifting of
safe guard duty on imports from several countries also resulted in cheap
imported material coming into the country, impacting prices in the local
market. Overall, profitability from the Phthalic Anhydride business was
affected due to the lower production and adverse market conditions.

The profitability of the Pentaerythritol business was higher compared to
previous year. Better sales realization resulted in higher margins from the
business.

2. ENVIRONMENT, HEALTH AND SAFETY

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

Due to continued focus on Environment and Safety, the Penta plant was given
the Environmental Best Practices Award - 2011' at a national level
competition organized by CII - Green business Centre, the Ankleshwar plant
was nominated by Gujarat Cleaner Production Center and Gujarat Pollution
Control Board for exhibiting its cleaner production initiatives in an
international environmental forum of 'Earth Charter' organised by Center
for Environment Education, Ahmedabad and the Sriperumbudur plant was
presented with the Tamil Nadu State Safety Award by Inspectorate of
Factories, Tamil Nadu for outstanding safety performance.

Your Company received consents from Maharashtra Pollution Control Board and
Environmental Clearance from State Environment Impact Assessment Authority
of MoEF in Maharashtra for establishing the Khandala Plant in Maharashtra.
APICL's Sarigam plant for manufacture of powder coatings has been awarded
consents for expansion by Gujarat State Pollution Control Board without any
increase in pollution load.

Your Company's six paint plants and the two chemical plants have the ISO
14001 environmental certification. Your Company's seven paint plants and
one chemical plant are Zero Industrial Discharge' plants and harvest rain
water. Rohtak plant is working towards obtaining the ISO 14001
certification.

Your Company has always been environmentally conscious and believes in
resource conservation. After achieving Zero Discharge' of industrial
effluent, minimization of waste through reduction at source and recycle
/reuse has been a key focus area.This has resulted in reduction in specific
generation of effluents and solid wastes.

Your Company also appreciates the need to monitor and reduce emission of
Green House Gases (GHGs) which are responsible for Global Warming and
Climate Change. It has institutionalized a mechanism to monitor GHGs
emissions across all business units as per Green House Gas (GHG) protocol
[A Corporate Accounting and Reporting Standard by World Business Council
for Sustainable Development]. GHGs emissions monitoring has been
categorised under Scope 1 - Direct GHG emissions (due to fuel consumption)
and Scope 2 - Indirect GHG emissions due to electricity consumption
(electricity bought from power generation companies) over which your
Company has got direct control. Your Company has focused its efforts on
enhancing energy efficiency in all its operations, right from the design of
new manufacturing facilities. Your Company is participating in Carbon
Disclosure Project (CDP) for disclosing information on carbon emissions.

3. HUMAN RESOURCES

The year 2010-11 has been quite significant for Human Resource where
several initiatives were taken forward. Talent Management was taken up as a
specific focus area in HR towards integrating employee Development and
succession planning.

'Learnscape' is an ambitious initiative in the area of Learning and
Development that your Company launched. This initiative seeks to define for
our managers and executives the expectations around Asian Paints way of
managing people and thereafter a series of initiatives to skill employees
at every level was launched this year. At the core of this initiative has
been the focus on conversations that participants have had with several
leaders within and outside the organization, thus enabling a process of
engagement and connectedness with the environment.

Your organization has also worked on leveraging information technology to
aid the development process for employees. With tie-ups with renowned
organizations like Harvard Business Publishing and Skillsoft and combined
with several custom builtmodules, we have enabled world class learning that
was delivered to employee independent of time and distances.

Your organization is also focused on building an internal array of trainers
and coaches who are committed to developing employees by bringing in skills
and contextual expertise in a sustained manner. This has generated
excitement and augmented opportunities for cross functional collaborations
and conversations.

People Review Process was initiated to map and capture people capability in
the organization aiming towards succession planning for the organization
and growth for individuals. Promoting quality conversation was given thrust
across organization through different HR processes and initiatives.

Our organization placed a specific focus in the area of ethics and code of
conduct. Creating heightened awareness amongst employees by way of active
engagement across the country was a big initiative this year.

Employee Engagement is one of the key elements in the success of an
organization. Your organization has embarked upon a path to build
engagement among employees through the appreciative enquiry methodology.
The first set of programs was launched for field sales organization in
India that has lead to greater employee engagement and energy amongst the
field sales force.

