Dear Fellow Shareholders,

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3 THE CHAIRMAN S LETTER TO SHAREHOLDERS Dear Fellow Shareholders, India as a Nation has come of age. With a great measure of pride, we see our country rise up the ranks of the powers that be in the global economy. We have grabbed the world s attention and imagination. For the third consecutive year, our GDP has recorded a near 8 per cent growth - among the fastest in the world. To sustain the current growth rate and to push it closer to double-digit levels year after year, the Government seems committed to an aggressive agenda for economic reforms. While economic reforms provide a strong structural foundation for future growth, these are undeniably buffeted by substantive productivity improvements and an overall positive mindset. These developments at the macro level portend well for your Company. Your Company has achieved an excellent performance, marking a milestone, as it enters the billion-dollar league. Its net consolidated turnover hit an all-time high at Rs crores, up by 51.5 percent with a net profit of Rs crores. Your Company s standalone results have been splendid as well. While the turnover at Rs crores mirrors a 42 percent rise, its net profit at Rs crores soared by 64.4 percent. During the year, we have taken two strategic steps, which we believe, will lead to greater shareholder value creation. Firstly, in a landmark restructuring, geared to leverage value business (1)

4 In a landmark restructuring, geared to leverage value business for accelerated growth, your Board endeavoured to merge Indo Gulf, Birla Global and Indian Rayon, and spawn Aditya Birla Nuvo. The merger creates a Company that captures opportunities in the evolving Indian economy through leadership in focused value businesses, namely, carbon black, rayon, textiles and fertilizers and driving high-growth for accelerated growth, your Board endeavoured to merge Indo Gulf, Birla Global and Indian Rayon, and spawn Aditya Birla Nuvo. The merger creates a Company that captures opportunities in the evolving Indian economy through leadership in focused value businesses, namely, carbon black, rayon, textiles and fertilizers and driving high-growth businesses such as garments, IT/ITES, financial services and telecom. Secondly, given that mobile telephone is one of the most exciting growth-oriented sectors, your Company chose to bolster its presence in this sector. In a mega transaction valued at US$ 150 million, your Company acquired an additional 16.5 percent stake from Cingular Wireless, USA. This takes your Company s equity to 20.7 percent. Your Company has acquired an additional 15 percent share in IDEA cellular, raising its holding to percent this June. businesses such as garments, Your Company through TransWorks, its subsidiary, has entered into a definitive agreement with Minacs Worldwide, Canada s IT/ITES, financial services leading BPO povider, to acquire it at a approximate cost of and telecom. US $ 125 million. The acquisition demonstrates our commitment to emerge as a leading global BPO services provider and expand our global footprint. The integrated expertise of both companies will create and provide more powerful and compelling BPO solutions to clients. The result will be a firm with distinctive industry knowledge and execution capability delivered through a unique same-shore, near-shore, offshore global delivery platform. The objective will be to reliably deliver outstanding BPO services to global clients from anywhere in the world. I would now like to apprise you of significant developments in our business sectors, their performance and the blue-print for future growth. The Value Businesses : Your Company s holding in Idea Cellular has been raised to percent. Indian Rayon Division Your Company s Rayon Division has had to accost challenges posed by growing imports from China at cut-throat prices as well as limited growth of the sector itself. Worldwide growth is (2)

5 pegged at just 3 to 4 percent. Despite these constraints, the Division has done reasonably well, and continues to be on the growth curve, thanks to a series of forward looking steps. It has stepped up its share of value-added yarns that will give returns. Raising the level of the yarn quality through technological upgradation will also boost realisation. A 1000 tons capacity expansion via the debottlenecking route, enhancing caustic soda capacity, and commissioning of the 20 MW captive power plant will augment both productivity and the bottomline. I foresee a moderate growth in the Rayon sector in a tough environment. Carbon Black With the strengthening of the auto and tyre sector, your Company s Carbon Black business has posted excellent growth figures. It has in fact been a major contributor to your Company s earnings. As the lowest cost producer in India, this business is poised to grow at a much quicker pace in a stimulating environment driven by the transport sector. While your Company is pursuing environmental clearance for its 55,000 TPA brown-field expansion, the Division is also exploring possibilities to set up a 60,000 TPA Greenfield plant in Western India. Textiles Linen and worsted yarns have been the key drivers of the Textiles Division s notable performance. The Division is increasingly veering towards superior, elegant fabrics that appeal to the classes. Additionally, through intensifying the retail presence of its linen fabrics, it will entrench its foothold in discerning markets. Fertilisers Your Company through TransWorks, its subsidiary, has entered into a definitive agreement with Minacs Worldwide, Canada s leading BPO povider, to acquire it at a approximate cost of US $ 125 million. The acquisition demonstrates our commitment to emerge as a leading global BPO services provider and expand our global footprint. Increased operational efficiencies coupled with the rising demand for urea fertilizers spurred the Fertiliser Division s output and earnings. In a measure to raise farm productivity and maintain the eco-system, plans to usher in Zincated, Sulphonated and Boronated urea, are on the anvil. Currently, these products are in the development stage. Organic and inorganic growth as well as related diversification marks your Company s growth trajectory. Your management has already applied to the Government for debottlenecking of its urea capacity from 2620 MTPD to 3360 MTPD and an additional Greenfield expansion. (3)

6 Project under Clean Development Mechanism (CDM) The Fertiliser Division s CDM Project Energy Efficiency through installation of modified CO2 Removal System in the Ammonia plant is the first project world-wide in the fertilizer sector to be registered with United Nations Framework Convention on Climate Change (UNFCCC). Your Company has been issued 60,239 MT of Carbon Credits based on authentication of our processes by Det Norske Veritas (DNV). Insulators In the Insulator business, implementing process for yield and quality enhancement to global standards is underway. We have reaped substantial gains, basically in raising the quality of products to international ectro chemical standards. The outlook for the business is indeed promising given the Government push to the power sector reforms. Growth Business : Madura Garments : In the Garments segment, the Division has put in a remarkable performance. We view this business with great optimism, as the market for readymade garments is on an upswing. Bringing in innovative lifestyle brands, broadening its retail sweep, both in Malls and high streets, and giving its customers a rich and happy feel, will enable the Division maintain its lead. Life Insurance : Even as the total premium income at Birla Sun Life Insurance rose by 37.1 percent to Rs crores, intense pricing pressure has to an extent adversely impacted its performance, dragging its market share from 13 percent to 8 percent. While the Company has taken a series of proactive measures to reverse the situation, the breakeven may take another two years. Financial Services: The Fertiliser Division s CDM Project Energy Efficiency through installation of modified CO2 Removal System in the Ammonia plant is the first project world-wide in the fertilizer sector to be registered with United Nations Framework Convention on Climate Change (UNFCCC). In the Financial services segment of your Company, the total asset under management of asset management company grew to Rs. 16,424 crores. To stay ahead, the business is increasing its distribution reach. The total mobilization of funds in the distribution company has moved up to Rs. 19,267 crores. The Birla Global division has emerged as a leading player in the IPO financing, extending finance of Rs crores in seven months. (4)

7 The IT / ITES Sector : At TransWorks revenues have risen significantly by 50.9 percent. The Company has wiped off all its accumulated losses. It has garnered an impressive roster of clients, inclusive of many Fortune 500 companies, multiplied its seats manifold and strengthened its manpower base. It is very well positioned to reach newer heights. PSI Data System s thrust on high margin business with select clients, focusing on core verticals, largely corporate Banking, Financial Services, Testing and High Technology, has paid off. The Division has turned around and posted positive net profits. This business is poised for further growth. IDEA Cellular : IDEA Cellular is growing from strength to strength. Today it is the fifth largest mobility service provider in India. Its subscriber base grew by 45.3 percent to 7.37 million. Its market share has risen to 8.2 percent. It is a frontrunner in most of the 8 circles where it operates; viz., Maharashtra, Gujarat, Andhra Pradesh, Kerala, Madhya Pradesh, Delhi, U.P. (E) and Haryana. A roll out in 3 additional circles will happen in the near future. Our People Power The overriding reason behind our success has been our strikingly sharper accent on people. We look upon them as our core asset, much more critical than our physical assets or financial assets. I value their contribution in building a culture of meritocracy. The overriding reason behind our success has been our strikingly sharper accent on people. We look upon them as our core asset, much more critical than our physical assets or financial assets. I value their contribution in building a culture of meritocracy. The Aditya Birla Group : In Perspective Our vision, as you are aware, is to be a premium global conglomerate, with a clear focus at each business level, and our vision is to deliver superior value to all our stakeholders. Implicit in our Vision Statement, is our global ambition, which necessarily implies accelerated growth to reach global-sized capacities and services. We are on course. Building a Meritocracy Meritocratic organizations are built on the strong foundation of values and not on the quick sands of opportunism. For us, our values Integrity, Commitment, Passion, Seamlessness and Speed reflect the soul of our organization. To develop a common in-depth understanding of what these values connote in our context, and how they should be our guiding light in the business decisions we (5)

8 take as well as the manner in which we conduct ourselves, we rolled out Values Workshops. In more than 373 Workshops, over 8236 colleagues across management cadre committed to ensure that these values become a part of their everyday life. Talent Management and strengthening of the talent pool in building leadership across the Group is a key priority. Employees identified as high-caliber management talent are put through our Development Assessment Centre. Here the talent pool is assessed by an external agency to validate our ratings on the potential of the employee to scale up to a new responsibility level. Gyanodaya, our management learning institute, has repositioned itself to align more closely with business requirements. The focus is very clearly on business and functional programmes, keeping in view the competencies required at every career stage. More than a 1000 managers across the group have been through the portals of Gyanodaya this year. The Gyanodaya Virtual Campus, which is our e-learning Programme, has also increased its reach manifold. As of today, we have 5000 e-learners in our group, with a course completion rate of 88%, while the world benchmark hovers around 65%. For a large number of engineers and CAs, we have tied up with Universitas 21 to provide an opportunity for these talented people to do a full-time e- MBA. As of today, 46 employees have completed 165 courses in 11 subjects in the last 1 year. Soon enough, they will earn their MBA degree while continuing on their jobs. With a view to provide for systematic and structured processes for career growth, the job analysis and evaluation process was started 4 years ago. While Managers from across businesses have been involved at various stages of the process, more than a 100 managers have been trained as job analysts and another 100 have been trained as job evaluators. This exercise covered all management level jobs across India. Over 5000 jobs already evaluated, resulting in the formation of 11 distinct job bands. To reward and motivate our people and to ensure internal equity and external competitiveness, we have been using a performance merit grid and linking rewards to performance. A performance-linked variable pay, has been introduced for all management executives. These initiatives have led to the successful institutionalisation of the Compensation Review and Performance management Process. These, to my mind, are significant steps towards building a more competitive and a world-class organization. Best regards, Yours sincerely, Kumar Mangalam Birla (6)

9 ADITYA BIRLA NUVO LIMITED BOARD OF DIRECTORS EXECUTIVES Mr. Kumar Mangalam Birla, Chairman RAYON DIVISION Mrs. Rajashree Birla Mr. K. K. Maheshwari Group Executive President Mr. H. J. Vaidya Mr. K. C. Jhanwar Executive President Mr. B. L. Shah Mr. S. S. Gupta Joint President Mr. P. Murari Mr. D. P. Modani Sr. Vice President (Fin. & Comm.) Mr. B. R. Gupta Mr. S. K. Nanda Sr. Vice President (Caustic) Ms. Tarjani Vakil Mr. J. P. Pandey Sr. Vice President (Production) Mr. Vikram Rao Mr. K. D. Joshi Sr. Vice President (Marketing) Mr. S. C. Bhargava Mr. R. C. Maheshwari Sr. Vice President (HR) Mr. G. P. Gupta Mr. Sanjeev Aga, Managing Director HI-TECH CARBON Mr. S. K. Mitra, Whole Time Director Mr. Rakesh Jain Business Head Mr. Rakesh Jain, Whole Time Director Mr. S. S. Rathi Executive President Mr. K. K. Maheshwari, Whole Time Director Mr. G. S. Mishra Joint President (Renukoot Unit) Mr. Adesh Gupta, Whole Time Director Mr. R. K. Dad Sr. Vice President (Chennai Unit) MANAGING DIRECTOR TEXTILES Mr. Sanjeev Aga Mr. Vikram Rao Business Director Mr. J. C. Soni President Mr. J. Shroff Sr. Vice President WHOLE-TIME DIRECTOR & CFO Mr. S. K. Patodia Sr. Vice President Mr. Adesh Gupta Mr. A. Nair Sr. Vice President Mr. B. D. Daga Sr. Vice President COMPANY SECRETARY MADURA GARMENTS Mr. Devendra Bhandari Mr. Vikram Rao Business Director Mr. Hemchandra Javeri President Mr. P. Kar Chief Operating Officer AUDITORS Mr. Shoaib Farooqi Sr. Vice President (Sales & Marketing) Khimji Kunverji & Co., Mumbai S. R. Batliboi & Co., Mumbai INSULATOR DIVISION (DOMESTIC MARKETING) Mr. Jayant Dua Executive President OTHER BRANCH AUDITORS INDO GULF FERTILISERS K. S. Aiyar & Co., Mumbai Mr. Sanjeev Aga Business Director Deloitte Haskins & Sells, Bangalore Mr. S. K. Jajn Sr. President Mr. R. K. Malhotra Joint President (Fin. & Comm.) Mr. C. K. Dutta Joint President (Mfg.) SOLICITORS Mr. J. R. Mohan Sr. Vice President (HRD & Personnel) Mulla & Mulla and Craigie, Mr. S. Sharma Sr. Vice President (Marketing) Blunt & Caroe, Mumbai CORPORATE FINANCE DIVISION Mr. Manoj Kedia Joint President REGISTERED OFFICE Ms. Pinky Mehta Sr. Vice President (Taxation) Indian Rayon Compound, Mr. Anil Rustogi Sr. Vice President Corporate Finance Veraval (Gujarat) FINANCIAL SERVICES DIVISION Mr. S. K. Mitra Director (Financial Services) Mr. Sushil Agarwal Chief Operating Officer Mr. Ravi Bubna Sr. Vice President Contents Financial Highlights... 8 Directors Report Management s Discussion and Analysis Auditors Report Corporate Governance Report Balance Sheet, Profit and Loss Accounts and Schedules Social Report Cash Flow Statement Environment Report Consolidated Financial Statements Shareholder Information Statement Relating to Subsidiary Companies (7)

10 FINANCIAL HIGHLIGHTS Units PRODUCTION (Quantity) Viscose Filament Rayon Yarn MT 17,233 16,420 16,060 15,873 12,253 15,496 12,621 14,685 14,273 13,803 Chlor-alkali (Caustic Soda) MT 57,051 45,457 39,305 34,875 23,976 30,620 27,419 17,085 13, Spun Yarns MT 19,190 15,445 14,421 13,781 12,717 13,490 14,113 16,275 15,721 12,549 Fabric 000 Mtr 4,646 3,751 2,734 3,627 3,906 5,307 5,902 6,489 5,232 4,376 Urea (w.e.f. 1st Sep 05) MT 575, Carbon Black MT 175, , , ,563 93,634 89,739 95,828 63,968 42,104 52,209 Insulators (w.e.f. 1st Aug., 02) MT ,673 25,277 25,665 24,353 24,026 22,752 21,077 White Cement (Demerged w.e.f. 1st Sep, 98) 000 MT Cement (Demerged w.e.f. 1st Sep, 98) 000 MT ,045 3,075 2,934 SALES (Quantity) Viscose Filament Rayon Yarn MT 17,380 16,445 15,694 15,422 12,812 15,326 13,507 13,662 14,322 13,688 Chlor-alkali (Caustic Soda) MT 56,954 45,920 39,344 34,207 24,111 31,104 27,516 16,694 13, Spun Yarns MT 18,867 15,686 14,594 13,882 13,188 13,258 14,641 16,483 15,190 12,568 Fabric 000 Mtr 4,418 3,593 2,798 3,614 3,788 5,646 6,351 6,380 5,027 3,720 Urea MT 563, Carbon Black MT 175, , , ,232 94,504 91,735 94,656 61,243 42,118 50,647 Insulators (Domestic sales since 03-04) MT 16,245 9,219 6,813 7,596 25,184 25,691 23,701 23,656 23,088 21,179 White Cement 000 MT Cement 000 MT ,054 3,083 2,952 PROFIT & LOSS ACCOUNT GROSS SALES (excluding captive consumption) Rs. in Crores Garments Viscose Filament Rayon Yarn Chlor-alkali Spun Yarns Fabric Carbon Black Urea Financial Services (w.e.f. 1st Sep 05) Insulators White Cement Cement Others Total Gross Sales 2, , , , , , , , , , Excise duty Net Sales 2, , , , , , , , , , Operating Expenses 2, , , , , , , , , Operating Profit Other Income Interest Payment (Net) Gross Profit Depreciation /Amortisation Profit before Exceptional Items and Tax Exceptional Items Gain/ (Loss) (4.04) (7.65) (7.18) (298.82)* (* Due to exit from Sea Water Magnesia business) Profit after Exceptional Items (241.23) Provision for Current Tax Provision for Deferred Tax (6.91) (1.99) Fringe Benefit Tax Net Profit (241.23) Equity Shares Dividend (incl. Dividend tax) Retained Profit (247.88) (8)

11 Rs. in Crores BALANCE SHEET Units Net Fixed Assets 1, , , , Investments Long term Strategic Investments 1, Others Total Investments 1, Net Current Assets 1, Misc. Expenditure (Not written off) Capital Employed 3, , , , , , , , , , Net Worth represented by:- Share Capital (Merged Indo Gulf & Birla Global wef 1st Sep 05) Reserves & Surplus 2, , , , , , , , , , Net Worth 2, , , , , , , , , , Loan Fund Long Term Others Total Loan Funds 1, , , Deferred Tax Capital Employed 3, , , , , , , , , , RATIOS & STATISTICS Operating Margin % Gross Profit Margin % Net Margin before exceptional items % Net Sales / Average Assets x Interest Cover (EBITDA/Net Interest) x Interest Cover (EBITDA/Interest) x DSCR x ROACE (PBIT/ Average Capital Employed) % ROAE (Net Profit before exceptional items/ Average Net Worth) % ROAE (Net Profit/ Average Net Worth) % (19.24) Current Ratio x Debt Equity Ratio (Total Debt) x Debt Equity Ratio (Long Term Debt) x Dividend per share Rs Dividend as % to Net Profit % (2.76) EPS (Before exceptional items) * Rs EPS (After exceptional items)* Rs (40.29) CEPS (Before exceptional items) * Rs CEPS (After exceptional items)* Rs (28.18) Book Value per share Rs No. of Equity Shareholders Numbers 150,876 94, , , , , , , , ,908 Closing Market Price Rs Market Capitalization Rs. in Crores 6,204 2,391 1, ,209 1,318 Price Earning Ratio (Before exceptional items) x Price /Book Value Ratio x Exports (FOB) Rs. in Crores New Capital Expenditure Rs. in Crores New Strategic Investments (net) Rs. in Crores (22.93) *Weighted Average (9)

12 FINANCIAL HIGHLIGHTS - CONSOLIDATED PROFIT & LOSS ACCOUNT (Rs. in Crores) Unit NET SALES Garments Rayon Yarn (Including Caustic & Allied Chemicals) Carbon Black Insulators Textiles (Spun Yarn & Fabrics) Fertilisers (w.e.f. 1st September 2005) Financial Services (w.e.f. 1st September 2005) Software (w.e.f. 24th Oct., 2001) Life Insurance 1, Telecom (w.e.f. 1st April, 2002) BPO (w.e.f. 1st July, 2003) Others Inter business transfer (4.48) (3.47) (6.98) (9.91) (12.04) Total Net Sales 4, , , , , PBIT Interest Payment (Net) Profit before Exceptional Items and Tax Exceptional Items Gain/ (Loss) (4.04) (7.65) Profit after Exceptional Items Provision for Tax Net Profit Before Minority Interest (4.13) Profit/(Loss) pertaining to Minority Interest (15.27) (16.00) (20.21) (24.02) (14.16) Net Profit BALANCE SHEET (Rs. in Crores) Net Fixed Assets 2, , Goodwill On Consolidation Investments Insurance (Shareholder s & Policyholders Investments) 2, , Others Total Investments 2, , Net Current Assets 1, Misc. Expenditure (Not written off) Capital Employed 7, , , , , Net Worth represented by:- Equity Share Capital (Merged Indo Gulf & Birla Global w.e.f. 1st Sep 05) Preference Share Capital Total Share Capital Reserves & Surplus 1, , , Net Worth 2, , , , , Policyholders Fund 2, , Loan Fund Secured fund 1, Unsecured fund Total Loan Funds 2, Minority Interest Deferred Tax Capital Employed 7, , , , , RATIOS & STATISTICS Operating Margin % Net Margin * % Net Sales / Average Assets x Debt Equity Ratio (Total Debt) x Interest Cover (EBITDA/Net Interest) x ROACE (PBIT/ Average Capital Employed) * % ROAE (Net Profit / Average Net Worth) * % ROAE (Net Profit/ Average Net Worth) % EPS (weighted average) Rs * Before Exceptional Items (10)

13 Sources of Total Revenue (Rs Crores) Other Income 23 (1%) Export Turnover 484 (17%) Domestic Turnover 2303 (82%) Distribution of Total Revenue (Rs Crores) Depreciation/ Amortisation 81 (4%) Interest 56 (2%) Dividend 42 (1%) Retained Earnings 139 (5%) Taxes & Duties 240 (9%) Operating & Other Expenses 652 (23%) Staff Cost 168 (6%) Materials 1400 (50%) (11)

14 MANAGEMENT S DISCUSSION AND ANALYSIS OVERVIEW The Indian economy has registered yet another year of excellent growth, heralding the phase of cyclical upswing in the economy. While the rise in agricultural and services growth is heartening, the major positive development is the strong rise in Industrial growth. The manufacturing sector growth, largely in capital goods reflects a pick-up in investments and industrial growth. The strong rise in consumer goods also reflects the rising consumption by the household sector. The economy clocked an impressive growth of 8.4% during FY06, thus maintaining the growth momentum despite challenging conditions of hardening of global oil prices (that touched a peak of $70/barrel), a huge surge in commodity prices that posed inflationary threats as well as appreciating rupee that hampered exports prospects. Viewed against this backdrop, the overall performance of your Company has been impressive. Standalone revenues have grown by 42% from Rs crores in the previous year to Rs crores. Profit before Interest, Depreciation and Tax is higher by 68% at Rs crores. The Consolidated performance is even more stellar. Net revenues have risen by 51% at Rs.4,830.3 crores while net profit surged by 247% to Rs crores STRATEGIC MOVES Your Company has taken many strategic steps this year towards strengthening its financials and boosting the growth of new age businesses. Increase of equity stake in Idea Cellular Ltd. Your company has fortified its presence in the fast growing telecom space. In a strategic move, your Company acquired an additional 16.5% equity stake of Idea Cellular Ltd for Rs crores in Sep-05. This takes the total Aditya Birla Nuvo holding to 20.7% as at 31st March Your company has further acquired along with its wholly owned subsidiary, 15% equity stake in Idea Cellular at a cost of Rs crores in the first quarter of FY07. This has increased Aditya Birla Nuvo s stake in Idea Cellular to 35.7%. Idea Cellular Ltd is a profit making cellular company operating in 8 Telecom circles with a subscriber base of 7.37 million. Merger of Indo Gulf and Birla Global with Aditya Birla Nuvo In a consolidation move to further enhance shareholder value, your company proposed the merger of Indo Gulf Fertilisers and Birla Global Finance with itself effective from September 1, This is a major step in taking forward the well-crafted strategy of leveraging value businesses for accelerated growth. Post-consolidation, Aditya Birla Nuvo will become a more sizeable player, with a diversified, high growth business engine. Your company has a good record of managing a diverse portfolio with razor sharp focus on each business. While the merger with Indo Gulf will strengthen the financials of your company, the merger with Birla Global will create an integrated financial service provider. As the schemes have been sanctioned by the respective high courts, the merger of Indo Gulf and Birla Global has become effective from September 1, The merger creates a company that captures opportunities in the evolving Indian economy through leadership in focussed value businesses i.e., carbon black, rayon, textiles and fertilisers, and driving high growth businesses viz., garments, IT / ITES, financial services and telecom. (12)

15 Value Businesses High Growth VFY Carbon Black Textiles Fertilizers Insulators Garments Financial Services JV Subsidiaries Telecom JV (35.7%) Mutual Fund (50%) IT (70%) Life Insurance (74%) ITeS (100%) Distribution (50%) Change of name to Aditya Birla Nuvo Ltd To mirror the transformed character, your company has changed its name from Indian Rayon and Industries Limited to Aditya Birla Nuvo Limited. Acquisition of Minacs Worldwide In June 2006, Transworks Information Services Ltd., a Wholly owned subsidiary of your Company has entered into a definitive agreement with Minacs Worldwide Inc., Canada s leading BPO provider, to acquire Minacs, through its wholly owned subsidiary i.e. A V Transworks Limited, Canada. Transworks is proposing to acquire up to 100% of the shareholding in Minacs on a fully diluted basis through an open offer at a total outlay of US$125 million (approximately). (13)

16 CONSOLIDATED PERFORMANCE Rs. crores Change (%) Net Turnover 4, , % Operating Profits % Net Profit % Net Worth 2, , % Total Debts 2, % Capital Employed 4, , % Aditya Birla Nuvo has posted a strong growth, both in top-line and bottom-line, on a consolidated basis. Consolidated Revenue Consolidated Profit 4, , % FY 05 FY 06 FY 05 FY 06 Net revenues have risen by 51% to Rs.4,830.3 crores while the net profit surged by 247% to Rs crores on the back of an all-round growth in businesses, further supported by the increased stake in Idea Cellular Ltd, merger of Indo Gulf Fertilisers and the merger of Birla Global. Your Company s JV and Subsidiaries contributed 45% to the consolidated revenues. The share of new businesses in the total consolidated revenue is around 56%. The consolidated revenue of your company has crossed US$ 1 billion for the fiscal year IT Services 2% Financial Services 1% BPO 3% Life Insurance 29% Cellular 8% Others 0% Rayon 8% Carbon Black 12% Life Insurance 30% IT Services 3% BPO 3% Cellular 3% Others 0% Rayon 11% Carbon Black 15% Textiles 11% Garments 13% Insulators 5% Fertilisers 8% Garments 15% FY 2006 FY 2005 Insulators 6% Textiles 14% (14)

17 The consolidated net profit of your company increased manifold during the year, from Rs crores to Rs crores. The performance of individual businesses is highlighted in the subsequent paragraphs. VALUE BUSINESSES RAYON Rs. crores Change (%) Effective Capacity (TPA) 16,000 15,500 Production (Tonnes) 17,233 16,420 5% Sales Volumes (Tonnes) 17,380 16,445 6% VFY Net Realisation (Rs./Kg.) % Net Turnover % - VFY % - Chlor alkali % Operating Profits % PBIT % Capital Employed % ROCE (%) 16% 21% Satisfactory performance amidst challenging business environment The VFY business performed satisfactorily amidst a challenging business environment. It would have been better but for higher cheap imports from China. VFY volume increased to 17,380 tons, recording a growth of 6% over the previous year. Chemical business did very well, due to a buoyant chlor-alkali segment and higher realisations. Production was higher by 21% due to capacity addition of 45 TPD in Jul-05. Revenue growth supported by increased volumes Revenues at Rs crores were sustained on the back of a better performance by the Chemical business, which recorded a 23% increase at Rs crores. Operating profits maintained due to better operational efficiency and initiatives Operating profits at Rs crores were marginally better despite a rise in input prices and maintenance costs. Manpower productivity improved with rationalisation of the workforce. Improved profits from the Chemical business further aided the operating profits. Rayon division has geared up to meet the challenges The long-term outlook of VFY is moderate, as demand is expected to grow at a modest rate of 3-4%. Taking this reality into account, the business has chalked out strategic plans towards sustaining volumes and improving realization. The business has embarked on increasing its share of value added yarns that would give higher realization. Simultaneously, there is focus on technological improvement to improve quality. All these efforts will help us to provide superior customer value and to fetch a premium on our products. Further, levy of antidumping duty against China also provides assurance of improved realisation. The long-term outlook for the chlor-alkali segment remains moderate, though realizations may be impacted in the short term. To counter this, your Company is optimizing asset utilization with further expansion of the (15)

18 caustic soda capacity by 65 TPD. This will help in leveraging the locational advantage. Further, to reduce the power cost the division is setting up a 20 MW captive power plant, which would go on stream by September CARBON BLACK Rs. crores Change (%) Effective Capacity (TPA) 170, ,500 5% Production (Tonnes) 175, ,025 7% Sales Volumes (Tonnes) 175, ,095 7% Realisation (Rs./Ton) 32,069 28,302 13% Net Turnover % Operating Profits % PBIT % Capital Employed % ROCE (%) 19% 16% Auto and Tyre sector demand boost performance Overall, the Carbon Black business has delivered a strong performance, boosted by robust demand from the auto and tyre sector, which has maintained momentum by registering a growth of 12% year-on-year. Though the business environment was impacted with the feedstock prices soaring to new highs, the same was countered by changing market, logistic and product mix. Revenue grows with increase in Sales Volume Your company has registered the highest ever production and volumes of carbon black. The volumes grew to 175,944 tons higher by 7% over the previous year, aided by the increase in capacity by 10,000 TPA in the previous year and 103% capacity utilization for the full year. Realizations rose by 13% over the previous year. Although the increase mainly represented the partial pass on of the high CBFS prices to the customers, it was also supported by positive changes in market, product and logistics mix. Revenues thus leapfrogged by 21% to Rs crores as against Rs crores, backed by higher volumes and improved realizations. Highest ever operating profits with improved ROCE Operating profit of the Carbon Black business at Rs.92.4 crores is up by 20% vis-à-vis Rs crores in the previous year. Positive shift in volumes from the export market to the domestic market, coupled with better contributions from sale of power and steam has further complemented. However, high CBFS prices, which are passed on with time lag, continued to create pressure on the margins. ROCE has improved from 16% in the previous year to 19% for the fiscal year The Carbon Black business shall strive to improve performance The brown-field expansion of 55,000 TPA, which your company had initiated, is awaiting environmental clearance. The key challenge is the timely completion of the expansion so as to reap the benefit from the strong growth in the auto sector. The continuous increase in CBFS prices is creating pressure on profitability. (16)

19 Proactively managing procurements and effective pass on of the high CBFS prices to the customers remains another focus area. Riding on the wave of the auto and tyre sector growth, your Company is exploring the possibility of a greenfield expansion of 60,000 TPA in Western India. This will enable to tap opportunities in the West for the domestic market as well as capture the export markets of neighboring countries. TEXTILES Rs. crores Change (%) Net Turnover % Operating Profits % PBIT % Capital Employed % ROCE (%) 18% 9% - Strong growth on the back of capacity expansion and increased distribution The Textiles business has shown strong performance with all-round contribution, supported by a rising demand across its entire segment. Linen Fabric, under the Linen Club brand, has registered a notable growth as demand surged with growing awareness and usage. Your Company has worked with leading apparel companies to promote the use of Linen in their products. The retail space for Linen Club fabric has increased from 80,000 sq ft to 117,250 sq ft, a jump of 46% over previous year. As a result, volumes were higher by 24.7% at 44.1 lacs meters while revenues grew by 33% at Rs 98.6 crores, bolstered by higher realisation. Revenue from Flax yarns grew in line with volumes at Rs crores on the back of higher capacity utilisation. The company has doubled the capacity of its wool combing facility to 8,000 TPA in Jul-05. Further, the share of value added products in the total revenue has increased. As a result, revenue is up by 25% at Rs crores. Synthetic yarn volume is up from 11,425 tons to 12,925 tons in the current year. However, the volatility in polyester fibre prices led to pressure on realisations and resulted in sales revenue remaining nearly flat at Rs crores. Revenue and Operating Profits The division s revenue at Rs crores was higher by 15% from Rs crores achieved in the previous year. Operating profits rose by 70% to Rs crores against Rs crores, due to higher productivity and improved operational efficiency. Our focus on value added yarns in niche segments, has reaped rich benefits. Business ROCE doubled to 18% vis-à-vis 9% in the previous year. Business Outlook The outlook on Linen Fabric, in particular, seems to be quite good. Growing awareness and usage, along with increasing disposable income will help to increase demand in the future. Your Company is increasing the capacity of Linen Fabric from 62 looms to 112 looms. The Company s strategy will be to promote Linen fabric for regular wear by increasing its retail presence. Your Company is also planning to enhance the Flax spinning capacity by 7000 spindles, taking the total capacity to 13,184 spindles. (17)

20 FERTILISERS Rs. crores 7 months Re-assessed Annual Capacity (MT) 864,600 Production (MT) 575,646 Sales (MT) 563,914 Realisaion (Rs/MT) 6,542 Revenue PBDIT 76.0 PBIT 51.5 Capital Employed ROCE (%) 18% The growth in Agriculture & Allied sectors was about 3% and due to favourable weather conditions, the demand for urea fertilizer was higher by 8.6%. Considering this, the fertilizer division could achieve higher production and sales, compared to its reassessed capacity, through enhanced operational efficiency. Operating profits for the 7-months period improved to Rs crores due to higher operational efficiency and better energy consumption. Strong focus on cost reduction, higher availability of LNG and increased share of value added products further augmented the performance. Indo Gulf s Neem Coated Krishi Dev urea has become the preferred choice of farmers and the production during the period was 1,52,897 MT. To enhance the productivity of farmlands by providing balanced use of micro nutrients through value added products, the fertiliser division is developing Zincated, Sulphonated & Boronated Urea. The division is also taking up the case with the Government for fixing of proper specifications and price to facilitate the introduction of value added products. Fertiliser Pricing Policy Review The division is making efforts with the concerned Government department to rectify the anomaly in the New Pricing Policy (NPS) resultant from the heterogeneity in Group formation of Pre 92 gas based units. Under the NPS effective from , the Govt. has clubbed both land locked and the landfall fertilizer units. Unlike landfall units, land locked units like Indo Gulf have to bear a significantly higher cost of Natural Gas. The policy, therefore, does not offer a level playing field and puts Indo Gulf at a disadvantage. The committee has submitted its report in January 2006 and the company is awaiting the New Urea Pricing Policy, NPS III, which will be effective from Business Outlook Industry experts forecast urea demand to grow by 3 4% annually and to reach 25 million tons by The present production capacity in the country is about 20 million tones, thus leaving a gap of 5 million ton. In the year , it is estimated that the Govt imported about 1.8 Million tons of urea. The availability of additional gas (RLNG or normal gas) to meet the requirement of increase in production in the near future at a reasonable price is uncertain. Hence it is hoped that the Govt. will allow alternate fuel/feed at actual cost to meet the additional demand for fertilizer through de-bottlenecking of the plant capacity. The company s application for increasing the capacity from 2620 MTPD to 3320 MTPD is pending with the Govt. The company is awaiting necessary approvals with favourable conditions ensuring economic viability in de-bottlenecking the plant capacity. (18)

21 INSULATORS Rs. crores Change (%) Domestic Marketing Revenue % PBDIT/PBIT % Capital Employed Manufacturing Jv Production (Tons) 25,501 25,449 Sales Volumes (Tons) 26,065 24,412 7% Revenue % PBDIT 13.7 (15.6) 188% PAT (3.6) (25.3) 86% Capital Employed Nuvo Equity Investment DOMESTIC MARKETING In the domestic market, the Division s revenue stood at Rs crores, higher by 36% over the previous year, supported by the strong volume growth. PBIT increased from Rs crores to Rs crores during the year. The performance of the Division is linked to better product availability from the manufacturing JV and increased domestic demand. The outlook for the business is positive with power sector reforms and the robust demand in the transmission and the distribution segment. BIRLA NGK Insulators Private Limited The joint venture improved its performance, with overall losses down from Rs crores to Rs. 3.6 crores during FY06. Sales volumes were 7% higher at 26,065 tons though the exports have declined as compared to the previous year. Net revenue of the Company soared 34% to Rs crores against Rs crores in the previous year, driven by the higher realisations as well as better volumes. Outlook for Insulator Business The outlook for the Insulator business remains positive. The domestic market will benefit from the power sector reforms and the resultant activity in transmission and distribution activities. There is also an opportunity for exports in the transmission and distribution segment for new lines in developing countries and for upgradation in developed countries. Improving demand conditions, enhanced capability of the company to supply international quality products, increase in the share of value added products, cost competitiveness and capacity addition would further strengthen the business performance. GROWTH BUSINESSES GARMENTS Rs. crores Change (%) Volumes (Lac Pieces) % Net Turnover % Operating Profit before Advertisment and Royalty % Advertisment Expenses % Operating Profit % PBIT % Capital Employed % ROCE (%) 11% 5% (19)

22 Strong overall performance accompanied by new initiatives Madura Garments business has increased its leadership position through a set of well planned and executed initiatives. All the Madura Garment s brands namely Louis Philippe, Van Huesen and Allen Solly in the fashion segment and Peter England in the popular segment continue to fortify their market leadership positions and have registered significant profitable growth. Consumer demand and brand equity were strengthened so as to successfully exploit the growing opportunities in this market. To provide a special thrust to Contract Exports, your company has created a separate subsidiary to carry on the business. This will help in focusing on customers and costs. A Capex of Rs. 46 crores has been planned to create world class manufacturing facilities and for innovation, product development and creation of a design studio. To strengthen its brand portfolio, your company has entered into a strategic tie-up with the fast-growing international brand Esprit. This will strengthen our position in key segments (women s segment / premium segment / accessories) and will help capitalise on the buoyancy in the premium retail business in India. Retail presence expanded aggressively In an exploding retail environment, we have successfully expanded the retail presence of our brands through Exclusive Brand outlets, Planet Fashion and Trouser Town. Retail space has increased to 3.1 lacs sq ft selling through 164 high quality stores. Revenue growth with higher volumes and better product mix Through a slew of initiatives in each segment and significant improvement in merchandise and product development, volumes for the year are up by 33% at lakh pieces. Volumes across various product categories have seen a good surge. While Shirts grew by 23%, trousers have grown remarkably by 60%. Contract export business has strengthened its existing customer relationships. This eventually resulted in a 31% rise in revenues at Rs crores. Profitability soars on the wings of richer product mix and better merchandise and operational management Operating profits (before advertisement) have increased by 28% to Rs due to higher volumes, richer product mix and better merchandise management. Focused efforts on optimization of inventory to control discount and dormancy added further strength. ROCE has improved from 5% in the last year to 11% in the current year. These improvements have been achieved in a competitive market where other companies have resorted to discounting or aggressive promotions. With effective media planning and buying, advertisement investment at 9% of revenue has delivered exciting new campaigns to sustain brand leadership and create a buzz around the opening of new showrooms. Operating profit after advertisement costs has thus grown to Rs.57.9 crores, a net rise of 47%. Strong brand image ratified by various awards The division was awarded the Best Retailer of the Year in the fashion segment at the 2nd Reid & Taylor awards. Further, the division was also adjudged The Best Apparel Company of the Year at the Images Fashion Awards for the third consecutive year. Other accolades received include Van Heusen Best Trouser Brand of the Year, Allen Solly the Best Smart Casual Brand of the Year. Future Outlook for Garments Business The business has a clear, five-pronged strategy to maintain leadership and increase market share: Louis Philippe, Van Huesen, Allen Solly are being strengthened as Lifestyle brands by constantly enriching the product mix and introducing new product categories and accessories with world benchmarks. Peter England is being built as a mega brand. Its reach will be expanded further to the masses. Supply chain management will be improved to strengthen the product supply, which will lead improved profitability. (20)

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25 The prime focus remains on expanding our retail reach by increasing controlled retail space. Simultaneously, the division is focusing on cost efficiencies by efficient management of discounting, supply chain, outsourcing and by optimizing expenses. On the Contract exports front, the newly created subsidiary will leverage design and delivery capability to garner a larger pie of the market. Birla Sun Life Insurance (BSLI) Rs. crores Change (%) Business Highlights Sales (Annualized Premium) % Individual Life Policies Sold ( 000) % Assets Under Management 2, , % Agency Force 17,986 9, % Financials First Year Premiums % Renewal Premiums % Single Premiums % Total Gross Premium Income 1, % PAT (61.1) (60.6) Share Capital % Satisfactory performance amidst stiff competition Birla Sun Life Insurance has shown satisfactory performance. The new business annualized premium grew by 16% to Rs crores. The average annualized premium at Rs. 30,680 is one of the highest average per policy premiums in the Industry. As a result, BSLI has recorded an increase of 38% in gross premium income to Rs crores. The number of policies issued during the year rose by 34% to cross the 2.65 lac mark. However, BSLI s market share fell from 13.7% to 8.2%, based on annualised first year premium underwritten, by taking 10% credit for single premium, among the private life insurers. Competitors have caught up with us by introducing unit-linked products. They have diversified their interests into group business and alternate channels, following our lead. This had slowed down our growth in the first few months. Some of the players have taken aggressive short-term approach to the business. To regain its market position, the Company undertook several initiatives. BSLI strengthened its reach by opening 41 new branches, taking the total number to 85 branches with 18,000 agents on board. BSLI continues to leverage technology for achieving the business goals and views technology as a key driver for supporting growth. The Company has successfully implemented an Automated Underwriting system (AURA) to enhance the efficiency of the underwriting to process business. It has installed Self Service Kiosk that provide the customer, the freedom to operate and transact with the Company at his own convenience. These kiosks have been setup as pilots and represent a pioneering attempt in the country. A major investment is being done in Imaging and Workflow System for new business processing. This will improve productivity through image based policy application processing. A Share Capital of Rs.110 crores has been infused to meet solvency requirement and to fund losses. Due to additional ramping-up and other efforts taken to meet the competition, our breakeven may be delayed by 2 years. (21)

26 Robust sector outlook The favorable outlook for GDP growth coupled with healthy capital markets and enabling tax incentives augurs well for the life insurance industry. The growing middle class and entry of new players shall enable the industry to grow in excess of 20% in medium term. To capitalize on the emerging opportunity as well as with a view to regain its market position, BSLI will focus on increasing its distribution reach by adding more branches and agents along with higher productivity. BSLI will continue its focus on ULIP and innovative products. Birla Sun Life Asset Management Company (BSLAMC) Rs. crores 7 months Asset under Management Domestic 15,018 Offshore 1,406 Revenue 43.5 PBIT 14.4 PAT 9.4 Networth 67.2 RONW (%) 24.0% Subsequent to the merger of Birla Global Finance Limited with ABNL, effective from September 1, 2006, financial service businesses have come under your company s fold. With these businesses, your company would be able to offer a much wider range of financial service products to its clients, under one roof. The performance of Birla Sun Life Asset Management Company has been satisfactory. Revenue has risen to Rs.43.5 crores for the seven months ending March 31, It has posted a net profit of Rs.9.4 crores. The asset under management (AUM) mix has improved significantly in favor of Equity Funds. The share of Equity segment in total domestic AUM is up at 32% in March 06. Offshore funds, which have only an Equity portfolio, have multiplied AUM to Rs crores in the current year. During the seven month period twelve Schemes of Alliance Capital Mutual Fund with a total corpus of Rs crores have been transferred to Birla Mutual Fund, on September 23, Birla Mutual Fund has launched three open-ended equity-oriented schemes viz., Birla Top 100 Fund, Birla India GenNext Fund, and Birla Infrastructure Fund. Robust sector outlook The favorable outlook for GDP growth coupled with high financial savings, healthy capital markets and increasing preference towards investment with the help of professional fund management, augurs well for the mutual fund industry. The Asset management business is witnessing increased competition and growing interest from global players. Many foreign institutions are in advanced stages of setting up their fund houses in the country. The industry will foresee more transparency coming into the business in the times to come. It is looking forward to proactively meeting the forthcoming challenges and has geared up itself for the future growth by increasing its reach. (22)

27 To capitalize on the emerging opportunity and to regain its market position, BSLAMC will focus on increasing distribution reach by adding more branches, providing superior returns to the investors consistently and institutionalizing processes. BSL AMC will sustain its leadership on innovative products launches. Birla Sun Life Distribution (BSDL) Rs crores 7 months Revenue 16.0 PBIT 3.2 PAT 1.9 Networth 13.0 RONW (%) 25.3% Birla Sun Life Distribution attained a gross revenue of Rs crores during the seven months ending March 31, 2006 and a net profit of Rs. 1.9 crores. Better operating profit has come on account of higher equity funds sales by the company and higher revenue realization. The bullish trends in the equity markets led to equity funds posting high returns. The markets saw a series of New Fund Offerings from many fund houses that mobilized sizeable investments. On the other hand, Debt funds as investment products were not favored in view of interest rate volatility that saw returns being impacted. During the seven months period, your company had mobilized funds to the tune of Rs.12,644 crores for various Asset management companies,. The number of applications crossed the 1.5 lacs mark during the year. The AUM as at the March 31st 2006 was Rs.3478 crores. The equity AUM of the Non corporate segment increased by 116% to Rs.1100 crores. It signifies a remarkable growth in our penetration into retail segment, which we believe would be the future growth area for this business. The share of equity AUM in the total AUM increased to 33% as at the end of March 31st Robust sector outlook The favorable outlook for GDP growth coupled with high financial savings, healthy capital markets and increasing preference towards investment with help of professional fund management portends well for the wealth management industry. The industry will see more transparency with new guidelines coming from SEBI on wealth management product distribution. To capitalize on the emerging opportunity as well as with a view to regain its market position, BSDL s thrust will be on providing guidance to its client and institutionalizing processes. FINANCIAL SERVICES Rs crores 7 months Income 31.6 PBIDT 27.7 PBIT 11.4 Capital Employed 77.1 ROCE (%) 25.3% (23)

28 The Financial Service division has established itself as a leading player in the segment, riding on the wave of Capital Market and Initial / Follow-on Public Offering (IPO / FPO) boom. The total amount of finance extended to various investors aggregated to Rs. 1,200 crores in IPO finance market. The Company has maintained its leadership position in the IPO finance market. Birla Insurance Advisory (BIASL), a subsidiary of your Company has created a dominant position for itself in General Insurance broking business in the four years of its existence. It placed a business of over Rs. 100 crores for the year with several non-life insurance companies on behalf of its clients. Birla Insurance Advisory had total revenue of Rs. 5.4 crores and reported a net profit of Rs. 2.0 crores for the seven months ended March 31, Birla Global Asset Finance Company Ltd (BGAFCL), a wholly owned subsidiary of your company is gradually stabilising. The growth drivers of favorable demography and increased spending and borrowing habits have improved loan products. With continuous increase in the demand for housing loans, personal loans etc, it successfully marketed retail loans worth Rs. 380 crores & investment products worth Rs. 10 crores to its more than 12,000 customers in a year. The business is fairly new and has not reached a breakeven point. While its revenues grew to Rs. 3.8 crores, it incurred a net loss of Rs. 1.0 crores. BGAFCL is expected to breakeven and start reaping profits very soon. Outlook for Aditya Birla Nuvo s Financial Services The year ahead seems to be good with new public offerings, though the recent turbulence in the capital market has slowed the pace of issues. Many more players including some international players entering into the segment and rising interest rates would keep the pressure on margins in near term. However, with the growth in the financial services sector, the long-term prospect remains optimistic. Your Company will continue to focus on fee income and low risk fund based income. ITeS (BPO) Rs. crores Change (%) No. of operating Seats 2,235 1,656 35% No. of Employees 4,114 3,234 27% Voice % Non-Voice % Revenue % PBIT % PAT % Capital Employed Nuvo investment Impressive overall performance TransWork s recorded an impressive performance during the year. The client base has increased to 22 including 10 fortune 500 clients and three clients with more than 5 million dollars in revenue. The employee base has been strengthened to over 4000 with the seat capacity increased to The business mix has improved with the share of non-voice business increasing to 22%. As a result, revenues have jumped 51% from Rs crores to Rs crores. The company posted an impressive net profit of Rs crores through a better business mix and optimum utilization of infrastructure. The ITeS/BPO sector is one of the fastest growing industries in India. TransWorks is well positioned to maintain the profitable growth momentum and is committed to increase its share in the industry. The Company will continue to focus on meeting customers expectations with a thrust on excellence in execution. It will also have a strong focus on being a high quality provider of call center/bpo services and on adding value to clients across multiple service lines through superior service innovation and distinctive delivery. (24)

29 To achieve this, TransWorks has a well-defined strategy. It will continue to improve its performance through focus on new and existing clients. Also, it will strive towards improving asset utilization through value added services and optimum mix of voice and non-voice business and by strengthening the delivery capability through improved SLAs. Software Rs. crores Change (%) Software Revenue % Hardware Revenue % Total Revenue % Gross Margin % SG&A % PBDIT % PAT 1.3 (2.6) Capital Employed % Nuvo Equity Investment Business turns net positive PSI Data Systems Limited has turned net positive despite generating flat revenues. This has been possible because of the increased thrust on its chosen verticals of Banking, Insurance and Financial services, increase in offshore margins and improvement in manpower utilization. Revenues have gone up marginally at Rs crores. Almost 84% of the company s revenues come from North America and Europe. The company has been successful in increasing the high margin offshore business to 40% as compared to 30% in the previous year. Its manpower utilization for the full year has increased to 84%, which is in line with the industry. The Company has added 11 new clients during the year. Its employee base has been strengthened to 573. As a result, the company s consolidated net profit is Rs. 1.3 crores against a loss of Rs. 2.6 crores in the previous year. Higher gross margins of 42% against 38% in the previous year also supported the turnaround. The overall outlook for the business is positive with the Indian IT industry regaining momentum on the back of global recovery, and off-shoring becoming mainstream. PSI Data Systems is poised to grow, with its initiatives for revenue enhancement and curtailing costs already yielding results. Towards this end, delivery capabilities are being strengthened with differentiation in service offering. The company s focus on the high growth Banking, Financial Services and Insurance vertical, increasing orders in the high margins off-shore business and strengthening relationships with strategic clients will help it grow further. The company has planned to strengthen its capability in additional verticals viz. Corporate Banking, Testing and High Tech. With improving business conditions and strategic initiatives in place, PSI is poised to deliver better performance in the ensuing year. Telecom Rs. crores Change (%) No. of Subscribers (Lacs) % Revenue 2, , % PBIT % Capital Employed 4, , % ROCE (%) 12% 8% (25)

30 Idea Cellular Limited has delivered a strong performance during the year. The company s revenues have risen significantly by 31% to Rs crores from Rs crores in the pervious year. The Company s PBIT has recorded a significant jump from Rs crores to Rs crores, an increase of 40%. The company plans to roll out operations in three new circles viz. Himachal Pradesh, Rajasthan and U.P (E), thus expanding its network across 11 circles. The company has also embarked upon reducing interest burden by Debt restructuring. With the telecom space continuing to grow strongly, we believe Idea Cellular is on a high growth trajectory and will continue to gain momentum going forward. FINANCIAL REVIEW AND ANALYSIS ADITYA BIRLA NUVO STANDALONE Rs. crores Change (%) Net Sales 2, , % Other Income % Operating Profit (PBDIT) % Net Interest % Depreciation % Profit Before Tax and Exceptional Items % Exceptional Items (4.0) (7.6) Profit after Exceptional Items % Provision for Current Tax % Provision for Deferred Tax (6.9) (2.0) 247% Net Profit % Revenue Operating Profit % 68% FY 05 FY 06 FY 05 FY 06 On a stand-alone basis, your Company has posted an impressive revenue growth of 42% at Rs.2,642.1 crores vis-à-vis Rs. 1,860.8 crores in the previous year. Operating profit is also higher by 68%, in line with the growth in revenues, at Rs crores against the previous year s Rs crores. Though the results are not strictly comparable due to the merger of Indo Gulf and Birla Global, on a comparable basis, the revenues have risen by 20% while the operating profits have risen by 28%. (26)

31 Segmental Revenue Segmental Operating Profit Fertilisers 14.0% Insulator 5.1% Financial Services 1.2% Gases 0.4% VFY 14.6% Insulator 6.9% Financial Services 6.3% Gases 1.3% CFD 1.1% VFY 20.3% Garments 23.5% Garments 13.1% Textiles 19.9% Fertilisers 17.2% Carbon Black 21.4% Textiles 12.8% Carbon Black 20.9% While Garments, Textiles and Insulators grew in revenue with richer product mix and value added products, the top line in VFY and Carbon Black was spurred by higher volumes. While VFY and Carbon Black continue to be significant contributors to the company s profitability, the improving performance of Garments and Textiles business has strengthened the company s bottom line. Interest Interest during the year has increased substantially from Rs.23.1 crores to Rs.68.6 crores as borrowings increased for capex and for investments in Idea. Interest income for the full year has risen from Rs.4.3 crores to Rs.12.8 crores due to treasury income on surplus funds of the fertilizers business. Depreciation Depreciation is higher at Rs crores against Rs crores in the previous year because of increased capital expenditure as well as new business addition. Additional depreciation of Rs. 4.8 crores was provided during the year due to re-estimate of useful life for certain asset at the Garments and Fertilizers businesses. Exceptional Items The VRS scheme at Rayon Division continued this year too. VRS was provided to 172 persons at a cost of Rs. 4.0 crores as against VRS provided to 500 persons at a cost of Rs.9.5 crores last year. VRS cost is shown as exceptional cost. Last year we had made a one time gain of Rs.1.9 crores on the sale of our strategic investments and the Global Exports Division. Provision for Current and Deferred Tax Provision for taxation at Rs 84.8 crores is higher by 95% against Rs crores in the previous year. Last year, on deferred tax we got the benefit of Rs crores in the last quarter due to positive change in the income tax rates. We also received a refund of Rs.5.4 crores for earlier years. Net Profit As a result, Net profit for the current year has risen by 64% at Rs crores. The Company s Earnings Per Share (EPS) is at Rs.25.4 against Rs in the previous year. Cash Earning Per Share (CEPS) is also higher at Rs 40.9 up from Rs.32.1 in FY05. (27)

32 Dividend The Board has proposed a dividend of Rs. 5 per share for the year Besides this, the Company will also pay a dividend tax of %. The total dividend outgo will be Rs crores in the current financial year. Business Returns Your Company s ROANW (before exceptional items) improved to 10.5% against 8.7% in the previous year. This was achieved because of better performance by the Garments and Textiles businesses. Further, your Company s has raised approx. Rs. 300 crores for funding the acquisition of additional stake in Idea. Long-term debt ratio stands at 0.44:1 and Debt equity ratio at 0.71:1. CASH FLOW ANALYSIS Rs. crores SOURCES OF CASH Cash flow from operations (Net of Tax) Sale/Redemption on investments Dividend Received 16.5 Proceeds from Borrowings (Net) Long Term Borrowings Short Term Borrowings TOTAL 1,382.6 USES OF CASH Net Capital Expenditure Investment in JV s and Subsidiaries Increase/(Decrease) in Working Capital Net Interest 50.0 Dividend Paid 27.3 Increase/(Decrease) in Cash and Cash Equivalents 4.8 TOTAL 1,382.6 Sources of Cash Operating cash flow Operating cash flow for the year is Rs crores. VFY and Carbon Black remain the main contributors to the operating cash flows. With the merger of Indo Gulf and Birla Global Finance, their operations has also contributed cash for the period of seven months. Your company has given VRS to 172 persons at a cost of Rs. 4.0 crores. This would help to improve the productivity norms. Proceeds from Borrowings Your Company has raised long-term and short-term loans of Rs. 295 crores for funding the acquisition of the Idea stake. Further, a sum of Rs. 100 crores was raised as Term Loan under Technology Upgradation Fund (TUF) scheme of the Government of India. Deferred Sales Tax loans have escalated by Rs crores. Debentures worth Rs. 50 crores have been repaid during the year. FCNRB loan of Rs. 9.1 crores has been repaid during the year. A sum of Rs. 4.5 crores has been repaid towards TUF loans. (28)

33 Uses of Cash Net Capital Expenditure At Rayon division, your Company invested a sum of Rs.27.4 crores for increasing caustic soda capacity by 45TPD, taking the total capacity to 160 TPD. Further Capex is being incurred for addition of 65 TPD caustic soda plant and for setting up a 20 MW captive power plant. Your Company has also invested a sum of Rs crores for doubling the Wool combing facility in the Textile division. In the Linen Fabric segment 9 looms have been added, taking the total capacity to 62 looms. Further capex has been incurred to increase retail space for the Garments business and for setting up the manufacturing facility for Contract Exports. Other capex includes modernisation of plants at various divisions. Investments in JVs and Subsidiaries (Net) Investment in equity shares comprised Rs crores in Birla Sunlife Insurance Company Ltd. Your company has also increased the equity stake by 16.45% in Idea Cellular Limited by paying Rs crores towards the cost of acquisition. Increase in Working Capital The working capital increased by Rs crores. Inventories are up by Rs crores, as Carbon Black and Garments inventory went up due to the increased volumes Debtors and other receivables are up by Rs crores, with the number of debtors going up across all business segments due to the increase in revenues. Creditors and other Liabilities have gone up from Rs crores to Rs crores. Risk Management The link between risk and reward has become more important for the company, as it grapples with the challenges of growing and delivering profit amidst stiff competition from global players. The world economic environment, client expectations and competitive landscape continue to evolve. This brings new challenges and risks such as expansion of overseas-based competitors in India, predatory pricing in the market, poaching of talent and acquisition of Indian companies. Aditya Birla Nuvo s risk management framework establishes risk management processes at each business, helping in identifying, assessing and mitigating risks that could materially impact our performance in achieving our stated objectives. The components of risk management are different for different businesses and are defined by the company s business model and strategies, organisational structure, culture, risk appetite and dedicated resources. Aditya Birla Nuvo s structured Risk Management ( RM ) process provides confidence to the stakeholders that the Company s risks are known and well managed. The risk management framework ensures compliance with the requirements of amended clause 49 of listing agreement. Since Aditya Birla Nuvo is diversified conglomerate, the risk events are identified, assessed, mitigated and monitored for each business separately. Our risk management approach comprises three key components: (1) Risk identification: External and internal risk events that must be managed are identified in the context of each business strategy and specific business objectives. These risk events are assessed by senior managers of the business on defined criteria and prioritized for development of risk mitigation plans. (29)

34 Broadly risks are classified into Strategic, Operations, Financial and Knowledge risks, which are further drilled down to market structure, process, systems, legal, governance and people culture. (2) Risk mitigation: This step comprises developing of a mitigation plan for the risks identified and to be treated on priority. (3) Risk monitoring and assurance: Key risks are managed through a structure that cascades across the corporate and businesses. At the corporate level, the Risk Management Committee headed by the Managing Director and comprising of the business heads, is responsible for the risk management process and reviewing the implementation and effectiveness of mitigation plans. The Board of Directors of the Company reviews the process after it is vetted by the Audit Committee. Apart from business risks, the Company is exposed to risks on account of interest rate, foreign exchange, commodity pricing and regulatory changes, which are being effectively monitored and mitigated. Foreign exchange risk The company has a policy to hedge its long-term as well as short-term foreign exchange exposures to minimize foreign exchange risk. While long-term foreign currency borrowings are fully hedged, short-term exposures are hedged as per the policy formulated by the Company in this regard. The Company has reported aggregate exports of Rs crores and imports of Rs crores in FY Interest rate risk The company has a mixed basket of fixed and floating rate borrowings, both in rupees and foreign currency. The Company is proactively using derivatives for foreign currency borrowings to hedge interest rate risk and minimize interest cost. In view of the prudent and conservative risk mitigating strategy adopted by the Company, it does not perceive interest rate risk as having any material impact on the profitability of the Company. Commodity price risk The Company is exposed to the risk of price fluctuation on raw materials as well as finished goods in all its products. However, the risk is mitigated well considering the inventory levels and normal correlation in the price of raw materials and finished goods. INTERNAL CONTROL SYSTEM The Company has adequate internal control systems for business processes across various Profit Centres, with regard to efficiency of operations, financial reporting, compliance with applicable laws and regulations, etc. The Internal control system is supplemented by extensive audits conducted by the Corporate Audit Cell. Clearly defined roles and responsibilities for all managerial positions have been institutionalised. Regular internal audits and checks ensure that responsibilities are executed effectively. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements. The Management Information System (MIS) is the backbone of the Company s control mechanism. All operating parameters are monitored and controlled. Any material change in the business outlook is reported to the Board. Material deviations from the annual planning and budgeting, if any, are reported on a quarterly basis to the Board. An effective budgetary control on all capital expenditure ensures that actual spending is in line with the capital budget. (30)

35 HUMAN RESOURCE MANAGEMENT At present the Company has 8,335 employees on its rolls. These human resource assets are integral to the Company s ongoing successes and enable the company to deliver superior performance year after year. The Company s Human Resource processes have been covered in depth in the Director s Report. CONCLUSION The new name reflects the strategic move in creating a conglomerate with a well-diversified, balanced portfolio of value and high growth businesses. The merger with Indo Gulf further strengthens the manufacturing, while the proposed merger with Birla Global will lead to the emergence of a one-stop financial services entity. Against the backdrop of the initiatives taken and strong performance by the individual businesses during the year, Aditya Birla Nuvo is travelling on the path of superior performance. Our strategy continues to focus on all-around growth and consolidation across the diversified businesses. As a result of the transformation, the new businesses contribute 56% to our total revenues. The new business impact would be more prominent in the coming years, helped by the success of strategic plans. The overall outlook for the Company s future is bright. CAUTIONARY STATEMENT Statements in this Management s Discussion and Analysis describing the company s objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company s operations include global and Indian demand supply conditions, finished goods prices, feed stock availability and prices, cyclical demand and pricing in the Company s principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the company conducts business and other factors such as litigation and labour negotiations. (31)

36 CORPORATE GOVERNANCE REPORT Governance Philosophy The Aditya Birla Group is committed to the adoption of best governance practices and its adherence in the true spirit, at all times. Our governance practices stems from an inherent desire to improve and innovate and reflects the culture of trusteeship that is deeply ingrained in our value system and forms part of the strategic thought process. Our governance philosophy rests on five basic tenets viz., Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders as well as superior transparency and timely disclosure. In line with this philosophy, Aditya Birla Nuvo Limited continuously strives for excellence through adoption of best governance and disclosure practices. The revised clause 49 of the Listing agreement of the Stock Exchanges dealing with the Code of Corporate Governance is applicable with effect from 31 st December Your company is fully compliant with all its provisions. The details of compliance are as follows: Compliance with the SEBI Code of Corporate Governance I. BOARD OF DIRECTORS The Board should have an optimum combination of Executive and Non-executive Directors and at least 50% of the Board should comprise of Non-executive Directors. Further, at least one-third of the Board should comprise of Independent Directors if the Chairman is non-executive and at least half of the Board should be independent in case of an executive Chairman. Also a Director shall not be a member in more than ten committees or act as Chairman of more than five committees across all companies in which he is a director. Your Company s Board comprises of 10 Non-executive/ Independent Directors with considerable experience in their respective fields. Of these, 6 Directors are independent Directors. The details of the directors with regards to the outside Indian directorships (other than Section 25 Companies), positions in either Audit Committee or Shareholder s/ Investor Grievance Committee as well as attendance at board meeting/annual General Meeting are as follows: Director Executive/Non- No of Outside Outside Committee No. of Board Attended Executive Directorships Held Positions Held Meetings Last Independent AGM Public Private Member Chairman Held Attended Mr. Kumar Mangalam Birla Non- Executive No Mrs. Rajashree Birla Non- Executive No Mr. H. J. Vaidya Independent No Mr. B. L. Shah Non- Executive No@ Mr. P. Murari Independent No Mr. B. R. Gupta Independent No Ms. Tarjani Vakil Independent No@ Mr. Vikram Rao Non- Executive No@ Mr. S. C. Bhargava Independent No Mr. G. P. Gupta Independent No@ Mr. Sanjeev Aga 1 Managing Director No@ Mr. Rakesh Jain 3 Whole Time Director N.A Mr. S.K.Mitra 4 Whole Time Director N.A. Mr. K.K. Maheshwari 2 Whole Time Director N.A. Mr. Adesh Kumar Gupta 2 Whole Time Director & CFO N.A (32)

37 @ A Chartered flight carrying Directors(including Chairperson of the Audit Committee) could not land at Keshod Airport or other nearby airport due to bad weather conditions and therefore, could not attend AGM. 1. w.e.f. 1 st May, Appointed w.e.f 1 st October, Mr. Rakesh Jain who was co-opted on the Board of the Company w.e.f 1 st October,2005 redesignated as Whole Time Director of the Company on merger of Indo Gulf Fertilisers Limited with the Company w.e.f. 3 rd April,2006 where he was working as Managing Director. 4. Mr. S. K. Mitra who was co-opted on the Board of the Company w.e.f. 1st October, 2005 redsesignated as Whole Time Director of the Company on merger of Birla Global Finance Limited with the Company w.e.f. 1 st July, 2006 where he was working as Managing Director. Non Executive Directors compensation and disclosure: All fees/compensation, (except sitting fees) paid to non-executive directors, including independent directors, shall be fixed by the Board of Directors and shall require shareholders approval. The shareholders resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors, including independent directors. Sitting fees for attending meeting of the Board/Committee is paid as per the provision of Article 102 of Article of Association of the Company. Commission paid to the non-executive directors is fixed by Board of Directors pursuant to the shareholder s approval. The Company has not issued any stock option. Other provisions of the Board: The Board shall meet at least four times a year, with a maximum time gap of four months between any two meetings. The minimum information to be made available to the Board as prescribed in Clause 49 of the Listing agreement. The Company s Board of Directors play primary role in ensuring good governance and functioning of the Company. All relevant information (as mandated by the regulations) is placed before the Board. The Board reviews from time to time compliance reports of all laws applicable to the Company, as well as steps taken by the company to rectify instances of non-compliances. The Members of the Board have complete freedom to express their opinion and decisions are taken after detailed discussion. The details of Board meetings held during F.Y are as outlined below: Date of Board Meeting City No. of Directors Present 27 th April, 2005 Mumbai 9 out of 9 28 th July, 2005 Mumbai 8 out of th September, 2005 Mumbai 10 out of th October, 2005 Mumbai 15 out of 15 3 rd January, 2006 Mumbai 11 out of st January, 2006 Mumbai 15 out of 15 Code of Conduct: The Board shall lay down a code of conduct for all Board members and senior management of the company. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. The Board of Directors has laid down the Code of Conduct, (copy available on Companys website) applicable to all Board members and senior executives of the Company. All Board members and senior management executives have affirmed compliance with the Code of Conduct. (33)

38 A declaration by Managing Director affirming the compliance of the Code of Conduct by Board Members and senior management executives is also annexed separately in this Annual Report. II. AUDIT COMMITTEE A qualified and independent audit committee shall be set up and should meet at least four times in a year. The audit committee shall have minimum three directors as members, with two-thirds of its members being independent directors. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. The Chairman of the Audit Committee shall be an independent director and shall be present at Annual General Meeting to answer shareholder queries. The Company Secretary shall act as the secretary to the committee. The Company has an Audit Committee at the Board level which acts as a link between the management, the statutory and internal auditors and the Board of Directors and oversees the financial reporting process. All the members of the Company s Audit Committee are Independent directors. The Committee is strengthened from 3 members to 4 members by induction of Mr. G.P. Gupta on the Committee on During the year, the Audit Committee met 4 times to deliberate on various matters and the details of the attendance by the Committee members are as follows: Name of Director Served in past No. of Meetings No. of Meetings held attended Ms. Tarjani Vakil, As Chairperson and Managing Director of Chairperson Exim Bank 4 4 Mr. P. Murari As Secretary to the President of India before retiring from service in September, He has held several key positions in various institutions and professional bodies. 4 4 Mr. B. R. Gupta As Executive Director of Life Insurance Corporation of India (Investments) 4 3 Mr. G.P. Gupta Worked in the past as Chairman & Managing Director of IDBI and Former Chairman of UTI. 1 1 The Managing Director and the CFO of the Company are permanent invitees to the meetings of the Committee. Mr. Devendra Bhandari, Company Secretary, acted as Secretary to the Committee. The Scope of the Functioning of the Audit Committee is to review, from time to time, the internal control procedures, the accounting policies of the Company and such other functions as may be recommended from time to time by SEBI, Stock Exchanges and / or under the Companies Act, 1956 which interalia include review of : 1. Management Discussion and Analysis of financial condition and results of operations; 2. Statement of significant related party transactions submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses; and the appointment, removal and terms of remuneration of the Chief internal auditor; 5. Risk framework. III. SUBSIDIARY COMPANIES At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non-listed Indian subsidiary company. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company. The minutes of the Board meetings of the unlisted subsidiary company (34)

39 shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company. The Company has one material non-listed Indian Subsidiary Company namely Birla Sun Life Insurance Company Limited (BSLICL). The Audit Committee reviews the financial statements and investments made by unlisted subsidiary companies. The minutes of the Board meeting as well as statements of all significant transactions of the unlisted subsidiary companies are placed regularly before the Board of Directors for their review. Mr. G.P. Gupta, an Independent Director of the Company is director of BSLICL. IV DISCLOSURES (A) Basis of related party transaction: A statement in summary form of transactions with related parties in the ordinary course of business, details of material individual transactions with related parties that are not in the normal course of business and details of material individual transactions with related parties that are not on an arm s length basis is required to be placed before the audit committee. The Company places all the aforesaid details before the Audit Committee from time to time. Particulars of related party transactions are listed out in Schedule 19 of the Balance Sheet forming part of the Annual Report. (B) Disclosure of Accounting treatment: The Company has followed all relevant Accounting Standards while preparing the financial Statements. (C) Risk Management: The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures. These procedures shall be reviewed to ensure that executive management controls risk through means of a properly defined framework. The Company has developed comprehensive risk management policy and same is reviewed by the Audit Committee,which in turn, informs the Board about the risk assessment and minimization procedures. Since the risk control frame work is new to Indian Corporate Culture, it is being strengthened on continuous basis using the outside professional help. (D) Proceeds from public issues, right issues, preferential issues etc: If any capital is raised through an issue, the Company needs to disclose to the Audit Committee, the uses / applications of funds on a quarterly basis. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus/ notice and place it before the audit committee. This statement shall be certified by the statutory auditors of the company. Not applicable, as no capital has been raised by the Company in last 5 Years (E) Remuneration of Directors: The Company needs to disclose all pecuniary relationship or transactions of the non-executive directors vis-à-vis the company. The Company has a system where all the directors or senior management of the Company are required to disclose all pecuniary relationship or transactions with the Company. No significant material transactions have been made with the non-executive directors vis-à-vis the Company. (35)

40 The Company needs to make disclosures on the remuneration of directors. The Company shall publish its criteria of making payments to non-executive directors in its annual report. Alternatively, this may be put up on the company s website and reference drawn thereto in the annual report. Besides sitting of Rs.20,000/- per meeting of the Board or Committee thereof, the Company also pays commission to non-executive directors. For F.Y , the Board has approved payment of Rs crores (Previous year Rs crores) as commission to the non-executive Directors of the Company pursuant to the authority given at the Annual General Meeting of the Company held on 30 th June,2004, to pay commission, not exceeding 1% of the net profits of the Company, to the non-executive Directors of the Company. The amount of commission payable is determined after assigning weightage to attendance, type of meeting and preparations required. The Details of remunerations to the Directors Name of Director Salary& Perquisites and Performance Sitting Allowance other Benefits linked incentive Fees Paid /Bonus paid/ Commission payable (In Rs.) (In Rs.) (In Rs.) (In Rs.) Mr. Kumar Mangalam Birla ,38,000 1,00,000 Mrs. Rajashree Birla - - 4,77,000 1,00,000 Mr. H. J. Vaidya - - 7,75,000 1,40,000 Mr. B. L. Shah - - 5,87,000 1,40,000 Mr. P. Murari - - 6,68,000 1,60,000 Mr. B. R. Gupta - - 7,87,000 1,80,000 Ms. Tarjani Vakil - - 8,58,000 2,00,000 Mr. Vikram Rao - - 3,82,000 80,000 Mr. S. C. Bhargava - - 4,77,000 1,00,000 Mr. G. P. Gupta - - 4,53,000 1,00,000 Mr. Sanjeev Aga 1,78,98,833 85, Mr. Rakesh Jain ,000 Mr. S.K. Mitra ,000 Mr. K.K. Maheshwari 61,59,263 2,86, Mr. Adesh Gupta 35,00,836 2,69, Note: 1. No Director is related to any other Director on the Board, except for Mr. Kumar Mangalam Birla and Mrs. Rajashree Birla, who are son & mother respectively. 2. The Company has a policy of not advancing any loans to its Directors except to Executive Directors in the course of normal employment. 3. On merger of Indo Gulf Fertilisers Limited (IGFL) and Birla Global Finance Limited (BGFL) with the Company w.e.f. Appointed Date i.e. 1 st September, 2005, Rs.88,16,960 and Rs. 26,67,123 being (36)

41

42

43 remuneration paid (from to ) to Mr.Rakesh Jain and Mr. S. K. Mitra respectively in their capacity as Managing Directors of erstwhile IGFL & BGFL respectively, were debited in the Company s Profit & Loss a/c. 4. The Company does not have any scheme for grant of stock options to its Directors or Employees. 5. The appointment of Managing/ Whole Time Directors is subject to termination by three months notice in writing by either side. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report. Details of shareholding of Non Executive Directors in the Company are as follows: Director No.of Shares Mrs. Rajashree Birla Mr. H.J. Vaidya 5384 Ms. Tarjani Vakil 90 Mr. S. C. Bhargava 200 (F) Management: As part of the directors report or as an addition thereto, a Management Discussion and Analysis report should form part of the Annual Report to the shareholders. The Management Discussion and Analysis Report published on page no. 12 is prepared in accordance with the requirements laid out in Clause 49 of the Listing Agreement forms part of the Annual Report. Senior management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.) No material transaction has been entered into by the Company with the Promoters, Directors or the Management, their subsidiaries or relatives etc., that may have a potential conflict with interests of the Company. (G) Shareholders: In case of the appointment of a new director or re-appointment of a director, the shareholders must be provided with the details of Directors. The Company for last few years is regularly providing details of new Directors and Directors seeking reappointment in the Annual General Meeting notice attached with the Annual Report. Quarterly results and presentations made by the company to analysts shall be put on company s website, or shall be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. Quarterly Presentations on the Company results are available on the website of the Company (www. adityabirlanuvo.co.in) and the Group ( hard and soft copies are also sent to concerned stock exchanges simultaneously so as to enable them to put them on their notice board / website. SHAREHOLDER S GRIEVANCES COMMITTEE A Shareholders Grievances Committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. To expedite the process of share (37)

44 transfers, the Board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight. The Company has an Investor Relations and Finance Committee comprising of Mr. P. Murari, Mr. H. J.Vaidya, Mr. B. L. Shah, Mr. Sanjeev Aga, as the members. Mr. P Murari, is the Chairman of the Committee. The Committee looks into various issues relating to shareholders including transfer and transmission of shares as well as non-receipt of dividend, Annual Report, shares after transfers and delays in transfer of shares. In addition, the Committee looks into other issues including status of dematerialisation / rematerialisation of shares and debentures as well as systems and procedures followed to track investor complaints and suggest measures for improvement from time to time. During the year under review, the Committee met once to deliberate on various matters referred above. Details of attendance by Directors for the Committee meetings are as follows: Name of Director Non Executive/Independent No. of Meetings Held Attended Mr. P. Murari Independent 1 - Mr. H. J. Vaidya Independent 1 1 Mr. B L. Shah Non Executive 1 1 Mr. Sanjeev Aga # Executive N.A. - # Mr Sanjeev Aga was appointed as a member of the Investor Relations and Finance Committee by the Board of Directors in its meeting held on 28th July, Mr. Devendra Bhandari, Company Secretary, acts as Secretary to the Committee.He is Compliance Officer of the Company and also responsible for redressal of investors complaints. The Company s shares are compulsorily traded and delivered in the dematerialised form in all Stock Exchanges. To expedite the transfer in the physical segment, necessary authority has been delegated to officers, who are authorised to transfer up to 5000 shares under one transfer deed. Details of share transfers/transmission approved by the officers are placed before the Committee from time to time.. Details of complaints received, number of shares transferred during the year, time taken for effecting these transfers and the number of share transfers pending are furnished in the Shareholder Information section of this Annual Report. V. CEO/CFO CERTIFICATION: The CEO and CFO certification of the financial statements and the cash flow statement for the year is enclosed separately at the end of the report. VI. REPORT ON CORPORATE GOVERNANCE: There should be a separate section on Corporate Governance in the Annual Report, with details on the level of compliance by the Company. Non-compliance of any mandatory recommendation with reasons thereof and the extent to which the non-mandatory recommendations have been adopted should be specifically highlighted. A separate section on Corporate Governance forms part of the Annual Report. Certificate from the Statutory Auditors confirming compliance with the conditions of Corporate Governance as stipulated in clause 49 of the listing agreement of the Stock Exchanges in India forms part of this report. (38)

45 VII. GENERAL BODY MEETINGS: Details of Annual General Meetings:- Location and time, where last 3 Annual General Meetings held: Year AGM Location Date Time AGM Regd. Office, Veraval, Gujarat 24 th June, :30 a.m AGM Regd. Office, Veraval, Gujarat 30 th June, noon AGM Regd. Office, Veraval, Gujarat 1 st August, noon Year CCM Location Date Time CCM $ Regd. Office, Veraval, Gujarat 16 th Nov, :00 a.m CCM # Regd. Office, Veraval, Gujarat 16 th Nov, :00 a.m. $ Court Convened Meeting (CCM) for approval of Scheme of Amalgamation between Indo Gulf Fertilisers Limited and the Company # Court Convened Meeting for approval of Scheme of Amalgamation between Birla Global Finance Limited and the Company Whether any special resolutions passed in the previous 3 AGMs? YES All the resolutions, including special resolutions set out in the respective Notices were passed by the shareholders. Whether any special resolution passed last year through postal ballot? YES During the year, consent of the members of the Company was sought by Special resolution, through Postal Ballot on two occasions as under:- 1. To make investment(s)in other body corporate, give loan(s) and/or provide security (ies), exceeding the limit prescribed under section 372 A of the Companies Act, 1956: Date of declaration of result of postal ballot Number of valid postal ballot forms received 3,327 Number of invalid postal ballot forms received 164 Votes in favour of the Resolution 2,92,80,559 Votes against the resolution 6,21, To change the name of the Company u/s 21 of the Companies Act, 1956 from Indian Rayon And Industries Limited to Aditya Birla Nuvo Limited : Date of declaration of result of postal ballot Number of valid postal ballot forms received 4,010 Number of invalid postal ballot forms received 167 Votes in favour of the Resolution 3,05,34,913 Votes against the resolution 32,827 (39)

46 Person who conducted the postal ballot exercise: Mr. Rajendra R. Parmar, a Practising Chartered Accountant, was appointed as Scrutiniser for conducting the Postal Ballot process. Whether any special resolution is proposed to be conducted through postal ballot : Will be done as per law Procedure for postal ballot The Postal Ballot Process was undertaken in accordance with the provisions of Section 192A of the Companies Act 1956, read with the Companies (Passing of the Resolution by Postal Ballot) Rules, Details of non compliance, penalties, strictures imposed on the Company by the Stock Exchange or SEBI or any statutory authority or any matter related to capital markets during the last three years. None. MEANS OF COMMUNICATION Quarterly results: Which newspapers normally published in Newspaper Business Standard Financial Express Cities of Publication Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi Ahmedabad, Bangalore, Chandigarh, Chennai, Mumbai, Kochi, Kolkata and New Delhi Any website, where displayed Whether the Company Website displays all official news releases Presentation made to Institutional Investors/Analysts General Shareholder information Status of compliance of Non mandatory requirement Yes Yes Published on Page 47 of this Annual Report, besides, the same is also available on the Company s website. 1. The Non-Executive Chairman of the Company may be entitled to maintain an office at the Company s expense and also allowed reimbursement of expenses incurred in performance of his duties. This will enable him to discharge the responsibilities effectively. The Company maintains a separate office for the Non-Executive Chairman. All necessary infrastructure and assistance are available to enable him to discharge his responsibilities effectively. 2. The Board may set up a Remuneration Committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference, the company s policy on specific remuneration packages for executive directors including pension rights and any compensation payment. The Company does not have a Remuneration Committee. The remuneration of the Managing /Whole-time Directors is fixed by the Board of Directors. (40)

47 3. The half-yearly declaration of financial performance including summary of the significant events in last six-months, should be sent to each household of shareholders. Performance Update consisting of financial and operational performance is being sent to the shareholders since Company may move towards a regime of unqualified financial statements. During the period under review, there is no audit qualification in the financial statement. The Company continues to adopt best practices to ensure unqualified financial statements. 5. The company may establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the company s code of conduct or ethics policy. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization. The Company has established policy in this regard. (41)

48 DECLARATION As provided under Clause 49 of the Listing Agreement with the Stock Exchange(s), it is hereby declared that all the board members and senior management personnel of the Company have affirmed compliance with the Code of Conduct for the year ended Place: Mumbai Date: Sanjeev Aga Managing Director CEO/CFO CERTIFICATION The Managing Director and the CFO heading the finance function have certified to the Board that: (a) They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief: (i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (ii) these statements together present a true and fair view of the company s affairs and are in compliance with existing accounting standards, applicable laws and regulations. (b) There are, to the best of their knowledge and belief, no transactions entered into by the company during the period which are fraudulent, illegal or violative of the company s code of conduct. (c) They accept responsibility for establishing and maintaining internal controls and they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. (d) They have indicated to the auditors and the Audit committee: (i) significant changes in internal control during the year; (ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and (iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company s internal control system Adesh Gupta Sanjeev Aga Place: Mumbai (Whole Time Director & CFO) (Managing Director) Date: (42)

49 SOCIAL REPORT : MAKING A DIFFERENCE The philosophy of caring, giving, developing and empowering an under-served people is part of our Group s DNA. It is a common strain that courses through the veins of all our Group Companies. Your Company s Social projects in India s hinterland are carried out under the aegis of the Aditya Birla Centre for Community Initiatives and Rural Development, led by Mrs. Rajashree Birla, your Director. Your Company s work is based on the felt needs of the communities. It is in tandem with the Group s social vision which is to make a qualitative difference to the lives of the weaker sections of society in proximity to our plants and in doing so improve the human development index of our nation. For the year we reached out to over 28 lacs of people. A summary of our involvement is as indicated. Health Care Conducted 300 medical camps across the units examining patients. More than 3000 patients were checked in the eye camps of which 400 patients were provided with spectacles, 428 patients operated upon and fitted with intra ocular lenses. Camps were organised for tuberculosis, dental check ups and treatment, hepatitis, cancer detection at Rishra, Renukoot and Gummudipoondi, examining and treating 800 patients. Blood donation camps in collaboration with the Indian Red Cross Society were organised by Jayashree Textiles at Rishra and Hi-Tech Carbon Gummidipoondi. Over 150 people donated blood. In a special drive to eradicate leprosy by Indo Gulf, Jagdishpur, 2540 patients with skin ailments were examined and looked after medically. Of these 148 were treated and cured of leprosy. 370 physically impaired persons were checked, of whom 191 were provided with artificial limbs and 50 were rehabilitated both physically and economically. AIDS awareness programmes organized across all the units, were attended by over 4000 adults. Homeopathic and Allopathic units at Rishra and Barasat in Kolkata, have been able to treat 2439 and 3182 patients respectively. Mother and Child care Coordination with the Government health departments and agencies like CARE and SIFPSA has helped to cover 1,95,000 families under the mother and child health care programme. 2,903 couples have taken to planned families. Polio drops were given to 30,67,018 children at Jagdishpur, Veraval, Rishra, Barasat, Gummidipoondi and Renukoot. Education Merit Scholarships were earned by 155 students in Indian Rayon, Veraval and Hi Tech Carbon, Renukoot. The Aditya Junior High School in Belhatthi Panchayat, run by HiTech Carbon, Renukoot, helps provide quality education to 109 under-privileged students. The Kamakhya Balak Ashram at Barasat shelters orphans and manages a school of 650 persons.. It is supported by Jayashree Textiles. The schools in proximity to our plants are given the requisite infrastructural support. Adult education centers at Jagdishpur, Rishra and Gummidipoondi continue to spark the desire for learning among the villagers. A talent search programme, organized by Indo Gulf covering 33 schools and 690 students, received a very positive response. (43)

50 Sustainable Livelihood At Veterinary camps more than 5500 cattle were vaccinated and treated. Water harvesting structures, such as village tanks, hand pump installations, irrigation check-dams, ponds, roof-water harvesting, water recharge pits and digging wells supported thousands of families there, facilitating irrigation processes and providing potable water. Imparting training in Computers, Electrical Fittings, Cutting and tailoring, Electronic and Automobile repairing, food processing, phenyl making, detergent manufacturing and various traditional handicrafts have made 1820 youths self reliant at Jagdishpur, Veraval, Renukoot and Gummidipoondi. Training in agricultural skills and scientific farming methods has improved the productivity of 4000 farmers. Women Self Help Groups Training and capacity development programmes have enabled empower 330 Self Help Groups with 3,600 members. The Groups have graduated beyond savings and credit activities to taking up various economic activities with the active support of banks and various financial institutions. Social Welfare Mass marriage programmes were organized in Veraval to discourage the practice of dowry and minimize social expenses. Programmes aimed at social reform, viz. child marriages, alcoholism, illiteracy, exploitation of women, impressed over 2,500 villagers, most of whom took the message seriously. Infrastructure To facilitate the transport system brick soling work has been done in 6 villages of Indo Gulf 107 toilets were constructed by Hi-Tech Carbon Renukoot for improving the sanitation in the villages and minimising diseases. New wells have been dug and the existing structures cleaned and deepened, repair of hand pumps taken up for safe drinking water by Hi- Tech Carbon Renukoot, Gummidipoondi and Indian Rayon at Veraval In these humanitarian endeavours, your Company partners with the Government, District Authorities, Village Panchayats and other like-mined NGOs, and above all the communities, who seek to serve. We believe only through collective efforts can we usher in a more equitable society. Your Board and your Company s employees are committed to this process. Mothers and children at our pulse polio programme, Rishra, Kolkata The scent of freedom. A Women Self-Help Group at Veraval, Gujarat (44)

51 ENVIRONMENT REPORT Environment conservation A way of life We believe in sustainable development. For us this translates into meeting today s needs without jeopardising the needs of future generations. For us this means understanding that the earth s resources are finite and that as far as possible, using these sparingly and in a responsible manner makes greater business sense. We are signatories to the Global Compact, a UN Sponsored initiative and we subscribe to the triple-bottom line accountability. So we regard social, economic and environmental responsibility as integral elements that drive business. We believe these are interdependent and equally important to our success as a Corporate. All of your Company s Plants the Rayon Plant at Veraval, the Insulator Plants at Halol and Rishra (now part of our joint venture with NGK Insulators Ltd., Japan), Jaya Shree Textiles also at Rishra and the Carbon Black Plants at Renukoot and Gummidipoondi are all ISO EMS Certified. Your Company s plants have also received OHSAS Certification for Safety Management Systems and are SA 8000 Certified for Social Accountability Standards. Jaya Shree Insulators Environment Management Systems are attested by the American Bureau of Shipping, a renowned certification agency, based in the USA. Professional Environment Auditors, The Central Salt and Marine Chemical Institute (Bhavnagar), - a Gujarat Pollution Control Board recognized Institute, GITCO Ahmedabad and the Bureau of Indian Standards conduct in-depth environmental audit on our plants. Their Audit Reports validate our commitment to environmental conservation. Additionally, trained environment systems auditors conduct periodic checks. Several accolades have been conferred on your Company for its singular contribution to environment conservation. A selective list is given below : Your Company s Rayon Division has been the proud recipient of the Ministry of Power s, National Energy Conservation Award from the Bureau of Energy Efficiency, which declared it as the best in this sector. The Greentech Foundation Award for commendable safety standards in the Chemicals sector. The Gujarat Safety Council s Safety Award for Best Practices in the Textile Sector The National Safety Council of India awarded the Suraksha Praskar to your Company s Fertiliser Division. Your Company s HiTech Division, which manufacturers Carbon Black, was named The Greentech Gold Award Winner for Environmental Excellence. Your Company s Rayon Brands- RayOne and KolorOne OEKO TEX Certification endorses that all products manufactured under these two brands meet the highest ecological requirements established for products that come into direct contact with the skin. State-of-the-art automated industrial Effluent Treatment Plants (ETP) operate across all of your Company s manufacturing units. The treated effluent inclusive of treated sewage thrown up by the plants is recycled and is used for horticulture and irrigation. The Rayon Division s Caustic Soda Plant is reckoned as a benchmark plant with the lowest rate of solid waste per tonne of production. At Veraval Sodium Sulphide is made from hydrogen sulphite and sodium hypochloride is produced from waster chlorine. We use hydrogen gas to produce caustic flakes. It is one of the cleanest fuels for the Flaker Furnace. At Jayshree Textiles in Rishra, the Effluent Treatment Plant has been upgraded to factor the expansion of its wool combing division. The three projects taken under the Clean Development mechanism under the aegis of the United Nations Framework Convention on Climate Change (UNFCCC) have been validated and are now awaiting registration with the UNFCCC. (45)

52 At your Company s Insulator Plant, the bare effluent waste generated is recycled for low tension insulators and whatever is not used is dispensed to the cottage industries. At your Company s Carbon Black plants in Renukoot and Gummidipoondi, to block the venting of carbon black, vent scrubbers and zero leakage valves have been installed. This has resulted in twin benefits firstly, no off-gas leakages; and secondly, conservation of energy. Steam and electricity are generated through rechannelising of gases. The power so generated is used for captive consumption and the additional steam is sold to Hindalco, another of our Group Companies, which is in proximity to your Company s plant in Renukoot. At your Company s Fertiliser Division, mechanisms towards better environment management are well in place. The Plant has Zeolite softners, Deep Hydrolyser, Ammonia stripping systems, de-dusting systems, oily water treatment systems, guard ponds, supported by effective online monitoring system to safeguard the environment. Process optimization, water conservation projects and using recycling treated effluent has substantially lowered the plant s water consumption. It currently stands at 5.22 M3/MT of urea. The treated effluent discharge is also as low as 0.27 M3/Te against the Government norms of 5M3/MT of urea. Your Company s Fertiliser Division s Project Energy Efficiency through installation of modified CO2 Removal System in the Ammonia plant is the first project worldwide in the fertilizer sector to be registered with United Nations Framework Convention on Climate Change (UNFCCC). Alongside, educating and sensitizing all of our stakeholders on the need to conserve natural resources is an ongoing process. We solicit suggestions from our employees at all levels on how to better our environment protection measures. Given the acute water shortage that we face in the hinterland, we have begun several rain-water harvesting projects. We have collected rain-water in the lower benches of some of our captive limestone mines. Effective water recharging projects have been implemented. We have created several water bodies in the catchment areas for rain-water storage and ground water recharging. There is an additional upside as these projects help provide water to communities that live close to our Plant. Your Directors and all of your Company s employees are totally committed to sustainable development. (46)

53 SHAREHOLDER INFORMATION 1. Annual General Meeting Date and Time : 17 th August, 2006 at a.m. Venue : Registered Office Indian Rayon Compound Veraval Gujarat, India. 2. Financial Calendar Financial reporting for the quarter ending June 30, 2006 : End July, 2006 Financial reporting for the half year ending September 30, 2006 : End October, 2006 Financial reporting for the quarter ending December 31, 2006 : End January, 2007 Financial reporting for the year ending March 31, 2007 : End April 2007 Annual General Meeting for the year ended March 31, 2007 : July, Dates of Book Closure : 10 th August, 2006 to 17 th August, 2006 (both days inclusive) 4. Dividend Payment Date : 3 rd or 4 th week of August, (a) Registered office : Indian Rayon Compound, Veraval Gujarat, India. Tel: (02876) Fax: (02876) abnlveraval@adityabirla.com 5(b) Web Site: : 6(a) Listing on Stock Exchanges at Equity Shares Global Depository Non-Convertible Debentures Receipts (GDRs) (till their redemption on 10 th March, 2006) Bombay Stock Exchange Limited Societe de la Bourse de National Stock Exchange of Phiroze Jeejeebhoy Towers Luxembourg India Ltd. Dalal Street Mumbai Societe Anonyme Exchange Plaza R.C.B 6222, B P 165 Bandra-Kurla Complex National Stock Exchange of India Ltd L- 2011, Luxembourg Bandra (East) Exchange Plaza Mumbai Bandra-Kurla Complex Bandra (East) Mumbai Note: Listing Fees has been paid to all the Stock Exchanges as per their schedule. (47)

54 6(b) Overseas Depository for GDRs 6(c)Domestic Custodian of GDRs Citibank N.A Depository Receipts 388 Greenwich Street, NEW YORK, NY 10013, USA Phone: 212/ Fax: 212/ ICICI Bank Limited Securities Market Services F7/E7 1 st floor, 414 Senapati Bapat Marg, Lower Parel, Mumbai Ph: (+91-22) Fax: (+91-22) Stock Code: 8. Stock Price Data Stock Code Reuters Bloomberg Stock Exchange, Mumbai IRYN.BO INRY IN National Stock Exchange ABIRLANUVO IRYN.NS NINRY IN Global Depository Receipts IRYNq.L IRIG LX (GDRs) ISIN No. of GDRs US Bombay Stock Exchange Limited National Stock Exchange Luxembourg Stock Exchange High Low Close Av. High Low Close Av. High Low Close Volume Volume (In Rs.) (In Nos) (In Rs.) (In Nos) (In US$) Apr , , May , , Jun , , Jul , , Aug , , Sep , , Oct , , Nov , , Dec , , Jan , , Feb , , Mar , , (48)

55 9. Stock Performance Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Sensex Aditya Birla Nuvo 10. Stock Performance over the past few years: Absolute Return (In %) (In Percentage) 1 Year 3 Years 5 Years ADITYA BIRLA NUVO BSE Sensex NSE Nifty Annualised Returns (In %) (In Percentage) 1 Year 3 Years 5 Years ADITYA BIRLA NUVO BSE Sensex NSE Nifty Registrar and Transfer Agents : In-house Share Transfer (For share transfers and other Registered with SEBI as Category II - Share Transfer Agent communication relating to (Registration No. INR ) share certificates, dividend and change of address) Share Department Registered Office: Indian Rayon Compound Veraval , Gujarat, India Tel: (02876) Fax: (02876) abnlsecretarial@adityabirla.com (49)

56 12. Share Transfer System : Share transfers in physical form are registered normally within 2-3 days from the date of receipt, provided that the documents are clear in all respects. Investor Relations & Finance Committee of the Board considers and approve transfer above 5,000 shares and debentures under one transfer deed. Further, certain officers of the Company have been authorised to approve transfers up to 5,000 shares and debentures under one transfer deed. The total number of shares transferred in physical form during the year was 88,780 (Previous Year 93,025). Majority of transfers were completed within 2-3 days from the date of receipt Transfer No. of No. of % Cumulative No. of No. of % Cumulative period transfers shares total transfers shares total (in days) % % , , , , , , , , and above TOTAL 1,923 88, , Number of pending Share Transfers as on : No Transfer Deeds were pending 31 st March, 2006 for transfer as on Investor Services: (a) The Share Department of the Company has been accredited with ISO 9001:2000 Certification for providing Investor and Secretarial Services by KPMG, Quality Registrar, Mumbai with effect from July 16, 2004 for a period of three years. This Certification testifies to the exemplary standards that the Company s Investor Service Centre has achieved in complying with statutory and regulatory requirements and redressing investor grievances. (b) Complaints received during the year Nature of complaints Received Cleared Received Cleared 1) Relating to Transfer, Transmission etc ) Dividend, Interest, Redemption etc ) Annual Report ) Demat Remat ) Others Total (c) Legal proceedings on share transfer issues, if any: There are no major legal proceedings relating to transfer of shares. (50)

57 14 A. Distribution of Shareholding as on 31st March, 2006 (Pre IGFL Merger) No. of equity shares held No. of % of No. of shares % share No. of share % of No. of shares % share share share held holding holders share held holding holders holders holders , ,75, , ,84, , ,65, , ,63, , ,07, , ,95, , ,56, , ,24, , ,92, , ,33, ,06, ,88, & above ,66,84, ,57,94, Total 89, ,98,89, , ,98,84, B. Distribution of Shareholding as on 24 th April, 2006 ( Post IGFL Merger ) The Scheme of Amalgamation between Indo Gulf Fertilisers Limited (IGFL) and Aditya Birla Nuvo Limited (ABNL) was made effective from 3 rd April, 2006 which was operative from the Appointed Date i.e. 1 st September The Company has issued and allotted 15,030,935 equity shares of the Company on 24 th April, 2006 to the shareholders of IGFL in the share exchange ratio as provided in the Scheme of Amalgamation. No. of equity 24 th April, 2006 shares held No. of share holders % of share holders No. of shares held % share holding ,18, ,30, , ,76, , ,64, , ,22, , ,52, ,39, & above ,96,35, Total 1,50, ,49,20, (51)

58 15 A. Categories of Shareholding as on 31st March, 2006 (Pre IGFL Merger): Category No. of % of No. of shares % of share No. of share % of No. of shares % share share share held holding holders share held holding holders holders holders Promoters/Persons acting in concert ,71,55, ,71,37, UTI and other mutual funds ,42, ,38, Banks, Financial Institutions and Insurance Companies ,94, ,43, FIIs ,66, ,49, NRIs / OCBs 2, ,55, , ,81, GDRs ,07, ,30, Other Corporates 1, ,99, , ,48, Individuals 85, ,24,68, , ,35,55, Total 89, ,98,89, , ,98,84, B. Categories of Shareholding as on 24 th April, 2006 ( Post IGFL Merger ): Category 24 th April, 2006 No. of share holders % of share holders No. of shares held % share holding Promoters/Persons acting in concert ,55,37, UTI and other mutual funds ,66, Banks, Financial Institutions and Insurance Companies ,04,85, FIIs ,01,86, NRIs / OCBs 6, ,73, GDRs ,03, Other Corporates 1, ,10, Individuals 1,42, ,43,57, Total 1,50, ,49,20, (52)

59 Indo Gulf is introducing farmers to a whole new way of farming. Where yields will be maximized and wastage will be minimized. Crop after bumper crop, season after bountiful season. It s the new six sigma standard that we bring to the fields. Our experts at the various Birla Shaktiman Krishi Seva Kendras will provide farmers with much more than just fertilizers, pesticides and high yield seeds. All the science to nourish their soil and enrich their lives. We enrich lives. Not just fields.

60

61 Shareholding Pattern as on 31st March, 2006 (Pre IGFL Merger) Other Corporates 2.67% Individuals 20.83% Promoters/PACs 28.64% GDRs 5.35% NRI/OCBs 1.43% UTI & MFs 10.42% FIIs 14.97% Banks & FI 15.69% Shareholding Pattern as on 24th April, 2006 (Post IGFL Merger) Other Corporates 3.08% Individuals 19.17% Promoters/PACs 34.09% GDRs 4.54% NRI/OCBs 1.70% UTI & MFs 9.83% FIIs 13.60% Banks & FI 13.99% 16. Dematerialisation of Shares and Liquidity : The shares of the Company are required to be compulsorily traded in the dematerialised form. The shares of the company are admitted for trading under both the Depository Systems in India- NSDL and CDSL. The International Securities Identification Number (ISIN) allotted to the Company s Shares under the Depository System is INE069A A total of 55,199,712 Shares of the Company constituting 92.17% of the Issued and Subscribed Share Capital stand dematerialised as on 31 st March, Post amalgamation of IGFL 69,532,429 shares of the Company constituting 92.81% of the issued and subscribed share capital stands dematerialised as on 24 th April, 2006 (53)

62 17. Details on use of public funds : No funds have been raised from the public in last 3 years. obtained in the last three years 18. Outstanding GDR/Warrants and : Outstanding GDRs as on 31 st March, 2006 are 32,07,006 Convertible Bonds, Conversion date and likely impact on Equity. amounting to 5.35% of outstanding paid-up equity capital of the Company. Each GDR represents one underlying Equity Share. Consequent to merger of IGFL, the Company has issued 196,581 shares underlying GDRs as on 24 th April, Plant locations: Garments Division: Rayon and Caustic Soda Plants: Madura Garments Indian Rayon Division 110, 4 th Cross, 5 th Block Veraval Koramangala Industrial Layout Gujarat Koramangala Tel: (02876) Bangalore Fax. (02876) Tel: (080) abnlveraval@adityabirla.com Fax: (080) Carbon Black Plants: Fertiliser Plant: Hi-Tech Carbon Indo Gulf Fertilisers Murdhwa Industrial Area P.O. Jagdishpur Industrial Area P.O. Renukoot Dist. Sultanpur Dist. Sonbhadra, Uttar Pradesh Uttar Pradesh, India Tel: (05446) to 391 Tel: (05361) Fax: (05446) / Fax (05361) & hitechr@adityabirla.com igfl@adityabirla.com htcrkt@vsnl.com K-16, Phase II, SIPCOT Industrial Complex P.O. Gummidipoondi Financial Services Division Dist. Tiruvallur Tamil Nadu Appejay, 2 nd Floor, Tel: (044) to 36 Shahhid Bhagat Singh Road, Fax: (044) / Fort, Mumbai htcgmpd@vsnl.com Tel: (022) Htcgmd@adityabirla.com Fax (022) Website: bgflcorp@adityabirla.com Textile Plants: Argon Gas Plant: Jaya Shree Textiles Rajashree Gases P.O. Prabhasnagar IGFL Complex Dist Hooghly, West Bengal P.O. Jagdishpur Industrial Area Tel: (033) Dist. Sultanpur, Uttar Pradesh Fax: (033) / Tel: (05361) to 38 jayashree.abn@adityabirla.com Fax: (05361) / / igfl@adityabirla.com Rajashree Syntex Other Division: P.O. Tantigaria Insulator Division (Domestic Marketing) Dist.Midnapur Paschim P.O. Meghasar Tal. Halol PIN: (West Bengal) Dist. Panchmahal, Gujarat Tel: (03222) / / Tel:(02676) Fax: (03222) Fax:(02676) rajsyntex@adityabirla.com jsihdom@adityabirla.com (54)

63 20. Investor Correspondence: Other than Secretarial Matters On Secretarial Matters 21. Per Share Data: Whole -Time Director & CFO Aditya Birla Nuvo Limited Corporate Finance Division A-4, Aditya Birla Centre, S.K.Ahire Marg, Worli, Mumbai Tel: (022) / Fax: (022) / The Company Secretary Aditya Birla Nuvo Limited Registered Office: Indian Rayon Compound Veraval , Gujarat, India Tel: (02876) Fax: (02876) Net Earnings (Rs. Crores) Cash Earnings (Rs. Crores) EPS (Before exceptional items) (Rs) CEPS (Before exceptional items) (Rs) Dividend Per Share Dividend Payout (on Net Profit) (%) Book Value Per Share (Rs.) Price to Earnings* (before exceptional items) Price to Cash Earnings * Price to Book Value * * Stock price as on 31 st March, 2006 ** Before exceptional items of Rs.(4.04 Recommended by Board for approval of shareholders at ensuing AGM. (55)

64 22. Major Changes in Equity Share Capital in last 10 years (Rs.in Crores) Year Change Share Capital at the end Reason Amount of Financial Year Equity Share Capital as on Shares allotted against conversion of FCDs & Detachable Warrants of Rs.170/- & Rs.200/- each do do crore Bonus shares issued in the ratio of 1: lac shares bought back shares allotted out of abeyance cases shares allotted out of abeyance cases shares allotted out of abeyance cases Equity Share Capital as at Other useful information for Shareholders Transfer of funds to Investor Education & Protection Fund (IEPF) 1. In terms of the provisions of Section 205A(5) of the Companies Act, 1956, (the Act ) unpaid and unclaimed dividend for the financial year has been transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government under Section 205C of the Act. 2. Pursuant to the provisions of above mentioned Section, the amount of dividend which has remained unclaimed and unpaid for a period of 7 years from the date it became due for payment is required to be transferred to the Investor Education & Protection Fund (IEPF) constituted by the Central Government. Dividend Year Unclaimed/ unpaid Due date of dividend as on Transfer to IEPF ABNL IGFL ABNL IGFL Rs.16,76,200 N.A N.A Rs.5,50,078 N.A N.A Rs.15,49,422 N.A N.A Rs.16,81,127 N.A N.A Rs.20,82,518 Rs. 8,83, Rs.23,91,560 Rs. 10,34, Rs.25,07,236 Rs. 8,84, Accordingly, the amount of dividend for the Financial Year and onwards which remain unclaimed and unpaid as aforesaid shall be transferred to the IEPF and no claims shall lie against the IEPF or the Company in respect of such amounts. Though a reminder has been sent to the shareholders for claiming unpaid/unclaimed, it is noted that quite a number of shareholders have still not come forward to claim the unpaid /unclaimed dividends. We, therefore request the members who have not en-cashed their dividend warrants to write to the Company immediately claiming dividends declared by the Company for the said Financial Years. (56)

65 Investor Services Details of Investor Services/information are displayed on Company s website under the head- Investors: 1. ECS Facility 2. Change of Address 3. Share Transfer / Dematerialisation 4. For Non Resident Shareholders 5. Bank Details for Dividend payment 6. Depository System (DS) 7. Nomination of Shares 8. Investor Feedback Form Various Forms in the respect of the above are also available on the website. Change of Name of the Company During the financial year , the shareholders of the Company by means of a resolution passed by Postal Ballot has approved the change of name of the Company on 26 th October, The change of name of the Company was approved by the Central Government and a fresh certificate of incorporation on change of name was issued by the Registrar of Companies, Gujarat on 27 th October, The change of name was effected to reflect the diversity of Company s businesses, wider gamut of activities and its newer image. Consequent to change of name of the Company, the Company has been issuing share Certificates with new name whenever any request is received for transfer, deletion, split, consolidation etc. However, the existing share Certificates in the name of Indian Rayon And Industries Limited are good for delivery in the market and can be submitted for demat and transfer. Share Certificates Members are requested to ensure that they possess share certificate(s) in respect of shares held by them in physical form. In case, the same are not available, members are requested to write to the Share Department of the Company [quoting reference of their folio number(s)] for further course of action in the matter. Amalgamation of Indo Gulf Fertilisers Ltd. (IGFL) with the Company Consequent to sanction of the Scheme of Amalgamation between IGFL and the Company by the respective High Courts and on receipt of other requiste approvals, the Company has allotted 1 (one ) Equity share of Rs. 10/- each fully paid-up for every 3 (three) Equity shares of IGFL on 24 th April, The Company has despatched the share Certificates/credit given in electronic mode to the entitled shareholders of IGFL. Shareholders holding shares of IGFL in physical form and who have not opted for receiving the shares in demat (electronic) form were allotted shares in physical form. Those shareholders who have not received the shares of the Company, may write to the Company for the same. All such shareholders are requested to quote the folio no of IGFL in their correspondence with the Company. Amalgamation of Birla Global Finance Ltd. (BGFL) with the Company Consequent to sanction of the Scheme of Amalgamation between BGFL and the Company by the respective High Courts and on receipt of other requiste approvals, the Company has made the said Scheme of Amalgamation effective from 30 th June, th July, 2006 has been fixed as the Record Date for ascertaining the entitlement of shareholders of erstwhile BGFL to whom the shares of the Company will be allotted as per the share exchange ratio as provided in the said Scheme of Amalgamation. (57)

66 On-Line Complaint Redressal System For the benefit of shareholders, the Ministry of Company Affairs has made provision in the new system i.e. MCA21System, for online lodgement of complaints by Investors. This new system accepts complaints filed against a company by an investor as part of investor services. There is a specific eform for this purpose which is to be filed for complaints with respect to each company. No digital signature is needed for filing this eform. Also, no filing fee is required for submitting the eform for complaints. The investor will be in a position to view the latest status of the complaint by querying on the Service Request Number (SRN) of the complaint. Communication to the Company For expeditious disposal of the matters concerning shares and debentures etc., members are requested to address all letters directly to the Share Department of the Company situated at the Registered Office of the Company quoting reference of their folio numbers and/or Client ID and DP ID number. Other queries may be sent at abnlsecretarial@adityabirla.com or faxed at With a view to facilitate speedy communication, shareholder may furnish their Id to the Share Department of the Company. Queries / requests relating to Amalgamation Shareholders holding shares in physical form and who have become/will become the shareholder(s) of the Company by virtue of their holding in IGFL and BGFL which have since amalgamated with the Company, are requested to send all their requests / queries arising out of amalgamation and also the requests for Change of Address, Nomination Form, Change / Modification in ECS Mandate, Bank Details, deletion, transfer, transmission, dematerialization at the Registered office of the Company at Indian Rayon Compound, Veraval Shareholders may also send their queries at the id abanlsecretarial@adityabirla.com for prompt and speedy communication. (58)

67 DIRECTORS REPORT TO THE SHAREHOLDERS Dear Shareholders, Your Directors are pleased to present the 49th Annual Report together with the Audited Accounts of the Company for the year ended 31st March, MAJOR ACTIVITIES: 1. Amalgamation of Indo Gulf Fertilisers Ltd.(IGFL) and Birla Global Finance Ltd. (BGFL) with the Company. Having obtained all the necessary regulatory approvals, the Schemes of Amalgamation of IGFL and BGFL with your Company have been rendered effective from 3 rd April, 2006 and 30 th June,2006 respectively. As these Schemes are operative from the Appointed Date, viz. 1 st September, 2005, the entire business and undertaking of the erstwhile IGFL and BGFL have been vested in your Company, on a going concern basis. Consequent to the merger, your Company has allotted 1,50,30,935 equity shares of Rs. 10/- each to the shareholders of IGFL in the ratio of one equity share of Rs.10/- each of your Company for every three equity shares of Rs. 10/- each held by the shareholders of IGFL as on the Record Date, which was the 19 th April, Your Company is in the process of allotment of 85,83,479 equity shares to the shareholders of BGFL in line with the provisions of the Scheme. Accordingly the Balance Sheet and the Profit & Loss Account of IGFL and BGFL are clubbed with that of your Company so the figures for the current year are not comparable with the previous year. 2. FORAY INTO TELECOM BUSINESS The telecom Sector is one of the fastest growing sectors in India. Mobile Telephony is expected to be one of the exciting businesses in the coming decade. To avail the opportunities available, your Company has consciously decided to fortify its presence in the telecom sector. Your Company invested Rs.661 crores in Idea Cellular Ltd.(Idea) to acquire 16.5% stake in September 2005, increasing its holding to 20.74%. Your Company along with its subsidiary has accepted the offer to purchase an additional 15% equity share of Idea. On conclusion of this deal in June 2006, the stake of your Company along with its subsidiary has increased to 35.74%, indicative of the strong focus your Company places in this growing sector. 3. ACQUISITION OF MINACS WORLDWIDE INC. BY TRANSWORKS. As part of its strategy to emerge as a leading global BPO services provider and expand its global footprint, Transworks Information Services Ltd. (Transworks) a Wholly owned subsidiary of your Company, in June, 2006, has entered into a definitive agreement with Minacs Worldwide Inc. ( Minacs ), Canada s leading BPO provider, to acquire Minacs, through its wholly owned subsidiary i.e. A V Transworks Limited, Canada. Transworks is proposing to acquire up to 100% of the shareholding in Minacs on a fully diluted basis through an open offer at a total outlay of US$125 million (approximately). Minacs provides customized business process outsourcing (BPO) solutions focused on 3 core areas; contact center solutions, integrated marketing services, and back office administration. With approximately 6,000 (59)

68 employees from locations in Canada, the US and Europe, Minacs has established successful practices with clients in the automotive, financial services, telecom, technology and government sectors. Transworks currently employees over 4200 employees across facilites in India and Canada and blends specialized knowledge and expertise to deliver superior outsourced solutions to Global 1000 financial services, technology, retail and e-services company. The combined business of Transworks and Minacs will have a revenue base of US$300 million. FINANCIAL PERFORMANCE Your Company s performance has been impressive. Its Turnover at Rs crores is up by 42% as against Rs.1861 crores in the previous year. The Garments and Textiles business grew in revenues with a richer product mix, while Carbon Black witnessed volume growth. Continuous focus on quality improvement, raising operational efficiencies and cost optimisation across all the businesses has contributed significantly to your Company s growth. CHANGE OF NAME OF THE COMPANY As you are aware, your Company has been rechristened as Aditya Birla Nuvo Ltd., to mirror its transformed character. Likewise, the Rayon Division of the Company has been renamed as Indian Rayon. With the Fertiliser and Financial Services businesses becoming a Division of your Company, it was named as Indo Gulf Fertilisers Division and Financial Services Division respectively. OPERATIONAL REVIEW Madura Garments, a division of your Company, aggressively expanded its retail reach, increasing its retail space to 3.12 lac sq. ft.. This includes opening of several large format showcase retail showrooms, which will give a strong footage to Madura Garments in the evolving organized retailing scenario. To leverage the potential in the Garment Export Business (post-wto), the contract exports business of Madura Garments is being transferred to Madura Garments Exports Ltd., a wholly owned subsidiary of your Company. In Carbon Black, while your Company is pursuing environmental clearance for its 50,000 tpa Brownfield expansion, it is also exploring possibilities to set a Greenfield project of 60,000 tpa in Western India. The proposed expansion will enable your Company sustain its leadership position and grow as the demand for Carbon Black in the domestic sector is on the rise, fuelled by the buoyant auto sector. At the Indian Rayon Division, capacity will be expanded by 1000 tons through de-bottlenecking. The Caustic Soda capacity which went up by 40 TPD to 160 TPD in September 05, will be further expanded to 200 TPD, on the commissioning of Power Plant in September The implementation of Power Plant is in line with our expectations. To remain focused on the Linen Fabric, and to cater to the market needs at Jaya Shree Textiles, a new capacity of 50 looms of Linen Fabrics and 5000 Spindles of Flax Spinning is on the anvil. At Indo Gulf Fertilisers Division, we intend to increasing the capacity from million tons to 1.10 million tons p.a., through de-bottlenecking. The thrust in the Financial Services Division would be to tap opportunity from new public offerings, fee income and low risk fund based income. (60)

69 OPERATIONAL REVIEW VOLUMES Products Unit FY 2006 FY 2005 Variation (%) Production :- Viscose Filament Yarn MT 17, Carbon Black MT 175, Sales :- Garments Lac Pcs Viscose Filament Yarn MT 17, Carbon Black MT 175, Insulator MT Textiles MT Urea (w.e.f ) MT TURNOVER (Rs. in Crores) Products FY 2006 FY 2005 Variation (%) Garments Viscose Filament Yarn Carbon Black Insulator Fertiliser (w.e.f ) Textiles Trading & Others Financial Services (w.e.f ) 31.6 Total (61)

70 FINANCIAL RESULTS On consolidated basis (Rs. in Crores) On Standalone basis Current Previous Current Previous Year Ended Year Ended Year ended Year ended Profit before Depreciation and Tax Depreciation and Amortisation Profits before Tax and Exceptional Items Exceptional Items (4.04) (7.65) (4.04) (7.65) Profit before Tax Provision for Tax Net Profit Appropriation : Proposed Dividend Corporate Tax on Dividend General Reserve Debenture Redemption Reserve Special Reserve Surplus carried to Balance Sheet (281.18) Total Exceptional Items VRS Expenses (4.04) (9.54) (4.04) (9.54) Gain / (Loss) on sale of Long Term Strategic Investment (Net) Total (4.04) (7.65) (4.04) (7.65) (62)

71 The operational performance of each of your Company s division has been spelt out in depth in the Management Discussion and Analysis Report, which forms part of this Annual Report. DIVIDEND Your Directors recommend a dividend of Rs. 5/- per Equity Share of Rs.10/- each for the financial year ended 31st March, 2006 for your consideration. Current Year Previous Year (Rs.in Crores) (Rs. in Crores) On 8,35,04,386 fully paid-up Equity Shares of Rs.10/- Rs.5/- per share.(previous year - On 5,98,84,782 fully paid-up Equity Shares of Rs.10/- Rs. 4/- per share) Corporate Dividend Tax FINANCE Your Company has raised long term Rupee Loan of Rs.505 crores and Foreign Currency Loan of Japanese Yen million (Rs.83 crores) Your Company has repaid debentures (10.85% Non Convertible Debentures- 22 nd Series) aggregating Rs.50 crores. HUMAN RESOURCES We fully recognize that people are the lifeline of our Organisation. Hence we invest heavily in people, peopleprocesses and in skill development. In the Chairman s letter, Group-wide initiatives to build a meritocracy have been detailed. All these processes, such as Values Workshop, talent management, job analysis and evaluation, and performance management, among others, have been implemented at your Company as well. The importance of continuous learning, re-learning and un-learning is a thrust area. At Gyanodaya, our Management Learning Institute, more than 150 executives underwent training programmes that helped build new competencies and hone current competences. Some of these programmes focus on keeping employees abreast of technological and technical developments that take place, behavioral competencies and Six-sigma as well. We continue to make strides in HR ERP under the umbrella of Poornata. It aims at improving the service delivery time of the HR function by standardising and digitizing the way data is maintained for all HR processes spanning recruitment, workforce administration and position management, talent management, etc. To strengthen the Performance Management Process, Performance Management Workshops have been conducted based on Corporate H.R. guidelines, to cover all Management staff at various locations. Performance Champions have been identified to strengthen the process. In line with our people vision of being an achievement focused, development oriented and people sensitive organization, your Company endeavours to create an environment of holistic growth. CONSOLIDATED FINANCIAL RESULTS The Consolidated Financial Statements pursuant to Clause 41 of the Listing Agreement entered into with the Stock Exchanges and prepared in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India, in this regard, are attached for your reference. CORPORATE GOVERNANCE Your Directors reaffirm their commitment to the good corporate governance practices and adhere to all the major stipulations laid down by the SEBI Corporate Governance Practices. (63)

72 This Annual Report contains a section on Corporate Governance highlighting adherence to the SEBI Code on Corporate Governance. Your Company s Statutory Auditors Certificate dated 3 rd July,2006 in terms of Clause 49 of the Stock Exchange Listing Agreement is annexed to (Annexure A) and forms part of the Directors Report. As required under Section 217(2AA) of the Companies Act, 1956, your Directors confirm that: i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; iii) the Directors have taken proper and sufficient care of the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv) the Directors have prepared the annual accounts on a going concern basis. SUBSIDIARY COMPANIES During the year, the following companies have become subsidiaries of your Company. 1. Aditya Birla Telecom Limited 2. Madura Garments Exports Limited 3. Alpha Garments Pvt. Ltd. In line with 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, Report of the Board of Directors and Report of the Auditors of the subsidiary companies have not been attached to the Balance Sheet of the Company as at 31 st March, The Annual Accounts of the subsidiary companies and the related detailed information will be made available to the investors of the Company and of the subsidiary companies seeking such information at any point of time. The Annual Accounts of the subsidiary companies are available for inspection by any investor at the Registered Office of the Company and of the concerned subsidiary company. Any shareholder of the Company, who desires to obtain a copy of these documents of any of the subsidiary companies, may send a request in writing to the Company Secretary at the Registered Office of the Company so that the needful can be done. Upon amalgamation of BGFL with the Company, effective from 30 th June, 2006 the following subsidiaries of BGFL have also become subsidiaries of your Company. Birla Global Asset Finance Company Limited Birla Insurance Advisory Services Limited BGFL Corporate Finance Private Limited FIXED DEPOSITS The Company has not accepted any fixed deposits during the year, except the deposits received by erstwhile IGFL, which have been transferred to your Company on merger. There was no unclaimed deposit and interest accrued as on 31 st March, PARTICULARS AS PER SECTION 217 OF THE COMPANIES ACT, 1956 Information relating to the Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo required under Section 217(1)(e) of the Companies Act, 1956, is set out in a separate statement attached to this Report (Annexure B) and forms part of it. (64)

73 The particulars of employees, as required under Section 217(2A) of the Companies Act, 1956, are given in a separate statement attached to this Report (Annexure C) and forms part of it. DIRECTORS In view of the restructuring proposals approved by shareholders and the growing size of the operations of your Company, the Board of Directors, have inducted the following directors Mr S.K. Mitra and Mr. Rakesh Jain, Managing Directors of the merging entities viz. BGFL and IGFL respectively were appointed as Additional Directors of your Company w.e.f 1 st October, On completion of merger of IGFL and BGFL with your Company, Mr. Jain and Mr.Mitra have been redesignated as Whole-time Directors of the Company w.e.f. 3 rd April, 2006 and 1 st July,2006 respectively. Mr. K.K. Maheshwari Group Executive President (Chemical Business) of the Company and Mr. Adesh Gupta, Sr. President & CFO of the Company were appointed as Whole-time Directors w.e.f. 1 st October, Mr. Kumar Mangalam Birla, Mr. B.R.Gupta, and Mr. B.L. Shah, retire from office by rotation, and being eligible, offer themselves for reappointment at the ensuing Annual General Meeting. AWARDS AND RECOGNITION Your Company has been the proud recipient of the following awards and recognitions INDIAN RAYON, VERAVAL First prize in Textile Sector for Energy Conservation from Ministry of Power, New Delhi Second prize in Chemical Sector for Safety from GREENTECH Foundation Second prize in Textile Sector for Safety from Gujarat Safety Council OHSAS / ISO Certification OEKO Tex Certificate MADURA GARMENTS DIVISION Awarded The Best Retailer of the Year for the fashion segment at the 2 nd Reid & Taylor awards in the India Retail Summit. Best Franchiser in the fashion awarded by Franchising World Clothing Manufactures Association Of India (CMAI) Awards - Louis Philippe was adjusted the Best Formal Wear brand Madura Garments- Most Admired Apparel Company Madura Garments- got the Clothing Company of the Year Images Fashion Awards - For 3rd consecutive time, Madura Garments awarded Best Apparel Company Allen Solly won the award for the Best Smart Casual Brand Van Heusen got the award for the Best Trouser Brand HI-TECH CARBON DIVISION, GUMMIDIPOONDI The Division was declared as winner of Gold Award in Chemical Sector for Outstanding achievement in Safety management at 4 th Annual Greentech Safety Award, HI-TECH CARBON DIVISION, RENUKOOT The Division was declared Winner of Gold Award in Chemical Sector for outstanding achievement in Environment Management at 6 th Annual Greentech Environment Excellence Award (65)

74 Winner of Gold Award in Chemical Sector for outstanding achievement in Safety Management at 5 th Greentech Safety Award INDO GULF FERTILISERS Suraksha Puraskar 2004 from the National Safety Council of India, for its exemplary safety standards. The Business world FICCI SEDF Corporate Social Responsibility Award 2005, for making a difference to the marginalized sectors of Society. AUDITORS The observations made in the Auditors Report are self-explanatory and therefore, do not call for any further comments under Section 217(3) of the Companies Act, Your Directors request you to appoint Auditors for the current year as set out in the accompanying notice of the Annual General Meeting. APPRECIATION We deeply appreciate the ongoing co-operation and support provided by Central and State Governments and all Regulatory bodies. We value you - our esteemed shareholders, customers, business associates, Financial/Investment Institutions and Commercial Banks for your confidence in your Company and its management. The dedication and commitment of your Company s employees at all levels has been continued to be our major strength. For and on behalf of the Board Mumbai 3rd July, 2006 Chairman (66)

75 ANNEXURE A TO DIRECTORS REPORT Auditor s Certificate To the Members of Aditya Birla Nuvo Limited (Formerly: Indian Rayon And Industries Limited) We have examined the compliance of conditions of corporate governance by Aditya Birla Nuvo Limited for the year ended on March 31, 2006 as stipulated in Clause 49 of the Listing Agreement of the said Company with Stock Exchange. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of the opinion on the financial statements of the Company. As reported in clause I of the Corporate Governance Report of the Company for the year ended on March 31, 2006 some of the Directors of the Company including Chairperson of the Audit Committee were unable to attend the Annual General Meeting held on June 24, 2005 despite flying from Mumbai due to the bad weather conditions at Keshod and other Airports near Veraval, the registered office of the Company, subject to aforesaid, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. For KHIMJI KUNVERJI & CO. Chartered Accountants For S. R. BATLIBOI & COMPANY Chartered Accountants Shivji K. Vikamsey Hemal Shah Partner Partner Membership No Membership No Mumbai Mumbai July 3, 2006 July 3, 2006 (67)

76 ANNEXURE B TO DIRECTORS REPORT Information under section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 and forming part of the Directors Report for the year ended 31st March, 2006 A. CONSERVATION OF ENERGY a) Energy conservation measures taken : The Company is engaged in the continuous process of energy conservation through improved operational and maintenance practices. Steps taken by various divisions of the Company in the direction are as under: - i) Rayon Division Adoption of energy efficient Dissolving System for Viscose. Optimizing vacuum pumps sizing in Viscose and Spinnbath areas. Stoppage of additional running Caustic Cooler by PHE in Viscose Plant. Adoption of Variable Frequency Drives (VFD) at various places Replacement of electrical heater with steam heater in jacket dryers. Heat recovery from hot effluent water for reducing steam consumption in Airwasher. Trimming of Auxillary cooling water pump impeller ii) Carbon Black Division Dryer Modification done by making Annular furnance gas entry tangential and by increasing Snorkle size to 400 mm from 300 mm. Installation of Waste Heat Recovery Boiler in soft black reactor A Installation of Capacitor Banks resulting in reduction of Power Loss iii) Textile Division Elimination of one step down system to minimize line losses. Installation of Variable Frequency Drive for Humidification Tower. Installation of equipments for control of maximum demand of electricity Installation of capacitor in 33 KV HT Side Automation of Thermax Boilers iv) Fertilizer Division Installation of additional hydrolyser feed water pre-heater Up-gradation of Combustion Air pre-heater Pre-heating of fuel to Primary Reformer Pre-heating of Ammonia feed to Urea reactor b) Additional Investments & Proposals, if any, being implemented for reduction of consumption of Energy. i) Rayon Division Replacement of existing spray type Airwasher to maintain the humidity to Spinning halls. Utilization of hydrogen. Installation of VFD on pumps. ii) Carbon Black Division Installation of Variable Frequency Drive (VFD) in Pressurisation Blower, Combustion air Blower & FD Fan. iii) Textile Division Installation / Replacement of VFD for Humidification Tower (68)

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80 Replacement of old inefficient compressors of smaller size with big size energy efficient compressors Increase the feed water temperature of Boiler from 68 Deg. C to 74 Deg C. Auto On-off System of Factory Lighting iv) Fertilizer Division Application of ceramic coating on refractory walls in reformer furnace Installation of variable speed drive in motors running on reduced load Installation of step down lighting transformer for energy conservation in plant lighting c) Impact of measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods : The above measures have resulted / will result in energy saving and consequent decrease in the cost of production. d) Total Energy Consumption and Energy Consumption per Unit of Production as per prescribed Form A : As per annexure attached. B. TECHNOLOGY ABSORPTION e) Efforts made in Technology Absorption in Form B. RESEARCH AND DEVELOPMENT 1. Specific areas in which R & D carried out by the Company. i) Rayon Division Commissioned a full-fledged Pilot Plant comprising of Viscose making to Textile operation for optimizing raw material, process receipe for superior quality product at competitive costs. Adopted state of art Dissolving Technology thereby improving quality of Viscose as well as saving energy. Commissioned a Product Validation Centre comprising of high speed Warping Machine, warp knitting, dyeing and auto yarn testing facilities. Designed and commissioned large capacity Viscose Blenders using computational Fluid Dynamics Software for improving quality of Viscose and thus yarn quality. Development of new shades of yarn having high fastness to light for premium segment. Design modification in Air Bustle system of Power Plant to minimize the back fire in coal Bunkers. ii) Textile Division Development of Metal Splash resistant fabric for Metal Industry. Aramid blended high tech yarn to make garments for military and fight pilot iii) Fertilizers Division Focused R & D activities in the areas of new Product development i.e. Zincated, Boronated & Sulfonated Urea. These products have been produced on small scale and are under field trial. Based on the feed back from the field trial, large scale production shall be done. 2. Benefits derived as a result of the above R & D Improvement of process and productive capacity, better quality and marketability of products, development of new range of products, value addition in the existing products, enhancement of product range, reduced effluent load, improved process control, improved customer satisfaction, development of eco friendly products and reduction of cost of production, improved Company s image and higher realization. In the year , Indo Gulf Fertilisers Division produced & marketed around 1.54 Lakh tonnes Neem coated Urea under the brand name KRISHIDEV. In a very short time, the Division established a leadership in the field of Neem coated Urea. (69)

81 3. Future Plan of action i) Rayon Division Eco & Energy Auditing Improvement in quality of yarn Development of speciality yarn Reduction of Cost of Production Reduction in energy cost ii) Carbon Black Division Development of new applications of Carbon Black in Ink, Plastic and Paints iii) Fertilisers Division To continue R&D work especially in the area of new product development area and to achieve excellence in producing and marketing value added products i.e. Zincated, Boronated & Sulfonated Urea. 4. Expenditure on Research and Development i) Capital Expenditure - Rs lacs ii) Recurring Expenditure - Rs lacs iii) Total - Rs lacs iv) Total R&D Expenditure as a percentage of total turnover 0.05 % 5. Technology absorption, adaptation and innovation i) Efforts in brief, made towards technology absorption, adaptation and innovation i) Rayon Division Quality improvement initiatives to achieve yarn quality at World class level Development of new shades of yarn Designing and Modification of new and existing system as well as in-house developments Reduction of Energy Consumption ii) Indo Gulf Fertilisers Continuous efforts are made to prepare steam, power and material balances and to check on the actual performance against design ii) Benefits derived as a result of the above efforts Quality improvement in existing range, development of new market segments, improvement in process, productivity and cost control, improvement in energy efficiency, reduction in input material consumption. iii) Information regarding Technology imported during the last years a) Technology imported during last five years: In Rayon Division, Computation Fluid Dynamics Technology & CFX software imported during Financial Year b) Has technology been fully absorbed: Yes C. FOREIGN EXCHANGE EARNING AND OUTGO The information on foreign exchange earnings and outgo is contained in Note No. 19 of Schedule 19 and the annexure thereto. (70)

82 Form-A Form for disclosure of particulars with respect to conservation of energy. (A) Power and Fuel Consumption:- Current Previous 1. Electricity Units Year Year (A) Purchased - Units KWH in Lacs Total Amount Rs.in Lacs Rate per Unit Rs (B) Own Generation (i) Through Diesel Generator - Units KWH in Lacs Unit per Ltr. of Diesel Oil Cost Per Unit Rs (ii) Through Steam Turbine/Generator - Units KWH in Lacs Unit per ton of steam coal Cost Per Unit Rs (iii) Through Gas MWH Natural Gas + Naphta KWH/MCAL Cost per unit Rs./KWH Coal (Grade B,C and D) Quantity 000 Tonnes Total Cost Rs.in Lacs Average Rate Rs.per tonne Furnace Oil Quantity K.Ltrs Total Amount Rs.in Lacs Average Rate Rs.per K.Ltr Others/Internal generation - (i) LDO Quantity K.Ltrs Total Amount Rs.in Lacs Average Rate Rs.per K.Ltr (ii) NG /JV PMT/RLNG (Power & Quantity 000 Sm Total Amount Rs.in Lacs Average Rate Rs./1000 Sm (iii) Naptha (Power & Quantity MT Total Amount Rs./Lacs Average Rate Rs./1000 Sm (B) Consumption per unit of production : Production Standards, Current Previous Unit if any Year Year 1. Electricity (KWH) Viscose Filament Rayon Yarn MT Other Yarns (Average) MT Caustic Soda MT Fabrics 000 Mtr Carbon Black MT Liquid Argon Sm Urea@ KWH Furnace Oil (Kilo Ltr.) Viscose Filament Rayon Yarn MT Other Yarns MT Carbon Black MT Fabrics Coal (Grade B,C and D) Viscose Filament Rayon Yarn MT Other Yarns MT Fabrics 000 Mtr Others/Internal generation (i) LDO Viscose Filament Rayon Yarn MT Other Yarns MT (ii) NG /JV PMT/RLNG (Power & Sm (iii) Naptha (Power & Sm 3 Relates to production of Urea by Indo Gulf Fertilisers for the period from to Since Indo Gulf Fertilisers has merged with the Company w.e.f , previous year figures have not been given. (71)

83 ANNEXURE C TO DIRECTORS REPORT Particulars of Employees pursuant to the provisions of Section 217(2A) of the Companies Act,1956 and forming part of the Directors Report dated 3 rd July, 2006 for the year ended 31 st March, A) Employees who were employed throughout the Financial Year and were in receipt of remuneration in aggregate of not less than Rs.24,00,000/- per annum. Name Designation and Remuneration Qualifications Age Experience Date of Details of Previous Employment Nature of Duties (Rs.) (Years) (Years) joining Name of Designation Period of Employer Service (Years) Balachandar N V Vice President- 3,136,882 MBA - PM Max India VP & Practice Leader - Human Resource People Capability 1 (Madura Garments) Bhandari Devendra Sr. Vice President & 2,948,203 B.Com, F.C.S. CA( Inter) Indo Gulf Vice President & Company Secretary Corporation Limited Company Secretary 16 (Corporate Finance Division) David Von Platen Head- Design 8,104,401 Cours De Stylisme, Marina Yachting Uomo Head - Designer 4 (Madura Garments) France Gilbert Mah Kwai Head - Visual Merchandising 3,043,993 BFA, Degree Holder Club 21 Pte Ltd Executive 4 Yuan (Madura Garments) Interior Design Gupta Adesh Wholetime Director & CFO 8,317,629 B.Com, F.C.S., F.C.A Birla Global Finance Jt. President 5 (Corporate Finance Division) Limited Gupta S S Joint President 2,469,224 M.Sc None None None (Caustic & Power, Indian Rayon Division) Javeri Hemchandra President (Madura Garments) 6,806,980 B.Com,PGDBM Nike Inc Country Manager South Asia 4 Jhanwar K. C. Executive President 5,523,052 B.COM. F. C.A., C.S Grasim Industries Ltd. Executive President 6 (Indian Rayon Division) (Inter) Kedia Manoj Jt. President 2,903,917 B.Com, F.C.A Reliance Shares & Vice President 9 months (Corporate Finance Division) Stockbrokers Ltd. Maheshwari K. K.# Wholetime Director & 15,336,065 M.COM., F.C.A Thai polyphosphate & President 12 Group Executive President Chemicals Co. Ltd, (Indian Rayon DIvision) Bangkok Mirchandani.V. K. Brand Head - AS 2,648,893 MBA Provogue-Acme Sr. VP Sales & 2 (Madura Garments) Clothing Pvt. Ltd Marketing Mishra G. S. Joint President 39,33,652 B. E. (Mech) Alexandria Joint President 8 (Hi-Tech Carbon) Carbon Black Ltd Rathi S.S Executive President 3,489,093 B. Com, F.C.A Grasim Industries Finance Manager 10 (Hi-Tech Carbon) Limited Rustogi Anil Sr. Vice President - 2,436,084 B.Com, F.C.A, AICWA Eastern Spining Mills & Asst. Vice President Corporate Finance Division Industries Ltd. (Finance & Commerce) 11 Shoaib Farooqi Sr. Vice President - 7,978,903 Dipl in Buss.Admn J. K.Batteries Limited Sales Representative 1 Sales & Marketing FMS, MA Eco, (Madura Garments) Dipl in Mktg, MA, Contd. (72)

84 Particulars of Employees pursuant to the provisions of Section 217(2A) of the Companies Act,1956 and forming part of the Directors Report dated 3 rd July, 2006 for the year ended 31 st March, A) Employees who were employed throughout the Financial Year and were in receipt of remuneration in aggregate of not less than Rs.24,00,000/- per annum. Name Designation and Remuneration Qualifications Age Experience Date of Details of Previous Employment Nature of Duties (Rs.) (Years) (Years) joining Name of Designation Period of Employer Service (Years) Shroff Jayant Sr. Vice President 2,412,257 B.Com, DBM BNT Mills Ltd Sales Executive 2 (Jaya Shree Textiles) Singh N.P Vice President - 2,879,075 M Tech, IIT Hindustan Lever Ltd. Sr.Systems Manager 4 It & E-Comm. (Madura Garments) Soni J. C. President (Jaya Shree Textiles) 4,090,526 B.S.C., A.C.A Grasim Industries Limited. Executive President 4 Srikrishnan V Vice President-Finance 3,385,301 ACA, B Com Hons Reckitt Benckiser Commercial Controller 9 (Madura Garments) India Ltd. # was Manager till Appointed as Wholetime Director w.e.f B) Employees who were employed for a part of the Financial Year and were in receipt of remuneration in aggregate of not less than Rs.2,00,000/- per month. Bhatia R. K. Assistant Vice President 2,159,865 Diploma In Management, Lohia Starlinder Ltd Deputy Manager 3 Contract Exports B Tech, Text Engg.IIT (Madura Garments) Chaturvedi Brand Director 1,835,854 MMS, NMIS, B P L US Sr Product Manager 6 months Shailesh (Allen Solly) Bachelor of Engg. West Cellular Ltd. (Madura Garments) Choudhary A. N. Advisor (Textiles) 14,736,143 B.Com,LLB,FCA,ACS S.R.Batliboi & Co. Qualified Assistant 1 Jain Rakesh* Wholetime Director M.Tech.(Rubber Tech.), GE Plastics India Ltd. President & CEO 15 (Indo Gulf Fertilisers) Ph.D Jajoo S. N* Executive President 2,918,706 B.Com,F.C.A.,PGDBIM, Grasim Industries Ltd Excutive President 21 (Indo Gulf Fertilisers) AMIMA & ICWA (Inter). Malhotra R.K * Joint President 1,815,830 B.Com, (H) F.C.A India Rayon and Sr. Vice President 2 (Indo Gulf Fertilisers) Industries Limited (F& C) Mitra S. K.* Wholetime Director 2,667,123 M.Sc, MBA(USA) GIC Asset Managing Director 4 (Birla Global Finance Ltd) Management Co. Ltd. Nanda S K Sr. V P ( Caustic) Rayon 1,497,435 B.Sc (Chemical Engg) Ashok organic Ind.Ltd General Manager 25 Partho Kar Chief Operting Officer 2,433,962 MBA, International Pearl Global Ltd Unit Head 6 months (Madura Garments- Management Institute, Contract Exports) Delhi Prasad Ashish General Manager - 719,538 PG Diploma, IIM, Hindustan Coca Cola Area General Manager 1 Strategic Planning Ahmedabad Beverages (P) Ltd. (Madura Garments) Radhakrishnan Sr. G M (Power Plant, 1,013,422 B.Sc (Mechanical Engg) None NA NA V B Indian Rayon Division) Singh P N Vice President- 3,604,724 M.A.,DSW None NA NA Personnel (Jaya Shree Textiles) Stephen Verghese Sr. Vice President - 5,692,478 B Tech-, MBA Garware Nylons Ltd. Management Trainee 1 Operations (Madura Garments) Notes: 1. Remuneration includes salary, allowances, medical benefits, Company s contribution to Provident Fund and Superannuation Fund, wherever applicable, leave encashment, leave travel assistance and monetary value of taxable perquisites and also includes Gratuity/Retirement Benefit. 2. None of these Executives are related to any Directors or manager of the Company. 3. All appointments are contractual, other terms and conditions are as per rules of the Company. * for 7 months i.e. from being Appointed Date of Merger of Indio Gulf Fertiliser Ltd. and Birla Global Finance Ltd. with the Company. (73)

85 AUDITORS REPORT TO THE MEMBERS 1. We have audited the attached Balance Sheet of Aditya Birla Nuvo Limited (Formerly: Indian Rayon And Industries Limited) as at March 31, 2006, and also the Profit and Loss account and the Cash Flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor s Report) Order, 2003 (as amended) (hereinafter referred to as the Order ) issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956, (hereinafter referred to as the Act ) we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to above, we report that: i. We have obtained all the information and explanations which, to the best of our knowledge and belief were necessary for the purposes of our audit; ii. iii. iv. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books. The Branch Auditors reports have been forwarded to us and have been appropriately dealt within this report; The Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report are in agreement with the books of account and with the audited returns from the branches; In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report comply with the accounting standards referred to in section 211 (3C) of the Act. v. On the basis of the written representations received from the directors as on March 31, 2006 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2006 from being appointed as a director in terms of section 274 (1)(g) the Act. vi. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2006; b) in the case of the Profit and Loss account, of the profit of the Company for the year ended on that date; and c) in the case of Cash Flow statement, of the cash flows of the Company for the year ended on that date. For KHIMJI KUNVERJI & Co. Chartered Accountants For S. R. BATLIBOI & Co. Chartered Accountants per Shivji K. Vikamsey per Hemal Shah Partner Partner Membership No Membership No Mumbai Mumbai July 3, 2006 July 3, 2006 (74)

86 Annexure referred to in paragraph 3 of our report of even date Re: Aditya Birla Nuvo Limited (Formerly: Indian Rayon And Industries Limited) (i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. (b) The Company has a program for phased physical verification of all its fixed assets which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. As informed, no material discrepancies were noticed on such verification. (c) The Company has not disposed off a substantial part of its fixed assets during the year. (ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year. (b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. (c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification. (iii) (a) The Company has not given any loans, secured or unsecured, to the companies, firms or other parties covered in the register maintained under section 301 of the Act. Hence clauses (iii)(b), (c) & (d) of the Order, are not applicable. (b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under section 301 of the Act, Hence clauses (iii) (f) & (g) of the Order are not applicable. (iv) (v) (vi) (vii) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. Based on the audit procedures applied by us and according to the information and explanations given to us, there are no contracts or arrangements referred to in section 301 of the Act that need to be entered into the register maintained under that section. Hence clause (v)(b) of the Order is not applicable. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank of India or any court or any other Tribunal. In our opinion, the Company has an internal audit system commensurate with the size and nature of its business. (viii) We have broadly reviewed the accounts and records maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Act, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. (ix) (a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess, and other material statutory dues applicable to it. There were no arrears as at March 31, 2006 for a period of more than six months from the date they became payable. (b) According to the information and explanations given to us, particulars of outstanding dues of sales tax, income tax, wealth tax, service tax, custom duty, excise duty and cess not deposited on account of any dispute are given below: (75)

87 Name of the Statute Nature of the dues Period Amount Forum where (Rs. in dispute is Crs) pending Sales Tax Act Sales Tax / Purchase to , 0.58 Tribunal(s) Tax including interest , and penalty 1997 to to Commissioner (Appeals) , , 4.43 Assessing , Authorities to Customs Act Customs Duty , , 1.15 High Court(s) including interest , , and penalty , Assessing Authorities Central Excise Act Excise Duty including , 3.35 High Court(s) interest and penalty to , , 8.43 Tribunal(s) to , to , , 8.07 Commissioner to (Appeals) Textile Cess Act Cess Tribunal Service Tax Demand Commissioner (Appeals) , Assessing Authorities Electricity Tax Act Tamilnadu Electricity 1999 to Assessing Taxation Authorities (x) (xi) (xii) The Company has no accumulated losses at the end of the financial year and it has not incurred cash losses in the current and immediately preceding financial year. Based on our audit procedures and as per the information and explanations given to us, we are of the opinion that the Company has not defaulted in repayment of dues to a financial institution, bank or debenture holders. Based on our audit procedures and according to the information and explanations given to us, we are of the opinion that the Company has maintained adequate documents and records in respect of loans and advances granted against security by way pledge of shares and other securities. (xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Order are not applicable to the Company. (xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Order, are not applicable to the Company. (xv) According to the information and explanations given to us, the Company has given guarantee for loans taken by others from banks or financial institutions, the terms and conditions whereof, in our opinion, are prima-facie, not prejudicial to the interest of the Company. (76)

88 (xvi) According to the information and explanations given to us, the term loans were, applied by the Company during the year for the purposes for which the loans were obtained. (xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment. (xviii)the Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under section 301 of the Act. (xix) The secured debentures issued in earlier years have been repaid during the year. No further debentures have been issued during the year. (xx) The Company has not raised any money through a public issue during the year. (xxi) Based upon the audit procedures performed and information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the course of our audit. For KHIMJI KUNVERJI & Co. Chartered Accountants For S. R. BATLIBOI & Co. Chartered Accountants per Shivji K. Vikamsey per Hemal Shah Partner Partner Membership No Membership No Mumbai Mumbai July 3, 2006 July 3, 2006 (77)

89 BALANCE SHEET AS AT 31ST MARCH, 2006 Rs. Crores As at As at Schedule 31-Mar Mar-2005 SOURCES OF FUNDS Shareholders Funds: Share Capital 1A Share Capital Suspense 1B Reserves & Surplus 2 2, , Loan Funds: Secured Loans 3 1, Unsecured Loans Deferred Tax Liabilities (Refer Note no. 12 of Schedule 19) Total Funds Employed APPLICATION OF FUNDS Fixed Assets: Gross Block 5 2, , Less: Depreciation 1, Net Block 1, Capital Work-in-Progress Investments 6 1, Current Assets,Loans & Advances: Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Less: Current Liabilities & Provisions: 11 Current Liabilities Provisions Net Current Assets Significant Accounting Policies and Notes on Accounts 19 Total Funds Utilised Schedules referred to above form an integral part of the accounts As per our attached Report of even date For KHIMJI KUNVERJI & CO. For S.R. BATLIBOI & CO. SANJEEV AGA Directors: TARJANI VAKIL Chartered Accountants Chartered Accountants Managing Director P. MURARI B. R. GUPTA ADESH GUPTA G. P. GUPTA Wholetime Director & CFO per SHIVJI K. VIKAMSEY per HEMAL SHAH DEVENDRA BHANDARI Partner Partner Company Secretary M. No M. No Mumbai, 3rd July, 2006 (78)

90 PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2006 Rs. Crores Schedule INCOME Income from Operations 12 2, , Less: Excise Duty Net Income from Operations 2, , Other Income , , EXPENDITURE (Increase)/Decrease in Stocks 14 (47.32) (11.16) Cost of Materials 15 1, Salaries,Wages and Employee Benefits Manufacturing, Selling and Other Expenses Interest and Other Finance Expenses (Net) , , Profit before Depreciation/Amortisation and Exceptional items Depreciation/Amortisation Marketing / Technical knowhow expenditure written off 2.95 Profit before Exceptional items and Tax Exceptional Items (Refer Note no. 17 of Schedule 19) Expenses towards VRS at Rayon Division (4.04) (9.54) Gain/(Loss) on Long Term Strategic Investments/Transfer of Business (Net) 1.89 Profit after Exceptional items Provision for Taxation - Current Tax Deferred Tax (6.91) (1.99) - Fringe Benefit Tax 4.25 Provision for Tax for Earlier Years written back (5.49) Net Profit Balance brought forward Amount Transferred on Amalgamation of IGFL and BGFL (Note 9 of Schedule19) Transfer from Debenture Redemption Reserve Profit available for Appropriation APPROPRIATIONS Proposed Dividend Corporate Tax on Dividend / Proposed Dividend General Reserve Debenture Redemption reserve 5.00 Surplus carried to Balance Sheet Basic and Dilutive Earnings per share - Rs (Face Value of Rs 10/- each) Significant Accounting Policies and Notes on Accounts 19 Schedules referred to above form an integral part of the accounts As per our attached Report of even date For KHIMJI KUNVERJI & CO. For S.R. BATLIBOI & CO. SANJEEV AGA Directors: TARJANI VAKIL Chartered Accountants Chartered Accountants Managing Director P. MURARI B. R. GUPTA ADESH GUPTA G. P. GUPTA Wholetime Director & CFO per SHIVJI K. VIKAMSEY per HEMAL SHAH DEVENDRA BHANDARI Partner Partner Company Secretary M. No M. No Mumbai, 3rd July, 2006 (79)

91 SCHEDULES Rs. Crores As at As at Numbers 31-Mar Mar-2005 SCHEDULE 1A SHARE CAPITAL Authorised: Equity Shares of Rs. 10 each 85,000, Redeemable Preference Shares of Rs. 100 each 1,500, Total Issued, Subscribed & Paid-up: Equity Shares of Rs. 10 each, fully paid-up* 59,889, (59,884,782) * Includes: 1,375,500 (Previous Year 1,375,500) shares allotted as fully paid-up pursuant to contracts for consideration other than cash 23,374,187 shares (Previous Year 23,372,477 shares) issued as Bonus Shares by capitalisation of Securities Premium, General Reserves, Capital Redemption Reserve and Capital Reserve 3,207,006 shares (Previous Year 3,230,406) shares represented by Global Depository Receipts 2. Issue of 14,731 (Previous Year 18,151) equity shares excluding bonus shares thereon is in abeyance pursuant to the provisions of Section 206A of the Companies Act, 1956 SCHEDULE 1B SHARE CAPITAL SUSPENSE 23,614,414 number Equity Shares of Rs 10 each to be issued as fully paid up pursuant to Schemes of amalgamation for consideration other than cash 23,614, (Note 9 of Schedule19) Less: Calls in arrears (7060 shares) β (80)

92 SCHEDULES Rs. Crores SCHEDULE 2 RESERVES & SURPLUS Addition on Deductions/ Balance as at Amalgamation Additions Adjustments Balance as at 31-Mar-05 of IGFL/BGFL during the year during the year 31-Mar-06 Capital Reserve Capital Redemption Reserve 7.60 β β 7.60 Debenture Redemption Reserve * Securities Premium Account General Reserve , Investment Reserve Special Reserve 19.46** Surplus as per Profit & Loss Account , , Previous Year 1, β 1, * Transferred to Profit & Loss Account ** To be transferred to General Reserve, on receipt of RBI approval SCHEDULE 3 SECURED LOANS As at As at 31-Mar Mar-2005 Debentures Loans from Banks Other Loans : Deferred Sales Tax Loan Others Refer note no. 6 of Schedule 19 1, SCHEDULE 4 UNSECURED LOANS Fixed Deposits 4.89 Short Term Loans from: Banks Other loans from: Banks Others Loan from Subsidiary Companies Includes amounts repayable within one year (81)

93 SCHEDULES SCHEDULE 5 FIXED ASSETS Rs. Crores Gross Block Depreciation/Amortisation Net Block As at Addition Additions Deduction/ As at Upto at Addition For the Deduction/ Upto 31st As at As at 31st on Amal- for the Adjust- 31st 31st on Amal- year Adjust- March-06 31st 31st March-05 gamation year ments March-06 March-05 gamation ments March-06 March-05 of IGFL of IGFL and BGFL and BGFL Tangible Assets Land Freehold Leasehold Railway Siding Buildings Lease Hold improvements Plant & Machinery 1, , , Furniture, Fixtures & Equipment Vechiles & Aircraft Livestock Intangible Assets Goodwill Trade mark/brands Specialised Software Total Previous year Notes: 1. Assets held under co-ownership - Leasehold Land Rs Crores (Previous Year Crores), Buildings Rs Crores (Previous Year Rs Crores), Plant & Machinery Rs 0.12 Crores (Previous Year Nil Crores), Furniture, Fixture & Equipment Rs 7.31 Crores (Previous year Rs Crores) and Aircarft pending Registration Rs Crores (Previous Year Rs.4.84 Crores) 2. The Company has made an application for exemption under section 20 of the Urban Land (Ceiling & Regulation) Act, 1976 for excess land of 4.25 acres (Previous Year 4.25 acres) at Rishra 3. Buildings include Rs 8.12 Crores (Previous Year 8.12 Crores) being cost of Debentures of and Shares in a Company entitling the right of exclusive occupancy and use of certain premises. 4. Plant & Machinery include Rs 1.07 Crores (Previous year Rs Crores) being assets not owned by the Company. 5. Additions to Plant & Machinery is net of capital subsidy Rs 0.40 Crores (Previous Year Rs Nil) 6. Buildings include a flat of the Gross Block Rs 0.68 Crores and Net Block of Rs 0.41 Crores which is in the process of being transferred in the name of the Company. (82)

94 SCHEDULES Rs. Crores As at As at Face Value Number 31-Mar-06 Number 31-Mar-05 SCHEDULE 6 INVESTMENTS LONG TERM INVESTMENTS Government Securties ITI Limited M-I Series Bonds (Quoted) 1,000, & 7 Years National Saving Certificates (Unquoted) 59, Other Investments (Fully Paid up) : Equity Shares: HGI Industries Ltd. (Quoted) ,322 [Net of provision in Diminution in value Nil {Previous year Rs 3.03 Crores}] Trade Investments Equity Shares : Hindalco Industries Limited (Hindalco) (Quoted) Fully Paid up (Previous year Face Value Rs. 10) 1 16,316, ,631, Partly paid Rs 0.25 per share 1 4,079, UNQUOTED Equity Shares : Birla NGK Insulators Private Limited (Birla NGK) 10 12,490, ,490, IDEA Cellular Limited (IDEA) ,597, ,816, Birla Securities Limited , (Net of provision in dimunition in value of Rs 2.52 Crores) Birla Sun Life Distribution Company Limited 10 3,874, Birla Sun Life Trustee Company Private Limited 10 9, Birla Sun Life Asset Management Company Limited 10 9,000, Preference Shares 7% Redeemable, Cumulative, Participative Preference Shares of Crafted Clothing Pvt. Ltd , , % Cumulative Redeemable Preference Shares of Aditya Birla Health Services Ltd ,500, , Investment in Subsidiary Companies: Equity Shares PSI Data Systems Ltd. 10 5,315, ,315, (83)

95 SCHEDULES Rs. Crores As at As at Face Value Number 31-Mar-06 Number 31-Mar-05 SCHEDULE 6 (Contd.) INVESTMENTS UNQUOTED Aditya Vikram Global Trading House Ltd., US$ 1 850, , Mauritius Birla Global Asset Finance Company Limited 10 7,264, BGFL Corporate Finance Company Private Limited 10 10, Birla Sun Life Insurance Company Ltd ,400, ,000, (Birla Sunlife) Laxminarayan Investment Ltd ,093, ,093, Transworks Information Services Ltd 1 15,738, ,738, Aditya Birla Telecom Ltd 10 9,997, UNQUOTED 7% Cumulative,Redeemable Preference Shares of PSI Data Systems Ltd ,500, ,500, Total Long Term Investments 1, CURRENT INVESTMENTS Equity Shares: Mangalore Refinery & Petrochemicals Ltd. (Quoted) β (Fully paid up) Unquoted, Non Trade and Fully paid up Units of Mutual Funds 258,339, ,499, Total Current Investments GRAND TOTAL 1, Aggregate Book Value - Quoted Unquoted 1, Aggregate Market Value - Quoted Number 1. Units of various Mutual Funds schemes purchased and redeemed during the year: 4,804,982,929 1,482,512,283 Refer note no. 8 of Schedule 19 (84)

96 Financial Services Division of the Aditya Birla Nuvo Limited Mumbai - Apeejay, 2nd Flr., Shahid Bhagat Singh Marg, Fort, Mumbai Tel / / , Fax : ; cmg@adityabirla.com Delhi : 1112, Ashoka Estate, 24, Barakhamba Road, New Delhi Tel Fax : Visit us at :

97 S E C U R R E L I C P E R F O R M A S T M I T Y G R A B I L I T Y T I O N C E When you're looking for the last word in Business Process Outsourcing. T R A N S W O R K S In a business environment where corporates are scrabbling for competitive advantages, some of the best have turned to us. And we've responded with services that improve quality, efficiency in customer service and reduce cost. Recognized as a leading Indian BPO company, Transworks is a part of the Aditya Birla Group - India's 3rd largest conglomerate with revenues in excess of US $6.3 billion. Utilizing a proven offshore outsourcing model, we have consistently exceeded performance objectives and provided sustained cost benefits to clients. We ensure the highest levels of data protection with information policies compliant to ISO Our proprietary 'Process Migration Toolkit' and our commitment to the COPC framework results in smooth transitions and continuous improvements in service delivery. OUR DOMAINS Banking Insurance Credit Cards Mortgage Technology Retail Travel & Hospitality Telecom OUR SERVICES Inbound Services Outbound Services Technical Support Transaction Processing To discover for yourself why clients think we are the last word in BPO, us at: sales@transworks.com San Jose London Bangalore Mumbai partners in excellence

98 SCHEDULES Rs. Crores As at As at 31-Mar Mar-2005 SCHEDULE 7 INVENTORIES Finished Goods Stores and Spares Raw Materials Packing Materials Work in Progress Waste / Scrap SCHEDULE 8 SUNDRY DEBTORS * (Unsecured, considered good except otherwise stated) Due for period exceeding six months (Net of doubtful, fully provided Rs 5.08 Crores Previous Year Rs.1.61 Crores) Others (Doubtful, fully provided Rs Nil Previous Year Rs crores) * Includes amount in respect of which the Company holds deposits and Letters of Credit/ Guarantees from Banks SCHEDULE 9 CASH & BANK BALANCES Cash & Cheques in hand and remittances in transit Balances with Scheduled Banks: Current Accounts Deposit Accounts Balances with Non-Scheduled Bank: # Current Account Standard Chartered Bank (SCB), London # Maximum amount due at any time during the year Standard Chartered Bank (SCB), London (85)

99 SCHEDULES Rs. Crores As at As at 31-Mar Mar-2005 SCHEDULE 10 LOANS AND ADVANCES (Unsecured, considered good except otherwise stated) Bills of Exchange (Net of Rediscounting) Loans against Collateral Security Advances recoverable in cash or in kind or for value to be received + (Net of Doubtful, fully provided Rs 0.37 Crores -Previous Year Rs 0.43 Crores) Deposits (Net of Doubtful, fully provided Rs Previous Year Rs Crores) Balances with Central Excise,Customs & Port Trust etc (Net of provision Rs 3.02 Crores -Previous Year Rs Crores) Refer note no. 10 of Schedule Includes (1) Amount due from Officers (2) Maximum amount due from Officers at any time during the year (3) Due from subsidiary companies SCHEDULE 11 CURRENT LIABILITIES & PROVISIONS Current Liabilities: Acceptances Sundry Creditors Advances from Customers Interest accrued but not due on loans Investors Education & Protection Fund to be credited as and when due Unpaid Dividend Unpaid application money Unpaid matured deposits 0.26 Unpaid matured debentures Interest accrued on above Other Liabilities Provisions for: Taxation (Net of Advance Payment) Proposed Dividend Corporate Tax on Dividend Retirement Benefits Leave Encashment Due to Subsidiary 2.59 Due to Associates 3.95 Refer note no. 11 of Schedule 19 (86)

100 SCHEDULES Rs. Crores SCHEDULE 12 INCOME FROM OPERATIONS Income from Sale of Products 2, , Income from Services Income from Financial Services Export Benefits Others , , SCHEDULE 13 OTHER INCOME Dividends on Long Term Investments : Trade Dividends on Current Investments Profit/(Loss) on sale of Non Trade Investments (Net) : Long Term 0.02 Current Miscellaneous Income SCHEDULE 14 (INCREASE)/DECREASE IN STOCKS Closing Stocks: Finished Goods Work-in-Progress Waste / Scrap Less: Opening Stocks: Finished Goods Work-in-Progress Waste / Scrap Add: (Increase)/Decrease in Excise duty on Stocks (3.74) (5.26) Less: Stock acquired on merger of IGFL 5.38 (Increase)/Decrease (47.32) (11.16) SCHEDULE 15 COST OF MATERIALS Raw Material Consumption 1, Packing Material Consumption Purchase of Finished Goods , (87)

101 SCHEDULES Rs. Crores SCHEDULE 16 SALARIES,WAGES AND EMPLOYEE BENEFITS Payments to & Provisions for Employees: Salaries, Wages and Bonus Contribution to Provident & Other Funds Welfare Expenses SCHEDULE 17 MANUFACTURING,SELLING AND OTHER EXPENSES Consumption of Stores & Spares Power & Fuel Processing Charges Commission to Selling Agents Brokerage & Discounts Export Expenses Advertisement Transportation & Handling Charges Other Selling Expenses Auditors Remuneration Bad Debts & Provisions for doubtful debts & advances Repairs & Maintenance of: Buildings Plant & Machinery Others Rent Rates & Taxes Insurance Donations Directors Fees & Travelling Expenses Research & Development Expenses (Profit) /Loss on sale / discard of Fixed Assets (Net) 0.34 (0.36) Miscellaneous Expenses (Refer Note 15 of Schedule 19) Less: Insurance Claims Unspent Liabilities, Excess provisions, Bad Debts and unclaimed balances in respect of earlier years written back (net of short provisions and sundry balances written off) (88)

102 SCHEDULES SCHEDULE 18 INTEREST AND OTHER FINANCE EXPENSES Interest Rs. Crores On Debentures and Fixed Loans Others Other Finance Expenses Less: Interest Income Interest on long term Investments 0.03 (Tax deducted at source Rs. Nil - Previous Year Rs. Nil) Other Interest (Tax deducted at source Rs 1.30 Crores - Previous Year Rs Crores) (89)

103 SCHEDULES SCHEDULE 19 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS A. ACCOUNTING CONVENTION The financial statements are prepared under the historical cost convention, on an accrual basis and in accordance with the applicable accounting standards. FIXED ASSETS Fixed assets are stated at cost, less accumulated depreciation and impairment loss if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. DEPRECIATION / AMORTIZATION a) Depreciation on Fixed Assets is provided on Straight Line Method at the rates and in the manner specified in the Schedule XIV of the Companies Act, 1956 except stated hereunder. Estimated useful life Capital Expenditure on assets not owned - 5 Years Office Computers - 4 Years Vehicles - 5 years Assets at Showrooms - 5 years Furniture, Fixtures and Equipments - 6 years Leasehold Land/Improvements - Over the primary period of the lease Catalyst - On the estimated life as technically assessed (ranging from 1.5 to 3 years) b) INTANGIBLE ASSETS ARE AMORTIZED AS UNDER: Trademarks/ Brands - 10 years Specialized Software - 3 years Goodwill - Not being amortized. c) Depreciation on the Fixed Assets added/disposed off/discarded during the year is provided on pro-rata basis with reference to the month of addition/disposal/discarding. Continuous process plants are classified based on technical assessment and depreciation is provided accordingly. Depreciation on the amounts capitalized on account of foreign exchange fluctuation is provided prospectively over residual life of the assets. IMPAIRMENT OF ASSETS The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss if any, is charged to Profit and Loss Account in the year in which an asset is identified as impaired. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the assets no longer exist or have decreased. BORROWING COST Borrowing Costs attributable to acquisition and construction of qualifying assets are capitalized as a part of the cost of such asset up to the date when such assets are ready for its intended use. Other borrowing costs are charged to the Profit & Loss Account. TRANSLATION OF FOREIGN CURRENCY ITEMS Transactions in foreign currency are recorded at the rate of exchange prevailing on the date of transaction. Foreign currency monetary items are reported using closing rate of exchange at the year-end. Other items, like fixed assets, inventories, investments in equity shares are carried in terms of historical cost using the exchange rate at the date of transaction. Premium/Discount in respect of forward foreign exchange contract is recognized over the life of the contracts. Exchange differences attributable to the acquisition of fixed assets outside India are adjusted to the cost of the respective assets. (90)

104 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS DERIVATIVE INSTRUMENTS The Company uses derivative financial instruments such as forward exchange contracts, currency swaps and interest rate swaps to hedge its risks associated with foreign currency fluctuations and interest rate. Currency and interest rate swaps are accounted in accordance with their contract. INVESTMENTS Current Investments are stated at lower of cost and fair value. Long term investments are stated at cost after deducting provisions made, if any, for permanent diminution in the value. INVENTORIES Raw materials, components, stores and spares are valued at lower of cost and net realizable value. However, these items are considered to be realizable at cost if the finished products in which they will be used, are expected to be sold at or above cost. Work in progress and finished goods are valued at lower of cost and net realizable value. Finished goods and work-inprogress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost of inventories is computed on a weighted average/fifo basis. Proceeds in respect of sale of raw materials/stores are credited to the respective heads. Obsolete, defective and unserviceable inventory is duly provided for. GOVERNMENT GRANTS Government Grants are recognized when there is reasonable assurance that the same will be received. Revenue grants are recognized in the Profit & Loss account. Capital grants relating to specific fixed assets are reduced from the gross value of the respective fixed assets. Other capital grants are credited to capital reserve. REVENUE RECOGNITION Sales are recorded net of trade discounts, rebates and include excise duty. Income from service is recognized as they are rendered based on agreements/arrangements with the concerned parties. Fertilizer price support under Group Concession and other Scheme of Government of India is recognized based on management s estimate taking into account known policy parameters and input price escalation/deescalation. Dividend income on investments is accounted for when the right to receive the payment is established. RETIREMENT BENEFITS Retirement benefits in the form of Provident Fund and Superannuation Schemes are charged to the Profit & Loss Account on accrual basis. Gratuity liability under the Payment of Gratuity Act is accrued and funded on the basis of an actuarial valuation made at the end of each financial year. Provision for accrued leave encashment is made on the basis of actuarial valuation at the end of each financial year. TAXATION Provision for current tax is made on the basis of estimated taxable income for the current accounting year in accordance with the Income Tax Act, The deferred tax for timing differences between the book and tax profits for the year is accounted for, using the tax rates and laws that have been substantively enacted as of the balance sheet date. Deferred tax assets arising from timing differences are recognized to the extent there is reasonable certainty that these would be realized in future. Deferred tax assets in case of unabsorbed losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Fringe Benefit Tax is provided in accordance with the provisions of the Income Tax Act, (91)

105 B SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS LEASES Leases where significant portion of risk and reward of ownership are retained by the Lessor are classified as Operating Leases and lease rentals thereon are charged to Profit and Loss account. HIRE PURCHASE/LEASING i. Finance charges on Hire Purchase business are computed on reducing balance method on the basis of implicit ii. rate of return. Hire purchase stock is valued at agreement values less installments due. Unmatured finance charges are reduced from the stock on Hire. iii. Lease rental income in respect of leased assets acquired prior to 1st April, 2001 is equalized as per guidelines issued by the Institute of Chartered Accountants of India. iv. Finance income on lease transactions entered into on or after 1st April, 2001 is accounted by applying the interest rate implicit in the contract which is in accordance with Accounting Standard 19 - Accounting for Leases on leasing transactions for recognizing the finance income at a constant periodic rate of return on net investment outstanding. v. Delayed payment/penal charges in respect of hire purchase/lease business are accounted for on the basis of certainty of collection. Prompt payment rebates are determined and accounted on timely payment of all installments. vi. Escalation claims in respect of Hire purchase/lease transactions linked to change in prime lending rates are accounted for as and when settled. CONTINGENT LIABILITIES Contingent Liabilities are not provided for and are disclosed by way of notes. Show cause notices are considered as contingent liabilities only when they are converted into demands. Department appeals in respect of cases won by the Company are also considered as Contingent Liabilities. NOTES ON ACCOUNTS 1 The accounts of the Company for the year ended 31 st March, 2006 were earlier approved by the Board of Directors at its meeting held on 28 th April, 2006 and reported upon by the statutory auditors vide their report dated 28 th April, 2006, but were not submitted to the general body of members for approval. The said accounts did not include the effect of the Scheme of Amalgamation of BGFL with the Company which was then pending for requisite approvals. The Company has since received the requisite approvals for merger of BGFL with the Company. As a result, the Scheme has became effective on 30 th June 2006, with retrospective effect from the Appointed date (1 st September, 2005). The Board of Directors have decided to revise the accounts of the Company for the year ended 31 st March, 2006 to incorporate the effect of the merger and accordingly these accounts have been prepared in supersession of the accounts previously adopted, as referred to above, for giving consequential effect to the Scheme of Amalgamation as noted above. Rs. Crores Current Year Previous Year 2 Estimated amount of contracts remaining to be executed on capital account and not provided for (Net of advances) Contingent Liabilities not provided for: a) Claims against the Company not acknowledged as debts i) Income-tax ii) Custom Duty iii) Excise Duty iv) Sales Tax v) Service Tax 0.47 vi) Others (92)

106 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Rs. Crores Current Year Previous Year b) Uncalled Liability on shares partly paid up b) Bills discounted / rediscounted with Banks c) Corporate Guarantees given to Banks/Financial Institutions for loans taken/preference Shares issued by subsidiary/other companies d) Customs duty on capital goods and raw materials imported under advance licensing / EPCG scheme, against which export obligation is to be fulfilled Under the Jute Packaging Material (Compulsory use of Packing Commodities) Act, 1987, a specified percentage of fertilisers dispatched was required to be supplied in Jute Bags up to The Company made conscious efforts to use jute-packaging material as required under the Act. However, due to non-availability of material as per the Company s product specifications as well as due to strong customer resistance to use of Jute Bags, the specific percentage could not be adhered to. The Company has received a show cause notice, against which a writ petition has been filed with the High Court, which is awaiting for hearing. The Company has been advised that the said levy is bad in law. 5 The company has agreed to acquire employees stock option issued by TransWorks at shadow prices on fulfilling conditions specified in their stock option plan. The commitment of options outstanding as on 31st March 2006 works out at Rs.1.48 crores. 6 DEBENTURE AND SECURED LOANS :- a) Non Convertible Debentures and Term loans secured by way of first pari-passu charge created by mortgage of the immovable properties of the Company situated at Veraval, Rishra, Jagdishpur (Argon Gas), Renukoot and Sakhar Bhavan, Mumbai and hypothecation of movables (except books debts) situated at the above locations (except Mumbai), subject to prior charge(s) created on certain assets in favor of a Financial Institution and on inventories in favor of the Company s Bankers for working capital borrowings. (i) 10.85% Twenty Second Series (ii) Term Loan b) Term Loans secured by way of exclusive first charge on assets acquired there-against c) Term Loan secured by way of exclusive first charge created by hypothecation of Brand Rights / Trade mark and movable properties at Bangalore and first pari-passu charge created by hypothecation of the movable properties (except current assets) at Veraval, Rishra, Jagdishpur (Argon Gas) and Renukoot subject to prior charge(s) created on certain assets in favor of a Financial Institution d) Term Loan secured by way of second pari-passu charge created by hypothecation of movable fixed assets of the Company situated at Veraval, Rishra, Jagdishpur (Argon Gas) and Renukoot and the entire current assets of the Company (excluding current assets of Indo Gulf Fertilisers at Jagdishpur and Birla Global Finance at Mumbai) e) Foreign Currency Loans secured by way of first pari-passu charge created by hypothecation of movable (93)

107 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS properties (except Current assets) of the Company situated at Gummidipoondi f) Foreign Currency Loan secured by way of first pari-passu charge created by hypothecation of movables properties (except current assets) situated Veraval, Rishra, Jagdishpur (Argon Gas) and Renukoot, subject to prior charge(s)created on certain assets in favor of a Financial Institution g) Foreign Currency Loan secured by way of exclusive first charge created by hypothecation of Brand Rights / Trade mark acquired there-against h) Working Capital Borrowings are secured by hypothecation of inventories, book debts and other movables, both present and future, held as current assets excluding the current assets of Rajashree Syntex at Midnapur, Indogulf Fertilisers at Jagdishpur and Birla Global Finance at Mumbai Working Capital Borrowings are secured by way of hypothecation of inventories, book debts, and movables assets both present and future, of Indogulf Fertilisers at Jagdishpur i) Deferred sales tax loan for the Caustic soda plant at Veraval to be secured by first pari-passu charge and for carbon black plant at Gummidipoondi to be secured by second pari-passu charge of the respective plant j) Term Loan to be secured by way of first pari-passu charge to be created by hypothecation of movable fixed assets of the Company k) Term Loan to be secured by way of second pari-passu charge to be created by way of hypothecation of movable fixed assets and current assets of the Company l) Car Loans secured by way of first exclusive charge on assets acquired there-against m) Foreign Currency Loans have been fully hedged for foreign exchange and interest rate fluctuation by way of Currency swaps. Hence, the year-end balances are reflected at the contracted exchange rate. Current Year Rs. Crores Previous Year 7 a) Capital Work-in-Progress includes advances against Capital Expenditure b) Pre-operative expenses: Interest capitalized Amount capitalized (94)

108 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 8 a) Market/Book values of certain long term quoted investments aggregating to Rs Crores (Previous year Rs Crores) and unquoted investments aggregating to Rs Crores (Previous year Rs Crores) are lower than its cost. b) Considering the strategic and long-term nature of the aforesaid investments and asset base & business plan of the investee companies, in the opinion of the management, the decline in the market/book value of the aforesaid investments is of temporary nature, requiring no provision. c) An amount of Rs Crores is lying in Investment Reserve is to be used to meet the diminution other than temporary, if any, that may arise in the future, in the value of present and future long term strategic investments. d) Transfer of investments in IDEA Cellular Ltd. (IDEA)/Birla Sunlife Insurance Co. Ltd./Birla NGK Insulator Pvt. Ltd. (BNIPL)/Birla Sun Life Asset Management Company Ltd.(BSLAMC)/Birla Sun Life Distribution Company Ltd. (BSDL)/Birla Sun Life Trustee Company Pvt Ltd. is restricted by the terms contained in their respective joint venture agreements. Non-disposal undertakings for BNIPL and TransWorks Information Services Ltd. (TW) investment has also been provided to certain Banks for credit facilities extended by them to BNIPL / TW. e) 240,899,597 equity shares of IDEA are pledged with certain lenders to secure loan extended by them to IDEA. In addition to the pledged equity shares, 116,282,361 equity shares, of IDEA are subject to non-disposal undertaking in favour of the said lenders. f) Pursuant to the Shareholders Agreement entered into with the Joint Venture partner, the Company has in respect of Birla Sun Life Insurance Company Limited agreed to infuse its share of capital from time to time to meet the solvency requirement prescribed by the regulatory authority. 9 Pursuant to the Schemes of Amalgamation (the Schemes) under sections 391 to 394 of the Companies Act, 1956, with effect from September 1, 2005 (the Appointed Date) Indo Gulf Fertilizers Limited (herein after referred to as IGFL) and Birla Global Finance Company Limited (herein after referred to as BGFL), have been merged with the Company. The Effective date of the Scheme for merger of IGFL as approved by Hon ble High Court of Gujarat on January 10, 2006 and Hon ble High Court of Allahabad on March 27, 2006, is April 3, IGFL was in the business of manufacturing of Fertilizers and Chemicals. The Scheme for merger of BGFL has been approved by Hon ble High Court of Mumbai on 27 th January 2006 and Hon ble High Court of Gujarat on 17 th June 2006 and is effective from 30 th June BGFL was in the business of Financial Services. The Schemes are operative from the Appointed date i.e. 1 st September a. In terms of the Schemes, all assets and liabilities of IGFL and BGFL have been transferred and stand vested with the Company with effect from the Appointed Date at their respective book values on that date. Both the Companies carried on all their businesses and activities for the benefit of and in trust for, the Company from the Appointed date. Thus, the profit or income accruing or arising to IGFL and BGFL, or expenditure or losses arising or incurred by them from the Appointed date are treated as the profit or income or expenditure or loss as the case may be, of the Company. The Schemes have accordingly been given effect to in these accounts. b. The amalgamations have been accounted for under the Pooling of Interests method as prescribed by Accounting Standard 14 Accounting for Amalgamations (AS 14) issued by the Institute of Chartered Accountants of India (ICAI). Accordingly, the assets, liabilities and reserves of IGFL and BGFL have been taken over at their book values on the Appointed Date, subject to adjustments specified in the respective Scheme of Amalgamation. (95)

109 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS c. In terms of the Schemes, the Company has acquired assets having Net Book Value of Rs Crores, as detailed hereunder: Rs. Crores BGFL IGFL Total Fixed Assets (Net including CWIP) Investments Current Assets Total Assets Less: Loans Deferred Tax Liability Current Liabilities and Provisions Total Liabilities Net Book Value d. The difference between the consideration of Rs Crores (being face value of Equity Shares of the Company issued) for amalgamation and the Net Book Value, after adjusting reserves of IGFL and BGFL and expenses incidental to the Schemes or its implementation (net of tax) is transferred to General Reserve, in accordance with the respective Scheme, as detailed hereunder: Rs. Crores BGFL IGFL Total Net Book Value Less: Securities Premium considered as Securities Premium of the Company Less: Special Reserve considered as Special Reserve of the Company Less: Capital Reserve considered as Capital Reserve of the Company Less: General Reserve considered as General Reserve of the Company Less: Profit and Loss account considered as Profit and Loss account of the Company Balance Less: Amalgamation Expenses (Net of Tax) Less: Issue of Equity Shares The balance transferred to General Reserve of the Company (96)

110 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS e. 1,50,30,935 and 85,83,479 Equity Shares of Rs. 10 each of the Company are to be issued to the shareholders of IGFL and BGFL repectively in the ratio of 1 (one) fully paid-up Equity Share of Rs.10 each of the Company for every 3 (three) fully paid-up Equity Shares of Rs.10 each held in IGFL and BGFL. Pending allotment, an amount of Rs Crores has been shown under Share Capital Suspense Account as at March 31, These shares were subsequently issued on April 24, 2006 to shareholders of IGFL and will be issued to shareholders of BGFL after the record date on 17th July Name of the Number of % of IGFL and BGFL Number of % of Company s Amalgamating Equity Shares Equity Shares Equity Shares Equity Shares Company of IGFL and BGFL Exchanged of the Company Exchanged IGFL 4,50,92, % 1,50,30, % BGFL 2,57,50, % 85,83, % f. In terms of the Scheme, the Equity Shares as and when issued and allotted by the Company shall rank pari-passu in all respects with the existing Equity Shares of the Company. Accordingly, the appropriation for the proposed dividend includes the dividend amount on 2,36,14,414 Equity Shares to be allotted to the shareholders of IGFL and BGFL for the full year. g. In view of the aforesaid amalgamations with effect from September 1, 2005, the figures for the current year are not comparable to those of the previous year. Rs. Crores Current Year Previous Year 10 Loans & Advances include: a) Advances towards equity of the following companies, to be allotted by them on substantial progress in implementation of their respective projects after procuring all regulatory approval etc. Rosa Power Supply Co. Ltd Bina Power Supply Co. Ltd b) Interest bearing deposits given to Aditya Birla Power Company Limited (ABPCL), a project development company in respect of which the Company has also been given a right of first refusal to participate in equity of the projects being developed by ABPCL c) Interest bearing deposits given to Aditya Birla Management Corporation Limited (ABMCL) a company limited by guarantee formed to provide a common pool of facilities and resources to its members, with a view to optimize the benefits of specialization and minimize cost to each member. The Company s share of expenses under the common pool has been accounted for under the appropriate heads (97)

111 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Rs. Crores d) Amount Receivable From Balance Balance Maximum Maximum as on as on amount amount 31 st March, 31 st March, due at any due at any time during time during the year the year (i) Subsidiaries Laxminarayan Investments Ltd Transworks Information Services Ltd Madura Garments Exports Ltd Birla Sun Life Insurance Company Ltd. β 0.01 Birla Global Asset Finance Company Ltd Birla Insurance Advisory Services Ltd (ii) Associates/Joint Ventures Birla NGK Insulators Pvt. Ltd Birla Sun Life Asset Management Company Ltd. β β (iii) Employees loan given in the ordinary course of the business and as per the service rules of the company - no repayment schedule or repayment beyond seven years no interest or at an interest rate below which is specified in section 372A of the Companies Act, Current Year Previous Year 11 Based on the information / documents available with the Company, Sundry creditors include total outstanding dues to small scale undertakings of which a) Amount overdue on account of principal and / or interest b) Name of the parties to whom the company owe any sum outstanding for more than thirty days but not overdue: All Times Fashion Wear, Kapoor & Kapoor Hosiery, Kalpataru Expo -Fin Ltd, Interface Direct, Innova Printing and Packaging Company, Kaushik Products, United Precision Plastics, Supertex Labels Pvt Ltd, Mandhanna Industries Ltd, Millenium Garment(India) and Sayanora Textiles. (98)

112 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Rs. Crores Current Year Previous Year 12 Deferred Tax Liability / (Asset) at the year end comprise timing differences on account of: Depreciation Expenditure / Provisions allowable (15.15) (8.63) 13 The Company has during the year revised the estimated useful lives of office equipments, Showroom Assets and assets acquired on amalgamation of IGFL and BGFL from the life/rates as per Schedule XIV of the Companies Act, 1956 to the useful life as stated in the Accounting Policy of Depreciation and Amortisation. Consequently additional depreciation of Rs 5.58 Crores has been charged to the Profit and Loss for the Year Earnings per Share (EPS) is calculated as under: a) Numerator - - Net Profit after exceptional items as disclosed in Profit & Loss account b) Denominator - Weighted average number of Equity Shares outstanding (including Share Capital Suspense Account on merger) - Basic 73,603,988 59,884,782 - Diluted 73,626,085 59,912,008 c) Nominal value of Shares (in Rs.) Amount of exchange difference (net) - included in additions to the fixed assets (0.03) - debited / (credited) in Misc. Expenses to the Profit and Loss account The Company has given certain assets on non-cancelable operating lease. The Gross carrying amount of the above referred assets The accumulated depreciation for the above assets The depreciation for the above assets for the year The future minimum lease rental in respect of aforesaid lease is as follows: i) Not later than one year ii) Later than one year and not later than five years iii) Later than five years Exceptional Items a) The Company has offered Voluntary Retirement Scheme (VRS) to workers at Rayon Division, Veraval. Though full benefit of the VRS costs aggregating to Rs Crores (Previous Year Rs 9.54 Crores)[Including Rs Crores (Previous Year Rs 0.60 Crores) towards retirement benefits over the liability provided as per actuarial valuation] shall accrue in future, the amount has been fully provided. b) In the previous year, the Company has transferred its Global Exports and Marketing Division, on a going concern basis, w.e.f. 1 st April, 2004, for a consideration of Rs 5.49 crores. This had resulted in a gain of Rs 4.01 crores. (99)

113 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS c) In the previous year, Rs Crores had been provided for diminution, other than temporary, in value of Long term Investment. d) In the previous year, Rs. 0.91Crores was on account of gain on the sale of long term strategic investments Current Year Rs. Crores Previous Year 18 a) The following are included under other heads of expenses in the Profit & Loss Account: Stores & Spares consumed Salaries and Wages Contribution to PF & other funds Welfare expenses β 0.01 Insurance Rent Depreciation Interest b) All Insurance Claims, unless clearly identifiable with the respective heads of expenses are reduced from Manufacturing, Selling and Other expenses. 19 Details of Auditors Remuneration Payments to Statutory Auditors: Audit Fees For Taxation Matters For Tax Audit For Certification Work Reimbursement of Expenses Payments to Branch Auditors: Audit Fees For Certification Work Reimbursement of Expenses Payment to Cost Audidors: Audit Fees Reimbursement of Expenses 0.01 Grand Total (100)

114 It s anuncertain world out there. I need to think more than twice before I invest my trust in a company Distribution Regd. Off: Birla Sun Life Distribution Co. Ltd., Industry House, 1st Floor159 Churchgate Reclamation, Mumbai Tel.: Fax: Visits us at: Toll Free:

115 Focus... A Growth approach to world class quality Renukoot Energy Conservation Focus : Plant & Technology Capacity expansions at least cost economics peaked our capacity rating to MT Annually. Innovation has lead to higher productivity The proposed addition & debottlenecking will see the capacity through to MT Shortly. Focus : Energy conservation & Environment care conserving lean gases & transforming to steam & electrical energy speaks of our pioneering effort in the industry, leaving a trail blazing record of caring for environment Focus :Customer Service Hi-Tech is a name in customer service over the years. Customer preference & relationship adore our business growth in Rubber & Non-Rubber applications for Carbon Black. Process Recognition for... Gummidipoondi Customer Services TS OSHAS ISO NABL Emerging Quality culture won us coveted Deming Quality Control Award for Operations business unit 2002 Standardization of operations enabled us quality system, Safety, Health, Environment & Laboratory certification A Reinforced focus of operational efficiency through cultural alignment won us TPM category II Award HI - TECH CARBON (A Unit of Aditya Birla NUVO Limited) Marketing Office : , Kailash Building, 9 th Floor, Kasturba Gandhi Marg, New Delhi , INDIA : / ; Fax : / , hitechcarbon@vsnl.net, mktdel@hitechcarbon.com Chennai Plant : K-16, Phase II, SIPCOT Industrial Complex, Gummidipundi , TN, India, Tel. 91(0) , Fax Renukoot Plant : Murdhwa Industrial Area, P.O. Renukoot, Dist. Sonebhadra , UP, India, Tel. 91(0) , Fax

116 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Rs. Crores 20 Disclosure in respect of Company s Joint Ventures in India pursuant to Accounting Standard 27 Financial Reporting of Interest in Joint Ventures : Proportion of Ownership Interest a) Name of the Venture As at 31st March, 06 As at 31st March, 05 Birla NGK Insulators Private Limited 50.00% 50.00% IDEA Cellular Limited (Along with Subsidiaries) % 4.28% (4.28% upto September 28, 2005) From 1 st September, 2005: Birla Sun Life Distribution Company Limited 49.99% Birla Sun Life Asset Management Company Limited 50.00% Birla Sun Life Trustee Company Private Limited 49.80% b) The aggregate of Company s share in the above ventures in: Net Fixed Assets Investments Net Current Assets (113.27) Loans/Borrowings Income Expenses (Including Depreciation & Taxation) Contingent Liabilities Disclosure in respect of Related Parties pursuant to Accounting Standard 18: a) List of Related Parties: I. Parties where control exists - Subsidiaries: - Aditya Birla Telecom Ltd. (w.e.f. 24 th December 2005) Alpha Garments Pvt Ltd. (AGL) (Subsidiary of MGEL w.e.f. 15 th February 2006) Aditya Vikram Global Trading House Ltd. (AVGTHL) Birla Sun Life Insurance Co. Ltd. (BSLICL) Birla Technologies Ltd. (Subsidiary of PSI) Laxminarayan Investment Ltd. (LIL) Madura Garments Export Limited (MGEL) (Subsidiary of LIL w.e.f. 26 th October 2005) PSI Data Systems Ltd. (PSI) Transworks Information Services Ltd. (TW) Transworks Inc. USA (Subsidiary of TW) From 1 st September, 2005: BGFL Corporate Finance Pvt. Ltd. (BGCFPL) Birla Global Asset Finance Company Ltd. (BGAFCL) Birla Insurance Advisory Services Ltd. (BIASL) (Subsidiary of BGCFPL) (101)

117 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS II. Other Parties with whom the Company has entered into transactions during the year: Joint Ventures BIRLA-NGK Insulators Pvt.Ltd. (BNIPL) IDEA Cellular Limited (IDEA) From 1 st September, 2005: Birla Sun Life Distribution Company Limited (BSDL) Birla Sun Life Asset Management Company Limited (BSAMC) Birla Sun Life Trustee Company Private Limited (BSTPL) Associates Crafted Clothing Pvt.Ltd. (CCPL) (w.e.f. 26 th October 2005) English Apparels Pvt Ltd. (EAPL) (w.e.f. 15 th February 2006) Harwood Garments Pvt Ltd. (HGPL) (w.e.f. 15 th February 2006) Birla Securities Ltd. (BSL) (w.e.f. 1 st September 2005) Key Management Personnel and enterprises having common key management personnel Shri Sanjeev Aga Managing Director Shri Adesh Gupta Whole Time Director Mrs. Usha Gupta (Wife of Shri Adesh Gupta) Shri K.K. Maheshwari Whole Time Director Enterprises having common key management personnel Tanfac Industries Ltd. b) During the year following transactions were carried out with the related parties in the ordinary course of business: - Rs. Crores Transaction/Nature of Subsid- Associ- Joint Enterprise Key Relative of Relationship iaries ates Ventures having Management Key common Personnel Management Key Personnel Management Personnel Sales, Service and other income (0.01) ( ) BNIPL (3.30) (10.58) Purchase of goods and services ( ) (1.15) BNIPL (73.86) Expenditure on Royalty, Commission and compensation (2.91) Interest Expenses 0.36 β 0.03 ( ) ( ) ( ) Expenditure on Rent 0.02 ( ) Remuneration to Whole Time Directors (Including Managing Director/Manager) 2.89 (0.96) (102)

118 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Rs. Crores Transaction/Nature of Subsid- Associ- Joint Enterprise Key Relative of Relationship iaries ates Ventures having Management Key common Personnel Management Key Personnel Management Personnel Fresh investment made BSLICL ( ) IDEA (44.42) ( ) Loans granted (including ICDs and Interest thereon) BGAFCL ( ) ( 0.90) Loans granted received back (including ICDs) BGAFCL ( ) Loans taken (including ICBs) ( ) ( ) ( ) Loans repaid (including ICBs) ( ) ( ) ( ) Guarantees Provided for ( ) ( ) IDEA ( ) Outstanding balances as at # Loans granted # (Including Interest) ( ) (5.04) Loans taken # (2.79) (0.26) Amount receivable (0.01) (10.36) (0.36) Amount Payable ( ) ( ) (16.88) Guarantees Provided for 71.92* (87.32) ( ) (30.00) Deposits 1.05 (-) Investments # (459.37) ( ) (109.31) * Includes Guarantees amounting to Rs Crores provided to Companies, in earlier years, which became related party during the year # Includes balance transferred from BGFL on account of merger Figures in brackets represent corresponding amount of previous year No amount in respect of the related parties have been written off/back are provided for during the year Related party relationship have been identified by the management and relied upon by the auditors. (103)

119 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 22. Derivatives : Outstanding as at Balance Sheet date Particulars Currency Amount in Purpose Foreign Currency Currency & Interest Rate Swap USD 22,511,365 Hedging of Loans Currency & Interest Rate Swap Jyen 3,105,600,000 Hedging of Loans Buyers Credit Jyen 2,986,811,871 Hedging of Loans Forward Contracts USD 22,011,365 Hedging Purpose Jyen 4,245,311,871 Hedging Purpose Euro 2,888,000 Hedging Purpose All the above contracts are for hedging purpose and not for Speculation Foreign currency exposures which are not hedged as at the Balance Sheet date Payable Receivables Net USD 27,181,525 10,012,579 (17,168,947) EURO 1,962,527 1,962,527 GBP 644, ,713 A $ 102, ,497 Rs. Crores Current Year Previous Year 23 a) Remuneration to Whole Time Directors (Including Managing Director/Manager): Salary 2.55 Contribution to Provident & Other Funds * 0.27 Other Perquisites b) Remuneration to Non Executive Directors Computation of net profit in accordance with Section 198 of the Companies Act, 1956 Profit before taxation as per P&L Account Add: Director s sitting fee and remuneration Provision for Bad Debts Expenses towards VRS at Rayon Division Less: Bad debts written out of Provisions Profit/(Loss) on sale of strategic investments (Net of Provisions) (2.12) Profit on sale of investments Profit on sale of undertaking 4.01 Profit/(Loss) on sale of Fixed Assets (0.34) 0.36 Net Profit Commission % to Net Profit 0.54% 0.48% (104)

120 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Rs. Crores Current Year Previous Year c) Remuneration to Directors in their capacity as Managing Directors of erstwhile IGFL and BGFL before the Scheme became effective Salaries and Allowances 0.99 Contribution to Provident & Other Funds* 0.12 Perquisites * In the determination of Manager s remuneration, certain perquisites have been valued in accordance with Income Tax Rules, Expenses towards gratuity and leave encashment provisions are determined actuarially on an overall company basis at the end of each year and accordingly have not been considered in the above information. 24 Interest earned from Financial Services Activity is included in Income from Operations. Other Interest earned is netted off from Interest and other Finance Expenses. 25 a) For additional information as required under para 3, 4C and 4D of Part II of Schedule VI to the Companies Act, Refer Annexure I. b) For Segment Information - Refer Annexure II Segments have been identified in line with the Accounting Standard on Segment Reporting (AS17), taking into account the organizational structure as well as differential risk and returns of these segments. Garments Rayon Carbon Black Insulator Textiles Fertilizers Financial Services Garments VFY and Chemicals Carbon Black Insulators, Bushings, Lighting & Surge Arrestors Spun Yarn, Fabrics Fertilizers Retail Asset Finance, Corporate Finance, Capital Market, Syndication The Company considers secondary segment based on revenues within India as Domestic Revenues and outside India as Export Revenues. Since assets are used interchangeably, carrying amount of assets and cost incurred during the period to acquire assets based on secondary segment have not been disclosed. 26 Figures of Rs.50, 000 or less have been denoted by β 27 Figures of previous year have been regrouped / rearranged wherever necessary. For KHIMJI KUNVERJI & CO. For S.R. BATLIBOI & CO. SANJEEV AGA Directors: TARJANI VAKIL Chartered Accountants Chartered Accountants Managing Director P. MURARI B. R. GUPTA ADESH GUPTA G. P. GUPTA Wholetime Director & CFO per SHIVJI K. VIKAMSEY per HEMAL SHAH DEVENDRA BHANDARI Partner Partner Company Secretary M. No M. No Mumbai, 3rd July, 2006 (105)

121 SCHEDULES SCHEDULE 19 (Contd.) SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS ANNEXURE I INFORMATION PURSUANT TO THE PROVISIONS OF PARAGRAPHS 3, 4C AND 4D OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956 (a) Details of Products Manufactured, Turnover, Opening stock, Closing stock etc. Rs. Crores Particulars Installed Opening Stock Production Purchase*** Turnover Closing Stock Year ended Capacity Unit 31st March Per Annum Quantity Amount Quantity Quantity Amount Amount Quantity Amount Garments Nos./ * Nos./ * Viscose Filament Rayon Yarn MT MT Sulphuric Acid & Allied MT Chemicals MT Caustic Soda MT MT Chlorine MT MT Hydro Chloric Acid MT MT Spun Yarn MT Spdl MT Spdl Cloth 000Mtr Mtr Carbon Black MT MT High & Low Tension MT Insulators and Bushings MT Lightning & Surge Arrestors NOS NOS Liquid Argon 000 SM SM Urea MT per day MT 2005 Pesticides Traded goods** Financial Services Others Total , , The Installed Capacity is as Certified by the Management and licensed capacity is not given as licencing has been Turnover quantity includes captive consumption, damages,sample sales and shortages and value includes Export benefits. * Garment production includes items produced on job work basis by outside parties and purchases. ** Includes commission of Rs Crores (P.Y. Rs Crores) *** Includes Rs 4.45 crores of inventories acquired on amalgamation of IGFL (Refer Note No.9 of Schedule 19) (106)

122 SCHEDULES ANNEXURE I (Contd...) Current Year Previous Year MT Rs. Crores MT Rs. Crores b) Raw Materials Consumed : Wood Pulp Wool Fibre 6, Flax Fibre 1, Staple & Synthetic Fibre 13, Cotton Staple & Synthetic Yarn 1, Carbon Black Feed Stock/ Coal Tar Fabrics in 000 Mtrs Natural Gas Naphtha Others , c) Value of Imports calculated on C.I.F. Basis Raw Materials Stores & Spare Parts Capital Goods Purchase of Finished Goods d) Expenditure in Foreign Currency (on actual payment basis): Technical Assistance Fees/Royalty Interest and Commitment Charges Professional Charges Others e) Value of Imported and Indigeneous Raw Materials, Spare parts & Components consumed and percentage thereof to the total consumption: Raw Materials : Percentage Percentage Imported 55.62% % Indigenous 44.38% % , Stores, Spare Parts & Components : Imported 15.65% % Indigenous 84.35% % f) Amount remitted in Foreign Currency on account of Dividend: Dividend in respect of Accounting Year (112 Shareholder holding Equity Shares) Dividend in respect of Accounting Year (124 Shareholder holding Equity Shares) g) Earning in Foreign Currency i) On export of goods (F.O.B.Basis) : (a) Foreign Currency (b) Rupee Payments (c) Export through Merchant Exporters ii) Service charge (107)

123 CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2006 PARTICULARS Rs. Crores A B C CASH FLOW FROM OPERATING ACTIVITIES Net Profit before tax Adjustments for : Depreciation Marketing & Technical know-how written-off 2.95 Provision for bad & doubtful debts & advances Interest Expenses (Net) (Profit) / Loss on Fixed Assets sold 0.34 (0.36) (Profit) / Loss on Sale of Investments (2.54) (0.60) Dividend Income (16.54) (6.41) Exceptional Items: Gain/(Loss) on Long Term Strategic Investments/ Transfer of Business (Net) (1.89) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES Decrease / (Increase) in trade and other receivables (87.53) Decrease / (Increase) in inventories (118.66) (78.33) Increase / (Decrease) in trade and other payables (275.57) (351.36) (148.09) CASH GENERATED FROM OPERATIONS Income Taxes Paid (Net of Refund) (81.00) (48.23) NET CASH FROM OPERATING ACTIVITIES (7.67) CASH FLOW FROM INVESTING ACTIVITIES Proceeds from Sale of Fixed Assets Purchase of Fixed Assets (199.97) (153.66) Proceeds from transfer of Global Exports And Marketing Division 5.40 Sale / Redemption / (Purchase) of investments (net) Interest Received Dividend Received Investment in equity of a Joint Venture (661.09) Investment in equity of subsidiaries (91.40) (44.42) NET CASH (USED IN)/FROM INVESTING ACTIVITIES (663.14) (94.25) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issue of share capital 0.01 Share premium received Proceeds from Borrowings Repayment of Borrowings (63.51) (13.51) Dividends paid (including tax thereon) (27.31) (27.08) Interest and Finance Charges paid (62.06) (21.92) NET CASH (USED IN)/FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND EQUIVALENTS 4.75 (3.83) CASH AND CASH EQUIVALENTS (OPENING BALANCE) CASH OF IGFL and BGFL 6.16 CASH OF GLOBAL EXPORT DIVISION (0.03) CASH AND CASH EQUIVALENTS (CLOSING BALANCE) Notes: 1) Cash and cash equivalents include: Cash, cheque in hand and remittance in transit Balance with Banks ) The Company has undrawn working capital facilities of Rs Crores as on (Previous Year Rs Crores) 3) Previous years s figures have been regrouped / rearranged to confirm to the current year s presentation,whenever necessary. 4) The aforesaid Cash Flow is prepared after considering the impact of the IGFL and BGFL merger with effect from 1st September For KHIMJI KUNVERJI & CO. For S.R. BATLIBOI & CO. SANJEEV AGA Directors: TARJANI VAKIL Chartered Accountants Chartered Accountants Managing Director P. MURARI B. R. GUPTA ADESH GUPTA G. P. GUPTA Wholetime Director & CFO per SHIVJI K. VIKAMSEY per HEMAL SHAH DEVENDRA BHANDARI Partner Partner Company Secretary M. No M. No Mumbai, 3rd July, 2006 (108)

124 SEGMENT DISCLOSURES FOR THE YEAR ENDED 31ST MARCH, 2006 Annexure II Rs. Crores (I) Primary Segments - Business Garments Rayon (Includes Carbon Black Insulators Textiles (Includes Fertilizers Financial Service Others Gross Total Inter Segment Net Total Caustic soda (Includes Bushings, Spun Yarns, Elimination and allied lighting & Surge Fabrics) Chemicals) Arrestors) Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year a Segment Revenue # Sales to External Customers including Export Benefits but net of Excise Duty , , Inter Segment Revenue Total Segment Revenue , , (2.89) (2.90) 2, , b Segment Result (PBIT) Less:-Interest and Finance charges excluding interest of Rs Cr on Financial Services Business Add:- Unallocable income net of 5.03 (3.92) Unallocable expenditure Profit before Tax and Exceptional items Exceptional Items : VRS Expenses Gain/(Loss) on Long Term Strategic (1.89) Investments/Transfer of Business (Net) Profit before tax Provision for Current Tax Provision for Deferred Tax (6.91) (1.99) Provision for FBT 4.25 Provision for Tax for earlier years written back (5.49) Profit after Tax c Carrying amount of Segment Assets , , , , Unallocated Assets 1, Total Assets 4, , d Carrying amount of Segment Liabilities Unallocated liabilities 1, Total Liabilities 2, e Cost incurred to acquire Segment fixed assets during the year Unallocated assets f Depreciation / Amortization β Unallocated depreciation (II) Secondary segment Geographical Current Year Previous Year The Company s operating facilities are located in India Domestic Revenues Exports Revenues Total #Inter segment revenues are recognised on arm s length basis. (109)

125 BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE I II Registration Details Registration No State Code 0 4 Balance Sheet Date Date Month Year Capital Raised during the Year (Amount in Rs. Crores) Public Issue Right Issue N i l N i l Bonus Issue Private Placement N i l N i l III Position of Mobilisation and Development of Fund (Amount in Rs. Crores) Total Liabilities Total Assets Source of Funds Paid-Up-Capital* Reserve & Surplus Secured Loans Unsecured Loans Application of Funds Net Fixed Assets Investments * including Capital Suspense ** Net of Deferred Tax Liability Net Current Assets** Misc. Expenditure N i l IV Performance of Company (Amount in Rs. Crores) Turnover Total Expenditure Profit Before Tax Profit After Tax Earning per share Dividend rate % V Generic Names of Three Principal products/services of Company (as per monetary terms) Item Code No.(ITC Code) Product Description Garments Viscose Filament Rayon Yarn Carbon Black Urea SANJEEV AGA Managing Director ADESH GUPTA Wholetime Director & CFO Directors: TARJANI VAKIL P. MURARI B. R. GUPTA G. P. GUPTA Mumbai, Dated 3rd July, 2006 DEVENDRA BHANDARI Company Secretary (110)

126 AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS To The Board of Directors Aditya Birla Nuvo Limited (Erstwhile Indian Rayon And Industries Limited) 1. We have audited the attached Consolidated Balance Sheet of Aditya Birla Nuvo Limited ( the Company ) and its Subsidiaries and Joint Ventures as at 31st March 2006 and also the Consolidated Profit and Loss Account and the Consolidated Cash Flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. a) Included in these Consolidated Financial Statements (CFS) are assets of Rs.2, crores as at 31st March 2006, revenues of Rs crores and net cash inflow of Rs crores for the year then ended, which have not been jointly audited by us. These have been audited by either of us singly or by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included in respect of these entities, is based solely on reports of those respective auditors. b) Further, the Company s share of revenues of Rs crores, and net cash outflow of Rs.2.91 crores, from certain subsidiaries and joint ventures, mentioned in Note 7 of Schedule 19, are included in the CFS based on unaudited financial statements. Our opinion, so far as it relates to the amounts included for respective companies are based solely on unaudited financial statements certified by the management. 4. Without qualifying our opinion we draw attention to Note 5 of Schedule 19 to the CFS regarding substituting unaudited consolidated figures of IDEA for the year ended 31st March 2005 with its audited consolidated figures for that year. The impact of such substitution on the Net Profit for the year is not material. 5. We report that the CFS have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 21 Consolidated Financial Statements, AS 23 Accounting for Investments in Associates in Consolidated Financial Statements and AS 27 Financial Reporting of Interests in Joint Ventures, issued by the Institute of Chartered Accountants of India. 6. Based on our audit and on consideration of reports of other auditors on separate financial statements/management certification and on the other financial information of the components and to the best of our information and according to the explanations given to us, we are of the opinion that the attached consolidated financial statements, read together with para 4 above, give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the consolidated balance sheet, of the state of affairs of the Company and its Subsidiaries and Joint Ventures as at 31st March 2006; (b) in the case of the consolidated profit and loss account, of the profit for the year ended on that date; and (c) in the case of the consolidated cash flow statement, of the cash flows for the year ended on that date. For KHIMJI KUNVERJI & CO. Chartered Accountants For S. R. BATLIBOI & COMPANY Chartered Accountants per Shivji K. Vikamsey per Hemal Shah Partner Partner Membership No Membership No Mumbai, Mumbai, July 03, 2006 July 03, 2006 (111)

127 CONSOLIDATED BALANCE SHEET AS AT 31ST MARCH, 2006 Rs. Crores Consolidated Consolidated ABNL & Share in 31st March 31st March Schedule Subsidiaries Joint Ventures SOURCES OF FUNDS Shareholders Funds: Share Capital 1A Share Capital Suspense 1B Preference Share Capital 1A Reserves & Surplus 2 1, (271.51) 1, , Minority Interest Loan Funds: Secured Loans 3 1, , Unsecured Loans Deferred Tax Liabilities Policyholders fund 2, , , Fund for future appropriations Total Funds Employed APPLICATION OF FUNDS Fixed Assets: Goodwill on Consolidation Gross Block 5 2, , , , Less: Depreciation 1, , Net Block Capital Work-in-Progress Investments 6 3, , , Current Assets,Loans & Advances: Inventories Sundry Debtors Cash & Bank Balances Interest accrued on Investments Loans & Advances Less: Current Liabilities & Provisions: 11 Current Liabilities Provisions Net Current Assets (113.27) Total Funds Utilised Significant Accounting Policies and Notes on Accounts 19 Schedules referred to above form an integral part of the accounts As per our attached Report of even date For KHIMJI KUNVERJI & CO. For S. R. BATLIBOI & CO. SANJEEV AGA Directors: TARJANI VAKIL Chartered Accountants Chartered Accountants Managing Director P. MURARI B. R. GUPTA ADESH GUPTA G. P. GUPTA Wholetime Director & CFO Per SHIVJI K.VIKAMSEY Per HEMAL SHAH Partner Partner DEVENDRA BHANDARI M. No M. No Company Secretary Mumbai, 3rd July, 2006 (112)

128 CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2006 Rs. Crores Consolidated Consolidated ABNL & Share in 31st March 31st March Schedule Subsidiaries Joint Ventures INCOME Income from Operations Less: Excise Duty 12 4, , , Net Income from Operations Other Income 13 4, , , , , , EXPENDITURE (Increase)/Decrease in Stocks 14 (47.33) 0.03 (47.30) (14.41) Cost of Materials 15 1, , , Salaries,Wages and Employee Benefits Manufacturing, Selling and Other Expenses 17 1, , Actuarial Liabilities Interest and Other Finance Expenses (Net) , , , Profit before Depreciation/Amortisation Marketing / Technical knowhow expenditure written off 2.95 and Exceptional items Depreciation/Amortisation Profit before Exceptional items and Tax Exceptional Items Less : Loss/(Gain) due to Exceptional Items Profit after Exceptional items Provision for Taxation - Current Tax Deferred Tax (7.06) 1.55 (5.51) (1.94) - Fringe Benefit Tax Provision for Tax for Earlier Years written back (5.37) (5.37) (0.07) Net Profit before Minority Interest Minority Interest in the loss of Consolidated Subsidiaries (14.90) (14.90) (15.76) Share of Profit/(Loss) of Associates Net Profit Balance brought forward (99.02) Amount Transferred on Amalgamation of IGFL & BGFL Amount Transferred on Acquisition of Subs/JVs (3.61) Impact of Change in ownership interest in IDEA (303.88) Transfer from Debenture Redemption Reserve Transfer from General Reserve Profit available for Appropriation (341.76) APPROPRIATIONS Proposed Dividend Corporate Tax on Proposed Dividend General Reserve Debenture Redemption reserve 5.00 Special Reserve Surplus carried to Balance Sheet (248.10) (352.96) (281.18) (341.76) Basic and Dilutive Earnings per share - Rs (Face Value of Rs 10/- each) Significant Accounting Policies and Notes on Accounts 19 Schedules referred to above form an integral part of the accounts As per our attached Report of even date For KHIMJI KUNVERJI & CO. For S. R. BATLIBOI & CO. SANJEEV AGA Directors: TARJANI VAKIL Chartered Accountants Chartered Accountants Managing Director P. MURARI B. R. GUPTA ADESH GUPTA G. P. GUPTA Wholetime Director & CFO Per SHIVJI K.VIKAMSEY Per HEMAL SHAH Partner Partner DEVENDRA BHANDARI M. No M. No Company Secretary Mumbai, 3rd July, 2006 (113)

129 SCHEDULES Rs.Crores SCHEDULE 1A ABNL & Share in Consolidated Consolidated SHARE CAPITAL Numbers Subsidiaries Joint Ventures 31st March st March 2005 Issued, Subscribed & Paid-up: Equity Shares of Rs. 10 each, fully paid-up 59,889, Previous year (59,884,782) Equity Share Capital Preference Shares SCHEDULE 1B SHARE CAPITAL SUSPENSE 23,614,414 number Equity Shares of Rs 10 each to be issued as fully paid up pursuant to Scheme of amalgamation for consideration other than cash Less : Calls in arrears (7060 shares) β β (Note 11 of Schedule19) SCHEDULE 2 RESERVES & SURPLUS Capital Reserve Capital Fund Capital Redemption Reserve Debenture Redemption Reserve Securities Premium Account General Reserve 1, , Investment Reserve Special Reserve Credit/(Debit) fair value change account Amalgamation Reserve 20.71# Employee Stock options outstanding Surplus as per Profit & Loss Account (248.10) (352.96)# (281.18) , (271.51) 1, , Previous Year 1, (41.32) 1, # Impact of change in ownership interest in IDEA SCHEDULE 3 SECURED LOANS Debentures Loans from Banks , Other Loans Deferred Sales Tax Loan Others , , SCHEDULE 4 UNSECURED LOANS Fixed Deposits Short Term Loans from: Banks Other loans : Banks Others (114)

130 SCHEDULES SCHEDULE 5 FIXED ASSETS Rs. Crores Gross Block Depreciation/Amortisation Net Block ABNL & Share in Consoli- Consoli- ABNL & Share in Consoli- Consoli- ABNL & Share in Consoli- Consoli- Subsi- Joint dated dated Subsi- Joint dated dated Subsi- Joint dated dated diaries Ventures 31st 31st diaries Ventures 31st 31st diaries Ventures 31st 31st March March March March March March Tangible Assets Land Freehold Leasehold Railway Siding Buildings Lease Hold improvements Plant & Machinery 1, , , , , , , Computers & Telecommunication Furniture, Fixtures & Equipments Vehicles & Aircraft Livestock Intangible Assets Intangible Assets-Entry/ Licence fees Goodwill Trade mark/brands Software Total 2, , , , , , , , , Previous year (115)

131 SCHEDULES Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March 2005 SCHEDULE 6 INVESTMENTS LONG TERM INVESTMENTS Government Securities/Bonds Debentures/Bonds Mutual Funds Equity 1, Other Investments SHORT TERM INVESTMENTS Government Securities/Bonds Debentures/Bonds Mutual Funds Other Investments , , , Investment in Associates 0.31 Capital Reserve included in above 0.21 Share of Profit / Loss for the year 0.37 SCHEDULE 7 INVENTORIES Finished Goods Stores and Spares Raw Materials Packing Materials Material-in-Process Waste / Scrap (116)

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133 A joint Venture of Aditya Birla Group & NGK Insulators Japan WORLD'S LEADING MANUFACTURER OF : 1. Large Hollow Porcelain for SF6 Gas Circuit Breakers, Instrument Transformers, Cable Terminations, Condensor Bushings and Lightning Arrestors etc. up to 800 KV Class. 2. Solid Core Station Post Insulators and Long Rod Insulators up to800 KV to ANSI & IEC Standards. 3. Disc Insulators up to E&M Strength of 400 KN for Transmission Lines up to 800 KV to ANSI and IEC Standards. ISOLATORS 4. All types of Pin, Post, Line Post, Guy, Shackle and Spool Insulators for Distribution Lines. 5. Porcelains for Electrostatic Precipitators to customers requirements. 6. Zinc Oxide Surge Arrestors for distribution class & Station Class type 7. Disconnectors and Isolators of all types upto 800 KV. CIRCUIT BREAKERS HOLLOW INSULATORS UNDER FIRING HALOL RISHRA Birla NGK Insulators Pvt. Ltd. Birla NGK Insulators Pvt. Ltd. Vill: Meghasar, P.O. Kalol, P.O. Rishra Dist. Panchmahals,Gujarat, India District Hooghly, West Bengal Tel No Tel No Fax No Fax No. jsihexp@adityabirla.com jsihdom@adityabirla.com ISO 9002 & ISO certified ISO 9001, SA 8000 & ISO certified Website:

134 SCHEDULES Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March 2005 SCHEDULE 8 SUNDRY DEBTORS (Unsecured, considered good except otherwise stated) Due for period exceeding six months Others SCHEDULE 9 CASH & BANK BALANCES Cash & Cheques in hand and remittances in transit Balances with Scheduled Banks: Current Accounts Deposit Accounts Balances with Non-Scheduled Banks: Current Account Deposit Account SCHEDULE 10 LOANS AND ADVANCES (Unsecured, considered good except otherwise stated) Bills of Exchange Loan against Collateral Security Advances recoverable in cash or in kind or for value to be received Deposits Balances with Central Excise, Customs & Port Trust etc (117)

135 SCHEDULES Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March 2005 SCHEDULE 11 CURRENT LIABILITIES & PROVISIONS Current Liabilities: Acceptances Sundry Creditors Advances from Customers Income received in advance Interest accrued but not due on loans Investors Education & Protection Fund Other Liabilities Provisions for: Taxation (Net of Advance Payment) 8.98 (6.51) 2.47 (2.24) Proposed Dividend Corporate Tax on Dividend Retirement benefits SCHEDULE 12 INCOME FROM OPERATIONS Income from Sale of Products 2, , , Income from Services 1, , , Income from Financial Services Export Benefits Other Income , , , (118)

136 Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March 2005 SCHEDULE 13 OTHER INCOME Dividends on Long Term Investments : Trade Others Dividends on Current Investments Profit/(Loss) on sale of Investments (Net) : Long Term Current Investment Income - Shareholders fund Miscellaneous Income SCHEDULE 14 (INCREASE)/DECREASE IN STOCKS Closing Stocks: Finished Goods Work-in-Process Waste / Scrap Less: Opening Stocks: Finished Goods Work-in-Process Waste / Scrap (Increase)/Decrease in Excise duty on Stocks (3.74) (0.09) (3.83) (5.03) Add: Stock acquired on merger of IGFL (Increase)/Decrease (47.33) 0.03 (47.30) (14.41) (119)

137 SCHEDULES Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March 2005 SCHEDULE 15 COST OF MATERIALS Raw Material Consumption 1, , Packing Material Consumption Purchase of Finished Goods , , , SCHEDULE 16 SALARIES, WAGES AND EMPLOYEE BENEFITS Payments to & Provisions for Employees: Salaries, Wages and Bonus Contribution to Provident & Other Funds Welfare Expenses Employee Compensation under ESOP SCHEDULE 17 MANUFACTURING, SELLING AND OTHER EXPENSES Consumption of Stores & Spares Power & Fuel Processing Charges Tele-Service Charges Connectivity Charges Commission to Selling Agents Brokerage & Discounts Export Expenses Advertisement Transportation & Handling Charges (Net) Other Selling Expenses Auditors Remuneration Bad debts &Provisions for doubtful debts &advances Repairs & Maintenance Buildings Plant & Machinery Others Rent (120)

138 SCHEDULES Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March 2005 SCHEDULE 17 (Contd.) Rates & Taxes Insurance Donations Directors Fees & Travelling Expenses Research & Development Expenses (Profit) /Loss on sale / discard of Fixed Assets (Net) (0.43) Miscellaneous Expenses Less: Total 1, , Insurance Claims Unspent Liabilities, Excess provisions, Bad Debts and unclaimed balances in respect of earlier years written back (net of short provisions and sundry balances written off) , , SCHEDULE 18 INTEREST AND OTHER FINANCE EXPENSES Interest on Borrowings Other Finance Expenses Less: Interest Income Interest on long term Investments Others Interest (121)

139 SCHEDULES SCHEDULE 19 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS ON CONSOLIDATED FINANCIAL STATEMENTS 1 BASIS OF PREPARATION The Consolidated Financial Statements (CFS) are prepared in accordance with Accounting Standard 21 (AS) Consolidated Financial Statements, AS-23 Accounting for Investments in Associates in Consolidated Financial Statements and AS- 27 Financial Reporting of Interests in Joint Ventures issued by the Institute of Chartered Accountants of India. 2 PRINCIPLES OF CONSOLIDATION a) The CFS comprises the financial statement of Aditya Birla Nuvo Ltd. (The Reporting Company) and its Subsidiaries, Joint Ventures and Associates. The financial statements of all the companies are in line with generally accepted accounting principles in India. b) Inter company transactions have been eliminated on consolidation. 3 COMPANIES INCLUDED IN CONSOLIDATION Country of Proportion of Proportion of incorporation ownership ownership interest as on interest as on 31st Mar-06 31st Mar-05 SUBSIDIARIES Aditya Birla Telecom Ltd. (w.e.f. 24 th December 2005) India % Alpha Garments Pvt Ltd. (AGL) (Subsidiary of MGEL w.e.f. 15 th February 2006) India % Aditya Vikram Global Trading House Limited (AVGTHL) Mauritius % % Birla Sun Life Insurance Company Limited (BSLI) India 74.00% 74.00% Birla Technologies Limited (Subsidiary of PSI) India 70.40% 70.40% Laxminarayan Investment Limited (LIL) India % % Madura Garments Export Limited (MGEL) (Subsidiary of LIL w.e.f. 26 th October, 2005) India % PSI Data Systems Limited (PSI) India 70.40% 70.40% Transworks Information Services Ltd. (TW) India % % Transworks Inc (Subsidiary of TW) USA % % From 1 st September, 2005: BGFL Corporate Finance Pvt. Ltd. (BGCFPL) India % Birla Global Assets Finance Company Ltd. (BGAFCL) India % Birla Insurance Advisiory Services Ltd. (BIASL) (Subsidiary of BGCFPL) India 50% JOINT VENTURE Birla NGK Insulators Private Limited (BNIPL) India 50% 50% IDEA Cellular Limited (IDEA)(4.28% upto September 28 th, 2005) India 20.74% 4.28% (122)

140 SCHEDULES From 1 st September, 2005: Birla Sun Life Distribution Company Limited (BSDL) India 49.99% Birla Sun Life Assets Management Company Limited (BSAMC) India 50.00% Birla Sun Life Trustee Company Private Limited (BSTPL) India 49.80% ASSOCIATE Crafted Clothing Pvt. Ltd. (CCPL) (w.e.f. 26 th October 2005) India 48.00% English Apparels Pvt Ltd. (EAPL) (w.e.f. 15 th February 2006) India 49.99% Harwood Garments Pvt Ltd. (HGPL) (w.e.f. 15 th February 2006) India 47.00% Birla Securities Ltd. (BSL) (w.e.f. 1 st September, 2005) India 50.00% 4 ACCOUNTING POLICIES Most of the accounting policies of the Reporting Company and those of its Subsidiaries, Joint Ventures and Associates are similar. However, since certain Subsidiaries / Joint Ventures / Associates are in businesses that are distinct from that of the Reporting Company and function in different regulatory environments, certain accounting policies in respect of investment, depreciation /amortisation etc. differ. The accounting policies of all the Companies are in line with generally accepted accounting principles in India. 5 PREVIOUS YEAR S FIGURES The CFS of the previous year included unaudited CFS of IDEA, which were then available. Subsequently, audited CFS of IDEA were available. In order to facilitate better comparison, previous year s figures of CFS include audited figures of CFS of IDEA. The effect of the above substitution on the previous year s figures and due to regrouping is as under: Restated Rs. Crores Original Reserves & Surplus Goodwill on Consolidation Secured Loans Unsecured Loans Fixed Assets Net Current Assets Income Expenses Net Profit before Minority Interest Minority Interest in the loss of consolidated subsidiaries (15.76) (15.76) Net Profit (123)

141 SCHEDULES 6. The accounts of the Company for the year ended 31 st March, 2006 were earlier approved by the Board of Directors at its meeting held on 28 th April, 2006 and reported upon by the statutory auditors vide their report dated 28 th April, 2006, but were not submitted to the general body of members for approval. The said accounts did not include the effect of the Scheme of Amalgamation of BGFL with the Company which was then pending for requisite approvals. The Company has since received the requisite approvals for merger of BGFL with the Company. As a result, the Scheme has became effective on 30 th June 2006, with retrospective effect from the Appointed date (1 st September, 2005). The Board of Directors have decided to revise the accounts of the Company for the year ended 31 st March, 2006 to incorporate the effect of the merger and accordingly these accounts have been prepared in supersession of the accounts previously adopted, as referred to above, for giving consequential effect to the Scheme of Amalgamation as noted above. 7. The Financial Statements of BGCFPL, BGAFCL, BIASL, BSDL, BSAMC, BSTPL and BSL have been audited for the year ended 31 March For the purpose of CFS, the results for the seven months period ended 31 March 2006 have been derived from the Twelve Month audited figures of the year ended 31 March 2006 by reducing there from unaudited figures for the five months period ended 31 August Further, for Madura Garments Export Ltd. and Alpha Garments Pvt. Ltd. the results for six months and three months ended 31 March 2006 respectively have been derived from the Twelve Month audited figures for the year ended 31 March 2006 by reducing unaudited figures till the dates of their respective acquisitions. Rs. Crores ABNL & Share in Consolidated Consolidated Subsidiaries Joint Ventures 31st March st March Estimated amount of Contracts remaining to be executed on Capital Account and not provided for (Net of advances) Contingent Liabilities not provided for in respect of : a) Claims against the Companies not acknowledged as debts i ) Income-tax ii) Custom Duty iii) Excise Duty iv) Service Tax v) Others b) Bills discounted/rediscounted with banks c) Corporate Guarantees given to Banks/ Financial Institutions for loans taken by subsidiary companies / other companies d) Customs duty on capital goods and raw materials imported under advance licensing / EPCG scheme, against which export obligation is to be fulfilled e) Dividend on cumulative preference shares f) Uncalled liability on shares partly paid up g) Others Deferred Tax (Assets)/ Liability at the year end comprise timing difference on account of: Depreciation Expenditure/Provisions allowable (17.88) (0.87) (18.75) (8.84) Total (124)

142 SCHEDULES 11. Pursuant to the Schemes of Amalgamation (the Schemes) under sections 391 to 394 of the Companies Act, 1956, with effect from September 1, 2005 (the Appointed Date) Indo Gulf Fertilizers Limited (herein after referred to as IGFL) and Birla Global Finance Company Limited (herein after referred to as BGFL), have been merged with the Company. The Effective date of the Scheme for merger of IGFL as approved by Hon ble High Court of Gujarat on January 10, 2006 and Hon ble High Court of Allahabad on March 27, 2006, is April 3, IGFL was in the business of manufacturing of Fertilizers and Chemicals. The Scheme for merger of BGFL has been approved by Hon ble High Court of Mumbai on 27 th January, 2006 and Hon ble High Court of Gujarat on 17 th June 2006 and is effective from 30 th June, BGFL was in the business of Financial Services. The Schemes are operative from the Appointed date i.e. 1 st September a. In terms of the Schemes, all assets and liabilities of IGFL and BGFL have been transferred and stand vested with the Company with effect from the Appointed Date at their respective book values on that date. Both the compannies carried on all their businesses and activities for the benefit of and in trust for, the Company from the Appointed date. Thus, the profit or income accruing or arising to IGFL and BGFL, or expenditure or losses arising or incurred by them from the Appointed date are treated as the profit or income or expenditure or loss as the case may be, of the Company. The Schemes have accordingly been given effect to in these accounts. b. The amalgamations have been accounted for under the Pooling of Interests method as prescribed by Accounting Standard 14 Accounting for Amalgamations (AS 14) issued by the Institute of Chartered Accountants of India (ICAI). Accordingly, the assets, liabilities and reserves of IGFL and BGFL have been taken over at their book values on the Appointed Date, subject to adjustments specified in the respective Scheme of Amalgamation. c. In terms of the Schemes, the Company acquired assets having Net Book Value of Rs Crores, as detailed hereunder: Rs. Crores BGFL IGFL Total Fixed Assets (Net including CWIP) Investments Current Assets Total Assets Less: Loans Deferred Tax Liability Current Liabilities and Provisions Total Liabilities Net Book Value (125)

143 SCHEDULES d. The difference between the consideration of Rs Crores (being face value of Equity Shares of the Company issued) for amalgamation and the Net Book Value, after adjusting reserves of IGFL and BGFL and expenses incidental to the Schemes or its implementation (net of tax) is transferred to General Reserve, in accordance with the respective Scheme, as detailed hereunder: Rs. Crores BGFL IGFL Total Net Book Value Less: Securities Premium considered as Securities Premium of the Company Less: Special Reserve considered as Special Reserve of the Company Less: Capital Reserve considered as Capital Reserve of the Company Less: General Reserve considered as General Reserve of the Company Less: Profit and Loss account considered as Profit and Loss account of the Company Balance Less: Amalgamation Expenses (Net of Tax) Less: Issue of Equity Shares The balance transferred to General Reserve of the Company e. 1,50,30,935 and 85,83,479 Equity Shares of Rs. 10 each of the Company are to be issued to the shareholders of IGFL and BGFL respectively in the ratio of 1 (one) fully paid-up Equity Share of Rs.10 each of the Company for every 3 (three) fully paid-up Equity Shares of Rs.10 each held in IGFL and BGFL. Pending allotment, an amount of Rs Crores has been shown under Share Capital Suspense Account as at March 31, These shares were subsequently issued on April 24, 2006 to shareholders of IGFL and will be issued to shareholders of BGFL after the record date on 17 th July Name of the Number of % of IGFL and BGFL Number of % of Company s Amalgamating Equity Shares Equity Shares Equity Shares Equity Shares Company of IGFL and BGFL Exchanged of the Company Exchanged IGFL 4,50,92, % 1,50,30, % BGFL 2,57,50, % 85,83, % f. In terms of the Scheme, the Equity Shares as and when issued and allotted by the Company shall rank pari-passu in all respects with the existing Equity Shares of the Company. Accordingly, the appropriation for the proposed dividend includes the dividend amount on 2,36,14,414 Equity Shares to be allotted to the shareholders of IGFL and BGFL for the full year. g.. In view of the aforesaid amalgamation with effect from September 1, 2005, the figures for the current year are not comparable to those of the previous year. (126)

144 SCHEDULES 12. Disclosure in respect of Related Parties pursuant to Accounting Standard 18 a) List of Related Parties Key Management Personnel Shri Sanjeev Aga Managing Director Shri Adesh Gupta Whole Time Director Mrs. Usha Gupta (Wife of Shri Adesh Gupta) Mr. K K Maheshwari Whole Time Director Enterprises having common key management personnel M/s Tanfac Industries Ltd. b) The following transactions were carried out with the related parties in the ordinary course of the business Rs. Crores Current year Previous year Managerial Remuneration to Shri Sanjeev Aga Shri Adesh Gupta and Shri K.K. Maheswari Rent paid to Mrs Usha Gupta (wife of Shri Adesh Gupta) 0.02 Housing Deposit given to Mrs Usha Gupta (wife of Shri Adesh Gupta) 1.05 Sale of goods and services to M/s Tanfac Industries Ltd Amount receivable- M/s Tanfac Industries Ltd Earnings per Share (EPS) is calculated as under : a Numerator - - Net Profit after exceptional items Less: Preference Dividend (IDEA) Net Profit for EPS b Denominator - Weighted average number of Equity Shares outstanding (including share capital suspense) - Basic 73,603,988 59,884,782 - Diluted 73,626,085 59,912,008 c Nominal value of Shares (in Rs.) For Segment Information - Refer Annexure I Segments have been identified in line with the Accounting Standard on Segment Reporting (AS17), taking into account the organizational structure as well as differential risk and returns of these segments. Garments Garments Rayon VFY and Chemicals Carbon Black Carbon Black Insulator Insulators, Bushings, Lighting & Surge Arrestors Textiles Spun Yarn, Fabrics Fertilizers Fertilizers Financial Services Retail Assets Finance, Corporate Finance, Capital Market, Syndication, Insurance Advisory, Asset Management, Brokerage Income Software Software Services Insurance Life Insurance Services Telecom Telecommunication Services BPO BPO Services (127)

145 SCHEDULES The Company considers secondary segment based on revenues within India as Domestic Revenues and outside India as Export Revenues. Since assets are used interchangeably, carrying amount of assets and cost incurred during the period to acquire assets based on secondary segment have not been disclosed. 15. For Cash flow statement - Refer annexure II For KHIMJI KUNVERJI & CO. For S. R. BATLIBOI & CO. SANJEEV AGA Directors: Chartered Accountants Chartered Accountants Managing Director TARJANI VAKIL P. MURARI ADESH GUPTA B. R. GUPTA Partner Partner Whole time Director & CFO G. P. GUPTA M. No M. No Mumbai, 3rd July, 2006 DEVENDRA BHANDARI Company Secretary (128)

146 SEGMENT DISCLOSURES FOR THE YEAR ENDED 31ST MARCH, 2006 Annexure I Rs. Crores (I) Primary Segments - Business Garments Rayon (Includes Carbon Black Insulators Textiles Fertilizers Financial Services Software Insurance Telecom BPO Others Gross Total Inter Segment Net Total Caustic soda (Includes (Includes Spun Elimination and allied Bushings, lighting Yarns, Fabrics) Chemicals) & Surge Arrestors) Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year a Segment Revenue # Sales to External Customers , , , Inter Segment Revenue Total Segment Revenue , , , (4.48) (3.47) 4, , b Segment Result (PBIT) (0.55) (57.94) (60.03) Less:-Interest and Finance charges excluding interest of Rs Cr on Financial Services Business Add:- Unallocable income 2.78 (3.92) net of Unallocable expenditure Profit before Tax and Exceptional items Loss/(Gain) due to Exceptional Items Profit before tax Provision for Current Tax Provision for Deferred Tax (5.51) (1.94) Provision for FBT Tax Provision for earlier years written back (5.37) (0.07) Profit before Minority Interest Minority Interest (14.90) (15.76) Share of Profit/(loss) of Associate Net Profit c Carrying amount of Segment Assets , , , , , (40.37) (0.35) 6, , Unallocated Assets - - 1, Total Assets - - 8, , d Carrying amount of Segment Liabilities , , , , (40.37) (0.35) 3, , Unallocated liabilities - - 2, Total Liabilities - - 5, , e Cost incurred to acquire Segment fixed assets during the year - - Unallocated assets f Depreciation / Amortization Unallocated depreciation (II) Secondary segment Geographical Current Year Previous Year a) The Company s operating facilities are located in India Domestic Revenues Exports Revenues Total # Inter segment revenues are recognised on arm s length basis. (129)

147 CONSOLIDATED CASH FLOW STATEMENT AS ON 31ST MARCH, 2006 PARTICULARS A CASH FLOW FROM OPERATING ACTIVITIES Net Profit before tax Adjustments for : Depreciation Change in valuation of liabilities in respect of life policies Marketing & Technical know-how written-off 2.95 Provision for doubtful debts Provision for ESOP 0.68 Interest Expenses (Net) (Profit) / Loss on Fixed Assets sold 0.45 (0.43) (Profit) / Loss on Sale of Investments (3.23) (0.81) Dividend Income (14.69) (6.46) 1, Exceptional items (1.89) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 1, Adjustments for: Decrease / (Increase) in trade and other recievables (7.38) (106.63) Decrease / (Increase) in inventories (118.21) (84.44) Increase / (Decrease) in trade and other payables (147.62) (273.21) (138.04) ANNEXURE II Rs. Crores CASH GENERATED FROM OPERATIONS 1, Income Taxes Refund/(Paid) (net) (93.92) (48.90) NET CASH FROM OPERATING ACTIVITIES 1, B CASH FLOW FROM INVESTING ACTIVITIES (Purchase)/ Sale of Fixed Assets (412.63) (242.82) Proceeds from Sale of Global Exports 5.40 Investment in subsidiary (Net of Cash) (0.11) Sale/ (Purchase) of Investments (net) (768.23) (636.16) Investment in Joint Venture (IDEA) (645.14) Interest received Dividend received NET CASH (USED IN)/FROM INVESTING ACTIVITIES (1,801.03) (863.89) C CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issue of Shares to Minority Security Premium Proceeds from / (Repayment of) Borrowings (net) Dividends paid (including tax thereon) (27.31) (27.08) Interest and Finance Charges paid (111.23) (40.39) NET CASH (USED IN)/FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND EQUIVALENTS CASH AND CASH EQUIVALENTS (OPENING BALANCE) CASH OF BGFL SUBSIDIARIES AND JOINT VENTURES 4.23 CASH OF IGFL AND BGFL 6.16 CASH OF GLOBAL EXPORT DIVISION (0.03) CASH AND CASH EQUIVALENTS (CLOSING BALANCE) Notes: 1) Cash and cash equivalents include:- Cash, cheque in hand and remittance in transit Balance with Banks Total ) Previous year s figures have been regrouped / rearranged to confirm to the current year s presentation, wherever necessary. (130)

148 STATEMENT PURSUANT TO SECTION 212 AND 212(8) OF THE COMPANIES ACT 1956, RELATING TO SUBSIDIARY COMPANIES (Rs. Crores unless otherwise stated) Birla PSI Birla Laxminarayan Madura Alpha Aditya Transworks Transworks Aditya Vikram Birla Birla BGFL Sun Life Data Technologies Investment Garments Garments Birla Information Inc, USA Global Trading Insurance Global Corporate Insurance Systems Limited Limited Export Pvt. Telecom Services House Limited Advisary Asset Finance Company Limited Limted Limted Ltd. Ltd. Services Finance Private Limited Limited Company Limited Limited US $ in Rs. US $ in Rs. lacs Crores lacs Crores The period of the Subsidiary Company 1st 1st 1st 1st 26th 15th 24th 1st 1st 1st 1st 1st 1st April April April April October February December April April April September September September 2005 to 2005 to 2005 to 2005 to 2005 to 2006 to 2005 to 2005 to 2005 to 2005 to 2005 to 2005 to 2005 to 31st March 31st March 31st March 31st March 31st March 31st March 31st March 31st March 31st March 31st March 31st March 31st March 31st March Extent of interest in Subsidiary Company Equity Share Capital % Share held by Aditya Birla Nuvo Ltd. and its Subsidiaries 74.00% 70.40% % % % % % % % % 50.00% % % Net aggregate amount of the profits /(losses) of the Subsidiary Company for the period, so far as it concerns members of Aditya Birla Nuvo Ltd. a) not dealt with in the Accounts of the Company (i) For the financial year of the subsidiary (45.23) (1.01) (0.05) 0.13 (0.14) (1.01) (0.02) (ii) For the previous financial years since it became the subsidiary of the Company (178.50) (33.91) (14.42) (1.29) b) dealt with in the Accounts of the Subsidiary Company (i) For the financial year of the subsidiary Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil (ii) For the previous financial years since it became the subsidiary of the Company Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Additional Information u/s 212 (5) Not Not Not Not Not Not Not Not Not Not Not Not Not Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Notes : 1. PSI Data Systems Ltd. held 73.91% of Equity Share Capital of 4600 shares of Rs.1000/- in PSI Kalinga Ltd., Bhubaneswar. On it s application, the Hon ble High Court of Orrisa has passed orders on 7th April, 2005 for dissolution of PSI Kalinga Ltd. The Ministry of Company Affairs, Government of India vide its order No. 47/04/2005-CL-III dated 30th March, 2006, issued under section 212 (8) of the Companies Act, 1956, has exempted the Company from attaching the documents of subsidiaries of the Company required to be attached to the Company s accounts for the year ending on 31st March, 2006 under section 212(1) of the Companies Act, However, Annual Accounts of the subsidiary companies for the year ending on 31st March, 2006, and the related detailed information will be made available to the investors of the Company and the subsidiaries of the Company, seeking such information at any point of time. The annual accounts of the subsidiary companies are available for inspection by any investor at the Registered Office of the Company and of the concerned subsidiary of the Company. SANJEEV AGA ADESH GUPTA DEVENDRA BHANDARI Directors: TARJANI VAKIL Mumbai, 3rd July, 2006 Managing Director Wholetime Director & CFO Company Secretary P. MURARI B. R. GUPTA G. P. GUPTA (131)

149 STATEMENT PURSUANT TO SECTION 212 AND 212(8) OF THE COMPANIES ACT 1956, RELATING TO SUBSIDIARY COMPANIES (Contd.) Statement pursuant to Section 212 and 212(8) of the Companies Act 1956, relating to subsidiary companies (contd.) The particulars of subsidiary companies are required by order No. 47/04/2005-CL-III dated 30th March, 2006 of Ministry of Company Affairs, Government of India, issued section 212 (8) of the Companies Act, 1956 are as follow: (Rs. Crores unless otherwise stated) Birla PSI Birla Laxminarayan Madura Alpha Aditya Transworks Transworks Aditya Vikram Birla Birla BGFL Sun Life Data Technologies Investment Garments Garments Birla Information Inc, USA Global Trading Insurance Global Corporate Insurance Systems Limited Limited Export Pvt. Telecom Services House Limited Advisary Asset Finance Company Limited Limted Limted Ltd. Ltd. Services Finance Private Limited Limited Company Limited Limited US $ in Rs. US $ in Rs. lacs Crores lacs Crores Share Capital (Equity and Preference) Reserves & Surplus (net of debit balance of profit & loss account and miscellaneous expenditure to the extent not written off) (304.85) (18.67) (19.23) (0.14) (6.48) 0.31 Total assets (Fixed Assets+Current Assets) Total Liabilities (Debts + Current Liabilities & provisions) 2, Details of Investments (excluding investments in subsidiary companies) (details as per Annexure A) 2, Turnover 1, Profit before Taxation (59.03) (1.23) (0.27) (0.46) (0.09) (1.42) (0.01) Provision for Taxation(Including FBT) (0.06) Profit after Taxation (61.13) (1.44) (0.21) (0.46) (0.14) (1.48) (0.01) Proposed dividend( Including Dividend Tax) Nil Nil Nil Nil Nil Nil Nil 0.18 Nil Nil Nil Nil 0.15 Nil Nil (132)

150 Annexure A of statement u/s 212 and 212(8) of the Companies Act,1956 Rs. Crores Assets held to cover Linked Shareholders Policyholders liabilities Total A) Details of investments of Birlasunlife Insurance Company Limited LONG TERM INVESTMENTS 1 Government securities and Government guaranteed bonds including Treasury Bills Other Investments (a) Debenture / Bonds (b) Equity Investment in Infrastructure and Social Sector Bonds Other than Approved Investments Sub Total (A) , , SHORT TERM INVESTMENTS 1 Government securities and Government guaranteed bonds including Treasury Bills Other Approved Securities - Fixed deposits Others Other Investments (a) Mutual Funds (b) Debenture / Bonds Investment in Infrastructure and Social Sector Bonds Sub Total (B) Other Assets 1 Bank Balances Interest Accrued on Investments Fund Charges (1.67) (1.67) 4 Outstanding Contract (Net) (28.70) (28.70) Sub Total (C) Total (A+B+C) , , B) Details of investments of PSI Data Systems Limited CURRENT INVESTMENTS 64,926 Units of Birla Sunlife Mutual Funds C) Details of investments of Transworks Information Services Limited CURRENT INVESTMENTS 28,84,424 units of ABN AMRO Mutual Fund ,29,510 units of HSBC Mutual Fund (133)

151 As at 31th March, 2006 Number (Rupees) D. Details of investments of M/s Laxminarayan Invetments Limited LONG TERM INVESTMENTS(QUOTED) Equity Shares: Arvind Mills Limited Bajaj Auto Limited 2 1,772 Century Textiles Ltd Datamatics Technologies Ltd Housing Development Finance Corporation Ltd. 2 1,148 ICICI Bank Ltd. 5 1,303 I-Flex Solutions 5 2,815 Infosys Technologies Ltd. 4 5,333 Kotak Mahindra Bank 25 1,742 Pantaloon Retail India Ltd. 6 2,188 Phillips Carbon Black Ltd Polaris Software Raymonds Ltd Satyam Computers Ltd. 5 1,622 Wipro Ltd. 6 1,596 Zodiac Cloth Co. Ltd. 10 1,320 UNQUOTED Equity Shares of Rs. 10 Each Birla Management Centre Services Ltd., 7,000 70,000 Birla NGK Insulators Pvt. Ltd., 10, ,750 Birla Project Development Co. Ltd., 11, ,000 8% Preference Share of Rs. 10 Each Birla Management Centre Services Ltd., 200 2,000 Investment In Associates 9% Redeemable Cumulative Preference Share of Rs. 100 Each Crafted Clothing Pvt. Ltd. 180,000 18,000,000 Total (A) 18,537,533 CURRENT INVESTMENTS Units of Mutual Fund of Rs.10 Each Birla Cash Plus Retail Plan Dividend 18, ,667 Birla Floating Rate Fund Dividend Reinvestment 6, ,505 Total (B) 364,172 Grand Total (A + B ) 18,901,705 (134)

152 Number As at 31st March, 2006 (Rupees) E) Details of investment of Birla Global Asset Finance Company Limited LONG TERM INVESTMENTS Equity Share Quoted HDFC Bank (A) 4,000 Unquoted Birla Management Centre Services Ltd 7, Birla Sun Life Trustee Co. Pvt. Ltd (B) 70,540 Grand Total (A) + (B) 74,540 F) Details of investment of BGFL Corporate Finance Private Limited LONG TERM INVESTMENTS Equity Shares Quoted Dhoot Industrial Finance Ltd 200, ,000 Biochem Synergy Ltd 5,200 1,000 Maxwel Apparel Ltd 11,750 1,000 Shetkari Solvent Ltd 300 1,000 Tribology Ltd 1, (A) 243,975 Unquoted Birla Sun Life Trustee Co. Pvt. Ltd Sub - Total (a) 320 Preference Shares (Fully Paid) Secals Ltd (.50% Cumm. Redeemable Pref Shares) 540,000 54,000 Secals Ltd (14.00% Cumm. Redeemable Pref Shares) 460,000 46,000 Sub - Total (b) 100,000 (B) = (a+b) 100,320 Less: Provision for diminution in the value of investments 103,975 Grand Total (A) + (B) 240,320 (135)

153 Number As at 31st March, 2006 Rs. Crores G) Details of investments of Madura Garments Export Limited LONG TERM INVESTMENTS (UNQUOTED) Equity Shares M/s. Crafted Clothing Pvt.Ltd. 110, M/s. English Apparels Pvt.Ltd. 10, M/s. Harwood Garments Pvt.Ltd. 12, TOTAL 0.13 H) Details of investments of Alpha Garments Pvt.Limited LONG TERM INVESTMENTS (UNQUOTED) Equity Shares M/s. Crafted Clothing Pvt.Ltd. 130, M/s. English Apparels Pvt.Ltd. 20, M/s. Harwood Garments Pvt.Ltd. 27, TOTAL 0.18 I) Details of investment of Aditya Birla Telecom Limited Birla Cash Plus Institutional Premium Plan Growth 3,438, (136)

154 Prominent Aditya Birla Group of Companies / JVs in India The Aditya Birla Group enjoys a leadership position in all the sectors in which it operates I ADITYA BIRLA NUVO & ITS ASSOCIATES Aditya Birla Nuvo Limited Viscose Filament Yarn, Garments Carbon Black, Fertilisers, Textiles (Spun Yarn & Fabrics), Insulator (Domestic Marketing), Financial Services Subsidiaries Birla Sun Life Insurance Company Limited : Life Insurance [JV with Sun Life Financial Inc of Canada] PSI Data Systems Limited & its subsidiary : Software Services -Birla Technologies Limited TransWorks Information Services Limited : Business Process Outsourcing Madura Garments Exports Limited : Contract manufacturing of Garments Laxminarayan Investment Limited : Investment Aditya Birla Telecom Limited : - Birla Global Asset Finance Company Limited : Retail Finance Company Birla Insurance Advisory Services Limited : Non-life Insurance Advisory Services BGFL Corporate Finance PrivateLimited : Corporate Services Joint Ventures Birla NGK Insulators Private Limited : Insulators Idea Cellular Limited : Telecom Birla Sunlife Asset Management Company Limited : Investment/ Mutual Fund Birla Sunlife Trustee Company Limited : Trustee of Birla Mutual Fund Birla Sunlife Distribution Company Limited : Investment Advisory II OTHERS Grasim Industries Limited & its subsidiaries : Viscose Staple Fibre, Cement, Sponge Iron, Textiles, Chemicals - UltraTech Cement Limited : Cement - Shree Digvijay Cement Company Limited : Cement Printed at Infomedia India Ltd. Hindalco Industries Limited & its subsidiaries : Aluminium, Copper - Indian Aluminium Company Limited : Aluminium Foil - Bihar Caustic And Chemicals Limited : Caustic Soda, Liquid Chlorine, Hydrochloric Acid Essel Mining & Industries Limited : Iron and Manganese Ore Mining, Noble Ferro Alloys, Nitrogen production Tanfac Industries Limited : Fluorine products

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