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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


Mar 31, 2012

To The Members,

The Company possesses a strong brand portfolio catering to various consumer needs. We are positioned to capitalise on opportunities in a growing Indian market. We will continue to strengthen this advantage with innovation excellence, faster execution, sharper focus on consumer needs and improved distribution reach.

During 2011-12, we increased our direct rural reach. Our direct retail coverage increased to 5 lac outlets. We initiated our Bangladesh and Egypt units which are expected to become operational in FY 2012-13.

At a time when input costs remain high while price and forex volatility pose additional challenges, we continue to focus on the best value for our customers and vendors through innovation and cost- efficiency.

Financial results (standalone) (Rs. in lacs)

Particulars 2011-12 2010-11

Operating income 1,38,981 1,20,238

Profit before interest, depreciation and taxation 33,034 29,692

Interest 1,555 1,549

Depreciation and amortisation 12,075 11,603

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

Profit before taxation 29,613 26,749

Less : Provision for taxation

- Current tax 3,872 3,300

- Deferred tax (net) 80 674

- Provision for taxation of earlier years (20) 26

Profit after taxation 25,681 22,749

Balance brought forward 2,747 1,383

Profit available for appropriation 28,428 24,132

Appropriation

General reserve 10,209 15,209

Proposed dividend 12,105 5,296

Corporate dividend tax 1,943 880

Balance carried forward 4,171 2,747

Dividend

The Board of Directors recommends a dividend of Rs. 4 per share (400% on the Company's share capital). Considering the strong financial position and available liquidity, an additional dividend of Rs. 4 per share (400% on the share capital of the Company) is being recommended as a special dividend for the financial year ended March 31, 2012 for its members, pending their approval. The total dividend for the year ended March 31, 2012 would accordingly be Rs. 8 per equity share as against the total dividend of Rs. 3.5 per equity share for the year ended March 31, 2011. The dividend, if approved, will be paid to members whose names appear in the Register i of Members as on August 3, 2012; with respect to the shares held in dematerialised form, it would be paid to members whose names are furnished by NSDL and CDSL as beneficial owners as on that date. The total dividend outgo for the current year amounts to Rs. 14,048 lacs, including the dividend distribution tax. The dividend payout ratio works out to 54.7%.

Strength beyond limitation

Raw material management

The year under review experienced a steep escalation in the cost of major inputs, especially menthol, vegetable and crude oil-based items along with an increase in minimum wages.

Countering the challenges

The Company responded to these challenges through the following initiatives:

- Changed the oil mix by introducing vegetable oil without impacting product quality to counter the steep hike in crude oil prices and fluctuation in dollar value.

- Hedged inflation through advance order module for key raw materials like menthol, waxes, mercury, liquid parrafin among others

- Started advance booking for menthol when the price rose sharply during the year.

- Backward integration of menthol plantation

- Developed a multiple vendor base for most products to enjoy price benefits.

- Enhanced storage capacity with respect to key inputs, which experienced a substantial price rise during the year in review. The Company maximised the purchase of material from tax-exempted zones (North-east, Uttaranchal and Himachal Pradesh) for cost-effective purchases.

Vision

- The Company expects to explore the possibility of importing raw materials like micro crystalline wax, methyl salicylates, soap noodles, lumino peptide and ozokerite wax and paraffin wax, among others.

Operations

Maintaining operational efficiency is imperative to produce quality products. Besides efficiency, cost optimisation is another key factor to strengthen profitability. Emami has a strong operations team, which enhances process efficiency and ensures quality.

Countering challenges

The Company strengthened its operations through the following initiatives -

- Received awards across all manufacturing locations for manufacturing excellence.

- Upgraded the ayurvedic manufacturing facility at the BT Road unit as per WHO guidelines.

- Completed capacity expansion at the Pantnagar unit.

- Started equipment efficiency monitoring and improvement programme across all units.

- Standardised and streamlined SOPs for the manufacturing units.

- Created a zonal quality control team for the eastern, western and northern region for better control and accountability.

- Assembled a cross-functional team to facilitate product transfer from R&D to plants.

- Established cGMP, TPM and WCM processes across all manufacturing units.

- Incentivised plant employees to ensure higher retention.

Vision

- Undertake a new manufacturing project in Assam.

- Upgrade Zandu plants in the western region.

- Initiate SAP integration of more processes previously not covered for better control and resources utilisation.

Sales and distribution

Sales and distribution plays an important role in FMCG companies, ensuring that consumers enjoy access to products 24X7. Emami has a strong sales and distribution team ensuring an anytime product availability.

Highlights, 2011-12

- Recorded 18% revenue growth in India despite sales getting affected due to weak seasons.

- Zandu health care business grew by 34%.

- Classified a new segment - rural - covering towns/villages with a population of less than 50,000 under Project Swadesh. The Company adopted a hub-and-spoke model in these areas by appointing super- stockists and sub-stockists. As of the end of the year, the Company had 160 super stockists and 4000 sub- stockists. Around 24% of the business was recorded directly through this model.

- A separate team handled the modern trade accounts across the country which grew 64% during the year.

- Increased direct retail coverage from 450,000 outlets in 2010-11 to 500,000 outlets.

- Our indirect reach is over 3.6 million retail outlets. (Source: AC Nielsen)

Countering the challenges

- Opened a new depot at Agartala to service the growing demand from north-eastern states.

- Completed integration of the southern distribution channel of Zandu with Emami.

- Created structured sales force for the rural channel with its own dedicated team of more than 225 people in the states of Uttar Pradesh, Andhra Pradesh, West Bengal, Bihar, Madhya Pradesh and Rajasthan

- Enhanced focus on the marketing activities of healthcare products of Zandu. Aired an advertisement for Zandu Pancharishta with MS Dhoni and Pt Birju Maharaj as brand ambassadors clocking a growth in product sales during 2011-12.

- Increased trade marketing activities by enhancing the number of dealer meets, wholesalers loyalty programme and distributor meets, among others.

Vision

- Continue investment in the distribution infrastructure and increase direct reach

- Formulate a structured training programme for the sales team under the Gurukul programme initiated by the Company

- Implement distributor connectivity to provide live data for speedy decision-making

- Undertake an IT project - eStar - to enable the sales officers post secondary sales figures online for faster analysis and actions thereof.

Information technology

Emami is wired on SAP ECC 5.0, a state-of-the-art enterprise resource planning (ERP) software. Its business processes are integrated and connects processes such as order-to- cash, procure-to-pay, production planning, quality management, sales and distribution, among others.

The Company has a dedicated IT team under the CIO which executes a number of projects across locations.

Countering the challenges

- SAP, our core ERP business system, is now implemented in overseas subsidiaries. SAP went live at Bangladesh in November 2011, the first overseas implementation by Emami's IT team. Emami FZE International (UAE) is scheduled to go live in June 2012.

- Implemented a 3PSCM (Third Party Supply Chain Management) system successfully at one 3P unit for better control across the contract manufacturing units. The Company expects to roll this at nine third party units across the country.

- Implemented a web-based HR Intranet 'Sampark' which includes all critical HR functions like travel management, leave and other self- service applications based on the workflow and business escalation matrix.

- Migrated 48 WAN connectivity links across all locations in India from multiple service providers to MPLS VPN circuits through Sify and Reliance.

- Evaluated various data warehousing and business intelligence systems from leading IT and consulting companies. The implementation is expected to commence in June 2012. Implemented the material requirement planning (MRP) module across all factories Maintained 99.5% uptime of IT systems (hardware, software and SAP), ensuring uninterrupted business operations.

Vision

Going ahead, the Company's IT department expects to achieve the following:

- Implement budgeting, business planning and consolidation.

- Implement business intelligence system

- Implement and integrate export documentation modules in SAP

- Enhance information security by implementing high-end firewalls and upgrading the data centre.

- Run SAP optimisation for continuous improvement and enhanced system efficiency

International marketing division

The global FMCG market has been growing and also maturing with increasing competition. While local brands also grew stronger, international players also entered newer geographies, invested in brand building and increasing distribution. They also acquired brands overseas to get a larger market share.

Worldwide presence: As an international branded consumer goods company, Emami is present in more than 60 countries, focusing on Russia&the CIS, SAARC, South East Asia, Middle Eastl and Africa.

Wide product portfolio : The international division offers a wide product portfolio ranging from skin care to hair care and healthcare.

Export revenue increased 13% from Rs.165 crore in 2010-11 to Rs.187 crore in 2011-12 contributing about 13%to the Company's revenue. The Company maintained market leadership position for Fair & Handsome in Bangladesh, Nepal and UAE and for Boroplus in Russia and Nepal.

Countering the challenges

Maintaining growth in challenging environment in the face of crisis in North African markets and Eurozone was a major challenge.

The Company revised its prices during the year and worked closely with distributors and dealers in the international market to maintain off takes despite a price hike.

Currency volatility remained a key concern in the international market.

The Company evaluated the credit policies and opted for bank guarantees and LC.

The Egypt manufacturing project has slowed due to political unrest in the country.

Vision

Going ahead, the Company will concentrate more on the focus countries and its key brands. It is also increasing its sales force in Russia, Bangladesh and Nepal to gain further market share. It also expects to commence operations of the Bangladesh and Egypt plant from 2012-13.

Logistics

The year was a challenging one owing to a 10% hike in fuel cost, 20% hike in tyre cost and around 15-20% hike in toll taxes. There was also a shortage of truck drivers, resulting in lower availability of trucks.

Countering the challenges

- Increased containerisation: Around 80% of the output from Guwahati and 60% from Pantnagar was transported through containers, ensuring higher product security.

- Established new mother warehouses in Indore, Kolkata, Ambala and Hyderabad, taking the total warehousing storage capacity to 2.78 lac sq. ft.

- Ensured adequate risk management by insisting on bank guarantees from vendors

- Monitored transition time and lead time stringently

- Improved stock demand forecasting through regular sales and operation meetings

Vision

- Reduce transit time

- Increase containerisation from other units

- Establish mother warehouses in Nagpur (25,000 sq. ft), Ahmedabad (25,000 sq. ft) and New Delhi (50,000 sq. ft)

Research and development

The Company competes in an industry characterised by rapid advances. The Company's ability to compete successfully is dependent on its ability to ensure timely flow of competitive products and technologies. The Company continues to develop new products and intellectual property through licensing and third-party business and technology acquisitions.

Mission – healthcare

Extensive research and innovation facilitates Emami's success in the health and personal care industry. In the Consumer Products Division, we are committed to meet the unmet needs of consumers and develop innovative products that meet consumer needs.

Research and innovation centre

Emami's Research & Innovation Centre is a science-driven, consumer-centric and business aligned power house, comprising structurally-sound, intellectually- strong and a wealth of creative talent, all supporting Emami's leadership in personal care, health and wellness and ayurveda. Our products are the result of understanding consumers' needs, through pathbreaking technology. We combine years of practical experience with a continuous influx of new knowledge. For decades, we worked in partnership with universities, start-ups and suppliers. These relationships are now richer and more productive than ever.

Emami's future

The Research and Innovation Centre was reorganised to align itself with Emami's dynamic business strategy. The Group now encompasses a competitive intelligence cell, which monitors the effectiveness of current operations, competitors' perception, competitor capabilities, and medium-to-long-term prospects. The same is done under the strategic, tactical and counter intelligence sub- sections. The Centre is also keenly strengthening its presence in global markets and taking active part in tapping consumer habits, attitudes and newer insights for product development. With regulations getting tougher globally for products, which offer cosmetic and functional benefit, Emami Research and Innovation Centre is reinforcing teams responsible for defending the scientific validity of its brands with international and local authorities. The regulatory team supports the innovation process, helping brands enjoy an access to markets for which they are responsible, while guaranteeing compliance with operating regulations.

Infrastructure

A state-of-the-art, high-end multi- storey Research and Innovation Centre, spanning more than 30,000 sq. ft, was created in Kolkata. The Centre encompasses product innovation development, product processing science, competitive intelligence cell, analytical development, perfumery science, quality assurance, packaging and development.

Technology direction

The Research and Innovation team comprises more than 55 scientists, with multi-dimensional backgrounds and industry experience. These professionals are geared towards the development of high-end, targeted products that deliver higher performance, tapping the latest global technologies while appealing to the global consumer.

The strong in-house innovation team of collaborative projects with modern technology centers, resulting in co-development of novel products in the home and personal care category. Emami Research and Innovation Group strengthened its capability through innovation partnerships at each stage of the product development process - from early stage collaborations with start-up and biotech companies to late-stage partnerships with key suppliers. Emami brings to consumers, products of the highest quality and safety. Its R&D ensures regulatory compliance of all Emami's international products. This enables Emami to launch new products quickly and efficiently in countries worldwide, by integrating regulatory affairs in its R&D activities from start to finish. The Research and Innovation team developed in-house strengths in focusing on basic science areas including ayurvedic science.

Vision

We believe Emami's future will be exceptional, fashioned around our ability to deliver innovative growth in our businesses and value to stakeholders. The shared values we generate will extend beyond our consumers and shareholders, benefiting partners, clients, suppliers and raw material manufacturers.

We are constantly aspiring for cutting-edge science and technology, deploying this in our products, packages and services. Hence, we undertake an ever- increasing number of clinical trials, proving scientifically that our innovations fulfill promises.

Human resource management

In a business where it is imperative to introduce products with varied features that position them differently in order to attain market leadership, there is an ongoing need to retain competent human resources and develop their capabilities.

Countering the challenges

- Performance-driven organisation: Strengthened the performance management system with rewards and recognition based around them.

- Learning and development: Completed 2,000 person-days of training during the year under review. Training needs were identified through performance appraisals. The HR team structured a training calendar. The employees were given a recap after 90 days of training and the training effectiveness was measured. Initiated various employee engagement programmes like family picnic day, annual quiz contest and inter-departmental cricket matches among others.

- Employee branding: Introduced

an extensive nine-month graduate training programme customised for Emami in collaboration with an institute. On successful completion, the students will be absorbed in Emami. Around 15 students participated successfully in this programme in 2011-12.

- Recruited MBAs from A'-rated business schools who were provided cross-functional training for eight months and posted in key roles.

Vision

- Create a resource development programme to identify and develop leaders in the organisation

- Systematise the HR process by introducing software integrated with SAP

- Focus on the leadership team for high-end training programmes.

- Launch the newly created intranet platform in the current year. The platform shares organisational information and is a knowledge repository. It is a two-way communication portal. The employees can also stay in touch through the chat platform

- Emphasise the creation of a learning organisation through systematic HR, learning and development initiatives. Target at least two man-days of training to each employee

Quality management

In a business where personal care and healthcare is imperative, Emami invests extensively to meet international quality standards. The following are the points comprising quality policy:

- SOPs are defined

- Measurement procedures are defined

- All critical quality parameters are aligned in a unified system and documented for reference

- Quality is defined at different levels like before-process, in- process and after-process quality checks

- After a product is launched, a stability study is conducted on control samples continuously across the product's lifespan

- Even the smallest quality complaints are addressed immediately

Recognition

All the units are cGMP and ISO: 9001:2008 certified. Abhoypur, Amingaon, Pantnagar and Dongri units are accredited with ISO 14001:2004 and ISO 18001:2007, abiding by highest Environmental and Occupational health & safety standards.

Corporate social responsibility

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

Your Company is a responsible corporate citizen, supporting activities related to the welfare of its employees and society. The Emami Group is involved in corporate social responsibility through Emami Foundation and other charitable organisations. The Company's CSR approach comprises medical services, education, community development, women empowerment and poverty alleviation, among others. An organising committee formulated CSR guidelines, evaluated and monitored activities and planned macro-level CSR initiatives. Under this organising committee, sub- committees were created for enhanced attention to medical services, education and disaster relief, among others. At Emami, CSR extends beyond statutory obligations to sustainable socio-economic development. Ethical corporate behaviour forms the basis of our CSR initiative. Hunger, diseases and ignorance are still the burning issues of modern times; despite growth in science, government budgetary resources are inadequate to mitigate suffering. The corporate world cannot afford to remain a mere observer when people are afflicted with hunger and malnutrition, diseases and physical infirmity, illiteracy and ignorance. Emami has a long tradition in conducting philanthropic activities, supported by a professional outlook. An exercise is underway to integrate all such activities across the healthcare, education, community development, women empowerment, livelihood creation and environment management segments.

Education

Recognising the vital role that education plays in ushering socio- economic change, Emami's CSR activities comprise innovative programmes. Apart from providing financial support to various educational and academic institutions, Emami Foundation supports poor meritorious students through scholarships, exercise books and computers, among others. Stipends are provided to poor and physically challenged students; coaching is offered to students at the primary education level. Emami Foundation and units also provide funds for school renovation and maintenance.

Health

Financially supported by Emami, Magan Shankar Foundation conducts eye camps, ayurvedic and homeopathic clinics, allopathic and dental camps at various locations (Aradhanadham at Haripal and in Kolkata). Magan Shankar Foundation organises eye, ear and hernia operations and medical treatment camps. Emami Foundation conducts free/subsidised camps for the reversal of heart disease under the supervision of renowned heart specialist Dr. Bimal Chajjer. Donations are made to various healthcare organisations. Blood donation camps are organised by various Emami factories.

Women empowerment

Emami Limited partnered with an NGO to sponsor 40 underprivileged girls from various parts of rural West Bengal. The fellowship programme enables them to rise to their potential through higher education and personalised guidance.

A fund was set up years ago to render financial assistance for the marriage of the underprivileged. During the year under review, the Company supported the weddings of 22 underprivileged girls. Besides, the Company helped with the initial setting up of their homes and provided funds for meeting household expenses for the first month.

Environment

Emami uses environment-friendly technologies and processes. Recycling, reuse of by-products are stressed upon; emissions are controlled. Research and development of cow dung and cow urine as well as the maintenance of goshalas were adopted.

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 2012-13 were paid.

Subsidiary companies

As of 31st March, 2012, 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 general exemption granted by 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 at the website of the Company namely www.emamigroup.com and kept open for inspection at the registered office of the Company.

Directors

Vaidya Suresh Chaturvedi, Shri Mohan Goenka, Shri S. K. Goenka, and Shri S. B. Ganguly, Directors of the Company, retire by rotation and being eligible, offer themselves for reappointment. Shri S. K. Todi also retires by rotation but has not offered himself for reappointment. The Board wishes to place on record its sincere appreciation for the valuable guidance rendered by him during his tenure as an Independent Director of the Company.

Shri Sajjan Bhajanka was appointed as an Additional Director (Independent Director) of the Company by the Board of Directors at its meeting held on 8th May, 2012 and pursuant to provisions of Section 260 of the Companies Act, 1956 (the Act), he holds office upto the date of the forthcoming Annual General Meeting of the Company.

The Company has received a notice in writing under Section 257 of the Act from a member proposing his candidature for the office of Director.

During the year, the Board of Directors reappointed Shri R S

Agarwal as Executive Chairman of the Company, for a period of five years after completing his present term subject to the approval of members of the Company.

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.

Shareholders' returns

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

Directors' responsibity 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, 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures

ii) The Directors have selected such accounting policies and applied them consistently and made judgements 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, 2012 and of the profit of the Company for that 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 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 2012-13 subject to approval of 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, 2012 is Rs. 707 crore as against Rs. 690 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, is annexed and forms 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 to its progress.

For and on behalf of the Board

Kolkata R.S. AGARWAL

May 8, 2012 Chairman


Mar 31, 2011

Dear Members,

The Directors are pleased to present their report on the business and operations of the Company and audited accounts for the year ended March 31, 2011. The Management Discussion and Analysis has also been incorporated in this report.

FMCG industry, 2010

The Rs. 130-bn FMCG sector, the fourth-largest in India, was affected by surging input costs in 2010-11. The sector grew 11% year-on-year over the last decade, tripling in from around Rs.47,000 crore in 2000-01 to Rs. 1,30,000 crore in 2010-11 (2.2% of GDP).

The Indian FMCG sector grew 11.4% and 11% in the first and second quarters of 2010-11, compared with the overall 12% in 2009-10, owing to rising input costs (petroleum products and packaging materials) and food, among others.

Performance highlights

Your Company delivered another year of remarkable performance during a challenging economic period. While the economy grew attractively during the year, unprecedented volatility in input prices, driven by fluctuations in crude petroleum prices and agricultural crops, needed careful management.

- Standalone revenue for 2010-11 was Rs.1,221 crore, a growth of 21.3 %, over Rs.1,007 crore in 2009-10

- Despite a sharp increase in input costs by 33.8%, there was an increase of 37.5% in profit after tax to Rs.227 crore (standalone)

- Consolidated turnover for 2010-11 was Rs.1,278 crore, registering an increase of 23.1%, compared with Rs.1,038 crore in 2009-10

- Consolidated profit after tax for 2010-11 was Rs.229 crore as against Rs.170 crore in 2009-10, an increase of 34.8%

This performance during an unfavourable industry situation was possible due to strong business accretive initiatives like aggressive marketing, innovative R&D, distinctive new launches, expansion of the distribution system, cost optimisation and financial management initiatives.

The Company continues to focus on two objectives: Firstly, develop effective and innovative products based on the natural science of ayurveda using modern laboratory practices and marketing them aggressively; secondly, keep costs in control, which helped in the Company's growing business profitably.

A superior management team, aggressive branding strategies, strong R&D capabilities and striving for innovation are expected to reinforce the Company's industry position graduating to the next level of growth

Financial results (standalone) (Rs. in Lacs)

Particulars 2010-11 2009-10

Operating Income 1,22,115 1,00,686

Profit before interest, depreciation & taxation 26,962 24,905

Interest (1,181) 2,095

Depreciation & Amortisation 11,603 11,749

Less: Transferred from general reserve 10,209 1,394 10,209 1,540

Profit Before Exceptional Items & Taxation 26,749 21,271

Exceptional Items:-

- VRS compensation - 726

- Share Issue Expenses - 487

Profit Before Taxation 26,749 20,058

Less : Provision for taxation

- Current tax (including FBT) 3,300 3,440

- Deferred Tax (net) 674 100

- Provision for taxation of earlier years 26 -22

Profit after taxation 22,749 16,540

Balance brought forward 1,383 2,463

Profit available for appropriation 24,132 19,003

Appropriation

General reserve 15,209 12,309

Proposed dividend 5,296 4,539

Corporate dividend tax 880 772

Balance carried forward 2,747 1,383

24,132 19,003

Dividend

The Board of Directors recommended a dividend of Rs. 3.50 per share (i.e. 350% on the share capital of the Company) for the financial year ended March 31, 2011 for its members, pending their approval. The dividend, if approved, will be paid to members whose names appear in the register of members as on August 8, 2011; with respect to the shares held in dematerialisation form, which will be paid to the members whose names are furnished by NSDL and CDSL as beneficial owners as on that date. The total dividend for the year amounts to Rs. 6,175 lacs, including the dividend distribution tax .The dividend payout ratio works out to 27.1%

Economy, 2010

The Indian economy rebounded from the global financial crisis, chiefly owing to strong domestic demand with a growth in excess of 8% year-on-year in real terms. Merchandise exports (15% of GDP) returned to pre-financial crisis levels. Industrial expansion and high food prices, resulting from the combined effects of the weak 2009 monsoon and an inefficient food distribution system, drove inflation to a peak of 11% in the first half of the year, but gradually eased to single digit following a series of central bank interest rate hikes.

Driven by a nominal annual growth rate of 13%, India's economy is set to increase four-fold by 2020, with gross domestic product (GDP) surging to over USD4 trillion (about Rs. 205 lac crore) and per capita income rising to USD 3,213 from USD1,017. Annual incremental savings are also expected to increase four-fold to Rs. 72 lac crore [Source: Edelweiss Capital].

Concerns, 2011

Inflation: High inflation is likely to persist in 2011-12.

Fiscal deficit: India's public debt was placed at over 76% of GDP, exceeding expectations. Fiscal deficit was Rs. 3.69 trillion ($81.9 billion), equivalent to 4.7% of India's GDP

(Source: Reuters). The Union Budget emphasised the government's commitment to fiscal consolidation by budgeting a lower fiscal deficit (4.6% of GDP in 2011-12 compared with 5.1% in 2010-11). The revenue deficit-to-GDP ratio is estimated to remain unchanged at 3.4% in 2011-12. Current account deficit is expected to increase, supported by a depreciation of the Indian Rupee, owing to high inflation and interest rates.

FMCG industry outlook

India's FMCG segment is expected to grow at least 12% annually to Rs. 4,00,000 crore by 2020 and could rise to as high as 17% should GDP growth accelerate, leading to an overall industry size of Rs. 6,20,000 crore by 2020. The skin care segment is expected to report a compounded annual growth rate of nearly 13% through 2012, reaching USD365 million [Source: Bloomberg].

Low penetration of major segments indicates long- term growth story

Concerns, 2011

The year 2010 was mixed for the Indian FMCG sector. It witnessed steady growth despite raw material inflation, affecting profitability. Prices of commodities like palm oil and other agricultural commodities rose sharply. Even as realisations are expected to remain range-bound, raw material costs will remain a concern, potentially reducing margins.

Year of building organisational capabilities

Raw material management

The previous year witnessed a significant increase in input costs, largely owing to ever-increasing crude oil prices, surging inflation, bad commodity markets and increase in minimum wages.

Rise in price of key inputs

At Emami, principal raw material comprises petroleum-based LLP. Its price increased owing to a price rise in crude oil from USD85 per barrel in April 2010 to USD105 per barrel in

March 2011. Besides, there was a growing price pressure in commodity items like menthol, camphor and metals (gold and silver, among others). The cost of gold rose sharply from 16,390/10 gm to Rs. 20,700/10 gm and silver rose sharply from Rs. 27,600/kg to Rs. 51,600/kg in 2010-11. As a result, the cost of goods sold increased by 4.2% of sales.

Cost management

As opposed to an ad hoc and arbitrary response to raw material cost movements, the Company institutionalised its cost management. The result was a deep scrutiny of existing cost influences, leading to proactive alterations and adaptations in raw material sizes and specifications. This was reflected in the prudent use of input substitutes without affecting product yield or quality.

For instance, the Company graduated to the use of alternative plastic grades used in packaging, which are easily available and reasonably priced. It switched from a single blow mould to multi-cavity moulding, resulting in improved productivity with higher bottle production changeover flexibility.

Purchasing policy

As a deliberate strategy, the Company procured its raw material from vendors in non-excisable areas – Guwahati (Assam), Baddi (Himachal Pradesh) – at cost-effective prices. It also imported inputs like micro crystalline wax, methyl salicylates, soap noodles, lumino peptide and ozokerite wax.

Vendor relationships

The Company adopted stringent policies for selecting vendors, based on plant proximity, appropriate quality certifications, financial stability and product quality, among others.

Operations

In a business marked by competitive margins, there was an increasing need to leverage operational efficiency and circumvent rising costs.

Highlights, 2010-11

- Acquired infrastructure in Egypt to establish a manufacturing facility

- Commenced operations for setting up a manufacturing facility in Bangladesh

- Revamped the BT Road factory to comply with WHO GMP

- Dedicated units at Dongri and BT Road for exports

Initiatives, 2010-11

- Imported spout machines from Spain to design new packages for Boroplus Antiseptic Cream and Fair and Handsome

- Rationalised GSM of laminates and boards to compensate for increased raw material costs

- Introduced automation in Boroplus lotion, balm and Malai Kesar

- Used multi-cavity moulds (IBM - Injection blow mould and EBM - Extrusion Blow Mould) which helps increase output and simultaneously reduce cost per unit

- Started using the unique bi-colour cube technology, the first to do so in India; this technology enabled Emami to change Zandu Balm and Mentho Plus packaging to counter spurious products. Currently, both products are available in bi-colour packaging, reducing duplication to a great extent.

- Trained the floor staff in WHO GMP, WCM (World Class Manufacturing) and TPM (Total Plant Management) practices

- Started the trial project for contract manufacture of menthol, switching from buying the product directly from the market, consequently reducing costs

- Initiated cost-effective purchases through the e-auction route. Ernst & Young (E&Y) thoroughly scrutinised and reviewed the portal's purchase system.

- Conducted various audits at every quarter - technical and SHE (Safety, Health & Environment), among others Road ahead

- Expand the Pantnagar unit for the manufacture of Boroplus Antiseptic Cream, Himani Fast Relief, Navratan Oil and Mentho Plus Balm

- Revamp the two Zandu units in Vapi and Masat in line with WHO GMP certification

- Establish a new plant for manufacturing Boroplus cream at BT Road, Kolkata

- Establish a new R&D facility and a packaging unit at BT Road, Kolkata

- Change the packaging of Zandu products

Logistics

In a business where products are manufactured at different locations and consumers live all across the country, it is imperative to ensure the availability of the right product at the right place at the right time at an optimal cost. Hence, efficient planning and cost play an effective role in the execution of finished goods and logistics planning, leading to a potent business strategy.

The year 2010-11 was challenging as the Company encountered a severe pricing pressure. Between March and July 2010, fuel rates spiralled 14%. During the year, we also noticed increase in the cost of consumables like lubricants, spares and tyres by about 20%. Toll taxes also increased. The Company, however, managed it efficiently.

Highlights, 2010-11

- Improved risk management initiatives in logistics, leading to a substantial reduction in transit losses

- Commissioned two warehouses (Bhagalpur in East Bihar and Hubli in North Karnataka)

- Reduced the number of transportation vendors to leverage economies of scale

- Integrated S&OP process for Zandu products with the existing Emami distribution channel

- Sustained S&OP meets, which improved forecasting and stock availability as per demand

- The Company moved about 90% of its products by road

- The Company possessed 33 pan-

India warehouses with a cumulative space of 3 lac sq. ft *The Company turned its inventory 12 times during the year under review

- The Company leveraged the use of centralised IT in planning.

Initiatives

- To mitigate transit losses, the Company strengthened its contractual terms and conditions with transportation service providers, quarterly review mechanism introduced to monitor transporter SLA

- By using the right vehicle for the right product - voluminous products in large containers and dense/heavy products in open trucks - the Company reduced logistics cost.

- By mapping lead times precisely from our diverse manufacturing points to various depots, we ensured timely delivery.

- We encouraged vendors to participate in reverse auctions, leading to superior value for all.

Road ahead

- Establish own warehouses in Indore (25,000 sq. ft), Kolkata (35,000 sq. ft), Ambala (1,00,000 sq. ft), Hyderabad (30,000 sq. ft) and Patna (20,000 sq. ft) for the following benefits: Rental saving, use of warehouses customised as per needs, smooth product movement, energy savings through the green warehousing concept (low energy turbo- ventilators instead of energy- guzzling exhaust fans, maximising sky lighting and water harvesting)

- Widen the hub-and-spoke distribution (in addition to one in South India) to West, North (with one warehouse each in Ambala and Delhi) and East India with the following benefits: Quicker response to demand upturns in the hinterland.

- Implement Optisuite

(an add-on to SAP) to track statutory documentation utilised in transportation

- Automate supply chain planning process

Sales and distribution

In the FMCG industry, it is imperative to reach products to locations enjoying consumer presence and demand, enhancing sale prospects.

Highlights, 2010-11

Witnessed an increase in consolidated revenue to Rs.1,278 crores from RS. 1,038 crores in 2009-10

- Registered a 20.2% growth in the domestic sector and an overall growth of 23.1%

Rs. Added 100 super stockists, catering to 3,000 sub-stockists in remote locations with populations below 50,000

* Increased direct retail outlets by 25,000 to 4,50,000

- Initiated two new depots (Bhagalpur and Hubli) to cater to emerging needs in Bihar and North Karnataka

Initiatives

Integrated the distribution network of Zandu balm in North, East and

West India with Emami

- Segregated sales in two leading states - UP and Andhra Pradesh - across the urban and rural population, leveraging their brand and enhancing accountability and transparency

- Identified 84 districts across eight states, covering 3,000 villages for direct network in rural India

- Embarked on a project called

'Swadesh', where Emami through its field staff covered rural markets directly through a dedicated organisation structure for rural operation

- Implemented standard distributor billing software, covering 235 key distributors (constituting 50-55% of the entire sales) to track, measure and maintain transparency in secondary sales

Road ahead

- Focus on the rural business and cover eight more states for direct networking

- Increase manpower for modern trade and rural business at the direct and indirect sales levels

- Cover 84 districts under 'Project Swadesh' by November, 2011

- Reorganise the sales team, decentralise the organisational structure towards regional heads, accelerate decision-making and add organisational value

- Add 100,000-odd outlets into direct coverage in urban and rural India

Information technology

Emami's business runs on SAP ECC 5.0, which manages and connects various organisational arms like material handling, production planning, sales / distribution, finance and quality checks, among others.

Highlights, 2010-11

- Commenced two key projects - SAP Human Capital Management (SAP HCM) and Form Tracking module

-SAP Human Capital Management (SAP HCM): This four-module software (personnel administration, organisation management, employee information system and leave, travel and payroll management) will

Clean, organised and safe manufacturing facility rationalise structures, decentralise payroll, eliminate paperwork, enhance transparency and strengthen workflow efficiency. The same portal will serve as an intranet for information sharing. The Company expects to integrate leave application with the time-punching system and SAP payroll. Deloitte partnered the Company in this project implementation.

* Form tracking module: This software facilitates the management and tracking of various taxation forms issued by authorities for purchase/receipt of materials as well as transportation permits. The Company implemented a non-SAP (but SAP-certified) software, helping locate all forms across all units, eliminating the risk of misplacement.

- Installed a pilot project - desktop virtulisation solution - in the training room, saving costs by a fourth and will be progressively implemented

- Implemented SAP material requirement planning across all factories, improving raw material and packaging material procurement

Road ahead

* Implement business intelligence and analytic applications

- Undertake IT projects in Bangladesh, Dubai and Egypt subsidiaries

* Implement Phase-II of HCM (performance management, training and development)

* Implement Information security at the physical, network and application levels

- WAN link migration - complete

change of existing VPN connectivity at all Emami locations by phasing out VSATs, implement advanced technology communication products (VSAT to MPLS), ensuring improved services, uptime and efficiency.

Research and development

The Company competes in an industry characterised by rapid technological advances. Hence, the Company's ability to compete successfully is heavily dependent upon its ability to ensure a continual and timely flow of competitive products and technologies to the market place. The Company continues to develop new products and technologies and enhance existing products that expand the range of its product offerings and intellectual property through licensing and third- party business and technology acquisitions.

Mission - healthcare With a mission of contributing to healthy and beautiful skin, hair and lifestyles, extensive research and groundbreaking innovation is one of the keys to Emami's success in the health and personal care industry. In the Consumer Products Division, we are committed to meet the unmet needs of consumers and develop forward- looking products that are tailored to meet consumer need gaps and offer excellent quality.

Research and innovation centre Emami's Research & Innovation centre is a science-driven, consumer-centric and business aligned power house, comprising structurally-sound, intellectually-strong and with a wealth of creative talent, all supporting Emami's leadership in personal care, health & wellness and ayurveda.

Our products are the result of understanding consumers' unmet needs, through a pathbreaking technology. We combine generations of practical experience with a continuous flow of new knowledge. For decades, we worked in partnership with universities, startups and suppliers. These relationships are now richer and more productive than ever. The constant innovation stream we deliver is founded in our past and created in the present to strengthen Emami's future.

The Centre was reorganised to align itself with Emami's dynamic business strategy. The Group now encompasses a Competitive Intelligence cell, which monitors the effectiveness of current operations, competitors' perceptions, competitor capabilities, and medium to long-term market prospects. The same is done under the strategic, tactical and counter intelligence sub-sections.

The Centre is also keenly focused on strengthening its presence in global markets and hence is taking active part in tapping the consumer habits, attitudes and newer insights for product development. With regulations getting tougher all over the world for products which offer cosmetic and functional benefit, Emami Research & Innovation Centre is reinforcing the teams responsible for defending the scientific validity of our brands with both international and local authorities. The Regulatory team supports the innovation process, helping brands get access to markets for which they are responsible, while guaranteeing that they will conform with operating regulations.

Infrastructure

A state-of-the-art, high-end multi- storey Research & Innovation Centre, spanning more than 30,000 sq. ft, was created in Kolkata. The Centre encompasses product innovation development, product processing science, competitive intelligence cell, analytical development, perfumery science, quality assurance and packaging and development.

Future technology directions The Research & Innovation team comprises more than 55 scientists, with multi-dimensional backgrounds and industry experience. These are geared towards the development of high-end, targeted products that deliver higher performance, tapping the latest technologies around the world while appealing to the global consumer.

The strong in-house innovation team also formed collaborative projects with modern technology centres, enabling co-development of novel products in the home and personal care category.

Emami Research & Innovation Group strengthened its capability through innovation partnerships at each stage of the product development process – from early stage collaborations with start up and biotech companies to late stage partnerships with its key suppliers. Above all, Emami brings to consumers, products that are of the highest quality and safety and is non-negotiable. R&D is also critical in ensuring regulatory compliance of all Emami International products. This enables Emami to launch new products quickly and efficiently, in countries all over the world, by integrating regulatory affairs in its R&D activities, from start to finish. The Research & Innovation team also developed in-house strengths in focusing on basic science areas including ayurvedic science.

Road ahead

We believe Emami's future will be exceptional, fashioned on our ability to deliver innovative growth in our businesses and value to all stakeholders. The shared values we generate will reach beyond our consumers and shareholders, benefitting our partners, clients, suppliers and raw material manufacturers.

We are constantly at the cutting-edge of science and technology; deploying this in our products, packages and services. Hence, we undertake an ever-increasing number of clinical trials, proving scientifically that our innovations fulfil promises.

Quality management

In a business where personal care and healthcare is imperative, Emami invests extensively to meet international quality standards. The following are the points comprising quality policy:

- SOPs are defined.

- Measurement procedures are defined.

- All critical quality parameters are aligned in a unified system and documented for reference.

- Quality is defined at different levels like before-process, in- process and after-process quality checks.

- After a product is launched, a stability study is conducted on control samples continuously across the product's lifespan.

- The smallest quality complaints are taken seriously and addressed immediately.

Recognitions

- Majority of the units are cGMP and ISO 9000-certified.

Units abide by highest safety and environmental protection standards.

Overseas business

The global FMCG industry entered into a consolidation mode during 2010-11. Companies either increased their focus on certain market segments or consolidated their business portfolios. As a result, there were a number of mergers and acquisitions in the industry. Developing nations, especially Africa, emerged as regions with potential. Consequently, the Company doubled sales in Africa and the SAARC region.

Emami exports cosmetics, toiletries and ayurvedic products to over 65 countries across the globe, with a large presence in Africa, SAARC, the Middle East and the CIS.

Highlights

Exports constituted about 13.6% of the Company's total revenue, up from 13.1% during 2009-10

- Exports grew 27.6% from X 137 crore in 2009-10 to X 174 crore in 2010-11

- Africa and SAARC were the key growth markets for international business

- Completed the acquisition of Pharmaderm in Egypt in December, 2010, through a step-down subsidiary in Dubai

- Commenced the construction of a manufacturing facility in Bangladesh in March, 2011.

Challenges

Along with the opportunities in the industry, there were also

challenges. The major challenges were competition from larger FMCG companies, the threat of spurious products in some of the international markets and a political upheaval in North Africa.

Despite these challenges, Emami retained or increased its market share in most countries through aggressive advertising and branding activities. The Company's initiatives against spurious products continued through legal recourse, innovative packaging and consumer awareness, among others. Owing to the political unrest in North Africa, the Company decided to tread cautiously and wait until matters improved.

Modernisation/expansion/ new projects Emami Bangladesh Ltd, a wholly-owned subsidiary company, took initiatives for setting up manufacturing facilities at Dhaka, Bangladesh.

Emami Overseas FZE, a step-down, wholly-owned subsidiary of Emami International FZE, was incorporated in 2010-11. Emami Overseas FZE acquired 90.6% equity share capital of Pharma Derm SAE Co, Egypt. Consequently, the said company is now a subsidiary of the Company. Pharma Derm SAE Co has manufacturing infrastructure in Borg Al Arab, which is proposed to be utilised for setting up a manufacturing unit.

Outlook

With increasing disposable incomes in developing countries, there is greater awareness and demand for grooming and wellness products, helping the industry grow at a good pace.

To capitalise on this opportunity and fuel the Company's ambitious plans, it intends to acquire companies and brands which will increase its product portfolio, as well as its market presence. Besides, the Company plans to launch a new range of products, as well as strengthen the sales force and brand team to promote the Company, the brand and the products effectively.

Human resources

In a business where it is imperative to introduce products with differentiated features and position them differently to attain market leadership, there is an ongoing need to attract and retain competent human resources and develop their capabilities, thereby enabling them to meet business challenges for sustained growth

Highlights and initiatives 2010-11

- The Company focused on training across all management and worker levels.

- The Company organised employee engagement events like family picnics, sit and draw competition for employee wards, sports and cultural activities, among others.

- The Company established processes to strengthen HR delivery and services for the benefit of internal customers.

- The Company strengthened the HR team by restructuring (number and capability) and capability development.

- The Company formed a training committee comprising external members and senior management.

- The Company created a training calendar with a focus on functional and behavioural training.

- The Company conducted training in the areas dealing with time management, personal effectiveness, managerial effectiveness, effective execution and problem-solving workshops to name a few.

- The Company dovetailed recruitment with a nine-month comprehensive and customised management programme for graduates, leading to on-the-job absorption on successful completion of their training.

- The Company identified high-potential employees with the objective of accelerating their development and creating the next rung of leaders.

Road ahead

- The Company intends to add SAP HR modules to strengthen the HR processes across recruitment, training, performance management, among others.

- The Company intends to focus on training around cost- effectiveness, leadership and business growth, among others to carry forward the momentum gained.

- The Company intends to strengthen the performance management process further, which will create a high performance orientation.

Corporate social responsibility

Your Company is a responsible corporate citizen, supporting activities related to the welfare of its employees and society.

The Emami Group is involved in corporate social responsibility through Emami Foundation and other charitable organisations. The Company's CSR approach comprises medical services, education, community development, women empowerment and poverty alleviation, among others. An organising committee evolved CSR guidelines, evaluated and monitored activities and planned macro-level CSR initiatives. Under this Organising Committee, sub-committees were created for enhanced attention to medical services, education and disaster relief, among others.

At Emami, CSR extends beyond statutory obligations to sustainable socio-economic development. Ethical corporate behaviour forms the basis of our CSR initiative. Hunger, diseases and ignorance are still the burning issues of modern times, despite growth in science; government budgetary resources are inadequate to mitigate suffering. The corporate world cannot afford to remain a mere onlooker when people are afflicted with hunger and malnutrition, diseases and physical infirmity, illiteracy and ignorance.

Emami has a long tradition in conducting philanthropic activities, supported by a professional outlook. An exercise is underway to integrate all such activities of Emami Limited Group companies and Emami Foundation across the healthcare, education, community development, women empowerment, livelihood creation and environment management segments.

Education

Recognising the vital role that education plays in ushering socio-economic change, Emami's CSR activities comprise innovative programmes. Apart from providing financial support to various educational and academic institutions, Emami Foundation supports poor meritorious students through scholarships, exercise books and computers, among others. Stipends are provided to poor and physically- challenged students; coaching is offered to students at the primary education level. Emami Foundation and units also provide funds for school renovation and maintenance.

Health

Financially supported by Emami, Magan Shankar Foundation conducts eye camps, ayurvedic and homeopathic clinics, allopathic and dental camps at various locations (Aradhanadham at Haripal and in Kolkata). Magan Shankar

Foundation organises eye, ear and hernia operations and medical treatment camps. Emami Foundation conducts free/subsidised camps for the reversal of heart disease under the supervision of the renowned heart specialist Dr. Bimal Chajjer. Donations are made to various healthcare organisations. Blood donation camps are organised by various Emami production units.

Women empowerment

Emami Limited partnered with an NGO to sponsor 40 underprivileged girls from various parts of rural West Bengal. The fellowship programme enables them to rise to their potential through higher education and personalised guidance.

For the past many years, a fund has been set for rendering financial assistance for the marriage of the underprivileged section of the society. During the year under review, the Company supported marriages of 22 underprivileged girls. Besides, the Company helped in initial set up of their homes and provided funds for meeting household expenses for the first month.

Environment

Emami uses environment-friendly technologies and processes. Recycling, re-use of by-products are stressed; emissions are controlled. Research and development into cow dung and cow urine as well as the maintenance of goshalas were adopted.

Listing

The equity shares of your Company are listed on the National Stock Exchange, the Bombay Stock Exchange and the Calcutta Stock Exchange. The listing fees for the financial year 2011-12 were paid.

Share capital

Consequent to the approval of shareholders on 13th July 2010, face value of equity shares of the Company was changed from Rs. 2 per share to Rs. 1 per share and new shares were credited/issued accordingly.

Subsidiary companies

As on March 31, 2011, the Company includes 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 general exemption granted by Ministry of Corporate Affairs, the Balance Sheet, Profit & 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 the 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 viz. www.emamiltd.in and kept open for inspection at the registered office of the Company.

Directors

Shri R.S. Goenka, