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Directors Report of Aarti Industries Ltd.

Mar 31, 2015

Dear Members,

The Directors are pleased to present this Thirty Second Annual Report and the Audited Statement of Accounts for the year ended 31st March, 2015.

FINANCIAL RESULTS (RS. in Crores)

Standalone

Particulars 2014-15 2013-14

Net Sales 2,824 2,599

Other Operating Income 47 34

Total Income from Operations (Net) 2,871 2,633

Expenses

a) Cost of Material Consumed 1,646 1,631

b) Purchases of Stock-in-trade 132 117

c) Changes in inventories of Finished Goods, 17 (62) Work-in-progress and Stock-in-trade

d) Employee Benefits Expenses 90 76

e) Depreciation and Amortisation Expenses 79 87

f) Other Expenses 529 476

Total Expenses 2,493 2,325

Profit/(Loss) from Operations before Other Income, Finance Costs and Exceptional Items 378 308

Other Income/Exceptional Items 5 10

Profit/(Loss) before Finance Costs 383 318

Finance Costs 137 118

Profit/(Loss) before Tax 246 201

Tax Expenses

a) Provision for Taxation-Current 40 38 (net of MAT entitlement)

b) Provision for Deferred Tax 18 14

Total Tax Expenses 58 52

Share of Profit/(Loss) of Associates - -

Minority Interest - -

Net Profit/(Loss) after consolidation 188 149

Earnings Per Share (RS.) 21.20 16.78

Book Value Per Share (RS.) 102.47 87.90



Consolidated

Particulars 2014-15 2013-14

Net Sales 2,861 2,598

Other Operating Income 47 34

Total Income from Operations (Net) 2,908 2,632

Expenses

a) Cost of Material Consumed 1,644 1,630

b) Purchases of Stock-in-trade 171 117

c) Changes in inventories of Finished Goods, 17 (62) Work-in-progress and Stock-in-trade

d) Employee Benefits Expenses 94 79

e) Depreciation and Amortisation Expenses 82 88

f) Other Expenses 516 467

Total Expenses 2,524 2,319

Profit/(Loss) from Operations before Other 384 313 Income, Finance Costs and Exceptional Items

Other Income/Exceptional Items 9 11

Profit/(Loss) before Finance Costs 393 324

Finance Costs 138 118

Profit/(Loss) before Tax 255 206

Tax Expenses

a) Provision for Taxation-Current 43 40 (net of MAT entitlement)

b) Provision for Deferred Tax 18 14

Total Tax Expenses 61 54

Share of Profit/(Loss) of Associates 14 11

Minority Interest (2) (1)

Net Profit/(Loss) after consolidation 206 162

Earnings Per Share (RS.) 23.24 18.34

Book Value Per Share (RS.) 114.73 98.29

DIVIDEND

Your Company had declared and paid Interim Dividends of RS. 3.75 ps. (@ 75%) per share (of RS. 5/- each). Your directors are pleased to recommend a Final Dividend of RS. 1.75 ps. (@ 35%) per share (of RS. 5/- each) for the Financial Year 2014-15, aggregating to the Total Dividend of RS. 5.50 ps. (@ 110%) per share (of RS. 5/- each) for the Financial Year 2014-15 compared to the Total Dividend of RS. 4.50 ps. (@ 90%) per share (of RS. 5/- each) for the Financial Year 2013-14. The total amount of Dividend pay-out for the year would be RS. 48.73 Crores (Previous Year: RS. 39.87 Crores).

Your Company has transferred RS. 19.00 Crores to General Reserve (Previous Year: RS. 14.90 Crores) and RS. 30.00 Crores to Debenture Redemption Reserve (Previous Year: Nil).

FINANCIALS

Your Company is pleased to report continuation of its growth momentum. Inspite of the inventory losses due to sharp decline in input prices (trailing the fall in crude prices), your Company had been able to present the growth in bottom line by over 25%.

Your Company''s Total Income stood at RS. 2,871 Crores, up by 9% as compared to RS. 2,633 Crores in Financial Year 2013-14. Operating Profit rose by 15% to RS. 456 Crores for Financial Year 2014-15 as compared to RS. 395 Crores for Financial Year 2013-14. Operating Margins increased from 15% for Financial Year 2013-14 to about 16% for Financial Year 2014-15.

Net Profit Before Tax rose by 22% to RS. 246 Crores in Financial Year 2014-15 as compared to RS. 201 Crores in Financial Year 2013-14. Likewise, Net Profit after Tax & Deferred Tax also grew by 26% to RS. 188 Crores in Financial Year 2014-15 as compared to RS. 149 Crores in Financial Year 2013-14.

On a Consolidated basis, your Company''s Total Income stood at RS. 2,908 Crores, up by 10% as compared to RS. 2,633 Crores in Financial Year 2013-14. Operating Profit (before other income) rose by 16% to RS. 466 Crores as compared to RS. 402 Crores in Financial Year 2013-14. Similarly, Net Profit after consolidation grew by 27% to RS. 206 Crores in Financial Year 2014-15 as compared to RS. 162 Crores in Financial Year 2013-14. Likewise, Consolidated EPS surged by about 27% at RS. 23.24 for Financial Year 2014-15, as compared to RS. 18.34 for Financial Year 2013-14.

With these stable and consistent performances, the Consolidated Profits for your Company had surpassed RS. 200 Crores mark. After going Public in 1992, your Company had been able to achieve and cross the historic RS. 100 Crores consolidated profits in Financial Year 2011-12 and in next three years'' time your Company has been able to double the same. With these numbers, the consolidated profits have grown for last 5 years at a CAGR of about 26%, while the revenues have grown at a CAGR of about 19% during the same period. A large part of this growth is on account of increased volumes from global markets.

CHEMICAL INDUSTRY - STRUCTURE & DEVELOPMENT

Speciality Chemicals are a group of high value, low volume chemicals formulated for developing/enhancing properties of specific products. The customised product requires special technologies, process expertise and understanding of client needs, and so the industry typically commands limited competition, yielding higher gross margins and returns than other chemical sub-segments.

The Global Speciality Chemicals market is growing at a fast pace. Despite the economic recession, it has recovered and is showing signs of high growth in the future. According to Tech Navio Analysis, the Global Speciality Chemicals

market is expected to grow at a CAGR of 5.16% during the period 2013-2018 and reach US $760.9 billion by 2018 (from US$ 619.0 billion in 2014).

Industry Segmentation

The chemical industry is an integral constituent of the growing Indian Industry. It includes basic chemicals and its products, petrochemicals, fertilizers, paints, varnishes, gases, soaps, perfumes and toiletry and pharmaceuticals. It is one of the most diversified of all industrial sectors covering thousands of commercial products. This Industry occupies a pivotal position in meeting basic needs and improving quality of life. The Industry is the main stay of industrial and agricultural development of the country and provides building blocks for several downstream industries, paints, soaps, detergents, pharmaceuticals, varnish etc.

The Indian Chemical industry has witnessed robust growth in the past decade and has been ranked 6th largest in the world and 3rd largest in the Asia according to United Nations Industrial Development Organisation (UNIDO). The industry has been forecast to reach USD 200 billion mark by 2020.

Indian government is rendering extensive support to give impetus to the Indian chemical industry and has set up the task force to consider suggestions for National Chemical Policy to ensure steady growth of the country''s chemical sector.

Indian Speciality chemicals industry is expected to grow at a robust pace driven by consumption boom, infrastructure spending and exports to international markets.

Proxy to play consumption as well as infrastructure theme

The key demand drivers for Speciality chemicals are per capita income growth, rising urbanisation and infrastructure spending. The per capita chemical consumption for India in most categories of Speciality chemicals (paints, dyes, polymers, home and personal care etc.) is only about 15-20% of the global average, thus, there is a significant opportunity for growth.

While around 70% of Speciality chemical demand is linked to consumer spending, the balance is used by construction and infrastructure industry. As domestic consumer as well as infrastructure spending slowed in the past couple of years, Indian Speciality chemical companies were impacted though overall impact was limited due to strong growth in exports. However, both these dynamics are expected to improve in medium to long term.

The robust demand for Speciality chemicals (FICCI est: 13%) would be driven by strong growth in end-user industries itself. While the ones linked to infrastructure (construction chemicals, paints, water chemicals, industrial cleaners) are expected to grow at >15%, the other categories (dyes, personal care, plastic additives, rubber chemicals) are expected to grow at 10-15%.

Key end user industries for Speciality chemicals in India and their expected growth rates

Segment 2012 Size Exp. vol. (in RS. bn) CAGR (%)

Paints and Coatings 4.0 15

Colorants 3.7 10

Speciality polymers 15 15

Home care surfactants 12 5

Plastic additives 10 12

Textile chemicals 0.9 11

Construction chemicals 0.7 25

Water chemicals 0.7 7

Personal care ingredients 0.5 9

Flavors and fragrances 0.5 10

Paper chemicals 0.5 22

Printing inks 0.5 10

Industrial cleaners 0.2 19

Rubber chemicals 0.2 13

Other segments 6.3 15

Total 22.4 13

Source FICCI

Exports to propel further growth

With improving cost competitiveness (particularly w.r.t. China), favourable IPR framework and strong domestic demand outlook, India is emerging as a preferred manufacturing destination for Speciality chemicals. China is losing out its edge over India in chemical manufacturing due to:

(1) steep cost inflation (labour costs);

(2) stricter compliance of environmental regulations being enforced in China, while in India the same had been already in place since past few years; and

(3) Yuan appreciation in recent years.

Chemical exports from India have grown at 22% CAGR over 2010-14, significantly outpacing the global demand growth (3-4%) and the trend has continued through in 2015 as well.

Shares in exports of chemicals

Exports from India are likely to get further fillip and India is expected to increase export market share (from miniscule 2% currently) with:

* Curtailment of capacities in developed countries: While capacities are being closed in developed world, a simultaneous scale up of capacities is being witnessed in emerging economies.

* De-risking of exports by global MNCs: The major MNCs are trying to de-risk their supply chain by diversifying their

RM procurement away from China (amongst the developing countries). During the past decade, China aggressively added chemical capacities and became the largest exporter (amongst the developing countries) to MNCs. However, as risks associated with Chinese exports increase (domestic slowdown, currency appreciation etc.), MNCs are seeking to increasingly prefer India amongst the developing countries for their RM supplies.

The Indian Chemical Companies are expected to get further fillip under the "Make in India" drive. Various new projects are proposed to be commenced with a focus to make India as a manufacturing hub for those products. This shall increase the direct and indirect demand of various chemicals. These chemicals are expected to contribute directly or indirectly as Import Substitute or contribute to the increase in exports from India.

Your Company is a leading manufacturer of Speciality Chemicals and has integrated presence across various value chains. Your Company''s diversified end-user application and customer profile had provided a significant insulation against the global downturns and various geographic volatilities. Your Company''s strength to meet the Stringent and Customised specifications for each of its 800 customers have helped it gain customer confidence and trust and also to open up new growth opportunities. Exports, which accounts for half of the total revenues, is well spread across various customers which your Company caters across different geographies, as mentioned in the adjacent chart.

Also significant quanta of domestic supplies are converted/value added and eventually exported. Thus about 70% of our volumes are directly or indirectly exported. Your Company''s global market position, strategic arrangements with key customers, Customised delivery offerings, increased scale of Operations, ability to meet the stringent quality requirements of the customers, have enabled your Company to increase its presence in the global arena over a period of time and also have helped it to work along with the customers in their growth plan and thus have been able to add new products around this phase of growth.

We now present you some highlights of the year passed by, starting with the brief Segmental financials as below:

(RS. in Crores)

Particulars Speciality Pharmaceuticals Chemicals

Sales 2,398 303

% of Total Sales 82.5% 10.4%

Export 1,251 164

% of Sales 52.2% 54.1%

EBIT 408 36

% of Sales 17.0% 11.9%

Capital Employed as at 31st March, 2015 1,486 485

ROCE % 27.5% 7.4%



Particulars Home & Personal Total Care Chemicals

Sales 207 2,908

% of Total Sales 7.1% 100.0%

Export 34 1,449

% of Sales 16.4% 49.8%

EBIT 3 447

% of Sales 1.5% 15.4%

Capital Employed as at 31st March, 2015 87 2193*

ROCE % 3.5% 20.4%

(* includes unallocated Capital Employed of RS. 135 Crores)

As you would note, Speciality Chemicals continues to account for a major part of Revenues and EBIT. However, it may also be noteworthy, that Pharmaceuticals Segments, wherein the USFDA approvals had been accorded to our units in 2011, had breakeven in 2012. The Pharma Segment revenues had registered a CAGR of over 22% over last four years, while the EBIT had jumped from RS. 4 Crores to RS. 36 Crores during the same period. Further details about each of these segments are presented below:

Speciality Chemicals Segment:

Speciality Chemicals Segment accounts for the majority of revenues and profits for the Company. RM Price volatility impacts the segment''s topline the most, but has very limited impact on the bottom line. We present below a note which explains this in more detail.

Impact of RM Volatility

Since the Company adopts a Cost Plus pricing for its various Speciality Chemicals, its topline is linked with the Input costs. During Financial Year 2014-15, we had witnessed sharp corrections in the prices of Crude Oil during the period of November 2014 to March 2015. As a result, the prices of various Raw-materials procured by the Company viz, Benzene, Aniline, Methanol, Phthallic Anhydride, etc had also declined accordingly. This resulted in the decline in revenues for the segment, which is evidenced from the below table: Segments Financials Annual Q1 Q2 (Standalone) Financial Financial Financial Year 2013-14 Year 2013-14 Year 2013-14

Benzene Price (RS./kg) 90 (for Q4 88 85 Financial Year 2013-14)

Sales Revenue 2,217 614 625 (RS. in Crores)

EBIT (RS. in Crores) 333 98 104

EBIT % 15.0% 16.0% 16.6%

Segments Financials Q3 Q4 Annual Standalone) Financial Financial Financial Year 2013-14 Year 2013-14 Year 2013-14

Benzene Price (RS./kg) 70 50 50 (for Q4 Financial Year 2014-15)

Sales Revenue 568 554 2,361 (RS. in Crores)

EBIT (RS. in Crores) 88* 105 395

EBIT % 15.5% 19.0% 16.7%

* Q3 EBIT lower on account of annual mandatory shutdown of Acid unit, Forex Mark to market loss and Inventory markdown.

As you would note from above, the Sales revenues had declined in Q3 and Q4, in spite of having registered a volume growth of about 13%, due to falling RM prices.

Further, since the Company''s product pricing is on Cost Plus basis, EBIDTA per KG is constant, hence increase in volumes results into higher absolute EBIDTA resulting into higher segmental EBIT. This is reflected in the increase in EBIT, as mentioned in above table. Further, also note that the EBIT mentioned above were after adjusting for inventory markdown in Q3 for about RS. 8 Crores. and in Q4 for about RS. 11 Crores. Hence, in spite of these markdowns, the overall EBIT for the segment grew by about 19% on Y-o-Y basis.

It may also be noted that the demand for most of the products manufactured by your Company is in-elastic to the RM price fluctuations. Further, in case of high value added products, the impact of the same becomes significantly lower to have any impact.

We now present below the key financials for Speciality Chemicals Segment: (RS. in Crores)

KEY FINANCIALS FINANCIAL YEAR FINANCIAL YEAR 2014-15 2013-14

Sales 2,398 2,216

% of Total Sales 82.5% 84.2%

Export 1,251 1,130

% of Segment Sales 52.2% 51.0%

Segment EBIT 408 332

EBIT % 17.0% 15.0%

KEY FINANCIALS FINANCIAL YEAR FINANCIAL YEAR 2012-13 2011-12

Sales 1,757 1,350

% of Total Sales 83.8% 80.7%

Export 946 639

% of Segment Sales 53.8% 47.3%

Segment EBIT 319 217

EBIT % 18.2% 16.1%

As you would note, fall in raw material prices, kept the growth in topline limited to about 8%, while the increase in volume of initial and high value added products resulted the increase in Segmental EBIT by about 23% on Y-o-Y basis and even on CAGR over last four years.

Your Company continues to maintain its leadership position in the domestic market for its range of Benzene Based Derivatives and enjoys global market share of about 25% to 40% amongst various products supplied by them.

For most of the above processes, your Company had reached near to 90% capacity utilisation. As a result, your Company had been in last 2-3 years initiated various expansion projects to increase its capacities of various existing processes and also had plans to introduce the new products to cater to the growing demand of its over 800 domestic and global customers. Some of these projects are briefed below:

NCB Expansion:

During last year, your Company had started the process of expansion of its NCB Capacities from 57000 MT to about 75000 MT. During Q3 Financial Year 2014-15, your Company had commissioned the first phase of its expansion, thereby enhancing the capacities upto 66000 MT, while the balance is expected to be commissioned by Q3 Financial Year 2015-16. As a result, the production of NCB had increased in Q4 Financial Year 2014-15 to 14800 MT as compared to the quarterly average of 13500 MT for Financial Year 2013-14. Production during Financial Year 2014-15 was about 53400 MT as compared to 54230 MT for Financial Year 2013-14. The production during first nine months was lower on account of shut down taken during the year for the on-going brownfield expansion activities. These incremental capacities would increase our market share for NCB in domestic and global markets and also provide adequate feedstock for the related downstream products (viz. Hydrogenated Products and various other products), having higher EBIDTA. As you would recollect, your Company had already expanded its Hydrogenation capacities and now has sufficient capacities to cater to the global demand for next few years. Increase in the feeder capacities such as NCB, helps your Company to increase the utilisation of these expanded hydrogenation capacities as well.

PDA Expansion:

Further, your Company''s scale up of its PDA capacities from 250 tpm to 1000 tpm had reached its final stage of implementation and is expected to be commissioned in phased manner from Q1 Financial Year 2015-16.

Benzene to PDA Process Flow

These capacities shall increase your Company''s capabilities for increase its presence in the end-use applications of High End Polymers & Additives. This will also add your Company as the only Indian source for few MNCs which presently do not source this product from India.

Introduction of Toluene and Ethylene Based Products:

Your Company''s diversification into Toluene chemistry by way of introduction of Nitrotoluene and Derivatives is expected to commercialise by end of current year. Your Company plans to setup a unit with a capacity of about 30000 tpa. Your Company is confident to attain faster volume growth in this new value chain, as the end-customer and the applications are fairly similar or same to the ones which are presently being serviced by your Company. The introduction of these products will further strengthen your Company''s market position and capabilities to supply basket of products catering to end user application such as Optical Brighteners, Agrochemicals, Pigments, Pharmaceuticals, etc.

This unit shall also provide the feeder material required for the proposed Ethylation unit being setup at Dahej SEZ. Your Company would be setting up the Ethylation unit by adopting the Swiss Technology. It will be first time in India, that a Company is going to procure Ethylene by pipeline and operate the greener Ethylation process. Your Company plans to gradually introduce a range of Ethylene based chemicals over longer tern catering the end-user applications of Agrochemicals, Engg. Polymers, Pigments, Additives, etc. The Dahej SEZ project is presently being carried on by Anushakti Specialities LLP, which is a 100% subsidiary of your Company. Your Company proposes to absorb the same into itself during Financial Year 2015-16, so as to bring the entire chemical operations under one roof. The Company expects to commission this SEZ unit in Q1 of Financial Year 2016-17.

Greenfield Chlorination Complex

Your Company further proposes expansion of its capacities by way of setting up new units for other key processes and targets to commission the same within next 2 year''s time. Your Company plans to setup a Chlorination Complex at Jhagadia. This complex shall expand your Company''s capacities in the Chloro Benzene range of chemicals and shall also provide additional capacities to introduce a new range of chlorinated compounds. Since Chlorine is manufactured in nearby Chloro Alkali units, your Company proposes to procure the same by pipeline on a continuous basis, which adds as a significant logistical benefit to set up the facility at Jhagadia.

Speciality Chemical Complex

Your Company also proposes to set up another speciality Chemical complex at Jhagadia to manufacture of range of Speciality Chemicals from the present value chain and also plans to introduce few new products which were being developed under secrecy agreement with the MNC customers.

