Ambuja Cements - Annual Report - 2008-2009

AMBUJA CEMENTS LIMITED

ANNUAL REPORT 2008

DIRECTOR'S REPORT

Dear Members,

2008 - A CHALLENGING YEAR:

The economic landscape looks significantly different compared to the
situation twelve months ago. At that time GDP growth was at record levels
of 9% plus, and it was expected that 10% was within reach. In the meantime
the sub-prime issue in the US evolved into a full scale global financial
crisis and India, although having a relatively robust financial system,
could not remain insulated from the ensuing fall-out.

This had an increasingly severe impact on the Indian economy in the second
half of 2008. The rapid outflow of institutional funds caused a sudden
liquidity crisis, a slump in stock markets, and a precipitous fall in the
value of the rupee. Reserve Bank of India (RBI) policy bias shifted
markedly from controlling inflation to stimulating growth and boosting
liquidity, and a number of monetary measures have been implemented in order
to shore up financial markets and try to limit the spillover effect on the
real economy. Some further easing of monetary policy seems likely, but may
be limited by the continuing threat of inflationary pressures.

The government has also announced various fiscal stimulus measures,
including an across the board cut in cenvat rates, increased investment in
infrastructure projects, and targeted support for key sectors like
construction.

While it is not possible to fully escape the impact of the global financial
meltdown, the Indian economy is better placed than many to withstand the
shock, given that it is driven more by domestic consumption, has a sound
banking system, a young population, and a strong savings culture.
Therefore, although growth may be relatively muted in the range of 6% to
6.5% for the next couple of years, the future prospects for sustained
growth remain very bright.

The cement industry experienced a turbulent year in 2008. The year began on
a positive note, with the economy booming and year on year cement demand
growth in double digits, though spiraling input costs were already starting
to pose a threat.

In the June quarter, prices of oil, coal, and other inputs, were at all
time highs and the inflation rate moved into double digits, prompting the
imposition of informal price controls on certain key commodities, including
cement. A ban on cement exports was also implemented, and these measures
had an immediate impact on demand, with growth in the quarter reducing to
around 8%.

In the September quarter the combined impact of a number of external
factors caused a further deterioration in the position of the cement
industry.

There were some local or regional issues, such as civil disturbances and
unusual weather patterns, but the principal factor was the sudden financial
crisis, which erupted with the Lehmans downfall. Construction activity had
already slowed in most regions, as interest rate hikes earlier in the year
dampened demand, and with the liquidity crunch, real estate development
companies faced sudden difficulties in accessing funds for their projects.

Although the RBI has injected significant amounts of cash into the
financial system, there is increasing pressure on developers to lower
property prices, in order to stimulate demand and help ease their cash
flows.

In the final quarter, the government and RBI measures, together with a
sharp decline in global commodity prices, had restored some confidence, and
there was an immediate positive impact on cement demand, which registered
double digit year on year growth in November and December, as work resumed
on many construction projects.

However, this was largely due to the release of pentup demand from the
previous quarter, and may not be sustainable.

All-India cement demand growth for the full year was consequently 8%,
compared to more than 9% in 2007. Despite the pick-up in dispatches towards
the end of the year, and likely further interest rate cuts, the real estate
sector is only expected to make a gradual recovery, and cement demand
growth is unlikely to exceed 7% in 2009.

The industry demand-supply balance began to shift in 2008. Following three
years of minimal capacity additions, nearly 30 million tonnes of new cement
capacity were added during the year, whereas the 8% demand increase
translated into only 14 million tonnes of additional demand. As the new
capacity becomes fully effective, this could result in increased pricing
pressures in 2009, though the impact will vary across the quarters, and
regions.

OVERVIEW OF THE YEAR 2008 RESULTS

As a consequence of the lower overall cement demand growth, spiraling input
costs, especially for imported coal and freight, and restricted ability to
pass on higher costs into the market, the company's financial results from
operations for the year 2008 were impacted. Nevertheless, many initiatives
have been taken in order to partially mitigate external factors, by
focusing on sustainable improvements in operating efficiency and business
processes. These will stand the company in good stead for the next upturn.

The real strength of a company lies in its ability to generate cash,
therefore it was also felt important to maintain a strong balance sheet.
This is reflected in the fact that the company did not resort to any new
borrowings in 2008, and finished the year with a healthy cash balance.

FINANCIAL RESULTS

Rs. in Crore
Stand Alone Consolidated
Current Previous Current Previous
Year Year Year Year
31.12.2008 31.12.2007 31.12.2008 31.12.2007

Sales (net of excise duty) 6234.65 5631.36 6261.79 5718.60
Profit before Interest
and Depreciation 2261.66 3024.54 2250.34 3103.63
Less: Interest 32.06 75.85 32.60 77.09
Gross Profit 2229.60 2948.69 2217.74 3026.54
Less: Depreciation 259.76 236.34 260.10 237.18
Profit before Tax 1969.84 2712.35 1957.64 2789.36
Provision for Tax 567.57 943.25 567.93 943.25
Profit after Tax 1402.27 1769.10 1389.71 1846.11
Add: Balance brought
forward from previous year 348.20 272.06 683.74 530.59
Add: Credit Balance of Profit
& Loss Account as on 01.07.2005
of erstwhile INSCL - 0.21 - 0.21
Profit available for
appropriation 1750.47 2041.37 2073.45 2376.91
Appropriations:
Debenture Redemption
Reserve (Net) - (30.00) - (30.00)
Transfer from
Exchange Fluctuation
Reserve on cessation
of subsidiary - - 5.72 -
General Reserve 1000.00 1100.00 1000.00 1100.00
Dividend on Equity Shares
(including interim) 334.97 532.65 334.97 532.65
Corporate Dividend Tax 56.92 90.52 56.92 90.52
391.89 623.17 391.89 623.17
Balance carried forward 358.58 348.20 675.84 683.74
1750.47 2041.37 2073.45 2376.91
DIVIDEND

Your company has paid an interim dividend of 60% (Rs.1.20 per share) during
the year. We are pleased to recommend a final dividend of 50% (Re.1.00 per
share). Thus the aggregate dividend for the year 2008 works out to 110%
(Rs.2.20 per share), and the total payout including corporate tax thereon
will be Rs. 392 crore.

KEY NUMBERS (STANDALONE)

* Cement production up 5%, at 17.8 million tonnes.

* Domestic cement sales up 9%, at 16.8 million tonnes.

* Average Net Sales Realisation up 5%, at Rs. 3,544 per tonne.

* Net Sales up 11%, at Rs. 6,235 crore.

* EBITDA down 12%, at Rs. 1,833 crore.

* Profit before Tax down 27%, at Rs. 1,970 crore.

* Net Profit down 21%, at Rs. 1,402 crore.

* Exceptional Income Rs. 308 crore compared to Rs. 786 crore in 2007.

* Cash Position Rs. 852 crore at 31 December 2008.

PRODUCTION

Total cement production increased by 5%, from 16.9 to 17.8 million tonnes.
The increase was mainly as a result of a full years production at Farakka
and Roorkee facilities which started in mid 2007, and commencement of
grinding at Surat terminal in early 2008.

Clinker production was 1% lower than in 2007, at 11.5 million tonnes.
Higher production at Rabriyawas following the 2007 up-gradation was offset
by lower production as a result of unplanned stoppages at the Maratha and
Darlaghat plants.

MARKETING

While in the first half of 2008, the government introduced a ban on exports
and encouraged imports from Pakistan, in the second half the realty boom
suddenly turned to bust. With the global economy coming to a crunching
halt, funds for major housing, commercial and infrastructure projects
practically dried up.

To revive demand in the real estate sector, the government introduced a
slew of monetary and fiscal measures. In December, the excise duty on
cement was reduced by 4%, and on clinker by Rs.150 per tonne, and
countervailing duties were re-imposed on imported cement. The export ban
was also fully lifted. Interest rates were lowered in a bid to boost
residential housing demand.

Against this backdrop of financial market turbulence, domestic cement
demand grew by about 8%. But, at the end of the year, the pendulum has
swung, from the large residential and commercial projects in metros, mini
metros and big towns, towards the more informal housing sector in smaller
towns and rural areas. Ambuja Cement has built a strong position in this
segment over the last two decades. An FMCG approach was adopted, to create
a wide retail network of small 'mom and pop' shops, right down to the
taluka / village level. A large sales force works alongside these small
dealers to help them promote and sell the brand to the right consumer at
the right price. Meanwhile, a team of expert civil engineers works closely
with small contractors and masons, who undertake construction of single
unit houses in small residential centres.

Building a brand on the dusty rural map has its own excitements. Our people
have worked with local communities to demonstrate better construction
practices and materials, to build economical and durable structures - not
only housing but also rural infrastructure, like check dams, schools and
roads. They have also undertaken training of local people in masonry
skills. For example, Gujarat state government has launched an initiative to
train tribals in rural areas, and has teamed up with Ambuja Cement to start
a formal mason training school in Dahod, near Baroda. Also in Rajasthan,
our Customer Support Group has provided mason training as part of a Skill
and Entrepreneurship Development Institute initiative, in collaboration
with the Ambuja Cement Foundation. Creating an active distribution and
customer service network down to this level is certainly a big challenge,
but a worthwhile investment, as it has enabled the company to reap handsome
rewards in terms of premium brand recognition and loyalty of the end
consumer. Keeping abreast of the changing needs of our customers, we have
also developed some special products for key accounts in Mumbai and
Kolkata, for which we achieve improved realisations for added customer
value.

All this has resulted in the company consolidating its position in the 13
states / Union territories which form its core markets. We have built a
strong position by creating a hub and spoke network of clinkerisation
plants and grinding units, a strong distribution network, and innovative
logistics solutions like bulk cement movement by sea. In these core
markets, Ambuja sold 15.4 million tonnes, amounting to 91% of our total
domestic sales, and our volumes went up 9% as against demand growth of 7%.
We continue to maintain a healthy 18% share in these markets.

All India

Demand analysis for all India is given below:

Fig. in mil. tonnes

2007 2008 %
Domestic 159.7 173.9 9
Export 4.2 2.9 -31
Total - India 163.9 176.8 8

Domestic cement demand is growing at 7% CAGR (5 years). Total demand
(including exports) has grown by 8% as compared to last year, while
domestic demand has increased 9%. There was a sharp fall of 31% in exports,
partly as a result of the export ban imposed in the April / May period.

We managed to hold on to a 30% share of the cement export market.

Northern Region

Demand analysis for the Northern region is given below:

Fig. in mil. tonnes
North 2007 2008 %

Demand 32.3 34.4 7
Ambuja Volume 6.1 6.2 3
Share (%) 18.8 18.1

* Above figs. exclusive of UP

Demand grew by 7% as compared to last year. Ambuja Cement has a substantial
presence in Punjab, Himachal Pradesh and Jammu & Kashmir, and we maintained
our shares in these core markets.

During the year, heavy imports from Pakistan t substantially reduced prices
disturbed the market, articularly in Punjab. At the same time, the twomonth
ong Amarnath agitation in J&K affected upplies there, and the state saw
negative growth f 7% in demand for 2008. To take advantage of he time-bound
incentives introduced by the Himachal Pradesh government, a large number of
industrial projects came up in the state, boosting demand for cement till
last year. These projects have now been completed and as a result cement
demand dipped 9% in 2008.

In spite of these developments in the core markets, Ambuja managed to
increase volume by 3% and more or less hold its market share for the region
as a whole.

Eastern Region

Demand analysis for Eastern region is given below:

Fig. in mil. tonnes
East 2007 2008 %

Demand 19.2 21.1 10
Ambuja Volume 2.2 2.6 19
Share (%) 11.5 12.4

* Above figs. exclusive of North East, (except Assam) & Bihar

Industry has grown by 10% in 2008 on year on year basis. Our volume has
grown by 19% and we have therefore increased our market share.

Our recently established plant in Farakka, in northern West Bengal, has
given us a wider reach in our core market and we could strengthen our
footprint in this part of the state. Meanwhile in Kolkata we focused on the
key customers. A detailed study of their consumption revealed scope for a
special cement which will give higher strength and durability.

By introducing this cement in Kolkata, we have been able to add value for
our key customers and increase our volumes significantly.

Western Region

Demand analysis for Western region is given below:

Fig. in mil. tonnes
West 2007 2008 %

Demand 31.3 33.8 8
Ambuja Volume 6.2 6.9 11
Share (%) 19.9 20.3

Industry has grown by 8% compared to last year in western region. Ambuja
volume growth stood at 11% and consequently we could slightly increase our
market share.

Mumbai is the largest cement consuming centre in the country and perhaps,
one of the most prestigious with the presence of some of the most reputed
global names in the realty sector. It also became one of the worst affected
due to the global slowdown. However, we could increase our sales in this
market by 13% with some strategic steps, like introducing high strength
cement and increasing our service offering to key accounts. Market share in
Mumbai was maintained at 24% in 2008. This is despite the slowdown in real
estate, which is a major contributor to cement consumption.

Imports from Pakistan also reached parts of Mumbai and caused some market
disruption.

In the South we have a token presence in Telengana region and, though the
region has grown at 11%, we have strategically maintained our share at 2-
3%.

Major Costs

Major input costs displayed considerable volatility during 2008. The global
oil price reached nearly USD 150 per barrel in midyear, only to crash at
the end of the year back to below USD 50. Other commodities followed a
similar trend, nevertheless for the full year there was a substantial
increase in our cost base compared to 2007, which could be only partially
compensated by price increases or efficiency improvements.

Coal

The cost of imported coal, representing approximately 30% of the total
requirement, further increased in the first half of 2008, having already
gone up substantially in the second half of 2007.

