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Directors Report of Emami Ltd.

Mar 31, 2014

Dear Members, The Directors have the pleasure of presenting their report on the business and operations of the Company and audited accounts for the year ended March 31, 2014.

Performance Highlights

The Indian FMCG sector was affected by a number of issues including inflation, decelerated GDP growth, climatic unpredictability, high interest rates, higher deficit and forex volatility. The country also witnessed a brief summer and a briefer winter still, affecting Emami''s performance. The Company''s focus shifted internally on keeping the micro factors under control and thereby improving profitability. The result was that even when Emami registered a 7.2% growth in consolidated revenues to reach H1,821 crore compared to H1,699 crore in 2012- 13, consolidated profit after tax increased by a strong 27.9% to H402 crore as against H315 crore in 2012-13. Standalone turnover increased by 4.8% to reach H1,705 crore and profit after tax increased by 23% to H398 crore.

Financial results (standalone) (Rs.in lacs)

Particulars 2013-14 2012-13

Operating income 1,70,508 1,62,709

Profit before interest, depreciation, taxation and exceptional items 49,278 40,403

Interest 389 610

Depreciation and amortisation 9,380 12,329

Transferred from general reserve (6098) (10,209)

Profit before taxation and exceptional items 45,607 37,673

Exceptional items 428 -

Profit before taxation 45,179 37,673

Less : Provision for taxation

- Current tax 7,981 5,500

- Deferred tax ( net ) (889) (82)

- Provision for taxation of earlier years (1736) (122)

Profit after taxation 39,823 32,377

Balance brought forward 2,177 4,171

Profit available for appropriation 42,000 36,548

Appropriation

General reserve 16,097 20,209

Interim dividend 6809 -

Proposed dividend 9,079 12,105

Corporate dividend tax 2,700 2,057

Balance carried forward 7,315 2,177

42,000 36,548

Dividend

The Board of Directors had paid an interim dividend of Rs.3 per share (300% on the Company''s share capital) at its meeting held on 20th January, 2014 and proposed a final dividend of H4 per share (400% on the Company''s share capital) for the financial year ended March 31, 2014 for its members, subject to approval of shareholders at the ensuing Annual General Meeting. The aforesaid dividend, if approved, will be paid to members whose names appear in the register of members as on Monday, 4th August, 2014. With respect to the shares held in dematerialised form, it would be paid to the members whose names are furnished by NSDL and CDSL as beneficial owners as on that date. The total dividend outgo for the current year amounted to H18,588 lac, including the dividend distribution tax. The dividend payout ratio worked out to 46%.

Operations

FY 2013-14 had its sets of challenges viz. a steady fall in GDP growth, climatic unpredictability, inflation, high interest rates, forex volatility among others. In this market environment, Emami strengthened its market share in key categories, conserved resources and delivered good profits despite low offtakes. During the year under review, the Company strengthened its existing brands on one hand and continued to launch new products on other.

It was an splendid year for the international business which recorded a growth of 23% over 2012-13. Emami performed admirably well in the MENAP countries as well as in Bangladesh where the manufacturing unit has already commenced operations. Emami maintained its leadership position for various products in Russia, Nepal, Bangladesh and the Middle Eastern countries.

Raw materials were purchased judiciously and advance raw material bookings were made. The price of mentha oil also remained favourable during the entire year.

Because of the climatic vagaries, the A&P spending was rationalised and stood at 15.2% of consolidated revenue in 2013-14 as against 16.4% in 2012-13. Cost optimisation measures were implemented to achieve higher efficiency which allowed Emami to deliver strong results in challenging times.

Corporate Social Responsibility

At Emami, Corporate Social Responsibility (CSR) forms an integral part of the Company''s business activities. It is not merely following the letter of the law but purely voluntary. Your Company does it beyond any statutory requirements or obligations.