Co-Generation Power Plant

With large capacities being commissioned over next 12-30 months at Jhagadia, your Company plans to set up a Captive Co-generation Power Plant similar to the ones being already operational at its Vapi unit, but with a higher capacity. This shall help meet the partial power needs of the unit at Jhagadia at significantly lower power costs. Thus, this shall bring about cost savings in respect of the future projects being proposed at Jhagadia.

These projects would cater to the growing demands for

various Agrochemicals and Engg. Polymers and would help the Company increase its market share in this space.

These capacities would provide the further diversification of the product mix and would drive the growth beyond Financial Year 2017-18.

Pharmaceuticals:

Indian pharmaceutical industry was valued at USD 12 Bn in 2013. The market is primarily driven by exports to regulated as well as semi-regulated markets. Currently, India exports drugs to more than 200 countries and vaccines and bio-pharma products to about 151 countries. Globally, India ranks 3rd in terms of volume and 14th in terms of value. Industry estimates show that generic drug user fee amendments in USA, compulsory licensing and national pharmaceutical pricing policy have increased the legal expenditures of the top 10 drug makers in India by ~50% in the past three years.

The regulatory environment in the pharmaceutical sector is more challenging now than ever before. To meet the new norms, companies will have to invest in re-establishing their competitive position. Optimization of product portfolio to target high return products and building distinguishing capabilities to stay ahead of competition would be the key to success. The winning companies will be the ones which analyze their competitive position and meet the rapid changes happening in the industry by evaluating and speedily implementing the five levers outlined below.

Over a period of time, Mergers and Acquisitions in Pharma segment have resulted into consolidation and rationalisation. Gradually the Innovator companies have started focusing more on Oncology drugs as a major thrust area. Your Company had been working into this area and is expected to benefit over long term.

China had been a traditional source of intermediates to various companies manufacturing APIs world over. However, tighter compliance of pollution norms, increasing and stricter regulatory processes, consolidation of various pharma companies, had resulted into restricted suppliers, which ultimately affects the supply of various intermediates. This has opened up opportunities in India for manufacture of various intermediates as Import Substitutes. Your Company is working for various such intermediates with various companies and expects to attain a strategic position in the intermediates space.

Your Company had been looking at older/already off-patented Generics to be supplied in regulated markets, directly and indirectly, wherein very few/restricted suppliers operates. With commissioning of expanded capacities and having a range of 48 commercial APIs, with 33 EUDMFs, 28 US DMF, more than 60% exports coming from regulated markets, your Company is better placed to increase its share in the regulated markets.

We present below the key financials for Pharmaceuticals Segment:

(RS. in Crores)

KEY FINANCIALS FINANCIAL YEAR FINANCIAL YEAR 2014-15 2013-14

Sales 303 249

% of Total Sales 10.4% 9.5%

Export 164 117

% of Segment Sales 54.1% 47.0%

Segment EBIT 36 30

EBIT % 11.9% 12.0%



KEY FINANCIALS FINANCIAL YEAR FINANCIAL YEAR 2012-13 2011-12

Sales 187 165

% of Total Sales 8.9% 9.9%

Export 92 66

% of Segment Sales 49.2% 40.0%

Segment EBIT 9 4

EBIT % 4.8% 2.6%

As you would note from above, the segment had been growing at the fastest pace. Out of incremental sales in Financial Year 2014-15 of about RS. 54 Crores, growth in exports sales was about RS. 39 Crores, i.e. more than 70% of incremental growth had been from global markets. Hence, increased volumes from Global and more particularly Regulated markets would help in faster paced growth for this segment.

Home & Personal Care Chemicals

Rising per capita income have enabled the increase of consumption of hygiene and personal care products. Increasing consumption is driving demand for wide range of Cosmetic Chemicals, Health care products as well as Hygiene products using Performance Chemicals, Polymers and Oleo Chemicals. Our PM''s "Swachh Bharat Abhiyaan", is expected to increase the demand of these chemicals significantly.

We present below the key financials for Home & Personal Care Chemicals Segment:

(RS. in Crores)

KEY FINANCIALS FINANCIAL YEAR FINANCIAL YEAR 2014-15 2013-14

Sales 207 167

% of Total Sales 7.1% 6.3%

Export 34 34

% of Segment Sales 16.4% 20.4%

Segment EBIT 3 4

EBIT % 1.5% 2.4%



KEY FINANCIALS FINANCIAL YEAR FINANCIAL YEAR 2012-13 2011-12

Sales 152 158

% of Total Sales 7.3% 9.5%

Export 22 21

% of Segment Sales 14.5% 13.2%

Segment EBIT 5 5

EBIT % 3.3% 3.1%

Home & Personal Care Chemicals segment is relatively a low margin business. Your Company has two manufacturing units, one each at Pithampur (Madhya Pradesh) & at Silvassa. Your Company plans to carry out debottlenecking for some of its operations so as to expand the capacities for export oriented products which have better margins. These efforts shall help the increase of exports for this segment and also result into improvement of margins.

SAFETY, HEALTH & ENVIRONMENT (SHE)

Mitigating the Safety, Health and Environment related hazards tops the priority list of various risks for the Company and is being regularly monitored with stricter compliances for any deviations. Your Company''s continuous efforts and thrusts into adopting better, cleaner and cost efficient technologies in its road to growth had been recognised by the Chemtech Foundation. The Award Committee of Chemtech Foundation Chaired by Shri Nadir Godrej, CMD of Godrej Industries Ltd, had accorded your Company with the Prestigious award of "Outstanding Achievement - Innovation" - Chemtech CEW Leadership & Excellence Award 2015.

Your Company had been chosen for this prestigious award for its continuous and commendable efforts in conserving environments as well as ensuring sustainable growth through path breaking innovation with thrust on 3Rs of Reduce-Reuse-Recover principle and several other initiatives. This Award recognizes your Company''s in-house technical innovations undertaken by the Company across various product development and continuous process & operations improvements while adopting eco-friendly technologies and constantly enhancing energy efficiency, by-products recovery, gainful usage from waste streams and more.

This award recognizes the efforts of your Company and motivates it to persist with the efforts for continuous improvement and innovation keeping always in mind the philosophy of "Growth with Sustainability for Sustainable Growth". Keeping these principles as an important element, your Company plans to invest further to capitalize on the growth opportunities available in the global arena.

Your Company had bought an adjoining plot of land admeasuring about 18,175 sq. mtrs. at Plot no. 806, 807, Phase III, GIDC, Vapi. This would help in decongesting the existing unit and thus improve the safety of the operation at Vapi significantly.

Your Company had further invested significant amounts to improve its setup and mitigate these risks. Some of the initiatives in this regard as briefed below:

Introduced Aarti Management System: An in-house developed framework of 32 elements detailing procedures and processes catering to all Plant Related Activities - 3 elements namely MOC (Management of Change), BBS (major root causes of incidents are due to behavior) and Permit Systems catering to reduce SHE related risks are launched. Other elements are being developed and reviewed which will be introduced in this year.

Process Safety studies and audits: To keep the thrust on achieving intrinsically safe processes, your Company had external safety audits and study by industry experts such as Chillworth, ABS, Zeplin, etc. In our journey to excel in field of process safety, your company focused on increasing in-house competency. Your Company''s operation team has done about 130 man hours of training on process safety leadership training conducted by DuPont and over 520 man hours of HAZOP training conducted by CLI (Centre Labour Institute). Your Company had also developed in-house capability for calorimetry of hazardous reaction, which is presently being done by very few Companies in India. Your Company also shared its journey with industry partners in a talk name "Chemical Reaction Hazard Management: Challenges & Strategies -- A perspective at AARTI GROUP OF INDUSTRIES" arranged in TIMA (Tarapur Industrial Manufacturers Association) Hall, MIDC Tarapur.

Behaviour Based Safety: Belief causes behaviour and behaviour cause action. As per industry statistics, around 90% incident is due to human behaviour. Considering this, your Company had initiated Behaviour Based Safety (BBS) project, to improve behaviours at shop floor. Since inception, your Company conducted 81 batches covering 2293 employees (77%) across organization. In order to monitor the behaviour, an online reporting and tracking system is launched. Totally 17,000 BBS Observation rounds have been conducted by our employees across plants

Process Automation plan had been implemented for critical unit operations and is now being evaluated / implemented over a period of time for other operations as well.

Upgradation of facility into Zero discharge:

Your Company had commissioned various equipments and processes such as water recovery, RO Plant, etc. and upgraded the two of its facilities into Zero Liquid discharge facility.

Your company is evaluating further for making other plants as zero discharge facilities.

Planning to introduce Automated Solid Handling Equipment: Your Company plans to automate the solid handling of various chemicals. This shall reduce the hazards of physical exposures related to manual handling of various chemicals.

With these and various other initiatives, your Company firmly places the SHE at the top of its goals and aims to provide a workplace which is safer and healthier for the society at large.

RISK, CONCERNS & ITS MANAGEMENT

Your Company perceives risks or concerns common to industry such as concerns related to the Macro Indian Economic Outlook, Global Economic fallout, Regulatory risks, Foreign Exchange volatilities, Higher Interest rates, Volatile Raw-material prices and other commercial & business related risks. While Segments like Pharmaceuticals and Home & Personal Care and Speciality Chemicals with applications into Agrochemicals are not much affected by the economic cycle and have its own independent growth drivers, the diversity of end uses of Speciality Chemicals and the ability of the Company to interchangeably use the production facilities insulate the Company from any adversity for any specific end user applications. Further, your Company''s diversified revenue mix, flexible product mix and increasing export volumes also help to derisk the business from any domestic economic setbacks as well as certain specific global uncertainties. Diversified & wide customer base further reduces risks of dependence of business with few customer or few products. Your Company is entering into long term supply arrangement with its key suppliers to ensure continuous and adequate supply of raw-materials to meet the growing demand for the products.

Chemical businesses are generally working capital intensive and hence the working capital requirements are also higher. Your Company has been making continuous efforts to reduce the working capital cycle.

Risk management policy underpins your Company''s efforts to remain a competitive and sustainable company, enhancing its operational effectiveness and creating wealth for its employees, shareholders and stakeholders in pursuance of its strategy. Your Company has constituted a Risk Management Committee.

The Company has a dynamic Risk Management framework to identify, evaluate business risks and opportunities. This framework seeks to create transparency, minimize adverse impact on the business. The business risk framework defines the risk management approach across the enterprise at various levels including documentation and reporting. The framework has different risk models which help in identifying risks, exposure and potential impact analysis for the Company level.

CORPORATE SOCIAL RESPONSIBILITY

Aarti group: Committed to Social Responsibility.

From the time of the inception of the Company, the Company''s Founder Visionary and Chairman Emeritus Shri Chandrakant Gogri has upheld the philosophy of ''giving back to the society'' with utmost fidelity.

Your Company actively contributes to the following segments:

1. Education & Skill Development

2. Healthcare Facilities

3. Women Empowerment and livelihood

4. Water Conservation and Environment

5. Rehabilitation in Disaster Affected areas

6. Eradication of Hunger & Poverty

7. Donating to Govt. bodies viz. Prime Minister & Chief Minister Relief Funds.

We advocate the concept of universal and all around development and hence work on "Clusters" in whole, while initiating a spectrum of development projects within the each identified locations. Our on-going initiatives are focused on bringing about an overall development in the rural sector. These initiatives are inspired by the guidelines set by Hon''ble Former President of India Dr. A.P.J. Abdul Kalam''s PURA (Providing Urban Amenities to Rural Area) model. Education, sanitation, health, water management, skill building, environment forms the key factors of this PURA model. Your Company had been actively involved and has been under implementation of PURA Model in villages at Kutch, Gujarat and at Beed (Marathawada, Maharashtra).

A brief about the various activities being undertaken at the Kutch Cluster for the implementation of PURA model and to being about an overall development and upliftment of the Cluster is presented below:

Kutch Cluster

Education:

Every year over four hundred students from around 12 villages receive free Secondary and Higher Secondary Education at Tulsi Vidya Mandir (TVM). TVM is one of its kind rural school to admit dropouts & rejected from other schools & poor students and had achieved an average 90% results in SSC and 95% results in HSC. The Company intends to expand the TVM horizons by commencing Technical and Army Entrance Training courses.

Further, a new project named "Vidya Sarthi" had been undertaken, wherein local youngsters (presently 20) are trained and recruited for imparting extra coaching to students of Government managed Primary schools in vicinity of TVM. This model not only provides employment opportunities to the youngsters but also provides the additional support to the Government managed schools in achieving the goal of "Education for all"

Sanitation: After your Company''s engagement, one of the village had achieved 100% sanitation mark and has an underground drainage system and waste water recycle plant. Taking cues from our PM''s ''Swachh Bharat Abhiyaan'' your Company had undertaken to provide toilets to all families of TVM students of neighbouring 12 villages. Approximately over 100 toilets would be provided by your Company under this programme.

Rain water harvesting: A traditional lake was revived to store maximum rain water. Animals, birds, farmers are benefitted by this "Mirik lake"

Cattle feed depot: Cattle owners from around twenty villages are being provided cattle feed at subsidized rates from this center.

In addition to above, various Health Camps, Agricultural Training Camps and other activities are carried out to promote the overall development of the cluster. The results had been so encouraging that your Company further plans to set up three PURA model Clusters in due course of time. The Model implementation was further appreciated by the local NGOs and other agencies, who had also started replicating the model for development in other neighbouring Districts.

Your Company had been engaged into similar Cluster development activities at Beed, Maharashtra which had been adversely affected by drought situations.

In addition to above, your Company has actively involved into various activities which are broken into few critical segments. Some of these activities are briefed below:

1. Education & Skill Development:

Education, in particularly in English Medium in Mumbai region, have become very expensive and beyond the reach of a lot of Urban Poor families. Your Company contributes and participates into distributing Education Aid through Kutch Jain Mahajan. On an average over 2700 students from Jr. KG to XII Std. had been aided under this programme.

Your Company had contributed in Building Infrastructure for Nahur Welfare Association and Trust, which plans to start CBSE curriculum school named "Dhan-Vallabh English Medium School" at Mulund, Mumbai. The School would start with Nursery, Jr. KG & Sr. KG from 2015-16 and focuses on imparting education to Low income groups of the Urban Mumbai.

Your Company also actively supports Five Nomad Boys and Girls hostels accommodating over 300 pupils at Radhanpur in the State of Gujarat.

Your Company also works with Yusuf Meherally Center (YMC) in arranging and running alternative schools for children of Saltpan workers and Fishermen on coastal belt of Kutch. At present 21 such schools are being run whereby over 650 children are being educated.

Your Company had in past adopted the "Ratanpur Boarding School" managed by "Sushil Trust" and directly supports entire expenditure for approximately 240 students at this Boarding School, every year.

In addition to this, your Company provides direct help to schools located nearby its operations/facilities by way of sponsoring text books/ note books, grant/aid for fees, etc.

To promote the technical educations, your Company gives donation to Institute of Chemical Technology to enable them to provide interest free bridge loan to Post Graduation students.

Your Company had also funded the local NGO for setting digital classroom in 25 rural primary schools run by Govt. near its Bhachau factory.

2. Health

Considering increased number of patients with kidney-related diseases, requiring expensive treatment of frequent dialysis, your Company had donated 10 Dialysis Machines to Ahmedabad based hospitals to offer treatment for the low income group at very nominal rates.

In addition to above, your Company continuously supports various Health Camps and Blood Donation camps around and beyond its manufacturing units. Your Company also sponsors Medical Conference for Doctors working in rural areas to help them understand the new advancement in the Medical fields.

3. Woman Empowerment

Your Company had initiated a unique programmed named "Sanskardhan" at Maninagar, Gujarat where women are provided training in Stitching and Beautician Courses. Such programs promotes the Spirit of Women Empowerment and endorses independence and sustainability among them.

Your Company had also started "Nursing School" where women from different areas and economically backward classes are trained to enable them procure employment opportunities into Metro Cities and even abroad. This year, your Company aims at undertaking the training for approx 250 women under this programme.

In an another initiative, your Company in association with Jan Seva Charitable Trust giving accommodation along with food supply to approximately 60 tribal women who had enrolled for higher education.

4. Environment

Your Company had set up "cattle feed depots" in around 27 villages within the drought affected district of Beed in Maharashtra. The project also involves the provision of water pumps for bore well along with 2 check dams on Riddhi and Siddhi rivers. Your Company is keen to expand the current phase of the project in association with the Government and the local NGO - Siddhivinayak Parivar.

Your Company had instituted the project of "Parjanya Ecology" to develop a check dam at Anjar Taluka, Kutch. Reduction of Green spaces had been a global concern and is also a reason for various climatic and ecological changes. Your Company, in its efforts to promote and conserve green spaces, had developed a Garden at Vapi with dedicated Jogging and walking tracks, seating arrangements for elderly people, water fountain and such other amenities. Over 80 trees/plants had been planted at this Vapi Garden.

Your Company had further committed to build several toilets under the PM''s ''Swachh Bharat Abhiyaan'' across the remote areas of Gujarat over a span of two years.

5. Rehabilitation in Disaster Affected areas

Aarti industries which holds an expertise of working in collaboration with the government and local NGOs has carried out rehabilitation in almost all the disaster affected areas in Kutch, Tamil Nadu, Orissa, Jammu & Kashmir, Indonesia, Bihar, Uttarakhand and Maharashtra. In Jammu & Kashmir after the floods in 2014, Aarti rehabilitated approximately 50 families providing them with housing, kitchen kit, winter kit, health and checkup at Srinagar. Your Company continues its efforts to rehabilitate further families in these affected region.

6. Eradication of Hunger & Poverty

With an initiative to provide the basic amenities to the Urban Slum, under the Urban Slum Rehabilitation programme was adopted by Kutch Jain Foundation (KJF). Your Company had not only financially supported KJF but also have been actively involved in the day-to-day functioning of the foundation. The Foundation is engaged into building Community Township with livelihood opportunities and provide the needy Urban Slum families subsidized accommodation at these Township.

In addition to above, your Company participates into a spectrum of CSR activities evolving around the general upliftment of the economically backward class of people. Your Company also makes active contribution to Prime Minister Relief Funds, Chief Minister Relief Funds and such other Government Bodies to assist them in their relief measures in the affected areas.

Your Company also plans to contribute for any further activities which promotes the upliftment of the society and shall always remain committed to the moral objectives.

CSR annual Report is annexed as Annexure ''A'' and forms an integral part of the Report.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

As on 31st March, 2015 the Company had 2039 permanent employees at its manufacturing plants and administrative office. The Company recognizes the importance of human value and ensures that proper encouragement both moral and financial is extended to employees to motivate them.

The Company enjoyed excellent relationship with workers and staff during the last year.

REMUNERATION AND NOMINATION POLICY

The Board of Directors has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management of the Company. The policy also lays down criteria for selection and appointment of Board Members. The details of this policy are given in the Corporate Governance Report.

PERSONNEL

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in an annexure and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the Report and the Accounts are being sent to the Members excluding the aforesaid Annexure. Any Member interested in obtaining a copy of the Annexure may write to the Company Secretary at the Registered Office of the Company.

MATERIAL CHANGES AND COMMITMENT IF ANY AFFECTING THE FINANCIAL POSITION OF THE COMPANY OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR TO WHICH THIS FINANCIAL STATEMENTS RELATE AND THE DATE OF THE REPORT

No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which this financial statements relate on the date of this Report.

MEETINGS

The details of the number of meetings of the Board held during the Financial year 2014-15 forms part of the Corporate Governance Report.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has clearly laid down policies, guidelines and procedures that form part of internal control systems, which provide for automatic checks and balances. Your Company has maintained a proper and adequate system of internal controls. This ensures that all Assets are safeguarded and protected against loss from unauthorized use or disposition and that the transactions are authorised, recorded and reported diligently. Your Company''s internal control systems commensurate with the nature and size of its business operations. Internal Financial Controls are evaluated and Internal Auditors'' Reports are regularly reviewed by the Audit Committee of the Board.

DIRECTORS'' RESPONSIBILITY STATEMENT

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3) (c) of the Companies Act, 2013:

a. that in the preparation of the annual financial statements for the year ended 31st March, 2015, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b. that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

c. that the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the Assets of the Company and for preventing and detecting fraud and other irregularities;

d. that Directors'' have prepared the annual accounts on a going concern basis;

e. the directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively;

f. the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during the financial year were on arm''s length basis and were in the ordinary course of the business. There are no materially significant related party transactions made by the Company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with interest of the Company at large.

All related party Transactions are presented to the Audit Committee. Omnibus approval is obtained for the transactions which are foreseen and repetitive in nature. A statement of all related party transactions is presented before the Audit Committee on quarterly basis, specifying the nature, value and terms and conditions of transactions.

The related party transactions policy is uploaded on the Company''s website at the web-link given below:

http://www.aartigroup.com/pdfs/Related%20Party%20Transaction%20Policy%2 0Pdf.pdf

The details of Related party transactions are provided in the accompanying financial statements.

Since all related party transactions entered into by the Company were in ordinary course of business and were on an arms length''s basis, Form AOC - 2 is not applicable to Company.

STATEMENT ON DECLARATION GIVEN BY INDEPENDENT DIRECTORS UNDER SUB-SECTION (6) OF SECTION 149

All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

CORPORATE GOVERNANCE

Your Company has complied with the mandatory Corporate Governance requirements stipulated under Clause 49 of the Listing Agreement. Report on Corporate Governance is annexed hereto forming part of this report.

ANNUAL RETURN

The details forming part of the extract of Annual Return in the Form MGT-9, as required under Section 92 of the Companies Act, 2013 is included in the Report as Annexure - ''B'' and forms an integral part of the Report.

CONSOLIDATED FINANCIAL STATEMENT

Your Directors have pleasure in presenting Consolidated Financial Statements which form part of the Annual Report and Accounts.

DEPOSITS

The Company has neither accepted nor renewed any deposits during the year under review. The Company does not have any deposits which are not in compliance with the requirements of Chapter V of the Companies Act, 2013.

SECRETARIAL AUDIT

The Board had appointed CS Sunil M. Dedhia of Sunil M. Dedhia & Co., Practising Company Secretary, to conduct Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended 31st March, 2015 is annexed herewith marked as Annexure ''C'' and forms an integral part to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements.

BOARD EVALUATION

Pursuant to the provisions of Clause 49 of the Listing Agreement , a structured questionnaire was prepared after taking into consideration, various aspects of the Board''s functioning, composition of the Board and its Committees, culture, execution and performance of specific duties, obligations and governance.

The performance evaluation of the Independent Directors was completed. The performance evaluation of the Chairman and Non-Independent Directors was carried out by the Independent Directors. The Board of Directors expressed their satisfaction with the evaluation process.

SUBSIDIARIES AND ASSOCIATES

The Company has 6 (six) subsidiaries, namely, Aarti Corporate Services Limited, Alchemie (Europe) Limited, Anushakti Specialities LLP, Innovative Envirocare Jhagadia Limited, Shanti Intermediates Private Limited and Nascent Chemical Industries Limited and 6 (six) associates namely, Ganesh Polychem Limited, Anushakti Chemicals and Drugs Limited, Anushakti Holdings Limited, Aarti Intermediates Private Limited, Aarti Biotech Limited, Perfect Enviro Control System Limited.

During the year Board of Directors (''the Board'') reviewed the affairs of the subsidiaries. In accordance with Section 129(3) of the Companies Act, 2013, we have prepared consolidated financial statements of the Company and all its subsidiaries, which form part of the Annual Report. Further a statement containing salient features of the financial statement of our Subsidiaries/Associates in the prescribed format AOC - 1 is included in the Report as Annexure ''D'' and forms an integral part of this Report. The statement also provides the details of performance, financial position of each of the Subsidiaries/ Associates.

DIRECTORS

Shri Renil R. Gogri and Shri Shantilal T. Shah retire by rotation and, being eligible, offer themselves for re appointment. Your Directors recommend Shri Renil R. Gogri and Shri Shantilal T. Shah for re-appointment.

During the Year 2014-15, Independent Directors, namely, Shri Bhavesh R. Vora, Shri P. A. Sethi and Shri K. V. S. Shyam Sunder were re-appointed for a period of 5 (five) years with effect from 24th September, 2014 and Shri Ramdas M. Gandhi, Shri Vijay H. Patil and Shri Laxmichand K. Jain were re-appointed for a period of 3 (three) years with effect from 24th September, 2014.

The Board of Directors appointed Prof. Ganapati D. Yadav and Smt. Priti P. Savla, Additional Directors of the Company in the category of Independent Directors with effect from 25th September, 2014 and they hold office till the date of ensuing Annual General Meeting. Notice(s) have been received from member(s) along with requisite deposits proposing their candidature for appointment as such.

Shri Chetan B. Gandhi was appointed as Chief Financial Officer of the Company w.e.f. 30th May, 2014.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant material orders passed by the Regulators/Courts which would impact the going concern status of the Company and its future operations.

COMMENTS ON AUDITORS REPORT

There are no qualification, reservation or adverse remark or disclaimer made:

(i) by the auditor in his report; and

(ii) by the company secretary in practice in his secretarial audit report.

WHISTLE BLOWER POLICY

The Company has a whistle blower policy to report genuine concerns or grievances. The Whistle Blower policy has been posted on the website of the Company (www.aartigroup.com)

MATERIAL SUBSIDIARY

The Company does not have any material subsidiary whose net worth exceeds 20% of the consolidated net worth of the Company in the immediately preceding accounting year or has generated 20% of the consolidated income of the Company during the previous financial year. Accordingly, a policy on material subsidiaries has not been formulated.

FAMILIARISATION PROGRAMME FOR INDEPENDENT DIRECTORS

The Company has a familiarisation Programme for Independent Directors with regard to their role, rights, responsibilities in the Company, Nature of the industry in which the Company operates, the Business models of the Company etc. and the same is available on the website of the Company (weblink - http://www.aartigroup.com/pdfs/Family.pdf.).

AUDITORS

In the 31st Annual General Meeting (AGM) of the Company held on 24th September, 2014, M/s. Gokhale & Sathe, Chartered Accountants (Firm Regn. No. 103264W) had been appointed as the Statutory Auditors of the Company for a period up to 3 (three) years to hold office from the conclusion of the 31st (AGM) until the conclusion of the 34th AGM of the Company. In terms of the provisions of the Companies Act, 2013, it is necessary to get the appointment ratified by the shareholders in every Annual General Meeting until the expiry of the period of original appointment.

In view of the above, the Board of Directors recommends your ratification of the appointment of M/s. Gokhale & Sathe, Chartered Accountants (Firm Regn. No. 103264W) as the Statutory Auditors as mentioned at Item No. 5 of the Notice.

COST AUDITORS

The Cost Auditor Ms. Ketki D. Visariya (Fellowship No. 16028), Cost Accountant, re-appointed by the Company under provisions of Section 148(5) read with Section 141 of the Companies Act, 2013 attend the Audit Committee Meeting, where cost audit reports are discussed.

The due date for filing the Cost Audit Reports in XBRL mode for the financial year ended 31st March, 2014 was 30th September, 2014 and the Cost Audit Reports were filed by the Cost Auditor on 26th September, 2014. The due date for filing the Cost Audit Reports for the financial year ended 31st March, 2015 is 30th September, 2015.

The Company is seeking the ratification from the Shareholders for the appointment of Ms. Ketki D. Visariya, Cost Auditor of the Company for the financial year ending 31st March, 2016 vide resolution no. 10 of the Notice of AGM.

NUMBER OF CASES FILED, IF ANY, AND THEIR DISPOSAL UNDER SECTION 22 OF THE SEXUAL HARASSMENT OF WOMEN AT WORK PLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

Your Company has Zero tolerance towards any action on the part of any one which may fall under the ambit of ''Sexual Harassment'' at workplace, and is fully committed to uphold and maintain the dignity of every women working with the Company. The Policy framed by the Company in this regard provides for protection against sexual harassment of women at workplace and for prevention and redressal of such complaints.

Particulars NO. OF COMPLAINTS

Number of Complaints pending as on beginning NIL of the financial year

Number of Complaints filed during the NIL financial year

Number of Complaints pending as on the end NIL of the financial year

DETAILS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

(A) CONSERVATION OF ENERGY

(i) The steps taken or impact on conservation of energy;

* The Company had been operating various captive and co-generation Power plants. The Company expects a significant savings in the consumption of natural resources/fuel by adoption of such process.

* Wherever possible, Variable Frequency Drives are installed to reduce the power consumption.

* Energy audit is conducted and recommendations are implemented.

* Low Pressure Steam Generation from Process areas to recover heat and use for Low Pressure Applications.

* Chilling Water Generation from Chlorine tonners for Chilling Applications.

(ii) Additional Investments & Proposals, if any, being implemented for Reduction of Consumption of Energy:

* Implementation of Clean Development Mechanism Project, which will lead to higher recovery of Heat and thus, result in reduction of emission of green House gases.

* Upgradation of Batch Nitration units into Continuous Nitration units, shall help in overall optimization of utilities thereby resulting the reduction in energy consumption.

* The Company proposes to set up additional Captive Co-generation Power Plant at Jhagadia and Kutch Plants similar to the ones already operated at Vapi, thereby increasing thermal efficiency and reduced coal consumption per unit power as power produced without steam condensation.

* Upgradation of various processes, wherever feasible, considering optimisation of utilities, thereby resulting the reduction in energy consumption.

(iii) The capital investment on energy conservation equipments;

Your Company has invested about RS. 24.7 Crores during Financial Year 2014-15 into energy conservation equipments.

(B) TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

(a) Efforts, in brief, made towards technology absorption, adaptation and innovation:

* Forward Integration for downstream products and expansion also with in-house technology.

* Continuous endeavour to improve product quality and process yields.

(b) Benefits derived as a result of above efforts:

* Lower project costs for expansion

* Value addition

* Exports of higher value-added products resulting in increased foreign exchange earning.

(c) Information regarding technology imported during the last 3 years: NIL

(C) TOTAL FOREIGN EXCHANGE EARNINGS AND OUTGO

The Foreign Exchange Earnings and outgo were RS. 1,449 Crores and RS. 435 Crores respectively (Previous Year: RS. 1,281 Crores and RS. 442 Crores respectively).

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation for the dedicated services rendered by the employees of the Company at all levels and the constructive co-operation extended by them. Your Directors would like to express their grateful appreciation for the assistance and support by all Government Authorities, Auditors, financial institutions, banks, suppliers, other business associates and last but not the least the Shareholders.



For and on behalf of the Board

Sd/- Place : Mumbai RAJENDRA V. GOGRI Dated : 13th May, 2015 CHAIRMAN & MANAGING DIRECTOR


Mar 31, 2014

TO THE MEMBERS OF AARTI INDUSTRIES LIMITED

The Directors are pleased to present this Thirty First Annual Report and the Audited Statement of Accounts for the year ended 31st March, 2014.

CONSOLIDATED FINANCIAL RESULTS (Rsin Crores)

Particulars 2013-14 2012-13

Net Sales 2,598 2,058

Other Operating Income 34 38

Total Income from Operations (Net) 2,632 2,096

Expenses

a) Cost of Material Consumed 1,630 1,261

b) Purchases of Stock-in-trade 117 93

c) Changes in inventories of Finished Goods, Work-in-progress and Stock-in-trade (62) (71)

d) Employee Benefits Expenses 79 65

e) Depreciation and Amortisation Expenses 88 83

f) Other Expenses 467 387

Total Expenses 2,319 1,818

Profit/(Loss) from Operations before Other Income,Finance Costs and Exceptional Items 313 278

Other Income 11 4

Profit/(Loss) before Finance Costs 324 282

Finance Costs 118 95

Profit/(Loss) before Tax 206 187

Tax Expenses

a) Provision for Taxation-Current 40 46

b) Provision for Deferred Tax 14 8

Total Tax Expenses 54 54

Net Profit/(Loss) after Tax 152 133

Share of Profit/(Loss) of Associates 11 2

Minority Interest (1) (1)

Net Profit/(Loss) after consolidation 162 134

Earnings Per Share (Rs) 18.34 15.17

BookValue Per Share (Rs) 98.29 85.36

DIVIDEND

Your Company had declared and paid Interim Dividends ofRs 3.00 ps. (@ 60%) per share (ofRs 5/- each). Your Directors are pleased to recommend a Final Dividend ofRs 1.50 ps. (@ 30%) per share (ofRs 5/- each) for the FY 2013-14, aggregating to the Total Dividend of Rs 4.50 ps. (@ 90%) per share (of Rs 5/- each) for the FY 2013-14 compared to the Total Dividend of Rs 4.00 ps. (@ 80%) per share (ofRs 5/- each) for the FY 2012-13. The total amount of Dividend pay-out for the year would be Rs 39.87 Crores (previous year Rs 35.44 Crores).

Your Company has transferred Rs 14.90 Crores to General Reserve (P.Y Rs 13.15 Crores).

FINANCIALS

Your Company has presented yet another year of consistent and stable growth. During the year, the Standalone Net Revenues of the Company grew by over 25% at Rs 2,633 Crores (previous year Rs 2,096 Crores). Exports revenues also grew to Rs 1,281 Crores, a growth of over 20% (previous year Rs 1,060 Crores).

Operating profit before Interest, Depreciation and Tax for FY 2013-14 increased by 11% to Rs 395 Crores (previous year Rs 356 Crores). EBIDTA margins for the Company were at 15.3% for FY 2013-14 from 16.6% in FY 2012-13, on account of higher input costs.

Profit before Tax for FY 2013-14 also increased toRs 201 Crores (previous yearRs 184 Crores). Profit after Tax and Deferred Tax grew toRs 149 Crores for FY 2013-14 fromRs 131 Crores for FY 2012-13.

Your Company''s Consolidated Income increased by about 26% to Rs 2,632 Crores as compared to Rs 2,096 Crores for last year. Consolidated EBIDTA also grew by 13% to Rs 412 Crores from Rs 365 Crores last year. Net Profit after Consolidation surged by 21 % at Rs 162 Crores vis-a-vis Rs 134 Crores for last year. Consolidated EPS for the FY 2013-14 was at Rs 18.34 as against Rs 15.17 for the FY 2012-13.

During last few years, with scale up of capacities and introduction of various high growth and high margin export oriented products, the share of Exports Revenue to Total Revenue has been increasing. Exports represent about 50% of the total revenues. Also a bulk of products sold in domestic markets are converted and ultimately exported. Hence considering this, about 70% of our output would be exported either directly or indirectly. The recovery of Global Markets from the recessionary environment coupled with our strong Global position and Strategic arrangements with key global customers, has helped us to increase our volumes both present and incremental on account of higher production capacities. Our delivery and service commitment helps us to gain loyalty from our customers, which results into increase in our exports operations.

ueoqrapmcai spread ot export Revenue CHEMICAL INDUSTRY - STRUCTURE & DEVELOPMENT

The Global Speciality Chemical Industry size is pegged at around $740bn (FICCI Speciality Chemical report and 12th Five- Year Plan document) accounting for roughly 22% of the global chemical industry. This industry has grown at a CAGRof 3.7% during 2006-11, despite contracting by around 7% in 2009, due to the global financial crisis. Going forward, the industry is expected to grow at a CAGR of about 5.4% annually to reach $970bn by FY 16, based on Industry estimates. Asia-Pacific and the Middle Eastern countries are expected to contribute to the bulk of the future growth for the sector.

Indian Speciality Chemical sector has demonstrated strong growth of around 13%, and is expected to accelerate further, higher than the average global growth rate. (Source - FICCI). The high rate of growth for the segment is driven by faster growth in end-user industries such as paints & coatings, speciality polymers, and home care surfactants, among others. This is supported by both domestic and export opportunities. Derisking of business concentration from China by various global customers coupled with appreciation of Chinese Yuan v/s Indian Rupee and the rising operating costs in China, shall further increase the opportunities for Indian Companies to expand the business in global markets. Your Company expects the encouraging growth opportunity in sectors like Pigments, Speciality Polymers, Pharmaceuticals, Agrochemicals, Construction chemicals and Water Chemicals to support the higher industry growth.

The emergence of a stable Government at Centre has improved the business sentiment and consumer confidence across Pan India and improving the future macro outlook. This new and renewed hope of growth, if supported by positive and proactive steps from the Government, would restart the revival of Indian Economy and would result into increase in demand at various sectors. Government Initiatives in the form of Port based Chemical Parks in SEZ, Improvement in Infrastructure, Tax concessions, rationalization of Duty Structure, FDI relaxation, etc. would facilitate further growth of the Indian Chemical Industry into a major Chemical hub.

Your Company is a leading manufacturer of Speciality Chemicals with diversified end-uses into Agrochemicals, Pharmaceuticals, High Performance Polymers, Paints, Pigments, Printing Inks, Rubber Chemicals, Additives, Surfactants, Dyes, Oil & Gas additives, Flavours & Fragrances, etc. Your Company''s derisking by diversification has helped it withstand the volatilities & downturns of a specific end-user segment and also helps to capitalize on the growth opportunities in other end-user segments.

With the rationales of Long term sustainability for both growth and profitability, your Company continued in last year the efforts to adopt a sustainable framework considering the elements of Safety, Health, Environment Impact and Energy Efficiency initiatives. Your Company has made significant investments by installing various Bioreactors, Chemical Reverse Osmosis, Multiple Effect Evaporator, Incineration, Electrostatic Filters, Solvent Recovery Systems, Waste Heat Recovery Systems, etc. Your Company had also been continuously working towards improvement of process safety as well as increasing the levels of automation. These would provide long term benefits of Consistency in Quality, Yield Improvements, Saving in utilities cost, minimization of human error, etc. Your Company has been constantly improving the manufacturing process and adoption of greener processes. These efforts have been appreciated by various MNC customers. Your Company plans to invest further in these areas to ensure providing greener and safer manufacturing environment.

Reclassification of Business Segments

The Company is a multi-product and multi-faceted one. The operations were earlier classified into four segments viz, Performance Chemicals, Agri Intermediates & Fertilizers, Pharmaceuticals and Home & Personal Care based on the end-use/ applications.

However, in case of PerformanceChemicals Segment and Agri Intermediates & Fertilizers Segment, a majority of manufacturing facilities are common and interlinked. As a result the segmental performance for these two segments may fluctuate based on the product mix adopted in a particular reporting period. Thus, for better understanding of the operations resulting on account of these interchangeable facilities, it has been decided to merge these two segments into a single reportable segment under the name of "Speciality Chemicals". Hence the operations of the Company has been reclassified into three segments viz, Speciality Chemicals, Pharmaceuticals and Home & Personal Care Chemicals. This reclassification has also facilitated the identification of Capital Employed for each of these segments, which was not possible earlier on account of common manufacturing facilities. The changed reclassification does not have any financial impact. The profile of these new business segments are presented below:

The brief Segmental financials are also presented below: (Rsin Crores)

Speciality Pharmaceuticals Home & Personal Total Chemicals Care Chemicals

Sales 2,216 249 167 2,632

% of Total Sales 84.20% 9.46% 6.34% 100.00%

Export 1,130 117 34 1,281

% of Sales 50.99% 46.99% 20.36% 48.67%

EBIT 332 30 4 366

% of Sales 14.98% 12.05% 2.40% 13.91%

Capital Employed as at 31st March 2014 1414 377 87 2006*

ROCE% 23.48% 7.96% 4.60% 18.25%

(* Includes unallocated CapitalEmployed of Rs 128 Crores)

As you would note from above, Speciality Chemicals accounts for about 85% of the Revenues and over 90% of EBIT. Further the operations for Pharmaceutical Segment are growing and have registered a growth in revenues by about 33%, while the EBIT for the segment had tripled over last year. Also the EBIT margin for Pharmaceutical Segment has increased from 5% for FY 2012-13 to 12% for FY 2013-14. This segment is expected to be poised for faster growth. We shall further review these segments in details as below:

Speciality Chemicals Segment:

This segment continues to account for majority of the revenues and profits for the Company. Over last year, the segment had reported a growth of about 26% in its revenues of which about 12% is attributable to volume growth and the balance towards the increase in input costs which has been passed on to the customers. The increase in benzene prices does not impact EBIT in general, however when looked in percentage terms, it reduces the EBIT %.

We present below the key financials for Speciality Chemicals Segment: (Rs in Crores)

Key Financials FY 2013-14 FY 2012-13 FY 2011-12 FY2010-11

Sales 2,216 1,757 1,350 1,228

% of Total Sales 84.20% 83.83% 80.70% 84.49%

Export 1,130 946 639 504

% of Segment Sales 50.99% 53.84% 47.33% 41.04%

Segment EBIT 332 319 217 186

EBIT% 14.98% 18.16% 76.07% 15.15%

Your Company is one of leading global player manufacturing various Benzene Based Derivatives through a number of chemicals processes at its Global Scale manufacturing units located at Vapi, Jhagadia, Kutch in the State of Gujarat and Tarapur in the State of Maharashtra.

A brief structure of Benzene Based Product Profile and Global market share is presented below:

In addition to the above chemistries, your Company also manufactures a number of products through Halex Chemistry, Phthalates, Diazotisation, Denitro Chlorination, Methoxylation, Alkylated Anilines &Toulidines. The products manufactured under these complex chemistry range from Rs 300/- per kg to over Rs 1500/- per kg. Your Company''s Global scale capacities and higher market share have helped the Company to capitalize on the growth opportunities and convert that into higher volumes. Your Company''s strengths of highly integrated manufacturing operations through its global size units manufacturing diverse products having diversified end usage catering to needs of over 800 domestic and global customers have helped itself to be one of the key player in the global arena.

This diversity in the end-user profile along with the common manufacturing units, which can be used for diverse, dynamic and interchangeable product mix of a variety of Speciality chemicals, not only ensures better utilization of capacities, but also helps building customer confidence by providing adequate quantities to meet their needs. Further, the uniqueness of integrated operations with optimum isomer/co product balancing and gainful utilization of by-products have helped your Company to emerge as a "Strategic" supplier to various MNCsand they consider your Company as the partner in their future growth. Considering these opportunities, over past two years the Company has been expanding its various capacities across various manufacturing sites. The Company has further plans for expansion, of which the major ones are briefed below. These expansions shall be able to fuel the growth of the Company for next 4 to 5 years.

Key Expansion Activities:

The proposed debottlenecking/expansion of the NCB capacities (Nitration) from 57000 MT to 75000 MT is underway and is expected to be progressively completed in FY 2014-15. Against the present capacity of about 57000 MT, the production achieved in FY 2013-14 was about 54230 MT (Previous year about 48072 MT).

Your Company further plans to expand its another critical and base production process viz Chlorination Process by about 15000 tpa i.efrom present 65000 tpa to 80000 tpa. This expansion shall ensure adequate supply of first stage products over next 3-4 years for captive consumption for forward chain of products as well as to meet the additional demand for these chemicals from global markets. Along with this, the Company also proposes to set up a Calcium Chloride Granulation plant. This shall consume the by-product HCL generated in the process and convert that into commercially marketable product with high export potential. Your Company already has one such unit in Bhachau, Kutch and an another one is now being planned at Vapi, Gujarat. Your Company was the 1st company in India to import such technology.The Calcium Choride Granules are 100% exported by your Company to various global customers for Oil-Exploration and De-icing purposes.

Your Company also plans to expand its capacities for one of its key Speciality Chemical with diversed end use into Polymers, Dyestuffs & Additives through Continuous Hydrogenation Process. With this expansion, your Company would have a dedicated unit to cater to the growing demand of this Speciality Chemical, from FY 2015-16, having large export potential. Further, in case of the existing continuous Hydrogenation unit which caters to the growing, high margin and niche demand in the segments of Polymers, Agrochemicals, Pigments, etc in global markets have also been registering a consistent volume growth due to higher exports. Annual average production of Hydrogenated compounds in FY 2013-14 was 1650 TPM as compared to 1390 TPM for FY 2012-13, thereby posting a y-o-y volume growth of about 19% and is expected to grow further in coming periods.

It may be noted that the above volume data are given for reference purposes & may not be directly comparable, as each hydrogenated product would have different process time. Thus with different product mix adopted the process utilisation time would vary & so the output may also vary.

Your Company has also been upgrading its 6 Batch Nitration capacities and consolidate the same into Continuous Nitration units over a period of time. In this regard, Your Company had commissioned one Continuous Nitration unit, thereby reducing the Batch Nitration units from 6 to 4. While this shall increase the level of automation of the process, it shall also facilitate for overall increase in production capabilities. It shall also result in increasing the consistencies & yields of various products and simultaneously help to reduce the consumption of fuel and other utilities, and thus bring about higher volumes with significant cost savings and more safer and highly automated operations.

Your Company plans to setup a dedicated block of Continuous

Nitration Unit for manufacture of Nitro Toulenes and derivatives at Jhagadia. The products manufactured shall be used as intermediates into end-user industries such as Optical Brighteners, Agro Chemicals, Pigments, Pharmaceuticals, etc. This unit shall also provide feeder material required for the proposed Ethylation unit being setup at Dahej SEZ. The Company has already closed the technological tie-ups and has taken up this project on fast track basis. The Company plans to commission this unit in FY 2015-16.

On account of the wide diversity in product applications, the Speciality Chemicals segment on an overall basis is expected to grow with Key driving industries for growth of Speciality Chemicals which are summarized below:

- Polymers & Additives:

Usage of High Performance Polymers has been increasing as a replacement of metal parts in various mode of transportation worldwide, as an endeavor to reduce the weight and improve the fuel efficiency. In addition to this,

these polymers are also used in high growth segments such as Water Treatment, Power Plant Filter, Electronic media & Telecommunication devices and various other Electrical Instruments. Aforesaid various expansions will help to increase the volumes of these Polymer intermediates to cater the growing international demand.

- Dyes, Paints, Pigments and Printing Inks:

This sector has witnessed a shift in the consumption pattern of Printing Inks based applications. While the demands for Printing inks in developed economies are reducing, the same are increasing in developing economies on account of increasing per-capita income & consumption (along-with changes in consumption profile), growth in education and healthcare facilities, etc. The global replacement of usage of Organic Pigment vis-a-vis metal pigments has been the driving force behind the significant growth of Pigment applications globally and shall continue further going forward. The expanded capacity for a Pigment intermediate commissioned in Q1 FY 2013-14 has already reached about 85% capacity utilization and your Company further proposes to scale up the capacities by debottlenecking.

- Agri-Intermediates and Fertilizers:

Your Company is a leading global manufacturer of various Agrochemicals Intermediates and has presence across all the sub-segments viz herbicides, insecticides, fungicides, etc. Emphasis on achieving food grain self-sufficiency, limited farmland availability and growth in horticulture and floriculture have been the reasons for the growth of Agrochemicals worldwide. Exports account for over 60% of India''s Agrochemicals produce and are expected to have a double digit growth for years to come. Your Company is in talks with few customers for long-term supply arrangement to meet their increasing requirements. Your Company''s products are now being sold across all markets such as NAFTA, Asia, Europe, Latin America, and other territories. This has also helped to de-risk the business from Indian as well as various other local climatic changes across the world.

Your Company is also into manufacturing of Single Super Phosphate (a widely used fertilizer). It is a gainful usage of the by-product Dilute Sulphuric Acid (generated by other Chemical units) and is marketed under the guidelines prescribed by Government of India. The production of SSP saves the Company from the hassles of management and disposal of the by-product dilute sulphuric acid. However, off-late the challenges of Cyclicity of Indian Monsoon, High Inventory and Recovery Periods, Delays in grant of Subsidy, etc have resulted into high working capital requirement for this business. Considering the same, your Company has discontinued the expansion of this unit planned earlier. Further, since overall composition of Fertilizers and Nutrients is less than 4% to the total revenues, the cyclicity of this business does not materially affect the overall operations of the Company. The Company is also undertaking R&D Initiatives to reduce the generation of the by-product and recycle the same by reconcentration, thereby limiting the exposure to this volatile business for the time being or till conditions improve.

Pharmaceuticals:

Pharmaceuticals Industry accounts for almost quarter of the Indian Chemical Industry. From being a startup and base level operations, Indian Pharma Companies have evolved to be a leader in the production of high quality generic drugs. Patent expirations, weak pipeline quality and increasing focus by Governments to reduce healthcare costs continue to exert pressure on innovator companies which supports outsourcing to low-cost nations. Despite challenges, leading Indian players continue to exhibit strong profitability indicators.Outlook on the Indian pharmaceutical companies remains favourable as companies will continue to benefit from recovery in the domestic market, strong growth potential in generics in developed marketsand potential outsourcing opportunities.Globally, generics players however continuetofacecompetitiveenvironment from large innovator companies. Price erosion, especially through regulatory interventions, remains a foremost challenge in the European markets. Presence in limited competition product segments and over-the-counter (OTCs) segment offers some protection to margins. Most developed markets continue to move away from branded generics to commoditized un-branded generics and lower margin tender based business.

Your Company has four manufacturing units of which - two are USFDA approved facilities & other two are WHO GMP approved facilities. The plants are cGMP compliant - meeting ICH Q7 standards - thus enabling buyers to use APIs in all regulated markets. Your Company has 42 commercial APIs with 33 European DMFs, 27 US DMFs and 15 CEP (of which 4 are under approval). There are 12 more APIs under development. Your Company enjoys distinct advantage of having dedicated USA, Japan and EU regulatory approvals for Steroids and Anti-Cancer products. Your Company also enjoys cost efficiencies by being backward integrated for most of the APIs and thus enhances the margins of its range of products. In FY 2013-14, your Company scaled up its capacities from 4 lines to 9 lines for manufacturing of APIs at its Tarapur USFDA unit.

We present below the key financials for Pharmaceuticals Segment: (Rs inCrores)

Key Financials FY2013-14 FY2012-13 FY2011-12 FY2010-11

Sales 249 187 165 131

% of Total Sales 9.46% 8.92% 9.86% 8.98%

Export 117 92 66 46

% of Segment Sales 46.99% 49.20% 40.00% 35.15%

Segment EBIT 30 9 4 (6)

EBIT% 12.05% 4.81% 2.55% NA

The volumes of products under this segment have been consistently increasing which have helped improvement in margins and segmental profitability. EBIT for FY 2012-13 increased to Rs 30 Crores v/s Rs 9 Crores for FY 2013-14. EBIT margins have been improving and increased to about 12% of sales in FY 2013-14 as compared to about 5% of sales for FY 2012-13. You would note that the incremental sales of aboutRs 62 Crores have resulted into incremental EBITofRs21 Crores. Thus with incremental EBIT from additional volumes at about 25 to 30%, incremental volume shall increase the EBIT significantly. Further of the total exports, exports to regulated markets are over 60%, which help into improvement of margins. Thus the incremental growth in revenues would result in a significant improvement in EBIT.

Further, your Company also plans to commission a dedicated unit to manufacture caffeine, targeting the needs of Cola and Energy Drinks makers. Thus, with increase in volumes through global markets and with newer capacities, we expect the segment to grow at faster pace in coming years.

Home & Personal Care Chemicals

Rising per capita income has enabled the increase of consumption of hygiene and personal care products. Increasing consumption is driving demand for wide range of cosmetic chemicals, health care products as well as hygiene products using performance chemicals, polymers and oleo chemicals.

We present below the key financials for Home & Personal Care Chemicals Segment: (Rs in Crores)

Key Financials FY2013-14 FY2012-13 FY2011-12 FY2010-11

Sales 167 152 158 95

% of Total Sales 6.34% 7.25% 9.47% 6.52%

Export 34 22 21 10

% of Segment Sales 20.36% 14.47% 13.21% 10.94%

Segment EBIT 4 5 5 5

EBIT% 2.40% 3.29% 3.11% 5.36%

Home & Personal Care Chemicals segment is relatively a low margin business. Your Company has two manufacturing units, one each at Pithampur (Madhya Pradesh) & at Silvassa. Your Company plans to carry out debottlenecking for some of its operations so as to expand the capacities for export oriented products which have better margins. These efforts will help to increase exports for this segment and also result into improvement of margins.

RISKS AND CONCERNS

Your Company perceives risks or concerns common to industry such as concerns related to the Macro Indian Economic Outlook, Global Economic fallout, Regulatory risks, Foreign Exchange volatilities, Higher Interest rates, Rising Raw-material prices and other commercial & business related risks. While Segments like Pharmaceuticals and Home & Personal Care are not much affected by the economic cycle and have its own independent growth drivers, the diversity of end uses of Speciality Chemicals and the ability of the Company to interchangeably use the production facilities insulate the Company from any adversity for any specific end user applications. Further, your Company''s diversified revenue mix, flexible product mix and increasing export volumes also help to derisk the business from any domestic economic setbacks as well as certain specific

global uncertainties. Diversified & wide customer base further reduces risks of dependence of business with few customer or few products. Your Company is also in the process of entering into long term supply arrangement with its key suppliers to ensure continuous and adequate supply of raw-materials to meet the growing demand for the products.

Volatility in foreign exchange rates of Indian Rupee vis-a-vis US$ is now an inherent risk. Your Company''s policy to hedge only those exposures which are backed by confirmed orders helps it from taking any unwanted positions and thus is not significantly affected by any such movements.

Chemical Businesses has lots of inherent process risks. To ensure that this risks do not arise, your Company had set up its efforts for adopting greener, cleaner and safer manufacturing operations, your Company has been increasing and upgrading the level of automation in the existing processes thereby providing for a safer working environment.

Chemical businesses are generally working capital intensive and hence the working capital requirements are also higher. Your Company has been making continuous efforts to reduce the working capital cycle. With these efforts and higher cash accruals going forward, debt-equity ratio is expected to improve in coming years.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has clearly laid down policies, guidelines and procedures that form part of internal control systems, which provide for automatic checks and balances. Your Company has maintained a proper and adequate system of internal controls. This ensures that all Assets are safeguarded and protected against loss from unauthorized use or disposition and that the transactions are authorised, recorded and reported diligently. Your Company''s internal control systems commensurate with the nature and size of its business operations. The internal Auditors'' Reports are regularly reviewed by the Audit Committee of the Board.

DIRECTORS'' RESPONSIBILITY STATEMENT

As required u/s. 217(2AA) of the Companies Act, 1956 (the Act):

(i) That in the preparation of the Annual Accounts for the Year ended 31 st March, 2014, the applicable Accounting Standards had been followed along with proper explanation for material departures, if any;

(ii) That the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year of the profit of the Company for that year;

(iii) That the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the Assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) That Directors''have prepared the annual accounts on a going concern basis.

SUBSIDIARY COMPANIES

The Company has 5 subsidiaries, namely, Aarti Corporate Services Limited, Alchemie Europe Limited, Innovative Envirocare Jhagadia Limited, Shanti Intermediates Private Limited and Nascent Chemical Industries Limited. Statement pursuant to Section 212 and summary of financial information of Subsidiaries are provided in the Annual Report.

In accordance with the general circular issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Statement of Profit and Loss and other documents of the subsidiaries are not being attached with the Balance Sheet of the Company. The Company will make available the Annual Accounts of the subsidiaries and the related detailed information to any member of the Company who may be interested in obtaining the same. The annual accounts of the subsidiaries will also be kept open for inspection at the Registered Office of the Company as well as at the head offices of the Subsidiaries. The Consolidated Financial Statements presented by the Company include the financial results of its Subsidiaries.

CONSOLIDATED FINANCIAL STATEMENTS

Your Directors have pleasure in presenting Consolidated Financial Statements which form part of the Annual Report and Accounts.

DIRECTORS

Shri Kirit R. Mehta and Shri Manoj M. Chheda, Whole-time Directors, retire by rotation in terms of Section 152 of the Companies Act, 2013 and being eligible, offer themselves for re-appointment.

Pursuant to Section 152 of the Companies Act, 2013, Shri Bhavesh R. Vora, Shri P. A. Sethi and Shri K. V. S. Shyam Sunder, Independent Directors will retire at the ensuing Annual General Meeting and being eligible, seek re-appointment.

The Companies Act, 2013 inter alia provides for appointment of independent directors. Section 149(10) of the said Act, effective from 1st April, 2014, provide that independent directors shall hold office for a term of up to five consecutive years on the Board of a company and shall be eligible for re-appointment on passing a special resolution by the shareholders of the Company. Section 149(11) of the said Act provides that no independent director shall be eligible for more than two consecutive terms of five years. It is also clarified that existing tenure of an independent director shall not be counted for the above purpose. Section 149(13) states that the provisions of retirement by rotation as provided in Section 152(6) and (7) of the said Act shall not apply to such independent directors.

Our independent directors were appointed as directors liable to retire by rotation under the provisions of the erstwhile Companies Act, 1956. The Board has been advised that independent directors so appointed would continue to serve their existing term as per the resolution pursuant to which they were appointed. In view of this, independent directors, namely, Shri Bhavesh R. Vora, Shri P. A. Sethi and Shri K. V. S. Shyam Sunder, complete their present terms at the ensuing AGM, and being eligible and seeking re-appointment, be considered for re-appointment for a period of 5 (five) years with effect from date of this Annual General Meeting i.e. 24th September, 2014.

Shri Ramdas M. Gandhi, Shri Vijay H. Patil and Shri Laxmichand K. Jain, are also Independent Directors of the Company, whose period of office is liable to determination by retirement of Directors by rotation under theerstwhileapplicable provisions of the Companies Act, 1956. Under Section 149(10) of the Companies Act, 2013 and Rules made thereunder, an Independent Director shall now hold office fora term of 5 (five) consecutive yearson the Board of theCompany and is not subject to retirement by rotation. In terms of Section 149 and other applicable provisions of the Companies Act, 2013, and Rules made thereunder, Shri Ramdas M. Gandhi, Shri Vijay H. Patil and Shri Laxmichand K. Jain, being eligible and offering themselves for such appointment, be considered for re-appointment as Independent Directors of the Company for a period of 3 (three) years with effect from date of this Annual General Meeting i.e. 24th September, 2014.

Shri Sunil M. Dedhia and Shri Haresh K. Chheda resigned as Independent Directors of the Company effective from 1st April, 2014. The Board wish to place on record its appreciation for their guidance to the Company during their tenure with the Company as such.

CORPORATE GOVERNANCE

Your Company has complied with the mandatory Corporate Governance requirements stipulated under Clause 49 of the Listing Agreement. Report on Corporate Governance is annexed hereto forming part of this report.

DISCLOSURE OF PARTICULARS

Information as per the requirements of Section 217(1 )(e) of the Companies Act, 1956, read with Rule 2 of Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, relating to Conservation of Energy, Research & Development, Technology Absorption, Foreign Exchange Earnings and Outgo are annexed hereto forming part of this Report.

ENVIRONMENTAL, SAFETY AND HEALTH

Your Company is committed to ensure sound Safety, Health and Environmental (SHE) performance related to its activities, products and services. The Company is taking continuous steps to develop Safer Process Technologies and Unit Operations. Your Company has been investing heavily in areas such as Process Automation for increased safety and reduction of human error element, Enhanced level of training on Process and Behaviour based safety, adoption of safe & environmental friendly production process, Installation of Bioreactors, Chemical ROs, Multiple effect evaporator and Incinerator, etc to reduce the discharge of effluents, commissioning of Waste Heat recovery systems, and so on to ensure the Reduction, Recovery and Reuse of effluents & other utilities. Monitoring and periodic review of the designed SHE Management System is done on a continuous basis. The Company already has two "Zero Discharge" unit and is reviewing the viability for converting other unit into Zero discharge. The Company is committed to continuously take further steps to provide a safe and healthy environment.

CORPORATE SOCIAL RESPONSIBILITY

Your Company has taken several CSR initiatives for over a decade. The involvement is not only through financial support but also in the form of Personal and continuous involvement of your Management thereby ensuring the activities are benefited by their experience and to ensure the reach of these initiatives to the society at large. Shri Chandrakant V. Gogri, Chairman Emeritus is driving the CSR intiatives.The CSR activities of your Company had primarily been focused on promoting education to the poorest of the poor, Empowering women, healthcare, affordable housing, support to those affected by natural calamities.

Aarti Group had set up a school named Tulsi Vidya Mandir at Kutch, Gujarat in year 2005. Tulsi Vidya Mandir imparts Secondary & Higher Education to over 400 children coming from about 12 villages. Aarti Group also founded Mahavir School/College of Nursing at Sabar Kantha, Gujarat in Year 2008. Mahavir School/College of Nursing is spreading professional nursing education to around 150 candidates annually in the interior villages. Thus providing people from interiors with an alternative option to earn their livelihood. Further Aarti Group also founded Maninagar Sanskar Dham, at Kutch in Gujarat in year 2011. It is a kindergarten for children of rag-pickers. These children are nurtured at the centre for a year and then assisted till obtaining admission to primary school. Aarti Group has been contributing to Ratanpar Boarding School located in remote part of kutch. Ratanpar Boarding School is imparting essential educational and Boarding facility to around 150 students. Your Company along with its employees have contributed to the cause of rehabilitation of 15 villages affected during flash flood in Uttarakhand in last monsoon. The Rehabilitation work is in final phase and would be completed in FY 2014-15.

Apart from the above, the Company continues to support programs such as organizing on a Blood Donation Camps, Health checkup camps, etc on regular basis. The Company has been donating to several Hospitals, Educational Institutions, Trusts, and contributes for green/open spaces. The Company also contributes for relief measures in times of natural calamities. In parlance to the objective of providing basic primary and secondary education in the surrounding areas, your Company actively contributes for upgradation & infrastructure development of the schools.

During the year, the sectoral reach had been broadened to include Military and vocational training, waste water recycling providing/contributing for education facilities in remote locations and for Nomads, employment opportunities, etc. with the focus on eradication of hunger, poverty and malnutrition.

PERSONNEL

As required by the Provision of Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 as amended up-to-date, the names and the other particulars of the Employees are set out in the Annexureto the Directors''Report. However, as per the Provisions of Section 219(1 )(b)(iv) of the Companies Act, 1956, the Reports and Accounts are being sent to all the Shareholders of the Company excluding the aforesaid information. Any Shareholder interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

AUDITORS

M/s. Parikh Joshi & Kothare, Auditors of the Company retire at the ensuing Annual General Meeting. Though eligible, Auditors have informed that they are not seeking re-appointment as they are in the process of consolidation of their firm with M/s. Gokhale & Sathe, Chartered Accountants. At the request of the Company, M/s. Gokhale & Sathe have Communicated their eligibility and willingness to accept the office, if appointed. Members are requested to appoint Auditors and to fix their remuneration.

COST AUDITORS

The Cost Auditor Ms. Ketki D. Visariya (Fellowship No. 16028), Cost Accountant, re-appointed by the Company under Section 233B of the Companies Act, 1956 attend the Audit Committee Meeting, where cost audit reports are discussed.

The due date for filing the Cost Audit Reports in XBRL mode for the financial year ended 31st March, 2013 was 30th September, 2013 and the Cost Audit Reports were filed by the Cost Auditor on 27th September, 2013. The due date for filing the Cost Audit Reports for the financial year ended 31st March, 2014 is 30th September, 2014.

The Company is seeking the ratification from the Shareholders for the appointment of Ms. Ketki D. Visariya, Cost Auditor of the Company for the financial year ending 31st March, 2015 vide resolution no. 13 of the Notice of AGM.

INDUSTRIAL RELATIONS & HUMAN RESOURCES

The Company enjoys coordial relation with its employees at all levels. Your Company continues to ensure safety and health of its employees. Your directors record their appreciation of the support and co-operation of all employees and counts on them to be able to maintain company''s growth momentum.

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation for the dedicated services rendered by the employees of the Company at all levels and the constructive co-operation extended by them. Your Directors would like to express their grateful appreciation for the assistance and support by all Government Authorities, Auditors, financial institutions, banks, suppliers, other business associates and last but not the least the Shareholders.

For and on behalf of the Board

Sd/- Place : Mumbai RAJENDRA V. GOGRI Dated : 30th May, 2014 CHAIRMAN & MANAGING DIRECTOR


Mar 31, 2013

TO THE MEMBERS OF AARTI INDUSTRIES LIMITED

The Directors are pleased to present this Thirtieth Annual Report and the Audited Statement of Accounts for the year ended 31st March'' 2013.

RESTRUCTURING UPDATE

During the year'' your Company has merged the manufacturing operations of its Associate Company'' Anushakti Chemicals and Drugs Limited (ACDL) into Aarti Industries Limited (AIL) with efect from 1st April'' 2012 in terms of Scheme of Arrangement duly approved by the High Courts of Bombay and Gujarat at Ahmedabad. Your Company has allotted 94''71''614 equity shares of" 5/- each to the shareholders of ACDL in terms of the said Scheme of Arrangement'' whereby the Paid up Share Capital of the Company has increased by about 12% to " 44''29''58''435 divided into 8''85''91''687 equity shares of" 5/- each fully paid up.

Upon the Scheme of Arrangement having become efective'' the merged accounts have been drawn up for FY 2012-13 w.e.f. 1st April'' 2012. Hence to this extent'' the fnancials for FY 12-13 may not be comparable with previous year. ACDL had manufacturing units at Bhachau in the State of Gujarat'' Tarapur and Dombivali in the State of Maharashtra which are now merged into the Company. Apart from synergies derived in respect of common products'' the said restructuring has increased the volumes of existing range of products and would also facilitate addition of newer products with diverse end usages into Fuel Additives'' etc. having high growth possibilities. Restructuring has also helped spread of overall products and markets specifc risks and improve operating margin as well.

FINANCIAL RESULTS

(in Lakhs)

Particulars Consolidated

2012-13 2011-12

Net Sales: 205''764 163''226

Other Operating Income 3''861 4''105

Total Income from Operations (Net) 209''625 167''331

Expenses

a) Cost of Material Consumed 126''120 97''926

b) Purchases of Stock-in-trade 9''312 14''049

c) Changes in inventories of Finished Goods'' Work-in-progress and Stock-in-trade (7''107) (2''354)

d) Employee Benefts Expenses 6''538 4''705

e) Depreciation and Amortisation Expenses 8''284 5''485

f) Other Expenses 38''641 28''078

Total Expenses 181''788 147''889

Proft/(Loss) from Operations before Other Income''

Finance Costs and Exceptional Items 27''837 19''442

Other Income 376 361

Proft/(Loss) before Finance Costs 28''213 19''803

Finance Costs 9''537 7''184

Proft/(Loss) before Tax 18''676 12''619 Tax Expenses

a) Provision for Taxation-Current 4''624 3''356

b) Provision for Deferred Tax 752 260

Total Tax Expenses 5''376 3''616

Net Proft/(Loss) after Tax 13''300 9''003

Share of Proft/(Loss) of Associates 241 1''431

Minority Interest (100) (108)

Net Proft/(Loss) after consolidation 13''441 10''326

Earnings Per Share 15.17 13.45

Book Value Per Share 85.36 74.59

DIVIDEND

Your Company had declared and paid Interim Dividends of Rs. 2.75 (@ 55%) per share (of Rs. 5/- each). Your Directors are pleased to recommend a Final Dividend of Rs. 1.25 (@ 25%) per share (of Rs. 5/- each) for FY 2012-13'' thereby total Dividend aggregating to Rs. 4/- (@ 80%) per share (of Rs. 5/- each) for FY 12-13 compared to the total Dividend of Rs. 3.50 (@ 70%) per share (of Rs. 5/- each) for FY 2011-12. The total amount of Dividend pay-out for the year would be Rs. 35.44 crs (previous year Rs. 27.21 crs).

Company has transferred Rs. 13.15 Crores to General Reserve (PY Rs. 8.80 Crores).

FINANCIALS

During the year'' your Company has achieved multiple milestones. Standalone Net revenues of the Company crossed Rs. 2000 Crores mark and ended at Rs. 2096 Crores (previous year Rs. 1673 Crores). Similarly Exports had also crossed Rs. 1000 Crores and closed at Rs. 1060 Crores. Hence with these record breaking performance'' our exports now constitute over 50% of the total revenues of the Company. The EBIDTA margins for the Company also improved from 14.6% for FY 11-12 to 17% in FY 12-13.

Operating proft before Interest'' Depreciation and Tax for FY 12-13 was at Rs. 356 crs (Previous Year Rs. 245 Crores) Proft before tax for FY12-13 was at Rs. 184 Crores (Previous Year Rs. 122 Crores) Proft after Tax and Deferred Tax grew to Rs. 131 Crores for FY 12-13 from Rs. 87 Crores for FY 11-12.

Consolidated Income increased by 25% to Rs. 2096 Crores as compared to Rs. 1673 Crores for last year. Consolidated EBIDTA also grew by about 45% to Rs. 365 Crores as against Rs. 253 Crores last year. Net Proft after Consolidation also recorded a growth of 30% at Rs. 134 Crores as against Rs. 103 Crores for last year. Consolidated EPS for FY 2012-13 was at Rs. 15.17 as against Rs. 13.45 for FY 2011-12.

During last year'' with introduction of various high growth and high margin export oriented products'' the share of Exports Revenue to Total Revenue have crossed the 50% benchmark. The ability to provide products with required specifcations at desired intervals have added to the increase in volumes from Global customers over longer term period. Your Company has entered into various long term supply agreement with its key customers thereby further strengthening its Global market positions. Signifcant volume growth is coming from our customers in Europe and America and in few of the products the demand is more than the production capabilities of the Company. Exports now'' accounts for 51% of the total revenue and have increased by over 46% to Rs. 1060 Crores for FY 12-13 from Rs. 727 Crores for FY 11-12.

CHEMICAL INDUSTRY – STRUCTURE & DEVELOPMENT

Chemical Industry is one of the fastest growing industries in the Indian Economy. At the same time it is also one of the oldest domestic industry of India which started working soon after India’s Independence in 1947. It accounts for 18% of the Indian manufacturing sector output and is expected to grow by about 12% annually. It constitutes for about 15% of India’s Exports and has around 8% share in India’s Imports. From those early years'' the Chemical Industry in India continued to contribute to the Economic Growth of Indian Economy. At present'' the Chemical Industry accounts for almost 13% of Indian GDP.

A network of over 200 national laboratories and 1300 R&D Centres provide a strong base for further innovations and growth of Indian Chemical Industry. Government Initiatives in the form of Port based Chemical Parks in SEZ'' Improvement in Infrastructure'' Tax concessions'' reduction and rationalization of Duty Structure'' FDI relaxation'' etc. plough the road for further growth of the Indian Chemical Industry into a major Chemical hub. End user Industries like Agro-Chemicals'' Automotives'' Biotechnology'' Electronics'' Packaging'' Pharmaceuticals'' Pigments'' Polymers'' Surfactants'' etc have been witnessing good demand and are poised for faster growth.

Thus'' Indian Chemical Industry holds potential to produce quality chemicals for global consumers because of its diversifed manufacturing base'' strong IPRs'' availability of qualifed work force'' proximity to ports'' availability of feedstock'' etc.

With concerns on environmental impact'' the Indian Government has been working towards ensuring stricter compliance of efuent norms'' categorizing alert zone'' identifying and restricting the operation of the polluting units. This has made Indian companies to scale up their units in parity with international standards. In this process'' while a lot of units have been closed down'' we are also witnessing the emergence of Indian Global Chemical Companies capable of competing with the other Asian players'' while also adopting safer and greener processes.

Your Company is a leading manufacturer of Speciality Chemicals with diversifed end-uses into Agrochemicals'' Pharmaceuticals'' High Performance Polymers'' Paints'' Pigments'' Printing Inks'' Rubber Chemicals'' Additives'' Surfactants'' Dyes'' Oil & Gas additives'' Flavours & Fragrances'' Home & Personal Care applications'' etc. Your Company’s derisking by diversifcation has helped it withstand the volatilities & downturns of a specifc end-user segment and also helps to capitalize on the growth opportunities in other end-user segments.

Your Company believes that the long term growth and proftability from the business cannot be sustained without a framework considering the elements of Safety'' Health'' Environment Impact and Energy Efciency initiatives. With these principles'' your Company have stepped up its eforts for the sustainable growth of its businesses. Your Company is committed to increase the process safety and increasing the level of automation in its existing areas of operation. This will help in reducing the manual handling and shopfoor manpower. Your Company has adopted the 3R Principle'' i.e.'' Reduce – Recover – Reuse. Over last 18 months'' your Company has made substantial Investments into upgrading the ETP setup and had upgraded two of its Manufacturing Units into Zero Discharge Unit and also has put in places various processes to control/limit of generation of efuents and improve on the treatment of the same. Your Company plans to invest further in these areas to ensure providing greener and safer manufacturing environment.

Your Company is a multi-product and multi-faceted one. Depending on these product categories we divided our businesses into four segments. The profle/composition of these business segments is presented:

We present below the breakup of key segmental fnancials:

(in Crores)

Performance Agri- Intermediates Pharmac euticals Home & Personal Total Chemicals & Fertilizers Care Chemicals

Sales 1319 438 187 152 2096

% of Total Sales 62.93% 20.90% 8.92% 7.25% 100.00%

Export 739 207 92 22 1060

% of Sales 56.03% 47.26% 49.20% 14.47% 50.57%

EBIT 236 83 9 5 333

% of Sales 17.89% 18.95% 4.81% 3.29% 15.89%

While Performance Chemicals and Agri-intermediates segments continues to account for over 80% of operations'' it may be noted that the growth in the business this year is mainly driven by the fact that the exports across all the segments has increased signifcantly. Your Company’s market position as a major global manufacturer of Chloro Benzenes & Nitro Chloro Benzenes and their derivatives with committed and customized delivery solutions have helped us cross Rs. 1000 Crores mark of global revenues. Your Company’s USP of having highly integrated operation with process fexibility adds to the growth in customer’s confdence which is translated into consistent volume growth even in times of adversities. Your Company’s diversifed product mix spread across stream of end user industries catering to smaller as well as larger MNC conglomerates in each segment / sub-segments have helped the Company to insulate itself against global economic cycle.

Interchangeable Performance & AgroChemicals manufacturing operations.

The Manufacturing units for these two segments are majorly interconnected/interlinked at the common manufacturing units located at Vapi'' Sarigam'' Jhagadia and Bhachau in the State of Gujarat and at Dombivali & Tarapur in the State of Maharashtra. A signifcant portion of your Company’s production capabilities are process driven and not based on a particular product. This gives your Company the fexibility to change its input mix and manufacture diferent products'' thereby resulting into optimum utilization of production capabilities as well as provides fexibility to change the product mix amongst diferent end-user applications based on market dynamics.

Your Company manufacturers various isomers as well as their downstream products. Because of the vertical integration'' your Company enjoys natural insulation against short supply of precursor raw materials. Thus'' consistent supply of products results into customer confdence and helps your Company to gain more market share. Your Company has also been able to convert its by-product from various processes into commercially viable products'' thereby contributing to the proftability of the Company.

Hydrogenation Facility at Jhagadia:

Your Company had pioneered by adopting Greener Hydrogenation process based Swiss Technology in India and have scaled up the capacities to 3000 tpm in Q3FY12-13. This expanded / additional hydrogenation unit shall help the Company to cater to the growing'' high margin and niche demand in the segments of Polymers'' Agrochemicals'' Pigments'' etc. in global markets. This shall also facilitate introduction of export oriented further value added range of products. Hence with these expanded capacities coupled with strong market position'' the Company expects to post signifcant growth in revenues and margins in coming years. The Company had recorded the production of over 1550 tpm of hydrogenated products in the quarter ended 31st March 2013. Annual average production for FY 12-13 was 1390 TPM as compared to 1165 TPM for FY 11-12. Also'' with the commissioning of the backward integrated Hydrogen Gas Generation Plant'' your Company is also assured for continuous supply of the feed raw material for the above mentioned Hydrogenation Unit. Thus this increase in hydrogenation capacities has enabled your Company to cater to the growing'' high margin & niche demand segments of Performance and Agro ingredients in the global market. Your Company now targets to produce around 2000-2200 tpm of Hydrogenated products in FY 2013-14.

Key Expansion Activities:

During last fnancial year'' a major German manufacturer had closed down and discontinued the manufacturing of Nitro Chloro Benzenes due to lower captive demand. This has opened up a large market (both domestic as well as for exports) for Nitro Chloro Benzenes. Considering this your Company has already taken up the expansion of its Nitro Chloro Benzenes (NCBs) capacities on fast track. Against the present capacity of about 57000 MT'' the production achieved in FY 12-13 was about 48072 MT (previous year about 42696 MT). Your Company now proposes to expand the existing capacities of 57000 MT to about 75000 MT with an estimated capital outlay of about" 25 to 30 Crores and expects to commission the same by end of current fnancial year.

Your Company is in the process of upgrading its 6 Batch Nitration capacities and consolidate the same into 4 Continuous Nitration units. While this will increase the level of automation of the process'' it will also facilitate overall increase in production capabilities. It will also result in increasing the consistencies & yields of various products and simultaneously help to reduce the consumption of fuel and other utilities. This would thus also entail higher volumes with signifcant cost savings with more safer and highly automated operations.

New Investment at Dahej SEZ:

Your Company had set up a new venture in 2012 under the name of Anushakti Specialities LLP in which your Company holds 90% stake and the balance 10% stake was held by ACDL which stake has since merged with the Company upon the restructuring as aforesaid.

This LLP has purchased a plot of about 50''000 sq. mtrs at Dahej SEZ and is in the process of setting up an Ethylenation unit for manufacturing ethylene based products with end-user application as Agro Chemicals and Speciality Chemicals'' majorly in Global Markets. Your Company is in the process of fnalizing the newer technologies which shall be commissioned at this unit. The unit is expected to be commissioned in FY 2014-15. With availability of key raw materials in Dahej'' we propose to purchase the same by pipeline. Considering the niche product segment'' growing global demand'' and the benefts available at SEZ'' this unit is expected to signifcantly add to turnover and proftability of the Company.

Upon the Scheme of Arrangement with ACDL being efective'' your Company now holds 100% stake in Anushakti Specialties LLP. Your Company proposes to absorb this entity into itself subject to regulatory approvals as may be specifed.

Performance Chemicals

With the merger of manufacturing division of Anushakti Chemicals & Drugs Ltd. (ACDL) becoming efective'' products of ACDL having applications as Polymer Additives and Oil & Gas Additives had been added to the segment of Performance Chemicals. With the additions of ACDL’s products'' the Performance Chemicals now provides for a consistent and sustained growth to Company’s operations.

We present below the key fnancials for Performance Chemicals:

Key Financeal FY 2012-13 FY 2011-12 FY 2010-11

Sales 1319 968 1030

% of Total Sales 62.93% 57.85% 70.89%

Export 739 496 412

% of Segment Sales 56.03% 51.27% 39.99%

Segment EBIT 236 142 145

EBIT % 17.89% 4.65% 4.07%

(* Figures for 12-13 may not be comparable as the same are inclusive of the fgures of ACDL after adjusting the same for interse transactions between AIL and ACDL)

As you would note'' this segment accounts for about 63% of the total revenues (previous year 58%) of the Company. Exports of Performance Chemicals accounts for 70% of the total exports of the Company and constitute over 56% of the segment revenue.

The diversity in end user segments from High Performance Polymers'' Paints'' Pigments'' Printing Inks'' Rubber Chemicals'' Additives'' Surfactants'' Dyes'' Oil & Gas Additives'' Flavours & Fragrances'' etc. is the inherent strength and de-risks the segment from individual end-user downturns. The wider customer base from varied industry also reduces the credit risk and thus provides sustainability and stability to the Company’s operations.

Performance Chemicals segment broadly comprises of Speciality Chemicals with applications into

a. Polymers & Additives''

b. Dyes'' Pigments'' Paints'' Printing Inks''

c. Oil & Gas Additives'' Rubber Chemicals'' Flavours & Fragrances'' Water Treatment'' Construction Chemicals'' Resins'' etc.

On account of the wide diversity in product applications'' the segment on an overall basis is expected to grow with Key driving industries for growth of Performance Chemicals are summarised below.

- Polymers & Additives:

Usage of High Performance Polymers has been increasing as a replacement of metal parts in various mode of transportation worldwide'' as an endeavor to reduce the weight and improve the fuel efciency. In addition to this'' these polymers are also used in high growth segments such as electronic media & telecommunication devices and various other Electrical Instruments. With the availability of additional Hydrogenation Capacities'' your Company expects to increase the volumes of these Polymer intermediates to cater the growing international demand.

With a view to capitalize on the by-product Hydro Chloric Acid by converting it into a gainful product'' a Calcium Chloride Granulation unit was set up by ACDL at Bhachau which unit has since been merged with the Company. Your Company has for the frst time in India'' imported this technology for granulation of Calcium Chloride. This unit improves the quality of end product and will be able to manufacture high grade granules'' which are used into Oil Exploration and de-icing activities. This products will be mainly exported and is expected to fetch signifcant higher margins.

- Dyes'' Paints'' Pigments and Printing Inks:

This sector has witnessed a shift in the consumption pattern of Printing Inks based applications. While the demand for Printing inks in developed economies are reducing'' the same is increasing in developing economies on account increasing per-capita income & consumption (along-with changes in consumption profle)'' growth in education and healthcare facilities'' etc.

The global replacement of usage of Organic Pigment vis-à-vis Metal Pigments has been the driving force behind the signifcant growth of Pigment applications globally and shall continue further going forward.

With a signifcant Japanese player having ofcially closed production of a key Pigment & Printing Ink intermediate in the frst quarter'' an opportunity has opened up for increasing our presence in the Pigment application. Your Company has immediately taken steps to increase the capacities for this application. The Company has already supplied these products to the prospective customers and is in the process of qualifying with these new customers for these products. This enhanced new capacity is presently under commissioning. We expect further volume growth in these products from FY 13-14 onwards so as to meet the supply gap arising as aforesaid.

While the demand from global markets for Pigments and Paint application has been increasing'' the demand from the dyes sector is still afected by downturn. Your Company is monitoring this situation and shall take adequate steps for product realignment once the demand picks up.

Your Company’s strong position in this segment will help further to capitalize on the global growth opportunities.

Agri-Intermediates and Fertilizers

India’s Agrochemicals Industry valued at about US$ 2 bn'' is the fourth leading producer of Agrochemicals after USA'' Japan and China and has been growing annually at about 7.5%. Emphasis on achieving foodgrain self-sufciency'' limited farmland availability and growth in horticulture and foriculture have been the reasons for the growth of Agrochemicals worldwide.

Exports account for over 60% of India’s Agrochemicals produce and are expected to have a double digit growth in years to come. Many foreign companies are tying up with local manufacturers to expand into this sector for domestic & global requirements.

The launch of nutrient based subsidy programme for more efective scheme of distribution of the subsidy directly to the end users would beneft the direct end-users in long term and it will also ensure has distribution of the subsidy to the eligible people at large. In addition to these administrative reforms'' the Government has also rolled out a series of tax incentives to further promote the growth of this high growing Fertilizer and Agro based-businesses in India.

Your Company is a leading global manufacturer of various Agrochemicals Intermediates and has presence across all the sub-segments viz. herbicides'' insecticides'' and other agrochemicals.

We present below the key fnancials for Agri Chemicals & Fertilizers Segment:

( in Crores)

Key Financeal FY 2012-13 FY 2011-12 FY 2010-11

Sales 438 382 198

% of Total Sales 20.90% 22.85% 13.60%

Export 207 143 92

% of Segment Sales 47.26% 37.52% 46.46%

Segment EBIT 83 75 41

EBIT % 18.95% 19.73% 20.71%

P.S: A major part of domestic sales is used to manufacture products for export markets.

Your Company has been focusing on the growth opportunities for these products in global markets and has been closely working with the Global Leaders in this space to cater to their customized requirements of agrochemicals. After years of eforts to develop this market'' the Company has been witnessing consistent growth in the exports of these products. Your Company’s products are now being sold across all markets such as NAFTA'' Asia'' Europe'' Latin America'' and other territories. This has also helped to de-risk the business from various local climatic changes as also across the world. This is witnessed by y-o-y growth in exports of these products as shown in the table above.

Your Company is also manufacturing Single Super Phosphate (SSP) (a widely used fertilizer). It is a gainful usage of the by-product Dilute Sulphuric Acid (generated by other Chemical units) and is marketed under the guidelines prescribed by Government of India. The production of SSP also saves the Company from the hassles of management and disposal of the said by-product. India is amongst the largest manufacturer and consumer of SSP across the world. An area wise consumption data of SSP is presented below:

State Consumption %

Rajasthan 1242 28.11%

Madhya Pradesh 852 19.28%

Maharashtra 631 14.29%

West Bengal 479 10.85%

Gujarat 298 6.75%

Uttar Pradesh 258 5.83%

Andhra Pradesh 228 5.16%

Chattishgarh 168 3.80%

Tamilnadu 168 3.80%

Karnataka 56 1.26%

Assam 32 0.73%

Haryana 6 0.14%

Total 4417 100.00%

Source: Fertilizer Association of India

States of Maharashtra'' Gujarat'' Madhya Pradesh and Rajasthan accounts for over 68% of India’s total consumption of SSP. Your Company thus enjoys the locational benefts of having manufacturing unit in Gujarat'' thereby also benefting from the reduced freight costs as compared to other States. During FY 2012-13'' there had been a drought situation in major parts of India. As a result the sale for SSP (Fertilizer) had been afected. Inspite of having lower volumes in frst half'' our sales of SSP for FY 2012-13 was around 65446 MT as compared 63266 MT in FY 2011-12. Considering our existing capacity of 100''000 MT'' we account only about 2% of India’s Production Capacities and about 1.4% of India’s total consumption. In view of this'' we expect to have sales volumes of about 80000 - 90000 MT of SSP for FY 2013-14.

With the expansion in other manufacturing capabilities'' need for additional SSP capacities (for captive consumption of by- product) is expected. Envisaging the same'' your Company is exploring the feasibility for setup an additional SSP unit with capacity to manufacture 200''000 Tons at Jhagadia'' Gujarat to cater to the demand in the States of Gujarat'' Rajasthan and Madhya Pradesh.

Pharmaceuticals

Pharmaceuticals Industry accounts for almost quarter of the Indian Chemical Industry. From being a startup and base level operations'' Indian Pharma Companies have evolved to be a leader in the production of high quality generic drugs.

Patent expirations'' weak pipeline quality and increasing focus by Governments to reduce healthcare costs continue to exert pressure on innovator companies which supports outsourcing to low-cost nation like India. Despite challenges'' leading Indian players continue to exhibit strong proftability indicators.

Outlook on the Indian pharmaceutical companies remains favourable as companies will continue to beneft from recovery in the domestic market'' strong growth potential in generics developed markets and potential outsourcing opportunities.

Globally'' generics players however continue to face competitive environment from large innovator companies. Price erosion'' especially through regulatory interventions'' remains a foremost challenge in the European markets. Presence in limited competition products segments and over-the-counter (OTCs) segment ofers some protection to margins. Most developed markets continue to move away from branded generics to commoditized un-branded generics and lower margin tender based business.

Your Company has four manufacturing units of which - two are USFDA approved facilities & other two are WHO GMP approved facilities. These plants are cGMP compliant - meeting ICH Q7 standards - thus enabling buyers to use APIs in all regulated markets. Unlike other companies'' your Company has capacities for inhouse production of intermediates and hence it is not dependent on China for the same. This helps your Company to reduce the costs for its APIs and thus enhances the margins of its range of products.

We present below the key fnancials for Pharmaceuticals Segment:

(in Crores)

Key Financeal FY 2012-13 FY 2011-12 FY 2010-11

Sales 187 165 131

% of Total Sales 8.92% 9.86% 8.98%

Export 92 66 46

% of Segment Sales 49.20% 40.00% 35.15%

Segment EBIT 9 4 (6)

EBIT % 4.81% 2.55% NIL

The volumes of these products have been consistently increasing which has helped improvement in margins and segmental proftability. The same is evident from increase in revenues as tabulated above. Similarly'' the EBIT for FY13 increased to " 9.5 Crores as against" 4 Crores for FY 2011-12. You would note that the EBIT margins have been improving and it increased to over 5% of sales in FY13 as compared to 2.55% of sales for FY12. Thus the incremental growth in revenues in this segment will result into signifcant improvement in EBIT. We expect the segment to grow as faster pace in coming years.

Home & Personal Care Chemicals

Rising per capita income have enabled the increase of consumption of hygiene and personal care products. Increasing consumption is driving demand for wide range of cosmetic chemicals'' health care products as well as hygiene products using performance chemicals'' polymers and oleo chemicals.

We present below the key fnancials for Home & Personal Care Chemicals Segment:

( in Crores)

Key Financeal FY 2012-13 FY 2011-12 FY 2010-11

Sales 152 158 95

% of Total Sales 7.25% 9.47% 6.52%

Export 22 21 10

% of Segment Sales 14.47% 13.21% 10.94%

Segment EBIT 5 5 5

EBIT % 3.29% 3.11% 5.36%

Home & Personal Care Chemicals segment is relatively a low margin business. Your Company has two manufacturing units'' one each at Pithampur (Madhya Pradesh) & at Silvassa. Your Company’s plans to optimize its production capabilities to suitably alter/revise the product mix has helped marginal improvement in margins inspite of reduction in sales volumes. The commissioning of the Spray Dryer project in Q4FY2012-13 and the product reshufing exercise is expected to improve the margins in coming quarters. Your Company is also focusing on increase in exports of its products under this segments. This will help in better realization and improvement of margins.

SEGMENT-WISE PERFORMANCE

(in Lakhs)

Sr. No. Particulars Standalone Consolidated

(A) Primary Segments : Business Segments

1 Segment Revenue

a) Performance Chemicals 131''948 131''961

b) Agri-Intermediates & Fertiliser 43''818 43''818

c) Pharmaceuticals 18''684 18''684

d) Home & Personal Care Chemicals 15''162 15''162

TOTAL 209''612 209''625

2 Segment Results Proft / (Loss) (Before Tax and Interest from each Segment)

a) Performance Chemicals 23''587 23''587

b) Agri-Intermediates & Fertilizer 8''308 8''308

c) Pharmaceuticals 945 945

d) Home & Personal Care Chemicals 503 503

TOTAL (A) 33''343 33''343

Less: Interest 9''500 9''537

Other Unallocable Expenditure (Net) 5''459 5''130

TOTAL (B) 14''959 14''667

TOTAL PROFIT BEFORE TAX (A-B) 18''384 18''676

(B) Secondary Segments : Geographical Segments

a) India 103''651 103''664

b) Out of India 105''961 105''961

TOTAL 209''612 209''625

SEGMENT CAPITAL EMPLOYED

Fixed Assets used in the Company’s business or Liabilities contracted have not been identifed to any of the reportable segments'' as the Fixed Assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to capital employed.

RISKS AND CONCERNS

Your Company perceives risks or concerns common to industry such as concerns related to the Macro Indian Economic Outlook'' Global Economic fallout'' Regulatory risks'' Foreign Exchange volatilities'' Higher Interest rates'' Rising Raw-material costs and other commercial & business related risks. Segments like Agrochemicals'' Pharmaceuticals and Home & Personal Care are not much afected by the economic cycle and have its own independent growth rates. Further your Company’s diversifed revenue mix'' fexible product mix and increasing volumes from value added products helps to insulate the business from any economic setbacks.

Volatility in foreign exchange rates of Indian Rupee vis-a-vis US$ is now an inherent risk. Your Company’s policy to hedge only those exposures which are backed by confrmed orders protects it from taking any unwanted positions and thus is not signifcantly afected by any such movements.

Chemical Businesses have lot of inherent process risks. To ensure that this risks do not arise'' your Company had stepped up its eforts for adopting greener'' cleaner and safer manufacturing operations. Your Company have also been increasing and upgrading the level of automation in the existing processes thereby providing for a safer working environment.

Chemical businesses are generally working capital intensive and hence the working capital requirements are also higher. Your Company has been making continuous eforts to reduce the overall working capital cycle. With these eforts and higher cash accruals going forward'' debt-equity ratio is expected to be better in coming years.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has clearly laid down policies'' guidelines and procedures that form part of internal control systems'' which provide for automatic checks and balances. Your Company has maintained a proper and adequate system of internal controls. This is to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that the transactions are authorised'' recorded and reported diligently. Your Company’s internal control systems commensurate with the nature and size of its business operations. The internal Auditors’ Reports are regularly reviewed by the Audit Committee of the Board.

DIRECTORS’ RESPONSIBILITY STATEMENT

As required u/s. 217(2AA) of the Companies Act'' 1956 (the Act):

(i) That in the preparation of the Annual Accounts for the Year ended 31st March'' 2013'' the applicable Accounting Standards had been followed along with proper explanation for material departures'' if any;

(ii) That the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of afairs of the Company at the end of the fnancial year of the proft of the Company for that year;

(iii) That the Directors had taken proper and sufcient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the Assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) That Directors’ have prepared the annual accounts on a going concern basis.

SUBSIDIARY COMPANIES

The Company has 3 subsidiaries'' namely'' Aarti Corporate Services Limited'' Shanti Intermediates Private Limited'' Nascent Chemical Industries Limited. The Statement pursuant to Section 212 and summary of fnancial information of Subsidiary Companies is provided in the Annual Report.

In accordance with the general circular issued by the Ministry of Corporate Afairs'' Government of India'' the Balance Sheet'' Statement of Proft and Loss and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. The Company will make available the Annual Accounts of the subsidiary Company and the related detailed information to any member of the Company who may be interested in obtaining the same. The annual accounts of the subsidiary will also be kept open for inspection at the Registered Ofce of the Company as well as at the head ofce of the Subsidiary Company. The Consolidated Financial Statements presented by the Company include the fnancial results of its Subsidiary Company.

CONSOLIDATED FINANCIAL STATEMENTS

Your Directors have pleasure in presenting Consolidated Financial Statements which form part of the Annual Report and Accounts.

DIRECTORS

In accordance of the provisions of the Companies Act'' 1956'' and the Articles of Association of the Company'' Smt. Hetal Gogri Gala'' Shri Shantilal T. Shah'' Shri Ramdas M. Gandhi'' Shri Haresh K. Chheda and Shri Parimal H. Desai retire by rotation and being eligible'' ofer themselves for re-appointment. A brief profle of the Directors proposed to be appointed/re- appointed is given in the notice of the ensuring Annual General Meeting.

CORPORATE GOVERNANCE

Your Company has complied with the mandatory Corporate Governance requirements stipulated under Clause 49 of the Listing Agreement. Report on Corporate Governance is annexed hereto forming part of this report.

DISCLOSURE OF PARTICULARS

Information as per the requirements of Section 217(1)(e) of the Companies Act'' 1956'' read with Rule 2 of Companies (Disclosure of Particulars in the Report of Board of Directors) Rules'' 1988'' relating to Conservation of Energy'' Research & Development'' Technology Absorption'' Foreign Exchange Earnings and Outgo are annexed hereto forming part of this Report.

ENVIRONMENTAL'' SAFETY AND HEALTH

Your Company is committed to ensure sound Safety'' Health and Environmental (SHE) performance related to its activities'' products and services. The Company is taking continuous steps to develop Safer Process Technologies and Unit Operations. Your Company has been investing heavily in areas such as Process Automation for increased safety and reduction of human error element'' enhanced level of training on Process and Behaviour based safety requirements'' adoption of expensive but safe & environment friendly production processes'' Installation of Bioreactors'' Chemical ROs'' Multiple efect evaporator and Incinerator'' etc. to reduce the discharge of efuents'' commissioning of Waste Heat recovery systems'' and so on to ensure the Reduction'' Recovery and Reuse of efuents & other utilities. Monitoring and periodic review of the designed SHE Management System is done on a continuous basis. Your Company already has two "Zero Discharge” units and is reviewing to convert couple of more units as Zero Discharge units in future. The Company is committed to continuously take further steps to provide a safe and healthy environment.

CORPORATE SOCIAL RESPONSIBILITY

As contribution towards community development to fulfll the company’s obligations towards the society'' Aarti Industries Limited alongwith its Promoters and Associate Companies (collectively referred as Aarti Group) have taken several initiatives to this cause in its journey so far. In addition to the Financial Support'' your Management is personally and continuously involved to ensure the reach of these initiatives to the society at large. Few of these initiatives founded and continuously supported by Aarti Group are briefed hereunder:

Aarti Group had set-up a school named Tulsi Vidya Mandir at Kutch'' Gujarat in the year 2005'' and have been aiding regularly to meet its objectives. Presently'' Tulsi Vidya Mandir imparts Secondary & Higher Secondary education to over 350 children coming from about 12 villages.

Aarti Group also founded Mahavir School/College of Nursing at Sabar Kantha'' Gujarat in the year 2008'' with an objective to spread professional nursing education to the interior villages. Every year around 200 candidates from interior villages are enrolled and trained in Nursing Profession. With the objective to uplift the lower segment of our society'' Maninagar Sanskar Dham'' at Kutch in Gujarat'' was founded by Aarti Group in the year 2011. On an average over 40 slum kids are nurtured by this institution.

Aarti Group had also set-up Mahavir Health Centre at Alam Nagar'' Bihar in the year 2010'' to provide better healthcare facilities in this part of Bihar. This Centre is equipped with latest equipments including its own OPD'' X-Ray'' and Pathology facilities. On an average around 50 patients are treated at this Centre. With the objective to provide relief from the recent drought situation prevailing in Maharashtra'' Aarti Group undertook various drought relief activities in the village of Beed'' Maharashtra. Under this programme'' Aarti Group deployed several water tankers to provide this basic amenity. It also arranged for distribution of fodder and temporary shelter to cattles afected by this severe drought.

In addition to above'' your Company organizes many activities on regular basis including Blood Donation Camps'' Health checkup camps'' etc. The Company has been donating to several Hospitals'' Educational Institutions'' Trusts'' and contribution for area beautifcations. The company also contributes for relief measures in times of natural calamities. In parlance to the objective of providing basic primary and secondary education in the surrounding areas'' your company actively contributes for the upgradation & infrastructure development of the schools. The Company envisages the upliftment of society by way of enlightening and educating the masses. In this regard the company plans to promote cheap as well as subsidized housing facilities for its employees and also deserving members of the society. The company thus promotes the Shelter'' Health and Education led modal for the general upliftment of the society. With the view to contribute for upliftment of society'' our Chairman Emeritus'' Shri Chandrakant V. Gogri has committed a major portion of his time for these Philanthropic activities. Your Company has extended its full support to this cause and shall always remain committed for the same.

PERSONNEL

As required by the Provision of Section 217(2A) of the Companies Act'' 1956'' read with Companies (Particulars of Employees) Rules'' 1975 as amended up-to-date'' the names and the other particulars of the Employees are set out in the Annexure to the Directors’ Report. However'' as per the Provisions of Section 219(1)(b)(iv) of the Companies Act'' 1956'' the Reports and Accounts are being sent to all the Shareholders of the Company excluding the aforesaid information. Any Shareholder interested in obtaining such particulars may write to the Company Secretary at the Registered Ofce of the Company.

AUDITORS

M/s. Parikh Joshi & Kothare'' Auditors of the Company retire at the ensuing Annual General Meeting and are eligible for reappointment. Members are requested to appoint Auditors and to fx their remuneration.

COST AUDITORS

The Cost Auditor Ms. Ketki Visariya (Fellowship No. 16028)'' Cost Accountant'' re-appointed by the Company under Section 233B of the Companies Act'' 1956 attend the Audit Committee Meeting'' were cost audit reports are discussed.

The due date for fling the Cost Audit Reports for the fnancial year ended 31st March'' 2012 under the new XBRL format was 28th February'' 2013 and the Cost Audit Reports for Organic-inorganic Chemicals'' Bulk Drugs and Fertilizers were fled by the Cost Auditors on 28th February'' 2013. The due date for fling the Cost Audit Reports for the fnancial year ended 31st March'' 2013 is 30th September'' 2013.

INDUSTRIAL RELATIONS & HUMAN RESOURCES

The Company enjoys cordial relation with its employees at all levels. Your Company continues to ensure safety and health of its employees. Your Directors record their sincere appreciation of the support and co-operation of all employees and counts on them to maintain Company’s growth momentum.

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation for the dedicated services rendered by the employees of the Company at all levels and the constructive co-operation extended by them. Your Directors would also like to express their grateful appreciation for the assistance and support by all Government Authorities'' Auditors'' fnancial institutions'' banks'' suppliers'' other business associates and last but not the least the Shareholders.

For and on behalf of the Board

Sd/-

Place : Mumbai RAJENDRA V. GOGRI

Dated : 16th May'' 2013 CHAIRMAN & MANAGING DIRECTOR


Mar 31, 2012

TO THE MEMBERS OF AARTI INDUSTRIES LIMITED

The Directors are pleased to present this Twenty Ninth Annual Report and the Audited Statement of Accounts for the year ended 31st March, 2012.

FINANCIAL RESULTS (Rs in Lakhs)

Particulars Standalone Consolidated 2011-12 2010-11 2011-12 2010-11

Net Sales: 163,226 140,368 163,226 142,572

Other Operating Income 4,105 2,728 4,105 2,728

Total Income from Operations (Net) 167,331 143,096 167,331 145,300 Expenses

a) Cost of Material Consumed 84,445 68,554 84,445 68,554

b) Purchases of Stock- in-trade 14,049 18,213 14,049 19,468

c) Changes in inventories of Finished Goods, Work- in-progress and Stock-in- trade (2,354) (1,633) (2,354) (1,528)

d) Employee Benefits Expenses 4,552 3,887 4,705 3,929

e) Depreciation and Amortisation Expense 5,397 4,792 5,485 4,981

f) Other Expenses 42,175 34,726 41,559 35,088

Total Expenses 148,264 128,539 147,889 130,492

Profit/(Loss) from Operations before Other Income, Finance Costs and Exceptional Items 19,067 14,557 19,442 14,808

Other Income 284 400 361 417

Profit/(Loss) before Finance Costs 19,351 14,957 19,803 15,225

Finance Costs 7,151 5,596 7,184 5,621

Profit/(Loss) before Tax 12,200 9,361 12,619 9,604

Tax Expenses

a) Provision for Taxation-Current 3,230 2,500 3,356 2,585

b) Provision for Deferred Tax 251 183 260 328

Total Tax Expenses 3,481 2,683 3,616 2,913

Net Profit/(Loss) after Tax 8,719 6,678 9,003 6,691

Share of Profit/(Loss) of Associates - - 1,431 1,544

Minority Interest - - (108) (86)

Net Profit/(Loss) after consolidation - - 10,326 8,149

Earnings Per Share 11.36 8.70 13.45 10.62

Book Value Per Share 64.79 58.20 74.59 66.34

DIVIDEND

Your Company had declared and paid Interim Dividend of Rs 2.00 (@ 40%) per share (of Rs 5/- each). Your Directors are pleased to recommend Final Dividend of Rs 1.50 (@ 30%) per share (of Rs 5/- each) for the year 2011-12. The total amount of Dividend pay-out for the year would be Rs 27.21 Crores (previous year Rs 19.18 Crores).

FINANCIALS

During the year under review, the Standalone Operating Income has increased by 17% from Rs 1430.96 crs for FY 2010-11 to Rs 1673.31 crs in FY 2011-12. Also the Operating Profit before Interest, Depreciation and Tax increased to Rs 244.64 crs as compared to Rs 193.49 crs for the last year recording a growth of over 26%. Operating Margin for the year increased to 14.6% from last year's 13.5%. Likewise the Profit before tax also increased by 30% to Rs 122.00 crs for FY 2011-12 from Rs 93.61 crs in FY 2010-11. Further, Profit after tax and deferred tax also grew more than 30% to Rs 87.19 crs for FY 2011-12 from Rs 66.78 crs for FY 2010-11.

Similarly, the Company's consolidated Income also increased by 15% to Rs 1673.31 crs as compared to Rs 1453.00 crs for last year. Net Profit after Consolidation for the Company was at Rs 103.26 crs vis-a-vis Rs 81.49 crs for last year. Consolidated EPS for the year 2011-12 was at Rs 13.45 as against Rs 10.62 for the year 2010-11.

With global scale manufacturing units with the latest technologies high level of automation and with adequate technical capabilities, your Company is consider as leading global manufacturer. The Company exports its products across the world to over 60 countries catering to the needs of over 300 global customers. Exports now, accounts for 42% of the total revenue and have increased by over 23% to Rs 726.73 crs for FY 2011-12 from Rs 582.43 crs for FY 2010-11.

CHEMICAL INDUSTRY - STRUCTURE & DEVELOPMENT

The Chemical Industry is critical for the economic development of any country, providing products and enabling technical solutions for virtually all sectors of the economy.

The global chemical industry is witnessing a gradual eastward shift. The industry is increasingly moving eastwards in line with the shift of its key consumer industries (e.g. automotive, electronics, etc.) to leverage greater manufacturing competitiveness of emerging Asian economies (especially India & China) and also to serve the increasing local demand. Substantial new capacities in the world are expected to come up in Asia and Europe. Operating profits in the sector have increased and many companies were able to push stronger cash flows down to the bottom line. However, the overall growth of the chemical sector was hampered by economic slowdown across US and Europe.

With Asia's growing contribution to the global chemical industry, India emerges as one of the focused destination for chemical companies worldwide. With the current size of approximately $108 billion, the Indian chemical industry accounts for ~ 3% of the global chemical industry. Two distinct scenarios for the future emerge, based on how effectively the industry leverages its strengths and manages challenges. In the base case scenario, with current initiatives of Industry & Government, the Indian chemical industry can grow at 11% p.a. to reach size of $224 billion by 2017. High end-use demand based on increasing per capita consumption, improved export competitiveness and resultant growth impact for each sub-sector of the chemical industry can also lead to an overall growth rate of over 15% p.a. and a size of $290 billion by 2017 (~ 6% of global industry). This has a potential for further upside in the future considering India's increasing competitiveness in manufacturing.

The draft manufacturing policy recently approved by the Union Cabinet targets increasing the share of manufacturing in GDP to at least 25% by 2025 (from current 16%). These zones will enjoy fast track clearances from the Environment Ministry and State Pollution Boards, Special Policy Regimes, Tax Concessions and more favourable labour laws. Investments in manufacturing in the chemical sector are absolutely essential to ensure growth of the Indian chemical industry.

With rising concerns about climate change and depleting natural resources, focus on sustainability is another key trend impacting the global chemical industry. Chemical companies are increasingly working towards reducing energy intensity of their operations, minimizing effluent discharge, increasing the share of recyclable products in their portfolio and diversifying their raw material base to include bio-feedstock.

During last 6-8 months, the Indian Rupee had depreciated by over 22% vis-a-vis US Dollars. This has added to the competitive advantage of Indian Exporters while competing in global markets. Further the devaluation of Indian Rupee has also made imports dearer, thus the share of Indian manufactured goods in domestic consumption is expected to increase.

Your Company is a leading manufacturer of Speciality Chemicals with diversified end-uses into Agrochemicals, Pharmaceuticals, High Performance Polymers, Paints, Pigments, Printing Inks, Rubber Chemicals, Additives, Surfactants, Dyes, Flavours & Fragrances, Home & Personal Care applications, etc. Your Company makes continuous efforts to explore and innovate new products & processes in all segments. This diversified end-user base helps the Company to derisk itself from downturn in any individual business segment and also to capitalize on the growth opportunities in each of the end-user segments. Your Company had made substantial Investments during last financial year into upgrading the ETP setup of the Company including setting up additional process to minimise the quantity and impurity profile of the effluents. With this efforts, the Company had upgraded two of its Manufacturing Units into Zero Discharge Unit and also has put in place various processes to control/limit generation of effluents and improve on the treatment of the same.

For better focus on core businesses, the Company has classified its business segments based on the nature of product and their respective end-uses. Based on this, the new segments are Performance Chemicals, Agri-Intermediates & Fertilizers, Pharmaceuticals and Home & Personal Care chemicals. The profile/composition of these business segments is as under:

Breakup of Segmental revenue for 2011-12 :

Performance Agri- inter mediates Pharma ceuticals Home & Personal Total Chemicals & Fertili zers Care Chemicals

Sales (Rs in crs) 967.98 382.30 164.62 158.41 1673.31

% of Total Sales 57.85% 22.85% 9.84% 9.47% 100.00%

Export (Rs in crs) 496.31 143.42 66.08 20.92 726.73

% of Sales 51.27% 37.52% 40.14% 13.21% 43.43%

Performance Chemicals and Agri-Intermediates & Fertilizers accounts for over 80% of the Company's total revenue and over 87% of the total exports of the Company.

Manufacturing Setup for Performance Chemicals & Agri-intermediates & Fertilizers:

The manufacturing operations for these two segments are substantially interconnected/interlinked at its common manufacturing units located at Vapi, Sarigam, Jhagadia in the State of Gujarat and at Tarapur in the State of Maharashtra. A significant portion of your Company's production capabilities are process driven and not based on a particular product. This gives your Company flexibility to change its input mix and manufacture different products, thereby enabling optimum utilization of production capabilities as well as provides flexibility to change the product mix amongst different end-user applications based on market dynamics.

Your Company manufactures Isomers as well as their downstream products. Because of the vertical integration, your Company enjoys natural insulation against short supply of precursor raw-materials. Thus, consistent supply of products results in to customer confidence and helps your Company to gain better market share. Your Company has also been able to convert its by-products from various processes into commercially viable products, thereby contributing to the profitability of the Company.

By-Products Gainful Usage

Steam From Sulphuric Acid Plant Power generation (6MW Power Plant) & Distillation ONCB/PNCB)

Dilute Hydrochloric Acid Chloro Sulfonic Acid & Calcium Chloride

Dilute Sulphuric Acid Single Super Phosphate (SSP) fertilizer & Di Calcium Phosphate (Nutrients)

Your Company has global scale of manufacturing units with a varied mix of diversified and value added chain of products supplied to a customer base of over 600 domestic and 300 global customers. The customized delivery solutions have positioned your Company as "Preferred supplier" to various MNCs for past several years. All this have helped your Company to emerge as a market leader in India and also globally ranks at 1st - 5th position for more than 75% of its top 50 products.

Hydrogenation Facility at Jhagadia:

Your Company has been the pioneer of the Greener Hydrogenation process based on Swiss Technology in India. Your Company upgraded its greener hydrogenation process from semi-batch to continuous (in 2010) - enhancing the production capabilities by more than 100% (from 700 tpm to 1500 tpm). An additional unit is under development, which will increase the aggregate capacity to about 3,000 tpm by end of fiscal 2012-13. Also, a backward integrated Hydrogen Gas Generation Plant is being set up to cater to the increase in captive demand for hydrogen gas. The increase in hydrogenation capacities has enabled your Company to cater to the growing, high margin & niche demand in the segments of Performance Chemicals and Agri-intermediates in the global market. Further expansion in capacities coupled with strong market position will enable your Company to significantly boost up the revenues from these segments.

By setting up/upgradation of the effluent treatment infrastructure at Jhagadia, since April 2012, the unit is now capable of zero discharge of liquid effluent by recycling of waste water generated therein. This will not-only help reduce the burden on environment but also help the Company in future for further expansion programmes.

Performance Chemicals

Performance Chemicals are defined as a "group of relatively high value, low volume chemicals known for their end user applications or performance enhancing properties." In contrast to base or commodity chemicals, Performance Chemicals are recognized for what they do and not 'what they are'. Performance Chemicals provide the required solution to meet the customer application needs. It is a highly knowledge driven segment. The critical success factors for the Performance Chemicals segment include understanding of customer needs and product/ application development.

Global Performance Chemicals industry is estimated to be ~ $740 billion accounting for ~ 22% of the global chemical industry.

This segment accounts for about 58% of the total revenues of the Company. Exports of Performance Chemicals accounts for about 70% of the total exports of the Company. It can be seen from the table below, the share of exports in the segment revenue has increased to 51% in FY 2011-12 from 40% in FY 2010-11.

(Rs in crs.)

Particulars FY 2009-10 FY 2010-11 Local Export Total Local Export Total

Performance 541.81 341.02 882.83 596.14 411.90 1008.04 Chemicals

Particulars FY 2011-12* Local Export Total

Performance Chemicals 471.67 496.31 967.98

(* due to slowdown in dyes sector, the capacities of Performance Chemicals were utilized for manufacture of Agrochemical Intermediates during FY 2011-12.)

Performance Chemicals segment broadly comprises of Speciality Chemicals with applications into:

a) Polymers & Additives,

b) Dyes, Pigments, Paints, Printing Inks,

c) Rubber Chemicals, Flavours & Fragrances, Water Treatment, Construction Chemicals, Resins, etc.

On account of the wide diversity in product applications, this segment on an overall basis is expected to grow with Key driving industries for growth of Performance Chemicals summarised below.

Polymers & Additives

Over the years lots of innovations have been carried out in the areas of providing more fuel efficient modes of transports (such as Automobiles, Airplanes, etc). Starting from continuous process of improvement/refinement in combustion technologies to replacement of metal components with High Performance Engineering Polymers, changes are being made continuously to reduce the weight and improve on the fuel efficiency. In addition to this, these polymers are also used in high growth segments such as Electronic Media & Telecommunication devices and various other Electrical Instruments. Your Company has been expanding the capacities for its Polymer intermediates having applications into such High Performance Engineering

Polymers. With the kind of growth being witnessed in these sunrise sectors across the world, we expect volumes for these Polymers Intermediates to increase significantly.

Dyes, Paints, Pigments and Printing Inks

This sector has witnessed a shift in the consumption pattern of Printing Inks based applications. While the demand for Printing inks in developed economies are reducing, the same is increasing in developing economies on account increasing per-capita income & consumption (along-with changes in consumption profile), growth in education and healthcare facilities, etc.

The global replacement of usage of Organic Pigment vis-a-vis Metal Pigments has been the driving force behind the significant growth of Pigment applications globally and shall continue further going forward.

While the dyes sector has been hit hard due volatility in cotton and other feed stock prices, there are signals of the demand gradually picking up and hence we expect that the demand for dyes should increase going forward.

Your Company being a leading player in this segment and equipped with its strong market positioning and widespread global reach is better placed to capitalize on these growth opportunities in global arena.

Agri-intermediates and Fertilizers

The Indian's crop protection chemicals market is growing with a rate of around 7.5% driven by steady export growth of crop protection chemicals from India at the cost of Chinese products. The country is the fourth leading producer of Agrochemicals after USA, Japan and China.

Increasing population, high emphasis on achieving food grain self sufficiency, limited farmland availability coupled with pressure to increase yield per hectare and growth in horticulture and floriculture are expected to increase the usage of agrochemicals across the world. India's exports of agrochemicals are steadily rising. Many foreign companies are tying up with local manufacturers to expand into this sector for domestic & global requirements.

The Indian Government has framed a new fertilizer policy under which the Government will not fix the producer's price for the new units, to encourage growth in the fertilizer sector. However, the Government has announced a nutrient based subsidy programme and more effective scheme for distribution of the subsidy, directly to the end users (farmers) is also under consideration.

(Rs in crs.)

Particulars FY 2009-10 FY 2010-11 Local Export Total Local Export Total

Agrochemicals & Active Ingredients 59.92 96.76 156.68 74.31 92.16 166.47

Fertilizers & Nutrients 32.10 NIL 32.10 31.16 NIL 31.16

Total 92.02 96.76 188.78 105.47 92.16 197.63

Particulars FY 2011-12 Local Export Total

Agrochemicals & 198.02* 143.43 341.45 Active Ingredients

Fertilizers & Nutrients 40.86 NIL 40.86

Total 238.88 143.43 382.31

*major part of this is used to manufacture products for export markets.

Your Company is the leading global manufacturer of various Agrochemicals intermediates and has presence across all the sub-segments. With further expansion in its production capabilities and with strong relationship with major global MNCs in this segment, your Company expects to post significant growth in this segment going forward. Thus growth in the exports due to the global demand of Agrochemicals would be the key driving factor. Further the increase in export operations across all markets such as NAFTA, Asia, Europe, Latin America, and other territories, also helps to de-risk the business from Indian as well as various other local climatic changes across the world.

India is the 3rd largest consumer of Single Super Phosphate (SSP)-one of the most widely used fertilizers. The annual consumption of SSP in India is about 30 lakh MT. Your Company is expanding its capacity and plans to increase the volumes to about 1,00,000 MT from FY 2013-14 onwards (from 63,264 MT in FY 2011-12). The Company also has plans to increase the volumes for nutrients (Di Calcium Phosphate, a broadly used cattle-feed) going forward.

Pharmaceuticals

The Indian domestic pharma market reached US$12.31 billion in 2010 and is poised to accelerate at 9.9% between 2012 and 2015. After a brief period of sluggishness, the growth momentum in the domestic formulations market is back on track. Structural demand drivers include -

a) rise in household income levels,

b) increase in prevalence of lifestyle related diseases,

c) improved healthcare infrastructure/delivery systems and

d) rise in penetration in smaller towns and rural areas continue to support long-term growth.

Patent expirations, weak pipeline quality and increasing focus by the Government to reduce healthcare costs continue to exert pressure on innovator companies which supports outsourcing to low-cost nations. Despite challenges, leading Indian players continue to exhibit strong profitability indicators.

Outlook on the Indian pharmaceutical companies remains favourable as companies will continue to benefit from recovery in the domestic market, strong growth potential in generics developed markets and potential outsourcing opportunities.

Globally, generics players however continue to face competitive environment from large innovator companies. Price erosion, especially through regulatory interventions, remains a foremost challenge in the European markets. Presence in limited competition product segments and over-the-counter (OTCs) segment offers some protection to margins. Most developed markets continue to move away from branded generics to commoditized un-branded generics and lower margin tender based business.

Your Company has four manufacturing units of which two are USFDA approved facilities & other two are WHO GMP approved facilities. The plants are cGMP compliant, meeting ICH Q7 standards, thus enabling buyers to use API in all regulated markets. Recently one of the USFDA unit manufacturing intermediates have been converted into a Zero Discharge Unit by adoption of cleaner processes with latest effluent treatment arrangement.

Exports contribute more than 40% of your Company's total revenue from pharmaceuticals segment & about 50% of the total exports are in lucrative regulated markets of USA & EU.

Your Company has 10 new Active Pharmaceuticals Ingredients (APIs) under development. Several other APIs are awaiting partners' approval. The Company enjoys distinct advantage of having dedicated USA, Japan and EU approvals for steroids and anti-cancer products.

Your Company has a dedicated team of about 50 scientists working in separate R&D block for Contract Research And Contract Manufacturing Services (CRAMS). Your Company offers end to end solutions from process development to toll manufacturing & is currently servicing 4 of the top drug discovery companies.

Company's pharmaceutical segment achieved break even in FY 2011-12 and is poised for faster growth going forward. Home & Personal Care Chemicals

With growing affluence, Indian consumers are able to spend more on hygiene and personal care products. Increasing consumption is driving demand for wide range of cosmetic chemicals, health care products as well as hygiene products using Performance Chemicals, Polymers and Oleo Chemicals. India is also becoming major arm for Oleo Chemicals derived from organic sources and is participating in the global market. This segment is expected to grow at a rapid pace surpassing the growth of other segments in this sector.

Home & Personal Care Chemicals segment is relatively a low margin business. The Company has two manufacturing units, one each at Pithampur (Madhya Pradesh) & at Silvassa. Your Company plans to optimize its production capabilities to suitably alter/revise the product mix and explore new markets to improve the margins.

SEGMENT-WISE PERFORMANCE

For better understanding of businesses, the Company has classified its business segments based on the nature of product and their respective end-uses. Based on this, the new segments are Performance Chemicals, Agri-Intermediates & Fertilizers, Pharmaceuticals and Home & Personal Care Chemicals. The profile/composition of these business segments is as under:

CONSOLIDATED SEGMENT REPORTING (Rs in Lakhs)

Sr. No. Particulars Financial Year Financial Year 2011-2012 2010-2011

(A) Primary Segments : Business Segments

1 Segment Revenue

a) Performance Chemicals 96,798 103,009

b) Agri-intermediates & Fertilizer 38,230 19,763

c) Pharmaceuticals 16,462 13,056

d) Home & Personal Care Chemicals 15,841 9,472

TOTAL 167,331 145,300

2 Segment Results Profit/(Loss) (Before Tax and Interest from each Segment)

a) Performance Chemicals 14,180 14,492

b) Agri-intermediates & Fertilizer 7,541 4,108

c) Pharmaceuticals 419 (631)

d) Home & Personal Care Chemicals 492 508

TOTAL (A) 22,632 18,477

Less: Interest 7,184 5,621

Other Unallocable Expenditure (Net) 2,829 3,252

(B) 10,013 8,873

TOTAL PROFIT BEFORE TAX (A-B) 12,619 9,604

(B) Secondary Segments : Geographical Segments

a) India 98,933 90,376

b) Out of India 68,398 54,924

TOTAL 167,331 145,300

Segment Capital Employed

Fixed Assets used in the Company's business or Liabilities contracted have not been identified to any of the reportable segments, as the Fixed Assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to capital employed.

RISKS AND CONCERNS

Your Company is monitoring the global economic and political events and the likely impact of the same to the performance of the Company and has been taking necessary steps to mitigate and/or insulate itself from the same. Your Company perceives risks or concerns common to industry such as concerns related to the Macro Indian Economic Outlook, Global Economic fallout, Regulatory risks, Foreign Exchange volatilities, Higher Interest rates, Rising Raw-material costs and other commercial & business related risks. Your Company's diversified revenue mix, flexible product mix and increasing volumes from Agrochemicals and Pharmaceuticals sector, the effect on any economic setback is expected to be minimal.

Recently, we have witnessed large volatilities in the foreign exchange rates of Indian Rupee vis-a-vis US Dollars. Your Company follows a policy to hedge only those exposures which are backed by confirmed orders and does not enter into any long term foreign exchange instruments based on probable future exposures.

Chemical businesses are generally working capital intensive and hence the working capital requirements are also higher. Your Company has been making continuous efforts to reduce the working capital cycle. With the increase in volumes and higher cash accruals going forward, debt-equity ratio is expected to better in coming years.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has clearly laid down policies, guidelines and procedures that form part of internal control systems, which provide for automatic checks and balances. Your Company has maintained a proper and adequate system of internal controls. This is to ensure that all Assets are safeguarded and protected against loss from unauthorized use or disposition and that the transactions are authorised, recorded and reported diligently. Your Company's internal control systems are commensurate with the nature and size of its business operations. The internal Auditors' Reports are regularly reviewed by the Audit Committee of the Board.

DIRECTORS' RESPONSIBILITY STATEMENT

As required u/s. 217(2AA) of the Companies Act, 1956 (the Act):

(i) That in the preparation of the Annual Accounts for the Year ended 31st March, 2012, the applicable Accounting Standards have been followed along with proper explanation for material departures, if any;

(ii) That 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 of the profit of the Company for that year;

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

(iv) That Directors' have prepared the annual accounts on a going concern basis.

SUBSIDIARY COMPANIES

In accordance with the general circular issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Profit and Loss Account and other documents of the Subsidiary Companies are not being attached with the Balance Sheet of the Company. The Company will make available the Annual Accounts of the Subsidiary Companies and the related detailed information to any member of the Company who may be interested in obtaining the same. The annual accounts of the Subsidiary will also be kept open for inspection at the Registered Office of the Company as well as at the head office of the Subsidiary Companies. The Consolidated Financial Statements presented by the Company include the financial results of its Subsidiary Companies.

CONSOLIDATED FINANCIAL STATEMENTS

Your Directors have pleasure in presenting Consolidated Financial Statements which form part of the Annual Report and Accounts.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956, and the Articles of Association of the Company, Shri Sunil M. Dedhia, Shri Manoj M. Chheda, Shri Kirit R. Mehta, Shri, Laxmichand K. Jain and Shri Vijay H. Patil retire by rotation and being eligible, offer themselves for re-appointment. A brief profile of the Directors proposed to be appointed/re-appointed is given in the notice of the ensuing Annual General Meeting.

CORPORATE GOVERNANCE

Your Company has complied with the mandatory Corporate Governance requirements stipulated under Clause 49 of the Listing Agreement. Report on Corporate Governance is annexed hereto forming part of this report.

DISCLOSURE OF PARTICULARS

Information as per the requirements of Section 217(1)(e) of the Companies Act, 1956, read with Rule 2 of Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, relating to Conservation of Energy, Research & Development, Technology Absorption, Foreign Exchange Earnings and Outgo are annexed hereto forming part of this Report.

ENVIRONMENTAL, SAFETY AND HEALTH

Your Company is committed to ensure sound Safety, Health and Environmental (SHE) performance related to its activities, products and services. The Company is taking continuous steps and also developing environment friendly processes for effective resource management with specific focus to energy, water and basic raw materials. Monitoring and periodic review of the designed SHE Management System is done on a continuous basis. The Company has recently converted/upgraded two of its manufacturing unit into "Zero Discharge" unit. The Company is committed to further strengthen pollution prevention and waste abatement practices and strives to provide a safe and healthy environment.

CORPORATE SOCIAL RESPONSIBILITY

As contribution towards community development to fulfill the Company's obligations towards the society, Company organizes many activities on regular basis including Blood Donation Camps, Health checkup camps, etc. The Company has been donating to several Hospitals, educational institutions, trusts and contribution for area beautifications. The Company also contributes for relief measures in times of natural calamities. In parlance to the objective of providing basic primary and secondary education in the surrounding areas, your company actively contributes for the upgradation & infrastructure development of the schools. The Company envisages the upliftment of society by way of enlightening and educating the masses. In this regard the Company plans to promote cheap as well as subsidized housing facilities for its employees and also deserving members of the society. The Company thus promotes the Shelter, Health and Education led modal for the general upliftment of the society.

PERSONNEL

As required by the Provision of Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 as amended up-to-date, the names and the other particulars of the Employees are set out in the Annexure to the Directors' Report. However, as per the Provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Reports and Accounts are being sent to all the Shareholders of the Company excluding the aforesaid information. Any Shareholder interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

AUDITORS

M/s. Parikh Joshi & Kothare, Auditors of the Company retire at the ensuing Annual General Meeting and are eligible for reappointment. Members are requested to appoint Auditors and to fix their remuneration.

COST AUDITORS

The Cost Auditor Ms. Ketki Visariya, Cost Accountant, re-appointed by the Company under Section 233B of the Companies Act, 1956 attend the Audit Committee Meeting, where cost audit reports are discussed.

The due date for filing the Cost Audit Reports for the financial year ended 31st March, 2011 was 30th September, 2011 and the Cost Audit Reports were filed by the Cost Auditors on 30th September, 2011. The due date for filing the Cost Audit Reports for the financial year ended 31st March, 2012 is 30th September, 2012.

INDUSTRIAL RELATIONS & HUMAN RESOURCES

The Company enjoys co-ordial relation with its employees at all levels. Your Company has continues to ensure safety and health of its employees. Your Directors record their appreciation of the support and co-operation of all employees and counts on them to be able to maintain Company's growth momentum.

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation for the dedicated services rendered by the employees of the Company at all levels and the constructive co-operation extended by the staff. Your Directors would like to express their grateful appreciation for the assistance and support by all Government Authorities, Auditors, Financial Institutions, Banks, suppliers, other business associates and last but not the least the Shareholders.

For and on behalf of the Board

Sd/-

Place : Mumbai CHANDRAKANT V. GOGRI

Dated : 25th May, 2012 CHAIRMAN


Mar 31, 2010

The Directors are pleased to present this Twenty Seventh Annual Report and the Audited Statement of Accounts for the year ended 31st March, 2010.

FINANCIAL RESULTS

(Rs. in Lakhs)

2009-10 2008 - 09

Gross Sales and other Sales Income: 133775 153575

Less: Excise Duty 4837 8877

Net Sales 128938 144698

Less: (Increase)/ Decrease in Stock (3285) 423

Consumption of Raw Materials 65297 75950

Staff Cost 3403 3017

Other Expenditure 43135 41084

Total Expenditure: 108550 120474

Operating Profit Before Interest, Depreciation & Tax 20388 24224

Add: Other Income 182 229

Less: Non Operating Expenses 177 244

Profit Before Interest, Depreciation & Tax: 20393 24209

Less: Interest 5171 8936

Depreciation 4475 3871

Profit Before Tax: 10747 11402

Less: Provision for Taxation - Current 3146 2401

Provision for Taxation - Deferred 590 554

Profit After Tax: 7011 8447

Add: Profit Brought Forward - Previous Year 23825 20911

Add: Prior Years Adjustments (9) (114)

Profit available for Appropriation: 30827 29244

Appropriations

Transfer to Debenture Redemption Reserve 2000 2000

Transfer to General Reserve 710 850

Interim Dividend 1381 1311

Proposed Dividend 537 884

Tax on Dividend 326 373

Balance carried to Balance Sheet 25873 23826

Earning Per Share (Basic & Diluted) (Rs.) 9.14 11.46

DIVIDEND

Your Company had declared and paid Interim Dividend of Rs. 1.80 ps. (@ 36%) per share (of Rs. 5/- each). Your Directors are pleased to recommend Final Dividend of Rs. 0.70 ps. (@ 14%) per share (of Rs. 5/-each) for the year 2009-10.The total amount of Dividend pay-out for the year would be Rs. 19.18 Crores as compared to Rs. 21.95 Crores for the previous year.

OPERATIONS

During the year under review, the Company had made Total Sales Income of Rs. 1337.75 Crores as against Rs. 1535.75 Crores, due to reduction in the average input costs in FY 09-10. While maintaining the growth momentum in quantity terms, the Company has made the Operating Profit Before Interest, Depreciation and Tax and Non-operating expenses of over Rs. 200 Crores for the second consecutive year i.e. Rs. 205.69 Crores as compared to Rs. 244.52 Crores for the previous year. Likewise the Profit Before Tax had again been over Rs. 100 Crores i.e. Rs. 107.47 Crores as compared to Rs. 114.01 Crores for the previous year. The Company posted Profit After Tax & Deferred Tax of Rs. 70.11 Crores as against Rs. 84.47 Crores for the previous year.

Similarly, the Companys consolidated Gross Income was at Rs. 1349.59 Crores as compared to Rs. 1550.02 Crores for the year 2008-09. The Consolidated Profit After Tax & Deferred Tax was at Rs. 68.49 Crores as against Rs. 87.07 Crores for the previous year. Consolidated EPS for the year 2009-10 was at Rs. 10.73 ps. as against Rs. 12.84 ps. for the year 2008-09. Further the share of profit from associates increased from Rs. 13.09 Crores to Rs. 13.97 Crores in FY 2009-10.

EXPORTS

Due to the reduction in the input costs, the Exports for the Company had been Rs. 522.17 Crores as against Rs,588.44 Crores in the previous year.The Company expects to increase the exports by introduction of newer products and volume growth in the existing products range.

CHEMICAL INDUSTRY - STRUCTURE AND DEVELOPMENT

The Chemical Industry in last one year has gone through the stages of recovery & revival. While FMCG, and Pharma based products had a very marginal or no impact of recession, the textiles & dyes, pigments and polymers industries were the most affected by the slowdown. With the recovery in the global markets, the demand for the products with applications into Textiles, Automotives, Pigments, Paints, etc. is expected to grow significantly.

OPPORTUNITIES, THREAT AND OUTLOOK

Over the last one year, the global economy has changed significantly. Number of global majors have faced financials problems. This in fact, has helped Asian companies to capture the demand gaps and increase their volumes in these segments. Further, with the companies now stabilizing and increasing their inventory norms from bare minimum to optimum levels, prospects of better monsoon resulting in growth in agrochemicals products and increase in the volumes in end user segments of Polymers, Pigments, Textiles, etc., shall provide good growth opportunities to the Company.

While the impact of global recession was comparatively lower in the Indian markets, our currency remained vulnerable to the changes in the global markets. Your Company has been closely monitoring these movements and has taken appropriate actions, from time to time, to hedge its currency risks.

During the year under review, Your Company has successfully commissioned and commercialized the indigenously developed facilities for manufacturing Nitro Toluenes and its various Derivatives developed at its In-house R&D centre.This has added a new stream of Basic & Speciality Products expanding Companys products range. The Toluene based chemicals will have applications into end-user industries such as Dyes, Pigments, Speciality Chemicals, Agrochemicals, etc., Further, more products are under development and will be commercialized in due course. While some of the products would serve as import substitutes, some have a good potential in International markets. Your Company would be pioneer to manufacture some of these products in India.

Your Company is also in the process of commissioning its upgraded Hydrogenation Technology facilities, which would be put to commercial use from 2nd quarter of 2010-2011. The upgraded technology would significantly increase the production capability of existing range of products and would also facilitate introduction of several new Specialty Chemicals.

With the merger of erstwhile Surfactant Specialities Ltd. into Aarti Industries Ltd. last year, your Company has added a stream of Surfactants, Personal Care and Oral care products sourced by the major FMCG companies in India. Your Company plans to increase its capacities and range of products to cater to the growing demand of the FMCG sector. With these rationales, your Company is in the process of setting up a new unit at Pithampur, Madhya Pradesh for manufacturing these products.The unit has certain strategic and logistical benefits which would help strengthen its share in the domestic markets.

Your Company has posted a growth of around 17% in its Pharmaceuticals Segment. During the year under review, the Company has also got approval from US Food & Drug Administration for its units at Tarapur and Vapi for new range of API products.The Company expect to increase its volumes to the Regulated markets such as North American & Europe markets and hence expects to break even in current financial year.

SEGMENT-WISE PERFORMANCE

(Rs. in Lakhs)

Sr. No. Particulars Financial Year Financial Year

2009-2010 2008-2009

(A) Primary Segments : Business Segments Segment Revenue

a) Basic Chemicals 25,440 36,089

b) Specialty Chemicals 99,537 111,219

c) Agro Chemicals 5,391 5,857

d) Pharmaceuticals 11,792 10,025

Total 142,160 163,190

Less: Inter-segment Revenue 8,384 9,615

Net Sales / Incomes From Operations 133,776 153,575

Segment Results

(Profit) (+) Loss (-) Before Tax And Interest from each Segment

a) Basic Chemicals 5,682 7,468

b) Specialty Chemicals 14,045 15,647

c) Agro Chemicals 650 1,493

d) Pharmaceuticals (636) (1,027)

Total (A) 19,741 23,581

Less: Interest 5,171 8,936

Other Un-allocable Expenditure Net of Income 3,823 3,244

Total (B) 8994 12,180

Total Profit Before Tax (A - B) 10,747 11,401

(B) Secondary Segment: Geographical Segments

a) India 84,784 95,359

b) Out of India 48,991 58,216

Total 133,775 153,575

Segment Capital Employed

Fixed Assets used in the Companys business or Liabilities contracted have not been identified to any of the reportable segments, as the Fixed Assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to capital employed.

RISKS AND CONCERNS

Fears of continuation of recession / double meltdown would impact the pace of growth world over. Your Company perceives risks or concerns common to industry such as regulatory risks, exchange risk, high raw-material cost and other commercial & business related risks.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has clearly laid down policies, guidelines and procedures that form part of internal control systems, which provide for automatic checks and balances. Your Company has maintained a proper and adequate system of internal controls. This is to ensure that all Assets are safeguarded and protected against loss from unauthorized use or disposition and that the transactions are authorised, recorded and reported diligently. Your Companys internal control systems are commensurate with the nature and size of its business operations. The internal Auditors Reports are regularly reviewed by the Audit Committee of the Board.

DIRECTORS RESPONSIBILITY STATEMENT

As required u/s. 217(2AA) of the Companies Act, 1956 (the Act):

(i) That in the preparation of the Annual Accounts for the Year ended 31 st March, 2010, the applicable Accounting Standards had been followed along with proper explanation for material departures, if any;

(ii) That the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year of the profit of the Company for that year;

(iii) That the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the Assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) That Directors have prepared the annual accounts on a going concern basis.

SUBSIDIARY COMPANIES

On an application made by the Company under Section 212(8) of the Companies Act, 1956, the Central Government vide letter dated 27th April, 2010 exempted the Company from attaching a copy of the Balance Sheet and the Profit and Loss Account of its Subsidiary Companies and other documents required to be attached under Section 212(1) of the Act to the Annual Report of the Company. Accordingly, the said documents are not being attached with the Balance Sheet of the Company. A gist of the financial performance of the Subsidiary Companies is contained in the report.The Annual Accounts of the Subsidiary Companies are open for inspection by any Member/Investor and the Company will make available these documents/details upon request by any Member of the Company or to any Investor of its Subsidiary Companies who may be interested in obtaining the same. Further, the Annual Accounts of the Subsidiary Companies will also be kept for inspection by any Investor at its Registered Office of the Company and at the Head Offices of the Subsidiary Company concerned.

FINANCIAL STATEMENTS

Your Directors have pleasure in presenting Consolidated Financial Statements which form part of the Annual Report and Accounts.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956, and the Articles of Association of the Company, Shri Vijay H. Patil, Smt. Hetal G. Gala, Shri Shantilal T. Shah, Shri Ramdas M. Gandhi and Shri Haresh K. Chheda retire by rotation and being eligible, offer themselves for re-appointment. A brief profile of the Directors proposed to be appointed/re-appointed is given in the notice of the ensuing Annual General Meeting.

CORPORATE GOVERNANCE

Your Company has complied with the mandatory Corporate Governance requirements stipulated under Clause 49 of the Listing Agreement. Report on Corporate Governance is annexed hereto forming part of this report.

DISCLOSURE OF PARTICULARS

Information as per the requirements of Section 217(1)(e) of the Companies Act, 1956, read with Rule 2 of Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, relating to Conservation of Energy, Research & Development,Technology Absorption, Foreign Exchange Earnings and Outgo are annexed hereto forming part of this Report.

ENVIRONMENTAL, SAFETY AND HEALTH

Your Company is committed to ensure sound Safety, Health and Environmental (SHE) performance related to its activities, products and services. The Company is taking continuous steps and also developing environment friendly processes for effective resource management with specific focus to energy, water and basic raw materials. Monitoring and periodic review of the designed SHE Management System is done on a continuous basis.The Company is committed to strengthen pollution prevention and waste abatement practices and strives to provide a safe and healthy environment.

CORPORATE SOCIAL RESPONSIBILITY

As contribution towards community development to fulfill the Companys obligations towards the society. Company organizes many activities on regular basis including Blood Donation Camps, Health checkup camps, etc. The Company has been donating to several Hospitals, educational institutions, trusts, and contribution for area beautifications. The Company also contributes for relief measures in times of natural calamities. In parlance to the objective of providing basic primary and secondary education in the surrounding areas, your company actively contributes for the upgradation & infrastructure development of the schools.

PERSONNEL

As required by the Provision of Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 as amended up-to-date, the names and the other particulars of the Employees are set out in the Annexure to the DirectorsReport. However, as per the Provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Reports and Accounts are being sent to all the Shareholders of the Company excluding the aforesaid information. Any Shareholder interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

AUDITORS

M/s. Parikh Joshi & Kothare, Auditors of the Company retire at the ensuing AnnualGeneral Meeting and are eligible for reappointment. Members are requested to appoint Auditors and to fix their remuneration.

COST AUDITORS

The Report of Ms. Ketki Visariya, Cost Accountant, in respect of Audit of the Cost Accounts of the Company will be submitted to the Central Government in due course. She has been re-appointed as the Cost Auditor of the Company subject to approval of the Government of India to conduct Cost Audit of prescribed Chemicals manufactured by the Company for the year 2010-11.

INDUSTRIAL RELATIONS & HUMAN RESOURCES

The Company enjoys co-ordial relations with its employees at all levels. Your Company has continued to ensure safety and health of its employees. Your Directors record their appreciation of the support and co-operation of all employees and counts on them to maintain Companys growth momentum.

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation for the dedicated services rendered by the employees of the Company at all levels and the constructive co-operation extended by the staff. Your Directors would like to express their grateful appreciation for the assistance and support by all Government Authorities, Auditors, financial institutions, banks, suppliers, other business associates and last but not the least the Shareholders.

CAUTIONARY STATEMENT

Statement in the Annual Report describing the Companys objectives, projections, expectations and estimates regarding future performance may be "Forward Looking Statements"and are based on currently available information.The Management believes these to be true to the best of its knowledge at the time of preparation of this Report. However, these statements are subject to certain future events and uncertainties, which could cause actual results to differ materially from those which may be indicated in such statements.



For and on behalf of the Board Sd/- Place: Mumbai CHANDRAKANT V. GOGRI Dated: 26th May, 2010 Chairman

 
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