4. BUSINESS CONTINUITY PLANNING

As your Company charts ambitious growth plans, it is imperative to ensure
that unexpected events do not disrupt existing operations by putting in the
necessary processes and tools to ensure business continuity. Your Company
has embarked on an enterprise wide Business Continuity Planning (BCP)
initiative to evaluate risks arising from a disaster perspective and to
recommend processes and tools to proactively mitigate the impact to ensure
that business operations are not disrupted. This exercise covers all the
existing businesses and will address locational as well as systemic risks.

5. CORPORATE SOCIAL RESPONSIBILITY

Your Company believes that 'for growth to be responsible, it should go
beyond numbers. It should do good to the society, create a better world',
and accordingly it is strongly aligned in its drive to create and enhance
stakeholder value with its commitment to good governance, ethical conduct
and social responsibility. The key areas where it is striving to make a
difference include socially relevant causes such as Elderly Care,
Healthcare, Education and Water Conservation.

The manufacturing units at Kasna (Uttar Pradesh), Patancheru (Andhra
Pradesh), Sriperumbudur (Tamil Nadu) and Ankleshwar (Gujarat) have been
doing their bit to make a positive difference to the lives of the
disadvantaged elderly citizens of the neighboring localities. The Mobile
Medicare Units (MMUs) being operated in association with the NGO HelpAge
India has made it possible to reach the doorsteps of the needy senior
citizens. Several blood donation camps and other healthcare camps were
conducted during the year including a camp on cataract surgery with the
motto of helping the needy elderly citizens see colour again'.

Your Company strives to use the scarce resource of water efficiently by
recycling and reusing, wherever possible. The Total Water Management (TWM)
Centre located in the premises of your Company's manufacturing facility in
Mumbai has been championing the issue of water conversation; informing and
demonstrating techniques of water harvesting to the public at large.

6. INFORMATION TECHNOLOGY

During 2010-11, your Company embarked on an ambitious journey in the area
of Information Management. In the dynamic and growing business scenario,
leveraging the information assets to help managers make quicker and better
decisions through the analysis of key trends and events that affect
business is becoming an important factor for sustaining market leadership
and competitive advantage. A three year roadmap was drawn up in the area of
Information Management that will help in improving speed, governance and
performance of business by using all types of data, content and state of
art analytics. The project will be executed in multiple phases spanning two
years and the key phase of determining the Business Intelligence Strategy
for your Company has been completed.

As your Company continues to grow and setup highly automated paint
manufacturing facilities, it is very critical that information flow from
the shop floor to the top floor is seamless. Advanced Manufacturing
Execution Systems have been deployed in both Rohtak and Sriperumbudur
plants to optimize the material flow and provide real time information
visibility to shop floor operations to aid better decision making. We are
proud of the core capabilities that have been built by your Company in
managing these complex integrations and the same will hold us in good stead
as and when newer and complex automated factories are setup in coming
years.

As the power of social collaboration using tools like Facebook and Twitter
sweeps across the world, tremendous benefits can be realized by unleashing
the power of information democracy within the enterprise by empowering
employees, partners and customers to connect easily. Your Company too has
realized the potential benefits of such platforms and has been an early
adopter in deploying Enterprise Social Collaboration platforms to
facilitate exchange of ideas, building of vibrant virtual communities to
foster innovation to ultimately sustain competitive advantage in the
marketplace.

7. RESEARCH & DEVELOPMENT

Your Company is executing an integrated strategy for technology development
and deployment. The technology function is supporting your Company's
strategy around four missions: technology development, development of
substantially new products, productivity improvement and cost reduction.
The focus for your Company in the financial year 2010-11 had been to
maintain the lead in the development of environment friendly products.
During the year new emulsions platforms have been exploited to allow for
the development of eco friendly binders. New products offer the customer
choice of water-based alternates to solvent borne systems. Efforts have
focused in the area of developing paints with reduced Volatile Organic
Contents (VOC) much in line with leading paint companies across the globe.
This is to allow your Company to meet the mid and long terms strategic
goals. A number of development programs aimed at productivity improvement
and energy efficiency have borne fruit and their implementation is well
underway. Cost reduction programs continue with renewed vigor. Widespread
shortage of crucial raw materials is foreseen as the demand for materials
is picking up with revival of economies of several countries. In this
context, your Company is actively working on alternate raw materials to
ensure that its ability to service its customers remains unaffected. Your
Company continues to work in collaboration with leading academia to bring
new knowledge into business and vendors with international presence to
leverage the latest developments happening in other countries. Some of
these programs are bearing fruit and will strengthen the overall technical
capabilities in the area of resins and emulsions development. Your Company
continues to increase its presence in international forums through
publications in peer review journals. The recognition of the work of its
scientists is helping shape an image of the organization that attracts
competent and committed scientists. Indeed, during the year your Company
has been able to attract talent from international universities to
strengthen its in house research base.