Your Company is a responsible corporate citizen in supporting activities related to the welfare of its employees and society. Emami undertakes CSR activities through Emami Foundation and other charitable organisations. Medical services, education, community development, women empowerment and poverty alleviation, among others fall under the Company''s domain of CSR. An organising committee was set up to formulate CSR guidelines, evaluate and monitor activities and plan macro-level CSR initiatives. Under this organising committee, sub-committees were created to ensure enhanced attention in the areas of medical services, education and disaster relief, among others.

Ethical corporate behaviour forms the basis of Emami''s CSR initiatives. Hunger, disease and ignorance are still the burning issues of modern times; despite remarkable growth in scientific research, government budgetary resources have proved to be inadequate to lessen the suffering. The corporate world cannot afford to remain a passive onlooker when people all around remain afflicted with hunger and malnutrition, diseases and physical infirmity, illiteracy and ignorance. Emami has a long tradition in the area of philanthropic activities with a professional outlook. An exercise has been made underway to integrate all such activities across healthcare, education, community development, women empowerment, livelihood creation and environment management segments.

As per Companies Act, 2013, provisions relating to CSR are applicable to the Company w.e.f. 1st April, 2014, accordingly the Company has constituted a CSR Committee consisting of Executive Directors and an Independent Director.

Issue of Bonus Shares

The Company issued 7,56,55,873 bonus shares of face value of H1 each on June 28, 2013 at a ratio of 1:2 (i.e. one Equity Share for every two Equity Shares already held) to the Members of the Company. With this allotment, the total issued and paid-up capital of the Company has increased to H22,69,67,619 comprising of 22,69,67,619 Equity Shares of face value of H1 each.

Listing

The Company''s Equity Shares are listed on the National Stock Exchange Limited, the BSE Limited. and the Calcutta Stock Exchange Limited. The listing fees up to the financial year 2014-15 have been paid.

Subsidiary Companies

As of 31st March, 2014, the Company included the following subsidiary companies:

1. Emami UK Ltd

2. Emami Bangladesh Ltd

3. Emami International FZE

4. Emami Overseas FZE

5. PharmaDerm S A E Co.

A statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies, is attached to the accounts.

In terms of general exemption granted by the Ministry of Corporate Affairs, the Balance Sheet and Profit and Loss Account of the subsidiary companies are not attached with the Balance Sheet of the Company.

The following information in aggregate for each subsidiary is also being enclosed

(a) Capital (b) Reserves (c) Total assets (d) Total liabilities (e) Details of investment (except in the case of investment in subsidiaries) (f) Turnover (g) Profit before taxation (h) Provision for taxation (i) Profit after taxation and (j) Proposed dividend.

In compliance with Accounting Standard 21 of the Consolidated Financial Statements, notified in Companies (Accounting Standards) Rules 2006, your Company has prepared its consolidated financial statements, which forms part of this annual report. The accounts of the subsidiary companies will be available to any member seeking such information at any point of time. These accounts will be available on the website of the Company - www.emamiltd. in and kept open for inspection at the registered office of the Company.

Directors

During the year, the Board of Directors appointed Shri Pradip Kr. Khaitan and Shri M.D. Mallya as Independent Directors of the Company on 24th June 2013 and 20th January 2014 respectively. Shri Prashant Goenka was appointed as a Wholetime Director of the Company on 20th January 2014, for a period of five years subject to the approval of the members of the Company.

Shri M.D. Mallya and Shri Prashant Goenka have been appointed as Additional Directors and in respect of them the Company has received notices from shareholders for their appointment as Directors in the ensuing Annual General Meeting.

In terms of Section 149 of the Companies Act, 2013, the Board proposes appointment of Shri Y.P. Trivedi, Shri K.N. Memani, Vaidya Suresh Chaturvedi, Shri Sajjan Bhajanka, Shri S.B. Ganguly, Shri Amit Kiran Deb, Shri M.D. Mallya and Shri P.K. Khaitan who are Independent Directors as Non-rotational Directors for a period of three years at the ensuing Annual General Meeting. The Company has also received notices from shareholders for their appointment as Independent Directors at the ensuing Annual General Meeting.

Shri A. V. Agarwal and Shri R.S. Goenka would retire by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for reappointment.