The average landed cost in 2008 (for both kiln and captive power) was
consequently around Rs. 5,700 per tonne, 50% higher than in 2007.

The cost of domestic coal also increased, as linkage supplies became
unreliable, necessitating higher procurement of market / e-auction coal at
a substantial premium to the linkage prices. Deterioration in the quality
of domestic coal supplied continues to be an issue, and this has impacted
the fuel consumption figures at certain plants. A number of unplanned
stoppages also had an impact, and for the company as a whole, the
consumption increased slightly compared to 2007, from 742 to 744 kcal per
kg of clinker.

Power

The company already sources around 80% of its power requirements from
captive power generation, and during 2008 one new 18.7 MW power plant was
commissioned at the Rabriyawas plant. As a result of the increase in coal
cost during the year, the cost of captive generation increased by about
20%.

Power consumption was slightly higher in 2008, at 86.4 kwh per tonne of
cement, compared to 84.6 kwh in 2007. Requirements were higher mainly at
the Bhatapara and Ambujanagar plants, due to certain inefficiencies in the
grinding processes.

Purchased Clinker

Pending completion of the Bhatapara expansion, continued clinker purchases
were required for the grinding units at Farakka and Sankrail. In addition,
clinker purchases were necessary for Maratha in the second half, as the

kiln speed had to remain restricted following a breakdown in mid-year. In
total, 725 thousand tonnes were procured, compared to 500 thousand tonnes
in 2007. The impact on EBITDA margin of using purchased rather than own
produced clinker is approximately 200 basis points.

Freight

Freight and Forwarding costs increased by 12% in absolute terms, and 7% on
a per tonne sold basis. The major reasons were: a shift from export to
domestic sales partly due to the export ban in mid year, and a hike in fuel
prices earlier in the year when global oil prices were dramatically
increasing. These increases were rolled back towards the end of the year,
but too late to have any real impact in 2008.

PEOPLE POWER

Ambuja Cement has always prided itself on its world beating performance. In
order that we continue to deliver and improve upon performance on a
sustainable basis, a project aptly titled 'People Power' was launched at
the Ambujanagar plant, with the aim of ensuring 'healthy people and healthy
plants'.

To achieve 'healthy people', an organisational transformation was carried
out in the plant. The new organisation created a large number of leadership
positions at different levels, unlocking leadership potential and
unleashing creative energies among talented individuals.

To achieve 'healthy plants', an Engineering Support Group was created,
incorporating an Academy and a Development Cell. To boost operational
efficiency, standards were developed for improving productivity using tools
and processes developed at both Ambuja and Holcim, based on global best
practices. A detailed health check was carried out to ensure long term
health of the plant, based on which an action plan was developed for
implementation.

The resulting transformation has propelled the plant performance to
achieving the near impossible aspiration of 400 thousand tonnes of clinker
during December 2008, one of the highest ever in its history.

The principles and tools developed during this pilot implementation are in
the process of being rolled out to the other Ambuja plants, and further
initiatives are underway to achieve continuous improvement in cost
efficiencies in operations, and sustained health of the plants.

HUMAN RESOURCES

A process-driven approach to induction of fresh talent ensures a continuous
and consistent talent pipeline for future business growth.

Apart from enhancements in productivity, the 'People Power' project has
resulted in enhancing the managerial and innovation skills of our people.
Projects like SAP implementation have encouraged an inter-disciplinary
approach to business challenges. People working on these projects have been
gainfully redeployed in new roles requiring multi-functional competencies.

KRA (Key Result Area) based performance management provides an objective
basis for managing performance and rewards. Individual goals are derived
from organizational objectives, hence ensuring complete alignment and
commitment of the people.

Management Development is a well structured approach designed around
development of leadership competencies required for different levels.
Integrated Talent Management processes with global practices are aimed at
creating future leaders for succession. These are supported by advanced HR
Management Systems and are well integrated with other business processes.

EXPANSION PROJECTS

A new 1 million tonne grinding facility was commissioned at the beginning
of 2008 at Surat, where the company already operates a bulk cement
terminal. OPC is transported from Ambujanagar to Surat, where it is blended
with locally sourced fly ash.

The company has the long term objective of at least maintaining market
share and, to this end, the two major clinkerisation expansion projects, at
Bhatapara in Chattisgarh, and Rauri in Himachal Pradesh, remain on track
for completion in mid 2009 and end of 2009 respectively. Each comprises a
7000 tonne per day kiln line, therefore together they will add
approximately 4.4 million tonnes of clinker capacity. The total investment
in these projects has escalated by around 10%, mainly due to the steep cost
increases for steel and civil contracting during the year.

In alignment with the new clinker capacity, grinding capacity will also be
further increased, by 5.5 million tonnes, to be commissioned over the next
12-18 months. Grinding units at Dadri and Nalagarh in the North will come
on stream in mid 2009 and first half of 2010 respectively. The grinding
unit project at Barh has been suspended, owing to delays in setting up the
NTPC power plant from which fly ash would be sourced, and will be replaced
by further augmenting the grinding capacity at Bhatapara. And it has been
decided to proceed more slowly with the project at Sanand (Ahmedabad),
which will now be deferred till 2010.

Additional captive power projects are in progress at Ambujanagar,
Bhatapara, and Maratha.

These will add approximately another 90 MW, most of it being commissioned
in 2009 and taking total capacity to more than 400 MW. The bulk cement
terminal at Kochi is on course for commissioning in the first quarter 2009.
This will give the company access to the fast growing southern market via
cost effective sea transportation. Furthermore the fleet of ships which
plies the Ambujanagar - Mumbai - Surat routes is in process of being
expanded to cope with anticipated future demand growth. Three new vessels
are in the pipeline, for delivery in 2009-2010.

HOLCIM ALIGNMENT

The process of aligning with Holcim systems, methodologies and tools, is
making good progress. A major milestone was the implementation of Holcim's
SAP template, which went live in August 2008. We are now on-line with
nearly 200 locations, including dumps / yards, and are able to explore the
full potential of IT in continuously improving customer service, with real
time data. This not only brings the benefits of a fully integrated real
time ERP system, but helps facilitate benchmarking between Holcim group
companies and sharing of good practices.

Occupational Health and Safety is another area where the adoption of Holcim
guidelines and methodologies has assisted in dramatically increasing
awareness of the need for safe working practices, in order to achieve a
'zero harm' environment.

Our Talent Management efforts are also supported through access to the
Holcim Leadership Development programs, and possibilities for transfers
between group companies in order to gain experience of different business
and cultural environments.

There is a strong alignment on Corporate Social Responsibility issues.
These have been an integral part of the Ambuja mission since the beginning,
through the Ambuja Cement Foundation and are also at the heart of Holcim's
Sustainable Development initiatives.

RISKS AND AREAS OF CONCERN

Energy Costs

Coal remains the single most important input factor, both for the kilns and
captive power plants, and the volatility of prices in 2008 demonstrated its
impact on the company's profitability. At the end of the year,
international coal prices (as well as freight) have dropped even more
sharply than they had risen, and this degree of volatility creates
uncertainty in our business planning process. The company therefore focuses
continuously on the coal procurement process in order to manage this risk.
Quality and reliability of supply of domestic coal also continue to be a
source of concern. Materialisation of linkages has been unpredictable, and
quality has deteriorated, affecting plant productivity. The company
continues to work on mitigation measures, such as acquisition of coal
blocks for captive mining, and increased usage of AFR (Alternative Fuels
and Raw materials) to reduce dependence on coal.

Surplus Capacity

Despite likely delays, or even cancellations, of some cement expansion
projects, as financing has become very expensive and returns less
attractive in the short term, there will nevertheless be a period of
surplus capacity. This may be in the range of 40-50 million tonnes for All-
India by the end of 2010, which could have some impact on cement pricing in
affected markets.

Freight

Transportation is another key input, and continued volatility of global oil
prices may also impact diesel prices and hence freight cost. Fuel prices
are state-controlled, and changes may be driven by non-market
considerations.

Taxation

Taxes on cement, although slightly reduced towards the end of 2008,
continue to be higher in India than in most other countries, and the duty
structure is too complex. This has a significant impact on pricing of
cement for the end user.

INTERNAL CONTROL SYSTEM

The company has instituted a robust internal control system to support
smooth and efficient business operations and effective statutory
compliance. In order to improve the reliability and efficiency of business
processes having an impact on financial reporting, the company has
established an internal control systems project by standardizing and
documenting major processes and associated key controls. Responsibilities
have been assigned to specific individuals to correctly and timely perform
the controls.

The formalized systems of control help discharge the obligations as per
Clause 49 of the SEBI Listing Agreement, and article 728 (a) of the Swiss
Code of Obligations applicable to the HolcimGroup from 2008.

The company's Internal Audit department is responsible to independently
test the design and operating effectiveness of the internal control system
across the company. This facilitates an objective assurance to the Board
and Audit Committee regarding the adequacy and effectiveness of the system.

The Internal Audit function, established since company's inception, not
only monitors the effectiveness of controls but also provides an
independent and objective assessment of the overall governance processes in
the company, including the application of a systematic risk management
framework.

The scope and authority of the function are governed by the Internal Audit
Charter, approved by the Audit committee. Internal Audit plays a key role
by providing an assurance to the Board of Directors, and value adding
consultation service to the business operations.

OUTLOOK

Cautious Optimism

Though market conditions are likely to remain challenging for the next 1-2
years, depending on the depth of the global economic recession, the longer
term outlook for the Indian economy, and specifically the cement industry,
is very positive. Growth will be bolstered by the country's sound
macroeconomic fundamentals, and the pressing need for extensive development
of infrastructure and mass residential housing. Cement demand may however
remain relatively weak for some time, and the addition of significant new
capacity over the next two years will inevitably alter the pricing dynamics
in certain markets.

Ambuja Cement fully intends to remain at the forefront of these
developments, maintaining its market leadership and premium brand status,
by adapting to the changing conditions and positioning itself to emerge an
even stronger player from this period of weaker growth.

SUSTAINABILITY INITIATIVES

One of the founding pillars of your Company is its steadfast commitment to
Sustainability. The Company operations, from manufacturing to logistics to
community development, all these incorporate the basic tenets of
sustainability. Ambuja Cements Ltd. has always maintained that its
financial performance would be in tandem with its environmental and social
performance. Last year, the Company produced its first Corporate
Sustainable Development Report (CSDR) and also issued a Summary Report
along with the Annual Report of 2007. It also translated the Summary Report
in various local Indian languages to spread the message of its efforts to
different stakeholders. Based on the deliberations of the Board, a
Sustainable Development Steering Committee (SDSC) was set up chaired by the
Whole time Director & Company Secretary with members from across various
functions like accounts, marketing, human resources, corporate
communications and community relations, was formed. The steering committee
held three meetings during the year to discuss the issues of sustainability
along with the Company's Vision, Mission, Goals and Values.

The issue of materiality of concern to the local communities has been dealt
with routinely by the Ambuja Cement Foundation (ACF) at various
manufacturing locations. It was encouraging to learn that there existed a
100% match between the Company's concerns and community's needs on social
development at all locations. ACL is in process of initiating similar
consultations with its customers and employees.

Environment Management

We are committed to pollution control at our plants and mines and earn
Awards for the same

The Company has adopted the state of the art technology from glass bag
house (GBH) to surface miner, rock breaker to bulk cement terminals and
from CDM to GHG emission control. We plan to carry out conversion of ESP at
one of our acquired Units into GBH for efficient particulate control.

The proactive practice 'of beyond compliance' for sewage water through the
mechanism of 'sewage water recirculation plant' (SWRP) is practiced at all
our Unitseven in Ropar (Punjab) Unit which is flush with water from the
Sutlej canal.

Manufacturing of cement is a process that generates lot of noise. The
Company places great emphasis on noise control both in its cement plants
and mines and looks towards newer avenues of performing better in this
area. The excellent performance on environmental parameters at the Maratha
Cement Works has earned ACL the Greentech Award.

Along with ACF, water bodies have been created out of the mined out pits at
Ambujanagar. These act as large water reservoirs and have improved the
water table in the near by areas and have benefited the farmers. The
salinity mitigation projects undertaken in Ambujanagar by ACF have shown
encouraging results and have earned ACL an Award for Excellence in Water
Management by CII- GBC under 'beyond the fence' category.

Fly ash - a waste product that has helped the Company produce larger
volumes of cement and also reduce the GHG contribution

To tide over the power shortage in the country, large coal based thermal
plants are being set up by power companies, leading to generation of
thousands of tonnes of fly ash. The disposal of this fly ash, which is a
hazardous waste from power plants, is a major national concern.

Over the years, we researched on how we could use this waste in
manufacturing cement without compromising on its quality and strength.
Today, we use as much as 4444290 tonnes of fly ash at our various cement
plants. This has helped us to reduce the clinker factor and thereby reduce
GHG generation at our plants.

Use of alternate fuels and raw materials to help reduce emissions

The very process of manufacturing cement the world over leads to generation
of CO2. As a responsible corporate citizen, the Company makes conscious
efforts to reduce these CO2 emissions wherever possible. The use of
alternate fuels and raw materials (AFR) is one such significant initiative
which not only reduces over all CO2 emissions, but is also a need to
conserve precious natural resources for the forthcoming generations.

There is a nationwide consensus that the co-processing of hazardous/ non-
hazardous wastes in cement kilns provides an effective solution for
disposal of these wastes.

We have used hazardous waste products such as plastic waste, industrial
waste and sludge in the cement plant with no adverse impact on environment
or our cement quality.

Our captive power plant at Ropar runs on biomass/agro waste of different
varieties and animal waste. This has not only resulted in saving in costs
but has also helped us conserve on the usage of precious coal.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Our CSR activities are being carried out through Ambuja Cement Foundation
(ACF) which has a long tradition of proactively contributing to sustainable
and sound solutions on socio-economic and environmental issues in the
neighbouring communities wherever the Company operates. ACF has been set up
to specifically engage with community stakeholders and it works on two
fronts - stakeholder engagement and community development.

Stakeholder Engagement:

The Foundation believes it is critical to identify individuals and groups
in the local communities directly or indirectly affected by the Company
operations and to engage with them in a continuous dialogue. ACF have
commissioned a reputed external agency ERM to conduct Social Impact
Assessments (SIAs) at all new Company sites. The findings of this agency
have enabled ACF to be sensitive to the possible social impacts created by
the Company operations by addressing effectively the concerns and views of
those affected in the draft rehabilitation plans.

This extensive exercise has already been completed at two locations-
Marwar- Mundwa in Rajasthan and Nalagarh in Himachal Pradesh during 2008.
As a follow up of the SIA at Marwar-Mundwa, a detailed database of primary
stakeholders i.e. the project affected people has been generated. Going
ahead, this database will prove helpful in developing measures to mitigate
impact and restore livelihoods of the affected communities. An exercise of
risk scoping has been completed at Sanand in Gujarat.

Since the Foundation has been engaging with community stakeholders ever
since its inception, a need was felt to conduct a formal review of the work
carried out so far. Using a unique tool called the Social Engagement
Scorecard, developed by Holcim for its Group Companies, ACF involved the
communities in the process of gauging the effectiveness of its social
interventions simultaneously determining the location specific course of
action for the future. During 2008, ACF completed the review in Kodinar,
Chandrapur, Darlaghat, Ropar, Rabariyavas, Sankrail and Bhatapara. At all
the locations ACF engagement was found to be in line with the needs of the
area and the aspirations of the communities.

Community Development: ACL is committed to the development of the
communities where it operates. Through its varied community development
initiatives, the ACF reaches out to SES being conducted approximately 607
villages catering to a population of over 11 lakhs. The community
development activities include health care, improvements in quality of
education, infrastructure development, livelihood generation, women's
development, formation of self-help groups for women and the like.

In education, Basti schools- informal schools for out of school children in
Bhatinda, have arisen to prominence due to their commendable work in the
last year. The schools try to provide bridge education to out of school
children and attempt to bring them into the mainstream formal education
system. These initiatives have found appreciation by the local communities
as well as the Key Opinion Leaders. Educational activities conducted in the
government schools of Darlaghat and Chandrapur have also expanded and
diversified in the past year.

The Foundation has organised women Self- Help Groups with the objectives of
helping them cultivate the habit of making small monthly savings, giving
them a platform to meet and interact with one another and to determine the
means of improving their lives. As the groups have matured, these have
gradually began engaging in varied micro-enterprises. It is hoped that
these become alternate sources of income for the families. At present the
Foundation has initiated 571 SHGs. These have made a collective saving of
approximately Rs.87 lakhs.

In the health sector, the creation of an HIV Positive People's group has
been an achievement of the Ropar unit of the Foundation. This is the first
of its kind in the state and has been providing all the members' support
and strength to come to terms with their HIV positive status, to take
charge of their lives and to engage in gainful and productive activities.
With the help of the Foundation, 6 members of the group have established a
paper recycling unit. The used paper from ACL is taken for recycling and
sold back to the Company. Other agencies in the area like the PCACS have
shown an interest in purchasing the recycled paper.

ACF aims at developing societies by building skilled communities that are
capable of sustaining themselves. To achieve this goal, ACF helps
communities capitalize on its expertise, knowledge and competencies, rather
than merely providing them financial assistance. Since the Indian
construction industry has been growing at 8-10% for the past few years, ACF
identified in it an opportunity to develop skilled labourers who could find
employment in this particular sector. Most of the masons working in the
construction sector are unqualified and semi-skilled. They are often
required to assume the role of an architect, a structural engineer as well
as a purchaser of building materials. Keeping these spaces for improvement
in the sector, mason training programs were devised and organised by ACF in
collaboration with ACL at various locations. The customer support unit of
the Company provided the necessary training. In all, over a hundred masons
were trained by the programs.

Efficient vocational training is one of the means of restoring livelihoods
of those affected by industrialisation and unemployed rural youth that can
no longer be absorbed in agriculture because of its dwindling growth. ACF
thought that the manufacturing and services sectors would provide with
prospects of absorbing such skilled persons. With this thought, Skill
Training Institutes were established at Darlaghat, Himachal Pradesh;
Chandrapur, Maharashtra and Jaitaran, Rajasthan by the Foundation to
conduct continuous training programs on employable trades. The training
institutes established have had an encouraging placement rate of 75% for
their trainees. The training on operating heavy motor vehicles to land
losers in Darlaghat solicits a special mention here. These persons have
been trained in operating heavy vehicles such as cranes and dumpers by
theFoundation and are undergoing field apprenticeship at the Company's
Darlaghat plant.

While enhancing the lives of rural communities, sustainability can best be
achieved with proper management and conservation of natural resources such
as water and land. In this front the Foundation undertook scores of
interventions in accordance with local conditions and needs. In Gujarat we
continued addressing the need for responding to increasing water shortage
and salinity in groundwater that was showing a direct and adverse effect on
agriculture and potable water. ACF extended its project on interlinking
pond and water harvesting structures to 60 villages.

The cumulative effect of ACF interventions has harvested 1067FT of surface
storage water benefitting 7895 farmers and 23255 Ha. of land. In the last
year the average increase in the water level in wells arose by 15 feet.
With sweet water recharge, the salinity in groundwater has reduced
considerably.

This has resulted in a reduced requirement of seeds for sowing and better
yields due to timely availability of water for irrigation. In Rajasthan,
efforts were directed towards conserving maximum quantities of water and
providing drinking water along with improved cultivation. In Chhattisgarh,
a large check dam was constructed on Khosri Nala stream with a water
holding capacity of 80 TCM benefiting 125 hectares of arable land and
benefiting four villages.

Besides continuing to work on roof rainwater harvesting structures, ACF
partnered with the State Government on the Jalswarajya Project to make
potable water available to the villages of Chandrapur. SEDI, Darlaghat,
theory class in progress Lush green farms

To improve the quality of water in Fluoride affected villages of Rajasthan
the Rajasthan Integrated Fluorosis Mitigation Programme was implemented.
Under the programme awareness was generated on the impact of excess
fluoride and the methods to mitigate its effects and domestic de-
fluoridation units were distributed. In the last year, the Foundation
constructed a total of 393 RRWHS, renovated 54 drinking water wells and
repaired/installed 52 hand pumps in the program areas.

Due to the close relationship between water and agriculture, besides making
interventions to improve quality and availability of water, the Foundation
made efforts to incorporate requisite changes in agricultural and
irrigation practices. For each of the changes propagated by the Foundation,
training programs were held to generate awareness amongst the people,
project demos were organised at the village level and individual meetings.
A total of 195 trainings for farmers were organised that benefitted 1759
farmers along with 30 exposure visits. Micro-irrigation methods like drip
and sprinkler irrigation were explained, as was organic farming.

ACF has made conscious effort to explain and promote advantageous
agricultural practices such as multi cropping, vegetable cultivation and
horticulture across locations. The benefits of these have been seen in
terms of increased agricultural yields, higher profitability and incomes
and resultant better living standard. ACF believes that if agrobased
livelihoods are made profitable, over a periodof time, it would help in
avoiding large scale migrations besides making the communities prosper in
the own lands.

Appreciation for the Foundation's water management efforts, specifically on
salinity mitigation came in the form of The Excellent Water Management
Initiative Award - Beyond the Fence which was conferred by the CII - Godrej
Green Business Centre in December 2008.

In the coming year, the Foundation will continue to direct its efforts
towards productive stakeholder engagements with the community members and
will continue to work with renewed vigor towards social and economic
development through community participation.

OCCUPATIONAL HEALTH & SAFETY

Change in mindsets

OH&S is one of our core values. We have allocated significant resources to
strengthen the Occupational Health and Safety Management system. We have
set up Corporate Occupational Health and Safety function to lead these
efforts to facilitate design, and implementation of OH&S management system.
The efforts are to implement OH&S pyramid elements and Fatality Prevention
Elements to ensure that the 'zero harm' objective is achieved. We are using
procedures and programs to ensure safe working environment, and develop
positive safety culture through leadership.

We also have initiated implantation of Contractor Safety Management
Directive, which help to ensure processes are in place to ensure safety of
third party employees. We have also embarked on the journey of changing
behaviors across all functions through Safety Leadership training. We
continue to lead our efforts on enforcement of OH&S norms at all our
Project sites. We are committed to continually improve our OH&S performance
through implementation of formal OH&S management system.

EMPLOYEE STOCK OPTION SCHEME

The company has granted Stock Options to the Managing Director, Whole-time
Directors and employees, for the ninth year in succession. The particulars
required to be disclosed pursuant to Clause 12 of SEBI (Employees Stock
Option Scheme) Guidelines 1999, are given in subsequent paragraphs.

a) ESOS 2008

During the year 2008, the company granted 73,84,300 stock options on 1st
July, 2008 (each option carrying entitlement for one share of the face
value of Rs.2/- each) to the Managing Director, Whole-time Directors and
the employees, at an exercise price of Rs.82.00 per share. The market price
of the shares on the date of grant was Rs.73/- per share. These stock
options shall vest on expiry of one year from the date of grant and can be
exercised during a period of four years from the date of vesting. The
exercise price was determined by averaging the daily closing price of the
company's equity shares during 7 days on the National Stock Exchange,
immediately preceding the grant.

The company has adopted intrinsic value method for the valuation and
accounting of the stock options as per SEBI guidelines. Since the market
price per share on the previous day of the date of grant was less than the
exercise price, no employee compensation cost has been accounted for the
year ended 31st December, 2008. The fair value of the options as per the
'Black Scholes' model comes to Rs.16.95 per option. Had the company valued
and accounted the options as per the 'Black Scholes' model, the net profit
for the year would have been lower by Rs.15.10 crore and the diluted
earning per share (with face value of Rs. 2 each) would have been Rs. 9.11
instead of Rs. 9.21 per share.

The 'Black Scholes' model captures all the variables with their respective
appropriateness, which influences the fair value of stock options. The
significant assumptions to estimate the fair value of options as per 'Black
Scholes' model are:

1. Risk-free interest rate - 7.02%.

2. Expected life of the option - 3 years.

3. Expected volatility - 35.94%.

4. Expected dividend yield - 2.58%.

None of the options granted during the year have vested till date. No
employee or Director has been granted options in excess of 1% of the issued
equity share capital of the company. None of the Directors has been granted
options of more than 5% of the total options granted during the year.

The options granted to the Managing Director, Whole-time Directors and
other senior management personnel are as follows:

Mr. A. L. Kapur 325000
Mr. P. B. Kulkarni 200000
Mr. N. P. Ghuwalewala 125000
Mr. B. L. Taparia 100000
Mr. David Atkinson 100000
Mr. J. C. Toshniwal 70000
Mr. S. N. Toshniwal 50000
Mr. R. R. Darak 41500
Mr. Anil Kaul 24900
Mr. H. S. Patel 41500
1077900

Other employees have been granted 63,06,400 options. The details of options
granted to other employees are:

Total number of employees 2922
Total number of options granted 6306400
Max. number of options granted 29000
Min. number of options granted 300
Avg. number of options granted 2158

1,15,700 stock options have been reserved to be granted to the SAP core
team later.

b) Cumulative disclosure

The particulars with regard to the stock options as on 31st December, 2008
as required to be disclosed under the SEBI's guidelines are as follows:

Cumulative position as on 31st December, 2008 :

Nature of disclosure Particulars

a. Options granted 20164450

b. The pricing formula 2008, The exercise price
SAP 2007 was determined by
& averaging the daily
2007 closing price of the
company's equity shares
during 7 (seven) days
on the National Stock
Exchange immediately
preceding the grant.

2004-05 & The exercise price
2005-06 was determined by
averaging the daily
closing price of the
company's equity shares
during 15 (fifteen)
days on the National
Stock Exchange
immediately
preceding the grant.

2003-2004 The exercise price
was determined by
averaging two weeks'
High and Low price of
the company's equity
shares on the National
Stock Exchange
immediately preceding
the grant.

1999-2000 The exercise price
to 2002-03 was the average of the
daily closing price
of equity shares of the
company on the Stock
Exchange, Mumbai
during the period
of 30 (thirty) days
immediately preceding
the date on which the
options were granted.

c. Options vested 11769175

d. Options exercised 4515475

e. The total number of shares Total number of shares arising as a
arising as a result of exercise result of exercise of options shall
of options be 3,22,76,170 shares of Rs. 2 each.

f. Options lapsed / surrendered 645700

g. Variation of terms of option -

h. Money realised by exercise Rs.113.51 crore
of options

i. Total number of options in 14358425
force

j. Details of options granted/ No. of options No. of options
exercised by the Managing granted exercised
Director and Whole-time Directors

1. Mr. A. L. Kapur 855000 240250
2. Mr. P. B. Kulkarni 745000 295000
3. Mr. N. P. Ghuwalewala 375000 75000
4. Mr. B. L. Taparia 410000 135000

Any other employee who received a
grant in any one year of option
amounting to 5% or more of

options granted during that year Nil Nil

k. Employees who were granted
options during any one year, equal
to or exceeding 1% of the issued
capital of the company at the
time of grant. NIL

l. Diluted earning per share (EPS)
pursuant to issue of shares on
exercise of options calculated in
accordance with Accounting
Standard AS-20.

2003-04 2004-05 2005-06 2007 2007 2008

m. Weighted average
exercise price
of options 310* 443* 69.60** 113** 82** 82**

Weighted average fair
value of options 67.44* 96.73* 19.23** 29.28** 16.95** 16.95**

* Options related to Equity Shares of the face value of Rs.10/-.

** Options related to equity shares of the face value of Rs. 2/-.

The information disclosed in respect of item No. (m) is for grants made
after June 30, 2003.

CORPORATE GOVERNANCE

The company has complied with the Corporate Governance as stipulated under
the listing agreement with the stock exchanges. A separate section on
corporate governance, along with a certificate from the auditors confirming
the compliance is annexed and forms part of the Annual Report.

DIRECTORS

Appointment

Mr. Naresh Chandra was appointed by the Board as Additional Non-Executive
(Independent) Director with effect from 26th July, 2008.

Mr. Naresh Chandra is a post graduate in mathematics from Allahabad
University. He was a distinguished member of the Indian Administrative
Service (IAS) & former Cabinet Secretary to the Government of India. He has
held various important positions including that of Governor of the State of
Gujarat and India's Ambassador to the United States of America. He was also
the Chairman of Corporate Governance Committee instituted by the Government
of India. In the year 2007, he was honoured with Padma Vibhushan by the
Government of India. He is a Director on the Board of ACC Ltd. and several
other reputed companies.

In accordance with the provisions of Section 260 of the Companies Act,
1956, Mr. Naresh Chandra shall hold office upto the date of ensuing Annual
General Meeting and have filed his consent to act as Director of the
Company, if appointed.

Board at its meeting held on 6th February, 2009 recommended for the
approval of the members, the appointment of Mr. Naresh Chandra as a Non-
Executive Director liable to retire by rotation

Mr. Onne van der Weijde was appointed by the Board as Non-Executive
Director and as a Holcim nominee with effect from 9th January, 2009 to fill
the causal vacancy caused by the resignation of Mr. Nirmalya Kumar.

Mr. Onne van der Weijde holds a Bachelors degree in Economics, Accounting
from Rotterdam, Netherlands and a Masters degree in Business Administration
from the University of Bradford, UK.

He joined Holcim in the year 1996. After holding various positions in the
Company, he was appointed Director and General Manager for Holcim (India)
Pvt. Ltd. in March 2005. He was appointed as the Chief Financial Officer of
ACC Ltd. in May 2006 and inducted on its Board in January 2009. He is also
a Director in Bulk Cement Corporation (India) Ltd., ACC Ltd. and ACC
Concrete Ltd.

In accordance with the provisions of Section 262 of the Companies Act,
1956, Mr. Onne van der Weijde shall hold office upto the date of ensuing
Annual General Meeting and have filed his consent to act as Director of the
Company, if appointed.

Board at its meeting held on 6th February, 2009 recommended for the
approval of the members the appointment of Mr. Onne van der Weijde as a
Non-Executive Director not liable to retire by rotation.

Notices have been received from Members of the Company under Section 257 of
the Companies Act, 1956 proposing the candidature of Mr. Naresh Chandra and
Mr. Onne van der Weijde for appointment as Directors. Appropriate
resolutions seeking your approval to their appointment are proposed in the
Notice conveying the 26th Annual General Meeting of the Company.

Cessation

Mr. Nirmalya Kumar, Non Executive Director and a Holcim nominee who joined
the Board on 03rd May, 2006 resigned w.e.f. 1st January, 2009.

Mr. P. B. Kulkarni who was associated with the company for more than 25
years and who joined the Board in the year 1999, ceased to be the Whole-
time Director and a Director on the Board of the Company upon expiry of his
term on 31st January, 2009.

During his long endearing association with the Company, he has been one of
the key architects in building this Company from initial capacity of 0.7
million tones to the present capacity of around 22 million tones. With his
continued dedication & direction, the Company has been able to achieve high
level of productivity & efficiency in its operations, which made Ambuja as
one of the most enviable Company to work for in the cement industry.

The Board placed on record its appreciation for the valuable services
rendered by Mr. Nirmalya Kumar and Mr. P. B. Kulkarni.

Retirement by rotation

In accordance with the provisions of Article 147 of the Articles of
Association of the Company, (i) Mr. Suresh Neotia, (ii) Mr. Narotam
Sekhsaria, (iii) Mr. M. L. Bhakta and (iv) Mr. A. L. Kapur Directors of the
company retire by rotation at the ensuing Annual General Meeting of your
Company and, being eligible, offer themselves for re-appointment. The Board
of Directors recommends their re-appointment.

Further details about Directors are given in the Corporate Governance
Report as well as in the Notice of the ensuing Annual General Meeting being
sent to the shareholders along with Annual Report.

DIRECTORS' RESPONSIBILITY

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

i) In the preparation of the annual accounts, the applicable accounting
standards have been followed along with proper explanations relating to
material departures.

ii) Appropriate accounting policies have been selected and applied
consistently, and 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 December, 2008, and of the profit and cash flow of the company
for the period ended 31st December, 2008.

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

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

AUDITORS

M/s. S. R. Batliboi & Associates, auditors of the company will retire at
the ensuing Annual General Meeting and are eligible for re-appointment.
M/s. S. R. Batliboi & Associates have confirmed that their re-appointment,
if made, shall be within the limits of Section 224 (1B) of the Companies
Act, 1956.

The Board recommends their re-appointment as Auditors and to fix their
remuneration. M/s. P. M. Nanabhoy & Co., Cost Accountants, have been
appointed Cost Auditors of the company for the year 2009.

TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND

The company has transferred a sum of Rs. 0.60 crore during the financial
year 2008 to the Investor

Education and Protection Fund established by the Central Government, in
compliance with Section 205C of the Companies Act, 1956. The said amount
represents unclaimed dividend and unclaimed interest on debentures and
bonds which have been with the company for a period exceeding 7 years from
their respective due dates of payment.

ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE

Information on conservation of energy, technology absorption, foreign
exchange earnings and outgo is required to be given pursuant to 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 is annexed
hereto marked Annexure - I and forms part of this report.

PARTICULARS OF EMPLOYEES

Information required to be given pursuant to the provisions of Section 217
(2A) of the Companies Act, 1956 read with Companies (Particulars of
Employees) Rules, 1975 is annexed hereto marked Annexure - II and forms
part of this report.

SUBSIDIARY COMPANIES

(a) Cessations

Ceylon Ambuja Cements Pvt. Ltd. and Midigama Cements Pvt. Ltd. have ceased
to be the subsidiary companies upon divestment of company's entire holding
in favour of Holcim during the year.

(b) Annual Reports

Ministry of Corporate Affairs, Government of India, vide its letter dated
4th December, 2008 has exempted the company from attaching the Annual
Reports and other particulars of its subsidiary companies along with the
Annual Report of the company required u/s 212 of the Companies Act, 1956.
Therefore, the said Reports of the subsidiary companies viz. (1) Kakinada
Cements Ltd.,

(2) Chemical Limes Mundwa Pvt. Ltd., and (3) M.G.T. Cements Pvt. Ltd. are
not attached herewith.

However, a statement giving certain information as required vide aforesaid
exemption letter dated 4th December, 2008 is placed along with the
Consolidated Accounts.

The company shall provide the copy of Annual Report and other documents of
its subsidiary companies as required u/s 212 of the Companies Act to the
shareholders upon their request, free of cost.

CONSOLIDATED FINANCIAL STATEMENTS

As stipulated by Clause 32 of the listing agreement with the stock
exchanges, the consolidated financial statements have been prepared by the
company in accordance with the applicable accounting standards issued by
The Institute of Chartered Accountants of India. The audited consolidated
financial statements together with Auditors' Report form part of the Annual
Report.

The consolidated net profit of the company, its subsidiaries and associates
amounted to Rs. 1389.7 crore for the corporate financial year ended on 31st
December, 2008 as compared to Rs. 1402.3 crore for the company on a
standalone basis.

EQUAL OPPORTUNITY EMPLOYER

The company has always provided a congenial atmosphere for work to all
sections of the society. It has provided equal opportunities of employment
to all without regard to their caste, religion, colour, marital status and
sex.

AWARDS AND RECOGNITION

* Company received the prestigious 'Business Superbrands' status in August,
2008.

* Ambuja received 'Greentech Environment Excellence Gold Award 2008' at Goa
on 5th September, 2008. This award was given to 'Maratha Cement Works' for
overall Best Environment management practices & performance.

* CII and Godrej Green Business Centre awarded National Award for
Excellence in Water Management 2008 - 'Excellent Water management
Initiative - Beyond the Fence'

* The Indian Bureau of Mines presented the following Awards to our MCW
Mines after carrying out detailed survey of the Mines located in Vidarbha
region and our company was given following prizes :

First Prize - Afforestation
Second Prize - a) Top Soil
Management
b) Air Quality
Management

Third Prize - a) Management of
Minerals
and Sub-Grade
Minerals

b) Water Quality
Management

c) Overall
Performance.

* The Directorate of Mines Safety during their overall assessment of entire
Mines of Vidarbha adjudged all the Mines and our Mines were presented
following prizes:

First Prize - a) Mine Lighting

Second Prize - a) Injury Rate
Performance

b) Explosives

* Director General mines safety (Ministry of Labour & Mines, Govt. of
India) Awarded the first prize to our Rabriyawas Mine (Ras Lime Stone Mine)
in the 22nd Mine Safety Week, Ajmer Region for its over all performances.

ACKNOWLEDGEMENTS

Your Directors take this opportunity to express their deep sense of
gratitude to the banks, central and state governments and their departments
and the local authorities for their continued guidance and support.

We would also like to place on record our sincere appreciation for the
total commitment, dedication and hard work put in by every member of the
Ambuja family.

To them goes the credit for the company's achievements.

And to you our shareholders, we are deeply grateful for the confidence and
faith that you have always reposed in us.

For and on behalf of the Board,

Suresh Neotia
Chairman

Mumbai, 6th February, 2009

ANNEXURE - I

DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY,
TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO AS REQUIRED
UNDER COMPANIES (DISCLOSURE OF PARTICULARS IN REPORT OF BOARD OF DIRECTORS)
RULES, 1988.

A) CONSERVATION OF ENERGY

(a) Energy Conservation measures taken :

1. Optimized Air requirement for Boiler Operation, Instead of two blowers,
made a single blower operating for two Boilers (Ambujanagar).

2. In CPP, for steam condensing air cooled condenser is installed. Modified
profile blade was replaced in one out of six fans (Ambujanagar).

3. Optimized Compressor outlet air pressure from 8.0 kg/cm2 to 5.5 kg/cm2
as per the requirement of instrument (Ambujanagar).

4. Cooling tower fan blade angle was reduced from 10' to 6' based on
relative humidity and change in water temperature (Ambujanagar).

5. Optimization of Plant Lighting and installation of Energy efficient

devices for plant & colony lighting (Ambujanagar, Ropar, Sankrail,
Bhatinda).

6. Optimized the grinding chamber length of the cement mills (MCW,
Rabriyawas)

7. Trimming of coal mill fan impeller by approx. 140 mm (Suli)

8. Optimization of grinding media charge in Cement Mills (Suli, Ropar)

9. Optimization of Raw mill No. 2 (Rabriyawas).

10. Bag house fan inlet box modification (Rabriyawas).

11. Reduced Inline Calciner Tertiary Air duct diameter from 2650 to 1700 mm
(Rabriyawas).

12. Installations of water spray system in Preheater Fan ducts
(Rabriyawas).

13. Installation of GRR in place of Liquid resistance control in motor of
cooler Electro static precipitator (ESP) fan (Rabriyawas).

14. Reduced water recirculation pump size requirement to 3 X 75 KW from
earlier 2 X 160 KW for cooling tower (Rabriyawas).

15. Installation of Energy management system in utility compressors
(Rabriyawas).

16. Installation of speed control for Cement Mill-2 ESP fan (Bhatapara).

17. Installation of Solar water heating system in Guest house (Bhatapara).

18. Reduced Cement Mills ventilation fan power by optimizing the mill
outlet temperature (Ropar).

19. Replacement of screw conveyors by air slides (Ropar).

20. Increased usage of Biomass in power generation by improving covering
facilities to make them available in rainy season also (Ropar).

(b) Additional Investments and proposals, if any, being implemented for
reduction of Consumption of Energy :

1. Replacement of Gypsum Pre-grinder for Cement Mills (Ambujanagar).

2. Replacement of cooler fan with more efficient fans (Ambujanagar).

3. Modification / Installation of improved Fine coal feeding system
(Ambujanagar and Rabriyawas).

4. In CPP, following energy conservation measures are planned
(Ambujanagar);

(a) Further optimization of compressed air.

(b) Installation of a steam turbine as replacement of 825 kw HT motor.
Spare Low Pressure steam is available.

(c) Installation of vapour absorption machine as a replacement of air
condition package unit.

(d) Modified profile blade to be replaced in remaining fans.

5. Optimization of kiln & cooler by fuzzy control & various optimization
measures (MCW).

6. Replacement of triple gate with Rotary Air lock, and installation of
rubber seals of improved design in Raw Mills (Suli).

7. Conversion of low pressure compressors with high pressure compressors in
flyash dense phase system (Suli).

8. Pre-heater fan inlet duct modification to reduce gas velocity and thus
power consumption (Suli).

9. Installation of dip tubes in the ILC cyclones 4th, 5th of each string
(Rabriyawas).

10. Re-orientation of PH cyclones feed chute, flap & feed pipe
(Rabriyawas).

11. Installation of improved speed control devices in Preheater Fans in
both ILC PH fans (Rabriyawas).

12. Installation of AFR feeding system to reduce fuel cost & Co2 emission
(Rabriyawas).

13. Installation of automatic control system for improving cement mill
operation (Rabriyawas).

14. Installation of Belt Bucket Elevator for kiln feed system (Bhatapara).

15. Optimization of Compressed air (Bhatapara).

16. Installation of graphite sealing arrangement for kiln inlet & outlet
(Bhatapara).

17. Installation of improved speed control device in Raw Mill & Coal mill
exhaust fans (Bhatapara).

18. Installation of Solar water heating system in New Executive hostel
(Bhatapara).

19. Installation of Pressurization and ventilation system in Compressor
House which will help in stopping of one Air

Compressor (Ropar).

20. Installation of Better quality Mill Sound Level Sensor and fine tuning
of Mill Optimizer (Ropar).

21. Replacement of separator fans with high efficiency fans (Ropar).

22. Installation of speed control drive for a screw compressor (Sankrail).

23. Replacement of Aluminium make cooling tower Fan with FRP make Fan
(Bhatinda).

24. Installation of Speed control devices and replacement of few overrated
motors in bag filters (Bhatinda)

Total Investment and Savings (in Rs. Crore)

Year Investment Savings

2008 3.17 11.47
2009 18.60 (Proposed) 12.67 (Expected)

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

Measures referred in (a) is expected to result in energy saving of Rs.
11.47 crores per annum. Measures referred in (b) is expected to result in
energy saving of Rs. 12.67 crores per annum.

(d) Total Energy Consumption and Energy Consumption per unit of production:

Information is given in the prescribed Form - A annexed.

B) TECHNOLOGY ABSORPTION

Efforts made in Technology Absorption are given in prescribed Form - B
annexed.

C) FOREIGN EXCHANGE EARNINGS AND OUTGO

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

In view of good growth in domestic demand, the company has reduced its
focus on exports. This year the company has exported 8.32 lac tonnes of
cement (12 months) as against 13.22 lac tonnes in the previous year (12
months). In terms of value, the exports during this year amounted to
Rs.232.09 crores (12 months)(FOB) as against 275.44 crores (12 months)
(FOB) in the previous year.

(b) Total Foreign Exchange used and earned :

Current Year Previous Year
(12 months) (12 months)
(Rs. in crores) (Rs. in crores)

Used* 976.86 596.65
Earned** 229.80 265.65

* Excluding repayment of borrowings Rs. 117.09; Previous year Rs. Nil.

** Excluding receipt on Sale of investment in foreign subsidiary Rs. 0.42
crore; Previous year Rs. Nil.


FORM - A
(See Rule 2)

Form for Disclosure of Particulars with respect to Conservation of Energy

A. POWER & FUEL CONSUMPTION

Current Year Previous Year
31.12.2008 31.12.2007
1. Electricity :

(a) Purchased

Units (Crores kwh) 35.80 30.91
Total amount (Rs. in Crores)* 138.14 111.77
Rate / Unit-kwh (Rs.) 3.86 3.62

(b) Own Generation

(i) Through Liquid Fuel Generator
Net Units (Crore kwh) 21.19 40.33
Unit (kwh) / Ltr. of LDO / Furnace oil 4.06 4.21
LDO / Furnace oil-Cost /
Unit Generated (Rs./ kwh) 5.83 3.86

(ii) Through Steam Turbine / Generator

Units (Crore kwh) # 97.35 76.03
Unit (kwh)/Tonne of Fuel (Coal/Rice Husk) 979 881
Oil / Gas / Coal - Cost / Unit (Rs./kwh) 2.60 2.06

2. Coal & Other Fuels:

Quantity (Million K. Cal) 8560182 8618902
Total Cost (Rs. in Crores) 701 518
Average Rate (Rs. / Million K.Cal) 818.64 601.42

3. Light Diesel Oil/High
Speed Diesel/Furnace Oil:

Quantity (K.Ltrs.) 1703.09 1480.21
Total Cost (Rs. in Crores) 5.99 4.31
Average Rate (Rs. / K.Ltr.) 35152 29138

4. Others / Internal Generation:

Quantity NIL NIL
Total Cost NIL NIL
Rate / Unit NIL NIL

B. CONSUMPTION PER UNIT OF PRODUCTION

Industry Current Year Previous Year
Norms 31.12.2008 31.12.2007

Electricity (KWH/T. of Cement)** 100 86.3 84.6
LDO / HSD (Ltr. / T. of Clinker) N.A. 0.15 0.13
Coal & Other Fuels
(K.Cal/Kg. of Clinker) 800 744 742

* Minimum demand charges paid to Gujarat Urja Vikas Nigam Limited for
Ambujanagar Plant of Rs. 0.56 Crore have been included in above cost

** Does not include Electricity consumed in residential colony which is
0.57 kwh / tonne of cement. (previous year 0.62 kwh / tonne of cement)

# Includes 400.86 lac units of TG-power sold from Ropar to PSEB (previous
year 425.68 lac units)

FORM - B

(See Rule 2)

Form for disclosure of particulars with respect to Absorption

A. RESEARCH & DEVELOPMENT (R & D)

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

(a) Promote usage of alternate fuels like industrial wastes in cement
manufacture to reduce the manufacturing cost, fuel consumption and reduce
Co2 emissions.

(b) Conservation of lube and industrial oil by regular quality monitoring
and extending the drain interval.

(c) Improving clinker quality and kiln burning condition by raw mix
optimization, adding mineralizers and optimizing raw meal and solid fuel
fineness.

(d) Using various chemical additives for improving Cement quality.

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

a) Conservation of energy from traditional sources.

b) Capacity enhancement and conservation of Resources.

c) Improved Clinker & Cement quality and reduction in cost of production.

3. Future Plan of action:

a) Evaluation and application of special Refractory suitable to use with
alternate fuel.

b) Beneficiation of phospho gypsum from fertilizer plant to make it usable
for cement manufacturing.

c) Evaluation of various alternate fuels for their suitability to clinker
manufacturing and power generation process. Installation of handling and
preparation systems for such fuels.

d) Installation of various process and quality monitoring instruments are
planned to optimize processes and improve product quality.

4. Expenditure on R & D :

Current Year Previous Year
31.12.2008 31.12.2007
(Rs. in lacs) (Rs. in lacs)

A. Capital expenditure 53.74 21.33

B. Recurring expenditure 24.49 24.49

C. Total expenditure 78.23 45.82

D. Total R & D expenditure as a
percentage of total turnover 0.01% 0.01%

B. TECHNOLOGY ABSORPTION, ADAPTION AND INNOVATION

1. Efforts, in brief, made towards Technology Absorption, Adaption and
Innovation :

a) Installation of Dalog system for Raw Mill gear box monitoring in plants.

b) Installation of online balancer for Preheater fan for productivity
improvement.

The Company has always been remained as one of the industry leaders for
implementation of state of the art equipments and for absorption of new
technologies. Company's personnel from operations, maintenance and
developmental activities were deputed worldwide for training through
seminars and visits.

2. Benefits derived as a result of the above efforts :

Improved quality, productivity, operational efficiencies and cost reduction
primarily due to conservation of energy, improvedequipment safety and
implementation of better operation and maintenance practices.

3. Information regarding Technology Imported during last 5 years :

a) The Dalog system for Raw Mill gear box monitoring imported in 2008.

b) The online balancer for PH fan in 2008.

Reliance Capital - 2008-2009 - Annual Report

RELIANCE CAPITAL LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Dear Shareowners,

Your Directors have pleasure in presenting the 23rd Annual Report, together
with the audited statement of accounts of the Company for the year ended
March 31, 2009.

Financial Results:

The performance of the Company for the financial year ended March 31, 2009
is summarised below:

Financial Year ended Financial Year ended

Particulars March 31, 2009 March 31, 2008
(Rs. in (US$ in (Rs. in (US$ in
crore) million*) crore) million**)

Gross Income 3017.29 592.21 2079.79 520.34
Gross Profit 1098.24 215.55 1188.54 297.36
Less: Depreciation 21.22 5.31 17.09 4.28
Profit before Tax 1077.02 211.391 171.45 293.08
Provision for Taxation 109.00 21.39 146.00 36.53
Net Profit 968.02 189.99 1025.45 256.55
Add: Profit brought forward from
the previous year 1429.72 280.61 873.37 218.50
Excess/Short provision
of Income Tax - - (3.41) (0.85)
Profit available for
Appropriation 2 397.74 470.61 1895.40 474.21
Dividend including
Dividend Tax 186.80 36.66 158.04 39.54
Transfer to General Reserve 96.81 19.00 102.55 25.66
Transfer to Statutory
Reserve Fund 193.61 38.00 205.09 51.31
Balance carried forward 1920.52 376.94 1429.72 357.70

*1 US$ = Rs.50.95

**1 US$ = Rs.39.97

Financial Performance

The Company's gross income for the financial year ended March 31, 2009
increased to Rs.3,017.29 crore, from Rs.2,079.79 crore in the previous
year, registering a growth of over 45.08 per cent. The operating profit
(PBDIT) of the Company increased 46.24 per cent to Rs.2,334.99 crore during
the year, up from Rs.1 596.69 crore in the previous year. Interest expenses
for the year increased by 203.02 per cent to Rs.1,236.75 crore, from
Rs.408.15 crore, in the previous year. Depreciation was at Rs.21.22 crore
as against Rs.17.09 crore in the previous year. The provision for taxation
during the year was Rs.109 crore. The net profit for the year decreased by
over 5.60 per cent to Rs.968.02 crore from Rs.1,025.45 crore in the
previous year. An amount of Rs.193.61 crore was transferred to the
Statutory Reserve Fund pursuant to section 45-IC of the Reserve Bank of
India Act, 1934, and an amount of Rs.96.81 crore was transferred to the
General Reserve during the year under review. The Company's Net worth as on
March 31, 2009, stood at Rs.6,697.42 crore, as against Rs.5,927.50 crore
last year.

Dividend

Your Directors have recommended a dividend of Rs.6.50 (65 per cent) per
equity share on 24,56,32,800 equity shares of Rs.10 each aggregating to
Rs.186.80 crore (inclusive of dividend tax) for the financial year ended
March 31, 2009, which, if approved at the ensuing Annual General Meeting,
will be paid to (i) all those equity shareholders whose names appear in the
Register of Members as on July 3, 2009 and (ii) to those whose names as
beneficial owners, are furnished by the National Securities Depository Ltd.
and Central Depository Services (India) Ltd. for the purpose. The dividend
payout as proposed is in accordance with the Company's policy of paying,
sustainable dividend linked to long term performance, keeping in view the
capital needs for the Company's growth plans and the desire to achieve
optimal financing of such plans through internal accruals.

Management Discussion and Analysis Report

The Management Discussion and Analysis Report for the year under review, as
stipulated under clause 49 of the listing agreement with the Stock
Exchanges in India, is presented in a separate section which forms, part of
the Annual Report. The Company has entered into various contracts in the
areas of financial services business. While benefits from such contracts
will accrue in the future years, their progress is periodically reviewed.

Resources and Liquidity

The Company has raised Rs.13,779.53 crore during the financial year 2008-09
by issuance of Commercial Paper, Non Convertible Debentures (NCDs) and
other instruments. The Company's NCDs for an aggregate amount of Rs.350
crore were listed on Bombay Stock Exchange Ltd. on March 20, 2009.

The funds were mainly deployed in providing consumer finance. RCL's debt
equity ratio as on March 31, 2009, stands at a (conservative) level of 2:1.
The Company has not accepted any deposits from the public.

Subsidiaries

During the year, Reliance Consultants (Mauritius) Ltd., Reliance Equities
International Pvt. Ltd., Reliance Home Finance Pvt. Ltd., Reliance Capital
Services Pvt. Ltd., Reliance Capital (Singapore) Pte. Ltd., Reliance
Consumer Finance Pvt. Ltd., Reliance Securities Ltd., Reliance Prime
International Ltd., Reliance Commodities Ltd., Reliance Financial Ltd.,
Reliance Alternative Investments Services Pvt. Ltd. and Reliance Capital
Pension Fund Ltd. became subsidiaries of the Company.

In terms of the approval granted by the Central Government under section
212(8) of the Companies Act, 1956, copies of the Balance Sheet, Profit and
Loss Account and Report of the Board of Directors and Auditors of the
subsisting subsidiaries have not been attached with the Balance Sheet of
the Company. However, these documents will be made available upon request
to any member of the Company interested in obtaining the same. As directed
by the Central Government, the financial data of the subsidiaries has been
furnished under Details of Subsidiaries', which forms part of the Annual
Report. The annual accounts of the Company including that of subsidiaries
will be kept for inspection by any member. Further, pursuant to Accounting
Standard-21 (AS-21) as notified by Companies (Accounting Standard) Rules,
2006, the Consolidated Financial Statements presented by the Company
include the financial information about its subsidiaries.

Fixed Deposits

The Company has neither accepted nor renewed any fixed deposits during the
year. Five deposit accounts, aggregating to Rs.26,000, remained unclaimed
on the due dates as on March 31, 2009. The Company has intimated the
deposit holders individually of their unclaimed amount with a request to
return the Fixed Deposit Receipts duly discharged to enablethe Company to
repay the amount.

Directors

In terms of Article 154 of the Articles of Association of the Company, Shri
C. P. Jain, Director of the Company, retires by rotation and being eligible
offers himself for re-appointment at the ensuing Annual General Meeting.

Shri Anil D. Ambani, Chairman, appointed as a director liable to retire by
rotation is proposed to be appointed as a nonretiring Director.

Shri P.N. Ghatalia, was appointed as an additional director w.e.f.
September 17, 2008 and would hold office till the ensuing Annual General
Meeting. The Company has received notice in writing from a member proposing
his candidature, for the office of Director.

Shri Anand Bhatt, was appointed as an additional director w.e.f. September
17, 2008. He however became an unfortunate and innocent victim of the
terrorist attack at the Hotel Trident, Mumbai, on November 27, 2008. The
Board has condoled the sad demise of Shri Bhatt.

A brief resume of the Director retiring by rotation at the ensuing Annual
General Meeting, nature of his expertise in specific functional areas, and
names of Companies in which he holds directorship and/or
membership/chairmanship of Committees of the Board, as stipulated under
clause 49 of the listing agreement with the Stock Exchanges, is given in
the section on Corporate Governance elsewhere in the Annual Report.

Directors' Responsibility Statement

Pursuant to the requirement under section 217(2AA) of the Companies Act,
1956, with respect to Directors' Responsibility Statement, it is hereby
confirmed that:

(i) in the preparation of the accounts for the financial year ended March
31, 2009, the applicable accounting standards have been followed alongwith
proper explanation relating to material departures;

(ii) the Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that were reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at March 31, 2009, and of the profit of the Company for the year
under review;

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

(iv) the Directors have prepared the accounts for the financial year ended
March 31, 2009 on a going concern' basis.

Group

Pursuant to an intimation from the Promoters, the names of the Promoters
and entities comprising group' as defined under the Monopolies and
Restrictive Trade Practices ('MRTP') Act, 1969 are disclosed in the Annual
Report for the purpose of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997.

Consolidated Financial Statements;

The Audited Consolidated Financial Statements, based on the Financial
Statements received from subsidiaries, associates and partnership firms, as
approved by their respective Board of Directors and Managing Committee,
have been prepared in accordance with Accounting Standard-21 (AS-21) on
Consolidated Financial Statements read with Accounting Standard-23 (AS-23)
on the Accounting for Investments in Associates.

Auditors

M/s. Chaturvedi & Shah, Chartered Accountants and M/s. B S R & Co.,
Chartered Accountants, as Statutory Auditors of the Company, hold office
until the conclusion of the ensuing Annual General Meeting and are eligible
for re-appointment. The Company has received letters from M/s. Chaturvedi &
Shah, Chartered Accountants and M/s. B S R & Co., Chartered Accountants, to
the effect that their appointment, if made, would be within the prescribed
limits under section 224(1B) of the Companies Act, 1956, and that they are
not disqualified for such appointment within the meaning of section 226 of
the Companies Act, 1956.

Particular of Employees;

In terms of the provisions of section 217(2A) of the Companies Act, 1956,
read with the Companies (Particulars of Employees) Rules, 1975, the names
and other particulars of the employees are set out in the Annexure to the
Directors' Report. However, having regard to the provisions of section
219(1)(b)(iv) of the said Act, the Annual Report excluding the aforesaid
information is being sent to all the Members of the Company and others
entitled thereto. Any member interested in obtaining such particulars may
write to the Company Secretary at the Registered Office of the Company.

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

Particulars required to be furnished under the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988, are as under:

(1) Part A and B pertaining to conservation of energy and technology
absorption are not applicable to the Company.

(2) Foreign Exchange earnings and outgo:

Earnings - Rs. 0.24 crore
Outgo - Rs.14.64 crore

Transfer of Unclaimed dividend to IEPF:

Pursuant to the provisions of section 205(A) of the Companies Act, 1956,
the declared dividend which remained unclaimed for a period of 7 years has
been transferred by the Company to the Investor Education and Protection
Fund (IEPF) established by the Central Government pursuant to section 205C
of the said Act.

Corporate Governance;

The Company has adopted the 'Reliance Anil Dhirubhai Ambani Group -
Corporate Governance Policies and Code of Conduct' which has set out the
systems, processes and policies conforming to International Standards. The
report on Corporate Governance as stipulated under clause 49 of the listing
agreement with the Stock Exchanges, forms part of the Annual Report. A
Certificate from the Auditors of the Company M/s. Chaturvedi & Shah,
Chartered Accountants and M/s. B S R & Co., Chartered Accountants,
confirming compliance with conditions of Corporate Governance as stipulated
under the aforesaid clause 49, is annexed to this Report.

Acknowledgements

Your Directors would like to express their sincere appreciation of the co-
operation and assistance received from shareholders, bankers, regulatory
bodies and other business constituents during the year under review. Your
Directors also wish to place on record their deep sense of appreciation for
the commitment displayed by all executives, officers and staff, resulting
in the successful performance of the Company during the year.

For and on behalf of the Board of Directors

Anil D. Ambani
Chairman
Mumbai
April 30, 2009

MANAGEMENT DISCUSSION AND ANALYSIS

Forward looking statements

These financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956 and Generally Accepted Accounting
Principles (GAAP) in India. However, readers are cautioned that this
discussion may contain 'forward-looking statements' by Reliance Capital
Limited ('RCL') that are not historical in nature. These forward looking
statements, which may include statements relating to future results of
operations, financial condition, business prospects, plans and objectives,
are based on the current belief, assumptions, expectations, estimates, and
projections of the directors and management of RCL about the business,
industry and markets in which RCL operates. These statements are not
guarantees of future performance and are subject to known and unknown
risks, uncertainties, and other factors, some of which are beyond RCL's
control and difficult to predict, that could cause actual results,
performance or achievements to differ materially from those in the forward
looking statements. Such statements are not, and should not be construed,
as a representation as to future performance or achievements of RCL. In
particular, such statements should not be regarded as a projection of
future performance of RCL. It should be noted that the actual performance
or achievements of RCL may vary significantly from such statements.

The following discussions on our financial condition and result of
operations should be read together with our audited consolidated financial
statements and the notes to these statements included in the annual report.

Unless otherwise specified or the context otherwise requires, all
references herein to 'we', 'us', 'our', 'the Company', 'Reliance', 'RCL',
'RCL Group or 'Reliance Capital' are to Reliance Capital Limited and its
subsidiaries and associates.

Macroeconomic Overview

Growth slowing, but still healthy: After several quarters of around 9 per
cent GDP growth, the rate moderated to 7.6 per cent and 5.3 per cent in the
last two quarters of 2008, and is expected to average 7 per cent for
Financial Year (FY) 2009. The slowdown has been largely caused by a
deceleration in industrial growth from about 8.5 per cent in FY 2008 to 2.4
per cent in the third quarter of FY 2009. Surprisingly, the agriculture
sector slowed down from 4.5 per cent in FY 2008 to -2.2 per cent in the
third quarter of FY 2009. In contrast, the remarkable service sector
success story remained intact as output grew 9.9 per cent in third quarter,
down only slightly from 10.8 per cent in 2008.

The moderation from previous years was due to several factors. The
financial crisis and global slowdown affected both export growth in goods,
services and hence industrial production as well as corporates' access to
diverse and low cost funding. Moreover, high inflation during the first
half of FY 2009 forced RBI to pursue a tight monetary policy, which further
dampened investment and consumption.

However, the fact that India's growth in the last few years has been fairly
broad based (across sectors and regions) and balanced (with consumption,
investment, savings and exports all rising) bodes well for the structural
transformation of the economy as the business cycle enters a recovery
phase, in the second half of FY 2010.

Inflation abates, RBI cuts rates aggressively: India's Wholesale Price
Index, which was as high as 12.9 per cent in August 2008 fell to 0.3 per
cent by March 2009 resulting in an average inflation of around 8 per cent
for FY09. The sharp fall in inflation was caused by a high base, a
significant fall in commodity prices and various duty cuts announced by the
Government. Inflation is expected to remain low and may even enter the
negative territory for a short time before moving up again towards the end
of 2009.

Falling inflation and slowing growth gave the Central bank enough room and
reason to cut rates aggressively. From September '08 to March '09, the RBI
has cut Repo, Reverse Repo and CRR by 400, 250 and 400 bps respectively.
This easing in monetary policy is likely to translate, with a lag, into a
significant boost for the economy.

India's Trade Deficit widents, widens, due to increasing import growth:

Global demand destruction due to the recent crisis led to a mere 3.4 per
cent growth in exports in FY 2009 while higher commodity prices (including
oil) pegged the imports growth at 14.3 per cent. This resulted in a trade
deficit of US$119 billion in FY09 compared to US$88.5 billion in FY 2008.

For the first three quarters in FY 2009, the higher trade deficit, coupled
with negative capital flows, reduced India's Balance of Payments (BoP)
surplus to a deficit of US$ 20.4 billion. After 10 consecutive quarters of
surpluses, this is the second time in three quarters that BoP has ended in
a deficit. The capital a/c balance too turned negative (-US$ 3.7 billion)
in third quarter FY 2009 mainly due to net outflows under portfolio
investment, banking capital and short-term trade credit. Outflows under
portfolio investment were led by large sales of equities by FIIs and
slowdown in net inflows under ADRs/ GDRs. India's foreign exchange reserves
declined by about US$ 59 billion in FY 2009, but still remained at an
impressive US$250 billion in March 2009. The country's current foreign
exchange reserves far exceed its total official and private sector external
debt - making India's balance of payments position quite comfortable.

Import declines more than export in recent months, thereby improving trade
deficit: Since January 2009, Imports have declined more than exports due to
both lower oil import bills and slowing domestic investment and
consumption. This has helped in narrowing our trade deficit further. The
trade deficit for the month of March narrowed to US$4 billion (4.1 per cent
of GDP, annualized) compared to US$14 billion in August 2008. The year on
year (YoY) monthly trade deficit declined by 36 per cent in March compared
with an average growth of 48.5 per cent in the previous 12 months.

About Reliance Capital

Reliance Capital Limited (RCL) is a part of the Reliance Anil Dhirubhai
Ambani Group and is one of India's leading andfastest growing private
sector financial services companies, and ranks among the top 3 private
sector financial services and banking groups, in terms of net worth. It is
a constituent of S&P CNX Nifty and MSCI India.

Reliance Anil Dhirubhai Ambani Group is amongst India's top 3 business
houses with a market cap of US$ 22 billion, and 150 million customers. It
has a strong presence across a wide array of high growth consumer-facing
businesses such as Telecom, Financial Services, Energy, Power,
Infrastructure and Media and Entertainment.

Reliance Capital has interests in asset management and mutual funds, life
and general insurance, private equity and proprietary investments, stock
broking and depository services, consumer finance, asset reconstruction,
institutional broking and distribution of financial products.

Consolidated financial performance:

* RCL's consolidated income from operations for the financial year ended
March 31, 2009 increased to Rs.5,976 crore (US$ 1.3 billion) from Rs.4,914
crore in the previous year, registering a growth of 22 per cent. This
growth was largely due to the growth of the consumer finance business and
the sale of investments.

* Staff costs for the year were Rs.554.07 crore (US$ 131 million) as
against Rs.408.98 crore in the previous year, an increase of 36 per cent.
This was largely due to the rapid expansion of operations and distribution
networks and entry into three new business streams i.e. institutional
broking, private equity, asset reconstruction and the launch of the cross-
sell initiative, Reliance Capital Services.

* Selling, administrative and other expenses in the year were Rs.1,192
crore (US$ 240 million) as against Rs.1,307 crore, a decrease of 10 per
cent. This decrease, in spite of an increase in the scale of operations,
was achieved as a result of optimization of costs, improvement in
operational efficiency and better utilization of own and third party
distribution reach.

* Interest & finance charges for the year were Rs.1,264 crore (US$ 283
million) as against Rs.414.00 crore in the previous year, an increase of
205 per cent. This was due to both, a rise in the cost of funds as well as
an increase in aggregate borrowings on account of the consumer finance
business. and cost of borrowings.

* Depreciation for the year was Rs.56.71 crore (US$ 123 million) as against
Rs.41.21 crore in the previous year, an increase of 38 per cent. This year-
on-year increase was mainly due to an increase in the fixed assets base.

* Profit before tax for the year was Rs.1,204.15 crore (US$ 262.28 million)
as against Rs.1,215.74 crore in the previous year, a decrease of 1 per
cent.

* Provision for tax for the year was Rs.181.09 crore (US$ 39.44 million) as
against Rs.205.50 crore in the previous year, a decrease of 14 per cent.

* Profit after tax, minority interest and share of profit of associates for
the year was Rs.1,015.67 crore (US$ 221 million) as against Rs.1,009.06
crore in the previous year, an increase of 1 per cent.

Resources and Liquidity

* As on March 31, 2009, the consolidated net worth of the company stood at
Rs.7,340 crore (US$ 1.5 billion) as against Rs.6,508 crore.

* The Company has raised Rs.13,779.53 crore during the financial year 2008-
09 by issuance of Commercial Paper, Non Convertible Debentures (NCDs) and
other instruments.

* As on March 31, 2009, the Company had a debt equity ratio of 2:1. The
company has not raised any fixed deposits from the public.

Credit Rating

RCL's short term debt programme has been assigned a rating of 'A1+' by ICRA
Ltd., the highest credit quality rating assigned by the agency to short-
term debt instruments. Instruments rated in this category carry the lowest
credit risk in the short term. CARE Ltd. assigned the long term debt
programme a rating of 'CARE AAA'. Instruments with this rating are
considered to be of the best credit quality, offering highest safety for
timely servicing of debt obligations. Such instruments carry minimal credit
risk.

Finance & Investments

RCL's investment portfolio as on March 31, 2009 was Rs.8,746.49 crore (US$
1.7 billion) at cost. The Investment portfolio of quoted investments as on
March 31, 2009 amounted to Rs.2,939.53 crore (US$577 million), at cost.
RCL's strategy for its proprietary investment and private equity is to
focus on asset quality and asset mix to achieve superior returns. The
company has increasingly diversified its scope of operations into a variety
of avenues as afforded under the Indian NBFC regulatory framework, through
its interests in asset management and mutual funds, life and general
insurance, stock broking and depositary services, consumer finance and
distribution of financial products.

Reliance Capital Asset Management (RCAM)

Reliance Mutual fund

* Reliance Mutual Fund (RMF) has maintained its leadershipposition in the
country. It had a market share of 16.4 per cent at the end of March 2009.

* The average assets under management (AAUM) for March 2009 was Rs.80,963
crore (US$ 15.9 billion) from Rs.90,938 crore, a decline of 12 per cent -
the shrinkage in the value of the equity AUM component (higher than the
industry average) was primarily due to market action.

The benchmark indices - BSE Sensex and S&P Nifty declined by 38 per cent
and 36 per cent respectively during this period. During the same period,
the AAUM of the Indian mutual fund industry declined by 7 per cent to
Rs.4,93,287 crore for March 2009 from Rs.5,00,973 crore for March 2008.

* During the same period, 5 new asset management companies were given
licenses to commence operations, taking the total number of mutual funds in
India to 38.

The mutual fund industry is highly fragmented and the top 5 players account
for 58 per cent of the AUM. (Source: AMFI website).

* The number of investors in RMF increased to 71.7 lakh as at the end of
March 31, 2009 as against 63.9 lakh investors at the end of March 31, 2008.

* As on March 31, 2009, RMF had a total of 38 schemes - 16 equity-oriented
schemes, 21 debt-oriented schemes and 1 exchange-traded scheme.

* The number of Systematic Investment Plan Investors in RMF has crossed 1.2
million.

* During the year, RMF won several prestigious awards.

* 'Most Trusted Mutual Fund' by AC Nielsen/ORG MARG for the third
consecutive year.

* 'Equity Fund House of the Year 2008' award by Morning Star, global leader
in financial research.

* 'Best Fund House of the Year 2008' - India category' by Asia Asset
Management.

* Lipper award for its performance in Reliance Banking Fund for period of 3
years in the Gulf.

* Certificate of Finalist Recognition in 'Sales category - Best Sales Team'
in the Annual Stevie Sales & Customer Service Awards 2009 & the Stevie
International Business Awards 2008.

* Superbrand status in the 2nd edition of the Business Superbrands for the
year 2008. The Superbrand status is accorded on the basis of a range of
criteria such as Market dominance, Longevity, Goodwill and Customer
Loyalty.

* ICRA Awards 2009- five schemes were winners and overall we have received
6 scheme awards at the ceremony in their respective category.

* 'Reader's Digest Trusted Brands Gold Award' - winner for the Investment
Fund Company category in India in 2008.

During the year, RCAM received approval from Malaysian Authorities to start
operations in Malaysia. RCAM is looking to start a Shariah compliant fund
based on Islamic principles.

During the same period, RCAM also received approval from the Financial
Services Authority in United Kingdom to commence investment advisory
operations in the United Kingdom.

Portfolio Management Services:

* Reliance Portfolio Management Services is a premium financial service for
select investors from the portfolio management division of Reliance Capital
Asset Management Ltd. This division creates customised portfolios for high
net-worth individuals keeping in mind their risk return preferences.

* The AUM of our portfolio management services as on March 31, 2009
increased to Rs.30,480 crore (US$ 7 billion) from Rs.6,901 crore as at
March 31, 2008, registering a growth of 342 per cent.

* This year, RCAM has been appointed as one of the fund managers by the
Employees Provident Fund Organization (EPFO). A hugely prestigious account,
EPFO has entrusted Rs.27,575 crore (US$ 5.4 billion) to RCAM, for
investment management.

* RCAM was also appointed as one of the six asset managers by The Pension
Fund Regulatory and Development Authority (PFRDA) to manage money under the
new pension scheme. The new pension scheme will be a government regulated
pension plan on the lines of the 401K retirement plan' in the US (a
defined contribution plan) and can be availed of by the general public in
India.

* RCAM is the only private sector asset management company which has been
selected to manage funds for both - EPFO and the new pension scheme.
Reliance Asset Management (Singapore) Pte. Ltd.

* Reliance Asset Management (Singapore) Pte. Ltd., a subsidiary of Reliance
Capital Limited (through Reliance Capital Asset Management Ltd.) started
its operations in February 2007. It currently manages 5 India dedicated
funds viz. - India Equity Growth Fund, India Equity Long Term Fund, India
Equity Derivative Fund, India Multi Strategy Fund and Lawrence India
Mauritius Fund.

* Its AUM as on March 31, 2009 stood at US$ 218 million (including an
undrawn amount of US$ 92 million) as against US$ 200 million on March 31,
2008, a growth of 9 per cent.

Reliance Life Insurance:

* Reliance Life Insurance (RLIC) currently offers a total of 35 products
that fulfill the savings and protection needs of customers. Of these, 29
are targeted at individuals and 6 at group businesses. Reliance Life is
committed to emerging as a transnational Life Insurer of international
scale and stature in the next few years.

* During the year, the Indian life insurance industry recorded new business
premium of Rs.87,108 crore (US$ 19 billion) as against Rs.93,989 crore in
the previous year, a decrease of 6.75 per cent. In contrast, Reliance Life
Insurance recorded New Business Premium of Rs.3,514 crore (US$ 547 million)
for the year as against Rs.2,751 crore in the previous year, an increase of
28 per cent.

* During the period from April 2008 to February 2009, 4 new life insurance
companies were given licenses to commence operations, taking the total
number of life insurance companies in India to 22. The industry is highly
fragmented and the top 5 players account for 84 per cent of the new
business premium (April 2008 to February 2009).

* Reliance Life Insurance (RLIC) has maintained its position amongst the
top four (in terms of monthly new business premium) private sector life
insurance companies in India. It is one of the fastest growing life
insurance companies in India with a private sector market share of 10.4 per
cent - up from 8.1 per cent for the previous year.

* The policyholders' funds under management amounted to Rs.5,879 crore (US$
1.2 billion) as on March 31, 2009 against Rs.3,554 crore as on March 31,
2008 - an increase of 65 per cent.

* An additional Rs.1,229 crore worth of capital was infused in the life
insurance business in the year ended March 31, 2009, taking the total
capital invested in the life insurance business till date to Rs.2,743
crore.

* Total numbers of policies in force as on March 31, 2009 stood at
33,03,165 as against 14,48,538 on March 31, 2008 - an increase of 128 per
cent.

* The distribution network has been increased to 1,145 branches at the end
of March 31, 2009, as against 745 branches at the end of March 31, 2008.

* The numbers of agents at the end of March 31, 2009 totalled 1,49,613 as
against 1,84,194 in the corresponding previous period - a decrease of 19
per cent, reflecting the increased organizational emphasis on productivity.

* During FY09, 8 new life insurance policies were launched, viz. Reliance
Super Invest Assure plan, Reliance Super Invest Assure Plus Plan , Reliance
Guaranteed Return Plan Series I Insurance , Reliance Guaranteed Return Plan
Series I Pension , Reliance Group Savings Linked Insurance Plan , Reliance
Group Credit Shield Plan, Reliance Imaan Investment Plan and Reliance
Savings Linked Insurance Plan.

* During the same period, 5 of the top selling existing products were re-
launched viz. Reliance Super Automatic Investment Plan, Reliance Super
Market Return Plan, Reliance Super Golden Years Plan, Reliance Super Golden
Years Plan Plus and Reliance Super Golden Years Plan Value. This was done
to improve profitability and standardize the charge structures.

Reliance Consumer Finance

* Reliance Consumer Finance offers a wide range of products which include
Home loans, Loans against property, Vehicle loans (cars and commercial
vehicles), SME loans and Personal loans.

* The focus in this business is not just on the growth of credit per se but
also on the quality of credit. Backed by our long-standing conservative
approach, we have developed stringent in-house credit risk management
systems to ensure the highest quality of credit.

* We reduced the size of our loan book to Rs.8,576 crore (US$ 2 billion) as
on March 31, 2009, as against Rs.8,902 crore at the end of December 31,
2008. Our loan book is spread across 1,19,759 customers and 23 locations.
The loan book as on March 31, 2008 was Rs.7,120 crore.

* Reliance Consumer Finance generated revenues of Rs.1,200 crore (US$ 261
million) for the year ended March 31, 2009, as against Rs.395 crore for the
corresponding previous period - an increase of 204 per cent.

* For the year ended March 2009, it achieved a profit before tax of Rs.91
crore (US$ 20 million) as against Rs.36 crore - an increase of 152 per
cent.

* Reliance Capital's subsidiaries i.e. Reliance Consumer Finance Pvt. Ltd.
and Reliance Home Finance Pvt. Ltd. have got approvals from RBI as NBFC and
the National Housing Bank for doing the business of retail financing i.e.
consumer finance and homes finance respectively. These subsidiaries,
capitalized with Rs.100 crore (US$ 20 million) each as on March 31, 2009,
have commenced business operations.

Reliance Money

* Reliance Money is the one of the leading brokerages and distributors of
financial products in India, with more than 3 million customers.

* It is a comprehensive financial services and solutions provider, giving
customers access to equities, equity options, commodities futures, wealth
management, portfolio management services, mutual funds, IPOs, life and
general insurance products, offshore investments, credit cards, money
transfer, currency exchange and gold coins.

* Reliance Money generated revenues of Rs.352 crore (US$ 767 million) for
the year March 31, 2009, as against Rs.239 crore of the corresponding
previous period, an increase of 47 per cent. It also achieved a net profit
of Rs.37 crore (US$ 8 million) for the same period, as against a net profit
of Rs.10 lakh for the corresponding previous period.

* As on March 31, 2009, Reliance Money had a distribution network of over
10,000 outlets across 5,165 locations in India.

* Reliance Money has tied up with global partners like Reuters, Vasco,
Valcambi, Webaroo, options Xpress Holdings, Goldride Securities, World Gold
Council, Wincor Nixdorf and DBS Vickers to facilitate better access to
wider world class choices to its customers.

* In addition to the home-grown portfolio of products and services that
Reliance Capital has to offer, Reliance Money also distributes a variety of
third party financial products.

It also assists millions of investors in creating customized individual
portfolios based on their diverse investment needs and risk profiles.

* Reliance Money is amongst the leading Mutual fund distributors of the
country distributing products of 20 AMCs. It is the largest private sector
partner for Western Union Money Transfer in India.

* To further improve its position in the money changing and money transfer
business, Reliance Money has acquired a significant share holding in Wall
Street Finance Ltd., a leading provider of money changing and money
transfer services in the country.

* Reliance Money has tied up with Kuoni India and plans to retail its forex
products/ services through the national network of over 70 Kuoni outlets.

* Reliance Money has tied up with India Post and World Gold Council to sell
gold coins through the post office network across the country.

* Reliance Money is taking its first steps into the Commodities Exchange
business and is in the process of acquiring a 15 per cent stake in Hong
Kong Mercantile Exchange (HKMEx). With this holding, Reliance Money becomes
the second-largest shareholder in the commodity exchange and will have a
Board membership. Reliance Money is the first Indian firm to acquire a
stake in an international exchange.

* It has also obtained approval from the Ministry of Consumer Affairs for
acquiring 10 per cent stake in the National Multi-Commodity Exchange of
India Ltd. (NMCE).

* Reliance Securities Ltd. (RSL), a subsidiary of Reliance Capital has
obtained Category I Merchant Banking License from the Securities and
Exchange Board of India. This new license allows RSL to provide a wide
range of investment banking services such as Issue Management,
Underwriting, Private Equity Advisory/ Syndication and Corporate Finance
services in India.

Reliance General Insurance:

* Reliance General Insurance (RGI) offers property, engineering, auto,
health, travel, marine and commercial insurance. It also offers other
specialty insurance products.

* Reliance General Insurance (RGI) has maintained its position amongst the
top three (in terms of monthly gross written premium) private sector
General insurance companies in India, with a market share of 6.3 per cent.

* During the period from April 2008 to March 2009, the gross written
premium of the entire Indian general insurance fund industry increased by
9.3 per cent from Rs.28,138 crore of the corresponding previous period, to
Rs.30,601 crore (US$ 7 billion). (Source: Insurance Regulatory and
Development Authority of India). During the same period, 2 new general
insurance companies were given licenses to commence operations, taking the
total number of general insurance companies in India to 16.

* Our Gross Written Premium for the year ended March 31, 2009 was virtually
unchanged at Rs.1,915 crore (US$ 416 million) as against Rs.1,946 crore in
the corresponding previous period. This slight decline was caused by the
general economic slowdown coupled with our increased focus on profitability
rather than top-line growth.

* During the year, Rs.160 crore (US$ 35 million) of capital was infused
into the general insurance business, taking the total capital invested till
date to Rs.767 crore (US$ 157 million).

* The distribution network composed of 200 branches and over 7,700
intermediaries at the end of March 31, 2009. Reliance Asset Reconstruction

* Reliance Asset Reconstruction Company Ltd. (Reliance ARC), which is in
the business of acquisition, management and resolution of distressed
debt/assets, formally commenced business operations in the first half of
FY09 by acquiring two non-performing assets (NPAs), from Corporation Bank
and Asset Reconstruction Company (India) Ltd. respectively, at an aggregate
acquisition price of Rs.3 crore (US$ 0.6 million). These have since been
resolved with recovery of our investment in full.

In January 2009, Reliance ARC acquired 2 NPAs from Dena Bank for an
aggregate acquisition price of over Rs.2 crore (US$ 0.4 million).

Reliance Equities International

* Reliance Equities International Private Ltd. (REIPL) is the institutional
stock broking subsidiary of Reliance Capital. REIPL has been set up to
complement current financial services businesses of RCL Group.

* It aims to add value to our clients' decision making on investments by
thematic and differentiated research, access to corporate managements,
lateral inputs and higher servicing standards.

* REIPL commenced operations in October 2008 with over 50 employees. It
currently has 60 companies under research.

* Despite the challenging market environment, it has set up over 50 FII
parent accounts and over 500 sub accounts. Reliance Equity Advisors (India)
Ltd.

* Reliance Equity Advisors (India) Ltd. (REAIL), wholly owned subsidiary of
Reliance Capital Ltd., is the Investment Manager of the Reliance
Alternative Investments Fund (the Trust set up by RCL). The object and
purpose of the Fund is to raise monies through schemes or funds to make
portfolio investments.

* The 'Reliance Alternative Investments Fund - Private Equity Scheme I',
will be an India focused multi sector private equity fund with primary
focus on acquisition, financing, growth and consolidation of capital in
India with an emphasis on fast growing sunrise industries. A team with an
extensive private equity and M&A background with considerable experience in
transactions across diverse sectors is in place.

* With investors reining in their investment appetite, fund raising in
international and domestic markets has become challenging. However, the
outlook for PE asset class remains good especially in the emerging markets.
India in particular is likely to remain a preferred destination, given the
sheer number of promising new opportunities that exist here. Consequently
the team is endeavoring to raise funds in the domestic and international
markets.

Reliance Capital Services

* The Reliance ADA Group offers a diverse range of products and services:
from telecom to financial services, from power and infrastructure to media
and entertainment. This means that we have a huge pool of customers across
our different businesses that are not using all of our products and
services.

* A Reliance mobile user may not have a Reliance Money demat account or a
Reliance Mutual Fund account. Similarly, a Reliance Power shareholder may
not be buying insurance from Reliance Life or General Insurance.

* There is a tremendous opportunity in cross selling Reliance Capital
products across the entire customer universe of the Reliance ADA Group.

* To capitalize on this huge opportunity, Reliance Capital Services was set
up in July 2008 with a view to crossselling Reliance Capital products to
the 150 million strong family of the Reliance ADA Group, comprising
shareholders, customers and other stakeholders.

* Cross selling will lower our cost of customer acquisition and further
improve profitability.

* Currently, Reliance Capital Services has 1,335 employees and associates
across nearly 100 locations in India. It has acquired more than 40,000
customers in less than six months of operations.

* The company today ranks among the top 3 distributors for our general
insurance business and among the top 10 for our life insurance business.

Risks and Concerns:

RCL is exposed to specific risks that are particular to its businesses and
the environment within which it operates, including market risk,
competition risk, interest rate volatility, human resource risk, execution
risk and economic cycle.

Market risk

The Company has significant quoted investments which are exposed to
fluctuations in stock prices. These investments represent a substantial
portion of the Company's business and are vulnerable to fluctuations in the
stock markets. Any decline in the price of the Company's quoted investments
may affect its financial position and results of operations. Even though
RCL is exposed to the systematic risk or beta, it has a well diversified
portfolio of stock to mitigate stock specific risk. RCL continuously
monitors market exposure and, in appropriate cases, also uses various
derivative instruments as a hedging mechanism to limit volatility in its
asset returns.

Competition risk

The financial sector industry is becoming increasingly competitive and the
Company's growth will depend on its ability to compete effectively. The
Company's main competitors are Indian nonbanking financial companies, life
and non-life insurance companies, both in the public and private sector,
mutual funds, depository participants and other financial services
providers. Foreign banks also operate in India through non-banking finance
companies. Further liberalization of the Indian financial sector could lead
to a greater presence or entry of new of foreign banks and financial
services companies offering a wider range of products and services. The
Company's competitors may have greater resources than it does and, in some
cases, may be able to raise debt in a more cost-efficient manner. The
Company's growth will depend on its ability to compete effectively in this
context. The Company's strong brand image, wide distribution network,
diversified product offering and depth of management places it in a strong
position to deal with competition effectively.

Credit risk

Credit risk is the risk of failure by the borrower to meet financial
obligations to the lender. RCL has a standardized framework for evaluating
loan proposals. The proposals are evaluated on various quantitative &
qualitative parameters. The loan portfolios are continuously monitored,
post disbursement, to proactively address credit related issues and take
appropriate measures for recovery. As we have entered the consumer finance
segment, our focus has been on standardizing and institutionalizing the
credit evaluation process to ensure speedy service without compromising on
credit quality.

In our consumer finance business, we address the retail customer segment
extensively. Retail customers typically are less financially resilient than
larger borrowers. Negative developments in India's economy could therefore
affect these customers to a far greater degree than larger borrowers.
Further, although we have compiled extensive research and knowledge on
retail customers and their spending behavior, there is generally less
financial information available about them and we may have difficulty
assessing their credit worthiness.

In addition, we expect that a certain portion of our loan portfolio will be
unsecured, which will subject us to the risk of non-recovery of unpaid
amounts from defaulting or insolvent customers and further increase the
volume of non-performing loans. In addition, since a large portion of our
loan portfolio will have been originated relatively recently and these
loans will not yet have matured, we may have greater difficulty forecasting
the results of our operations and assessing our future credit risk.

Our retail financial services business is relatively new, having commenced
in May 2008, and we may be unable to compete effectively with more
established Indian banks and non-banking finance companies engaged in
retail lending. The Indian banking industry is highly competitive and we
may compete directly with large public and private sector banks, which have
larger retail customer bases, larger branch networks and greater access to
capital than we do. If we are unable to compete with other retail lenders
in the Indian banking sector, by reason of our inexperience in retail
lending or otherwise, our business, results of operations and financial
condition could be affected adversely.

Interest rate risk

The Company may be adversely impacted by volatility in interest rates in
India which could cause its margins to decline and profitability to shrink.
The success of the Company's business depends heavily on interest income
from its operations. It is exposed to interest rate risk, principally, as a
result of lending to its customers at fixed interest rates and in amounts
and for periods which may differ from those of its funding sources.
Interest rates are highly sensitive to many factors beyond the Company's
control, including the monetary policies of the RBI, deregulation of the
financial sector in India, domestic and international economic and
political conditions and, inflation. As a result, interest rates in India
have historically experienced a relatively high degree of volatility. The
Company seeks to match its interest rate positions of assets & liabilities
to minimize interest rate risk. However, there can be no assurance that
significant interest rate movements will not have an adverse effect on its
financial position.

With the growth of the Company's business, it will become increasingly
reliant on funding from the debt capital markets and commercial borrowings.
The market for such funds is competitive and the Company's ability to
obtain funds at competitive rates will depend on various factors including
its credit ratings.

There can be no guarantee that the Company will be able to raise debt on
competitive terms, in the required quantum and in a cost effective manner.
Any failure to do so may adversely impact the Company's business. The
Company's treasury team actively manages Asset Liability positions as well
as interest rate exposure in accordance with the overall guidelines laid
down by the management in the Asset Liability Management (ALM) framework.
The company is also hedged to a certain extent against this risk through
the variable interest clause in its advances portfolio.

Human resource risk

The Company's success depends largely upon the quality and competence of
its management team and key personnel. Attracting and retaining talented
professionals is therefore a key element of the Company's strategy and a
significant source of competitive advantage. While the Company has a salary
and incentive structure designed to encourage employee retention, a failure
to attract and retain talented professionals, or the resignation or loss of
key management personnel, may have an adverse impact on the Company's
business, its future financial performance and the price of its equity
shares.

Operational risk

The Company may encounter operational and control difficulties when
commencing businesses in new markets. The rapid development and
establishment of financial services businesses in new markets may raise
unanticipated operational or control risks. Such risks could have a
materially adverse effect on the Company's financial position and the
results of its operations. An extensive system of internal controls is
practiced by the Company to ensure that all its assets are safeguarded and
protected against loss from unauthorized use or disposition and all its
transactions are authorised, recorded and reported correctly.

The Audit Committee of Directors periodically reviews the adequacy of our
internal controls. The Company has embarked on SAP implementation for HR
and Finance. With this initiative, we believe that our overall control
environment will be enhanced and we will benefit from the inherent checks &
balances that come with SAP.

The Company is relentlessly focused on quality parameters and has a
dedicated quality team to proactively identify and address operational
issues. The mandate of the quality team is also to work closely with
various business teams to bring about operational efficiencies and
effectiveness through Six Sigma initiatives. It is pertinent to note that
RLIC has obtained an ISO 9000 certification, being only the 2nd company in
the life insurance space to do so.

Economic risk

A slowdown in economic growth in India could cause the business of the
Company to suffer. While the Indian economy has shown sustained growth over
the last several years, the growth in industrial production has been
variable. Any slowdown in the Indian economy, and in particular in the
demand for housing and infrastructure, could adversely affect the Company's
business. Similarly, any sustained volatility in global commodity prices,
including a significant increase in the prices of oil and petroleum
products, could once again spark off a new inflationary cycle, thereby
curtailing the purchasing power of the consumers. The Company manages these
risks by maintaining a conservative financial profile and following prudent
business and risk management practices.

Internal Control Systems:

The Company maintains a system of internal controls designed to provide a
high degree of assurance regarding the effectiveness and efficiency of
operations, the adequacy of safeguards for assets, the reliability of
financial controls, and compliance with applicable laws and regulations.

The organization is well structured and the policy guidelines are well
documented with pre-defined authority. The Company has also implemented
suitable controls to ensure that all resources are utilized optimally,
financial transactions are reported with accuracy and there is strict
adherence to applicable laws and regulations.

The Company has put in place adequate systems to ensure that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are authorized, recorded and reported. The Company also has an
exhaustive budgetary control system to monitor all expenditures against
approved budgets on an ongoing basis.

Recognizing the important role of internal scrutiny, the Company has an
internal audit function which is empowered to examine the adequacy of, and
compliance with, policies, plans and statutory requirements. It is also
responsible for assessing and improving the effectiveness of risk
management, control and governance process.

Continuous audit and verification of the systems enables the various
business groups to plug any shortcomings sooner rather than later. It also
evaluates the Company's strategic risk management system and suggests risk
mitigation measures for all key operations. In addition, the top management
and the Audit committee of the Board periodically review the findings and
take any corrective measures that are required.

Human Resources

Across all its business operations, Reliance Capital had a workforce of
37,302 people as on March 31, 2009. The business wise break up of the
workforce is given below:

Business Operation Number of people

Life Insurance 26,029
General Insurance 3,587
Reliance Money 3,174
Reliance Consumer Finance 1,487
Asset Management 1,405
Reliance Capital Services 1,335
Reliance Capital 218
Reliance Equities International 53
Reliance Equity Advisors 14
Total al 37,302

Our workforce is young, with an average age of 29 years, and highly
qualified. Nearly two-thirds of our workforce are graduates, while 8 per
cent are post-graduates and another 14 per cent management graduates and
chartered accountants.

Opportunities

* Low retail penetration of financial services / products in India

* Tremendous brand strength and extensive distribution reach

* Opportunity to cross sell services

* Increasing per-capita GDP

* Changing demographic profile of the country in favour of the young

Threats:

* Competition from local and multinational players.

* Execution risk.

* Regulatory changes.

* Attraction and retention of human capital.

Corporate Social Responsibility

Reliance Capital is committed to being a socially responsible company. It
works with distressed individuals, disadvantaged groups, and with civil
society at large. Some of its constituent businesses pay for critical
medical support to needy citizens. Other businesses work with self-help
groups to provide them with funding and other advice to function better.
Some other businesses have also worked with educational institutions to
promote financial literacy and financial inclusiveness.

This is in addition to supporting the charitable activities of the Reliance
Anil Dhirubhai Ambani Group, both in healthcare and in caring for older
people - Silvers.

The company also follows an active program of energy abatement and
recycling of paper and water, to lower its carbon footprint. This is not
just in its corporate office, but also in other large offices in big
cities.

Outlook

India has survived one of the worst global crises in history better than
most other economies. The recent recovery in many of the leading macro
indicators of economic activity has led many to believe that the worst is
over for the Indian economy and we are on our way to a higher growth
trajectory.

There has been a resurgence in sales across a variety of sectors - from
automobiles to cement, steel and electricity production. Rail and port
traffic too has seen an up tick. The Purchasing Managers' Index (PMI) has
shown an improvement from a low of 49.5 for March to 53.3 for April 2009,
signifying a renewed trend of growth in manufacturing. India is the second
major economy after China where the PMI has crossed the baseline 50 mark,
indicating the start of an expansionary phase. The growth in first half of
FY 2010 is expected to remain soft, with the economy turning around in the
second half. The drivers of this turnaround include government's fiscal
stimulus measures, the collapse in commodity prices, the coming onstream of
significant domestic oil and gas output, the recent infusion of record
levels of FDI, the improvement in trade deficit and the environment for
external commercial borrowing (ECB) the fall in the real exchange rate, the
RBI's aggressive monetary policy actions and the expected stabilization of
the global economy.

India remained the second fastest growing economy in FY 2009 after China.
In the light of the ongoing global recession, India will, even at a modest
growth of 6 per cent in FY 2010, be one of the fastest growing in the
world.