8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company is committed to carry out its operations within a well defined
control framework. The control framework is anchored on good governance,
sound internal controls and an independent internal audit. The framework
was further strengthened during the year through a mix of initiatives on
all the three aspects. Most noteworthy among them are:

1. A revised code of conduct was published. The code of conduct was
extended to all employees and communication workshops held with the
employees.

2. Your Company announced a whistle blower policy to its employees and key
external stake holders. Any communication received under this policy is
treated with confidentiality and investigated by a high powered committee
in the organization.

3. The shared service center set up last year was streamlined. A concurrent
audit of its operations is done to have an additional pair of eyes
monitoring the operations.

4. Your Company has, during the year, revisited policies and process
manuals and made modifications wherever required. These were communicated
to all in your Company.

The above initiatives have strengthened the governance framework within
your Company. Along with increased levels of manual and automated controls,
these initiatives provide a good internal check over the day to day
operations of your Company.

To complement the existing controls and to have an independent review of
the adequacy and operation of existing controls, your Company has an
independent internal audit department which carries out periodic risk based
audits of operations and key processes in your Company. The audit plan is
approved by the Audit Committee of the Board and the Chief Internal Auditor
periodically reports any control gaps along with management action plan to
the Audit Committee.

Your Company has a separate Risk Management Council which meets
periodically to identify, assess and mitigate key strategic and business
risks facing the organization. Milestones are arrived at and progress
against the same monitored periodically.

9. RISK AND OUTLOOK

The overall economic outlook for 2011-12 appears to be positive but
challenging. Economic activity is expected to be buoyant in the Indian sub
continent driven by good internal as well as export demand, with Indian GDP
expected to register a growth of around 8%. Also, with early forecast
predicting a normal monsoon in 2011-12, your Company expects the rural
economy to perform well and support paint demand in the rural areas. The
market for Industrial products is expected to improve on the back of thrust
on infrastructure development and industrial growth.

However, there are certain risks that can impact the performance of your
Company.

The turmoil in the Middle East and North African region has already
affected global crude supplies and prices. The events in Japan after the
tsunami might force a re-look on nuclear energy globally. Amidst widespread
concern on nuclear danger, it is expected that fossil fuel consumption will
only go up in the near future for lack of other reliable and proven
sources. This could have a long term impact on the prices of these
commodities globally.

Costs of some other key raw materials like Titanium Dioxide are expected to
inch up due to their relative shortage, inadequate investment in fresh
capacities and buoyant demand conditions.

Specific to India, factors like power shortages increase in labour cost and
transportation cost could also contribute to inflation.

All these factors could put pressure on margins of products of your Company
and force price hikes. Such price hikes, if any, could directly have an
effect on the demand of the products.

Risks of sovereign defaults in the European Union remain and the recovery
in rest of the developed world is still quite fragile. Amidst talk of
phasing out and withdrawal of stimulus measures, it remains to be seen
whether growth can be sustained going forward.

The recent unearthing of huge scams and the resulting logjam in government
functioning could lead to policy reform taking a backseat thereby affecting
the long term growth potential of the country apart from impacting investor
sentiments.

Reserve Bank of India (RBI) has announced a series of rate hikes in FY
2010-11 and more hikes are expected in FY 2011-12 in a bid to control the
spiraling inflation. This can have an adverse impact on demand,
particularly in interest rate sensitive sectors like housing and
automobiles.

Directional movements of currency are hard to predict and volatility in
currency movements might have financial implications for your Company.

Additionally, adverse impact of the political turmoil in Middle East or any
other political, economic or natural crisis where your Company has
significant presence can also affect the business performance of your
Company.