A brief resume of the Directors proposed to be appointed/reappointed as required under Clause 49 of the Listing Agreement, is provided in the Notice of the Annual General Meeting forming part of the Annual Report.

Internal Control Systems and their Adequacy

The Company has in place an adequate system of internal controls commensurate with its size, requirements and the nature of operations. These systems are designed, keeping in view the nature of activities carried out at each location and the various business operations.

The Company''s in-house internal audit department in collaboration with reputed audit firms carries out internal audit at all manufacturing locations, offices and sales depots situated across the country. Their objective is to assess the existence and operation of financial and operating controls set up by the Company and also to ensure compliance of applicable statutes and corporate policies.

A summary of all audit reports containing significant findings by the audit department along with the follow-up actions thereafter is placed before the Audit Committee for review. The Audit Committee reviews the comprehensiveness and effectiveness of the report and provides valuable suggestions and keeps the Board of Directors informed of its major observations from time to time. Internal audit methodology, process and coverage have been evaluated by M/s Ernst &Young leading to enhanced capacity building and efficiency. Emami''s Internal Audit Department has been accredited 9001:2008 certification.

Directors'' Responsibility statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors'' responsibility statement, the Directors confirm that:

i) In the preparation of the annual accounts for the year ended 31st March, 2014, the applicable accounting standards have been followed and no material departures have been made for the same.

ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2014 and of the profit of the Company for the year ended on that date.

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

iv) The annual accounts were prepared on a going concern basis

Further, there has been no change in the accounting policy in the preparation of annual accounts for the year under review.

Audit and Accounts

The Company''s Auditors M/s. S.K. Agrawal & Co, Chartered Accountants, who retire at the ensuing Annual General Meeting are eligible for appointment for a term of three years. They have confirmed their eligibility under Section 141 of the Companies Act, 2013 for appointment as auditors of the Company.

Based on the recommendation of Audit Committee the Board of Directors at its meeting held on 5th May, 2014 have reappointed M/s. V.K. Jain & Co, Cost Accountants to audit the cost accounting records as may be applicable to the Company for the FY 2013-14.

Auditors'' Report

The observations made in the Auditors'' report are self-explanatory and require no further explanation.

Management Discussion & Analysis and Corporate Governance Report

As per Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section on Management Discussion & Analysis and Corporate Governance practices followed by the Company, together with a certificate from the Company''s auditors confirming compliance, is set out in the annexure forming part of this Report.

Consolidated Financial Statements

The Consolidated Financial Statements prepared in accordance with Accounting Standard 21 - Consolidated Financial Statements form part of this Report. The networth of the consolidated entity as on 31st March, 2014 is H932 crore as against H777 crore, as at the end of the previous year.

Energy, Technology and Foreign Exchange

The particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo in accordance with the provisions of Section 217(1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, are annexed and form a part of this Annual Report.

Personnel

Information in accordance with the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 as amended, names and other particulars of the employees are set out in the Annexure to the Directors'' Report.

Although in accordance with the provisions of Section 219(1) (b) (iv) of the Companies Act, 1956, such information has been excluded from the report and accounts sent to the members, however if any member desirous of obtaining this information may write to the Company Secretary at the registered office of the Company.

Acknowledgement

Your Directors would like to acknowledge and place on record their sincere appreciation of all stakeholders – shareholders, banks, dealers, vendors and other business partners for the wholehearted support received from them during the year. The Directors recognise and appreciate the efforts and hard work of all the employees of the Company and their continued contribution to its progress.

For and on behalf of the Board

Kolkata R.S. AGARWAL

5th May, 2014 Chairman


Mar 31, 2013

The Directors have the pleasure of presenting their report on the business and operations of the Company as well as audited accounts for the year ended March 31, 2013. The Management''s Discussion and Analysis is also incorporated in this report.

Indian FMCG industry

The urban consumer spent less in India, Asia''s third largest economy, in FY 2012- 13 due to high inflation, subdued salary hikes and decelerated economic growth that affected real wages and sentiment. In turn, this slowdown affected the FMCG sector and going ahead, sectoral growth is expected to come from rural dwellers with higher incomes from the direct cash transfer scheme.

Drivers

Population: India with a vast population of around 1.27 bn and annual growth rate of around 1.58% provides a large consumption base with growing potential.

Income: India''s per capita income increased by 11.7% from Rs. 61,564 in 2011-12 to Rs. 68,747, reflecting higher purchasing capability in the hands of Indians. Around 50% of India''s households earn more than US$3,300 translating into double-digit sectoral growth in the past couple of years. While the mean household income of urban India declined by 3%, it increased by 6%0 in rural India. [Source: Credit Suisse]

Rural market: Rural India comprises around 70%0 of the total Indian population, 40%0 of the country''s FMCG market and few organised players. With changing lifestyles and increasing consumer demand,

India''s FMCG market is expected to grow to US$80 billion by 2016 in towns with population of less than 10 lakh [Source: Dinodia Research]. Rural spending was significantly higher at Rs. 3, 75, 000 crore (US$ 69.44 billion) than urban consumption levels which stood at Rs. 2, 99, 400 crore (US$ 55.44 billion) between 2009-10 and 2011-12; rural consumption per person outpaced that of its urban counterpart by 2 per cent (Source: National Sample Survey Organisation).

Urbanisation: About 30 per cent of India is urban, accounting for about 11 per cent of the world''s urban population. India''s urban population is projected to be 600 million in the next few years and an estimated 700 million by 2030, growing the market for FMCG companies in India [Source: IBEF]

Formats: Modern retail formats have catalysed the growth of the FMCG sector, capitalising on marketing, advertising, packaging and distribution.

Youth: India''s workforce (between 15 and 64) is expected to rise from 64 percent of its population in 2009 to 67 percent in 2020 and 250 million people are set to join India''s workforce by 2030 with a proportionate increase in disposable incomes and conspicuous consumption.

Low penetration: India''s FMCG penetration is low compared to other countries and its rural penetration even lower than urban even as the rural population is higher, resulting in a large untapped FMCG potential.

Optimism

India''s FMCG sector is expected to continue reporting attractive growth, riding a growing market relatively unaffected by recession, inflation or currency devaluation. The Indian government''s agricultural support will drive long-term consumption growth and as a result, the FMCG industry is expected to report 18% growth annually over the next few years. It is expected that this sector will grow to a projected USD 33 billion by 2015 and USD 100 billion by 2025, emerging as the biggest consumer expenditure component by the end of the Twelfth Five Year Plan (source: ASSOCHAM).

Performance highlights

The Indian FMCG sector was affected by inflation, slower GDP growth, policy delays, high interest rates, higher deficit and forex volatility. An intensely hot summer and prolonged winter strengthened FMCG offtake. The result was that your Company registered attractive growth: standalone 2012-13 revenues grew 17.1% to Rs. 1,627 crore over Rs. 1,390 crore ub 2011-12; standalone profit after tax increase 26.1% to Rs. 324 crore despite surge in key input costs; consolidated 2012-13 turnover increased 16.9% to Rs. 1,699 crore compared to Rs. 1,454 crore in 2011-12; consolidated profit after tax was Rs. 315 crore as against Rs. 259 crore in 2011-12, an increase of 21.6%.

Financial Results (standalone) Rs. in lakh

Particulars 2012-13 2011-12

Operating income 1,62,709 1,38,982

Profit before interest, depreciation & taxation 40,403 33,034

Interest 610 1,555

Depreciation & Amortisation 12,329 12,075

Transferred from general reserve (10,209) (10,209)

Profit before taxation 37,673 29,613

Less : Provision for taxation

- Current tax 5,500 3,872

- Deferred tax (net) (82) 80

- Provision for taxation of earlier years (122) (20)

Profit after taxation 32,377 25,681

Balance brought forward 4,171 2,747

Profit available for appropriation 36,548 28,428

Appropriation

General reserve 20,209 10,209

Proposed dividend 12,105 12,105

Corporate dividend tax 2,057 1,943

Balance carried forward 2,177 4,171

36,548 28,428

The business reported multi-brand growth: all power brands (Boroplus, Zandu Balm & Methoplus Balm, Navratna and Fair and Handsome) increased market shares in 2012-13. The Company''s international business was marginally down due to lower offtake in the CIS, Russian and African markets coupled with inventory correction among distributors (leading to prospective restructuring). During 2012-13, the Company fortified its direct rural reach across 600,000 outlets. The Bangladesh unit became operational.

Your Company''s strong portfolio addressed various consumer needs, making it possible to capitalise on opportunities, a trend it is likely to sustain through innovation, execution, focus and distribution competencies translating into a superior value-for-money proposition.

Dividend

The Board of Directors recommended a dividend of Rs. 8 per share (800% on the Company''s share capital) for the financial year ended March 31, 2013, pending members approval. The dividend, if approved, will be paid to the eligible members. The total dividend outgo for the current year amounts to Rs. 14,162 lakh, including the dividend distribution tax. The dividend payout ratio works out to 45%0.

Countering the challenges

Introduced a performance-linked variable pay system where a part of the salary is linked to individual and corporate performance.

Completed 2,600 man-days of training in 2012-13 ; identified training needs through a structured need identification process aided by performance appraisals.

The HR team and functional managers formulated a robust training calendar to address this issue holistically.

Initiated a special training programme directed specifically towards the sales and distribution team for productivity improvement.

Initiated employee engagement programmes (family picnic day, annual quiz contest and interdepartmental cricket matches, among others).

Initiated a SAP-based HR management programme; started the HR intranet initiative called Sampark.

Road ahead

Human Resource is an integral part of the Company''s future growth. In order to gear up to unforseen challenges, leadership and critical resources development would be the key HR initiatives. The company would also lay strong emphasis on performance driven culture linking organizational and individual goals.

Corporate Social Responsibility

CSR builds a dynamic relationship between a company on one hand and the society and environment on the other. Though still a voluntary activity,

CSR is traditionally driven by a moral obligation and philanthropic spirit. Over time it has become an integral part of business. It is so with Emami. Along with charities and philanthropic activities

Emami is engaged in a number of sustainable activities. The key aim is to fight against hunger, ignorance, and disease, apart from addressing environmental concerns.

Education

Education support is a priority at Emami Foundation, reflected in the following ways:

- Providing financial assistance to help poor students at the school and college level and higher education.

Donation of computers, furniture and fixtures to schools.

Providing necessary infrastructure to schools and colleges, including supply of drinking water, construction of toilets (especially for girl students).

- Granting funds to schools and colleges for building construction and renovation.

- Donation of textbooks and stationeries to school students.

On a long-term basis, Emami plans to introduce scholarships for meritorious students and a book-lending scheme for underprivileged students.

- Health care

- Emami''s initiative in the health care sector included regular healthcare services through two clinics (Burrabazar and Aradhanadham). Subsidised cataract surgery was organised with M P Birla Eye Hospital and AMRI Hospital.

Medical assistance was provided to patients and senior citizens suffering from chronic diseases. A homeopathy clinic operated once a fortnight from the corporate office.

In the area of preventive health education, Emami organised Saaol heart camps all over India with the participation of the renowned cardiologist Dr. Bimal Chajjer. The camp educated patients in the prevention of heart diseases through non- invasive methods (medication, yoga and zero-oil cooking).

Women empowerment

As a long-term measure, Emami plans to introduce women empowerment programmes (livelihood, training and mentoring). Udayan Care (West Bengal) implemented a programme to mentor girl children from under-privileged sections. Emami sponsored 30 girl students (2007-08 to 2012-13) in the Udayan Shalini programme.

Natural calamities

Emami believes that true social service lies in being beside people during natural calamities and accidents. Last year, the Company stood by the flood-affected people of Guwahati. The Company provided disaster relief through employee volunteering, supply of construction materials (including temporary roofing materials, medical and food supplies, clothes and relief material).

Community welfare programmes

The Community Marriage Programme is a unique effort in relieving poor families of the financial burden involved in arranging marriages. The couples were chosen from inaccessible areas like the Sunderbans and other rural areas, giving Emami the opportunity to reach out to the rural poor in initiating socio-economic development. On a recent occasion, the married couples were given gifts like a solar powered device, ideal in rural areas.

Miscellaneous activities

Emami believes in sarvalokahitam, which indicates the well-being of all stakeholders. Following the teachings of the vedas and Upanishads, Emami undertook charitable programmes through its Food for Poor programme and the Community Marriage Programme. It undertook initiatives in sport and culture activities as well.

Food for poor programme: Emami''s Food for Poor programme was operational in the vicinity of its factories at BT Road, Kolkata, Guwahati, Panthnagar, Masat, Dongari and Vapi.

House construction for the needy: Emami provided funds for the construction of 44 houses for the rural poor in 2012-13.

Animal care programme: Emami contributed to organisations dedicated to animal care and protection.

Bonus Issue

The Board of Directors of your Company recommend the issue of bonus shares in ratio of 1:2, i.e., one equity share for every two existing equity shares subject to the approval of members. The approval of the members is being sought through a postal ballot process. The bonus shares shall be allotted to the members as on the record date to be announced after the approval of bonus issue by members. The bonus shares shall be eligible for dividend that may be declared for the financial year 2013-14 and thereafter.

Increase in Authorised Share Capital

The Company has sought approval from members through a postal ballot process to increase its authorised share capital from Rs. 20 crore to Rs. 25 crore by further creation of five crore equity shares of Re. 1 each to accommodate issue of bonus shares.

Listing

The Company''s Equity Shares are listed on the National Stock Exchange, the Bombay Stock Exchange and the Calcutta Stock Exchange. The listing fees for the financial year 2013-14 were paid.

Subsidiary companies

As of 31st March, 2013, the Company included the following subsidiary companies:

1. Emami UK Ltd

2. Emami Bangladesh Ltd

3. Emami International FZE

4. Emami Overseas FZE

5. Pharma Derm S A E Co, Egypt

A statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies, is attached to the accounts.

In terms of the general exemption granted by the Ministry of Corporate Affairs, the Balance Sheets and Profit and Loss Accounts of the subsidiary companies are not attached with the Balance Sheet of the Company.

The following information in aggregate for each subsidiary is also being enclosed (a) Capital (b) Reserves (c) T otal assets (d) Total liabilities (e) Details of investment (except in the case of investment in subsidiaries) (f) Turnover (g) Profit before taxation (h) Provision for taxation (i) Profit after taxation and (j) Proposed dividend.

In compliance with Accounting Standard 21 of the consolidated financial statements, notified in Companies (Accounting Standards) Rules 2006, your Company has prepared its consolidated financial statements, which forms part of this annual report.

The accounts of the subsidiary companies will be available to any member seeking such information at any point of time.

These accounts will be available at the website of the Company namely www. emamiltd.in and kept open for inspection at the registered office of the Company.

Directors

The Board expresses its profound grief on the sudden demise of Shri Viren J Shah on 9th March 2013. The Board places on record its deep appreciation for the valuable contribution made by Shri Viren J Shah during his tenure as an Independent Director on the Board of the Company. During the year, the Board of Directors appointed Shri R. S. Goenka as Whole Time Director of the Company, for a period of five years subject to the approval of members of the Company.

Shri Amit Kiran Deb, Shri Y. P. Trivedi, Smt. Priti A Sureka and Shri H. V. Agarwal would retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for reappointment.

A brief resume of the Directors proposed to be appointed/ reappointed as required under Clause 49 of the Listing Agreement, is provided in the Notice of the Annual General Meeting forming part of the Annual report.

Internal control systems and their adequacy

The Company has in place adequate system of internal controls commensurate with its size, requirements and the nature of operations. These systems are designed, keeping in view the nature of activities carried out at each location and the various business operations.

The Company''s in-house internal audit department in collaboration with reputed audit firms carries out internal audits at all its manufacturing locations, offices and sales depots situated across the country. Their objective is to assess the existence and operation of financial and operating controls set up by the Company and also to ensure compliance of applicable statutes and corporate policies.

A summary of all audit reports containing significant findings by the audit department along with the follow-up actions thereafter is placed before the Audit Committee for review. The Audit Committee reviews the comprehensiveness and effectiveness of the report and provides valuable suggestions and keeps the Board of Directors informed of its major observations from time to time. Internal audit methodology, process and coverage have been evaluated by M/s Ernst & Young leading to enhanced capacity building and efficiency.

Risk management

The Company has institutionalised its risk management system and is complying with the requirement of the ISO 31000: 2009 norms regarding the risk management initiatives undertaken by the Company.

Industry Risk

The Company''s offtake may be adversely impacted owing to slowdown in consumer demand.

Risk mitigation

The Indian FMCG sector is the fourth largest in the Indian economy with a market size of $13.1 billion.

A growing per capita income (Rs. 68,747 in 2012-13 from Rs. 61,564 in 2011-12) is expected to drive consumer spending.

Rural consumers spend of around USD 9 billion on FMCG products in India.

With a big demand push from rural India, the FMCG industry is expected to witness a robust growth of 18% over the next four to five years. The sector is expected to grow to a USD 33 billion by 2015 and to a whopping USD 100 billion by the year 2025.

Raw material risk

An inability to procure the right raw materials at the right price could impact operations.

Risk mitigation

The Company hedged inflation through advance order modules for key raw materials like menthol, waxes, mercury, liquid paraffin among others.

The Company resorted to judicious advance bookings for menthol when the price rose sharply during the year.

The Company did a significant part of booking done during the non-peak season in order to cash in on the low prices.

The Company developed a multiple vendor base to secure a continuous supply of raw materials.

Distribution risk

Unavailability of products due to a weak distribution channel could lead to a loss of sale.

Risk mitigation

The Company created a robust distribution network with 3,000 distributors, 5,600 sub-distributors and direct reach to six lakh retail outlets across the country.

This was supported by four branch marketing offices, 32 depots and a strong sales force of over 2,000 members.

Besides, the Company extended product availability to more than 40 lakh retail outlets.

The Company initiated Project Swadesh and covered villages and towns across the country with populations of less than 10,000 people.

Product acceptance risk

The Company''s products may not be accepted by the potential consumers.

Risk mitigation

The Company pioneered the Indian FMCG industry through niche product segments like men''s fairness cream among others.

The Company was the market leader in four products across the country.

Communication risk

The Company may not be able to generate consumer awareness about its products owing to lack of marketing activities.

Risk mitigation

Emami was one of the highest spenders in advertisement and promotions. in its sector in 2012-13. The Company spent around 16.4% of its revenues in promotional and advertisement campaigns in 2012-2013.

The Company roped famous film stars from Bollywood and regional film industries to promote products. Besides, the Company also engaged famous sportspersons and eminent personalities from the field of arts and culture including kathak maestro Pt Birju Maharaj among its brand ambassadors.

The Company undertook various promotional events in colleges, malls and social media websites to promote its products.

The Company participated in fairs (the Kumbh mela, Sonepur mela) and undertook in-film branding initiatives as well as via folk theatre forms like jatras (in West Bengal) to promote products.

Counterfeit risk

Counterfeit products may impact the reputation of the Company.

Risk mitigation

The Company switched from a single- blow mould to multi-cavity moulding, an expensive system, but difficult to counterfeit.

The Company invested extensively in imported dual colour moulding technology from an Italian company to counter duplication; it extended this technology to Zandu Balm and Mentho Plus Balm.

A dedicated cell was created to continuously monitor and mitigate the risk of counterfeit products in the market.

Quality risk

Improper product quality could affect product offtake and mar the Company''s reputation.

Risk mitigation

All manufacturing units of the Company were ISO 9001: 2000 compliant; the BT Road unit, Kolkata received stringent WHO GMP certification for five ayurvedic products. All units other than the BT Road unit, Kolkata are accredited with ISO 14001:

2004 and ISO 18001 : 2007 certifications. The Company implemented Total Production Maintenance (TPM) across all its production units.

In 2012-13, the manufacturing units received 11 national/regional awards in the area of manufacturing excellence, quality, safety and environment. A robust R&D department spearheaded by Padma Shree Vaidya S Chaturvedi and supported by eminent Indian and international experts helps in maintaining stringent product quality.

The Company''s R&D team, Himani Ayurveda Science Foundation and Zandu Foundation for healthcare deliver innovative and effective products. Competition risk

Increased competition could impact the Company''s profitability.

Risk mitigation

The Company created a wide product portfolio comprising skin care, personal care and healthcare segment products.

The Company invested aggressively in advertisement and promotional campaigns to create greater product visibility.

The Company continuously introduced new products to stay ahead of competitors.

The Company focused on enhancing internal efficiencies to augment its bottomline.

Shareholders'' return

Emami''s constant endeavour is to enhance returns for its shareholders. The Company works relentlessly towards manufacturing innovative products and process improvisation which can translate into higher returns for its shareholders.

Year EVA EVA as a % (Rs. in Lakh) of Capital Employed

2009-10 13019 15.9% 2010-11 13979 15.5%

2011-12 16652 18.6%

2012-13 22040 24.2%

Directors'' responsibility statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act 1956 with respect to Directors'' responsibility statement, the Directors confirm that:

i) In the preparation of the annual accounts for the year ended 31st March, 2013, the applicable accounting standards have been followed and no material departures have been made from the same.

ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2013 and of the profit of the Company for the year ended on that date.

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

iv) The annual accounts were prepared on a ''going concern'' basis. Furthermore, there has been no change in the accounting policy in the preparation of annual accounts for the year under review.

Audit and accounts

The Company''s Statutory Auditors M/s. S.K. Agrawal & Co, Chartered Accountants, who retire at the ensuing Annual General Meeting are eligible for reappointment. They have confirmed their eligibility under Section 224(1B) of the Companies Act, 1956 for reappointment as auditors of the Company.

M/s. V.K. Jain & Co, Cost Accountants have been appointed as cost auditors for the financial year 2013-14 subject to approval of the Central Government.

Auditors'' Report

The observations made in the Auditors'' Report are self-explanatory and no qualification is reported by them. Hence, this does not necessitate any further comments.

Corporate Governance

As per Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section on Corporate Governance practices followed by the Company, together with a certificate from the Company''s auditors confirming compliance, is set out in the Annexure forming part of this report.

Consolidated financial statements

The Consolidated Financial Statements prepared in accordance with Accounting Standard AS21 - Consolidated Financial Statements of the Group form part of this report.

The networth of the consolidated entity as on 31st March, 2013 is Rs. 777 crore as against Rs. 707 crore, as at the end of the previous year.

Energy, technology and foreign exchange

The particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo in accordance with the provisions of Section 217(1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, are annexed and form a part of this annual report.

Personnel

Information in accordance with the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 as amended, names and other particulars of the employees are set out in the Annexure to the Directors'' Report.

Although in accordance with the provisions of Section 219(1) (b) (iv) of the Companies Act, 1956, such information has been excluded from the report and accounts sent to the members, any member desirous of obtaining this information may write to the Company Secretary at the Registered Office of the Company.

Acknowledgement

Your Directors would like to acknowledge and place on record their sincere appreciation of all stakeholders - shareholders, banks, dealers, vendors and other business partners for the excellent support received from them during the year. Your Directors recognise and appreciate the efforts and hard work of all the employees of the Company and their continued contribution in its progress.

Cautionary statement

Statements in the Directors'' Report and the Management Discussion & Analysis describing the Company''s objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations.

Actual results may differ materially from those expressed in the statement.

Important factors that could influence the Company''s operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

For and on behalf of the Board

R.S. AGARWAL

Chairman

May 6, 2013

Kolkata

 
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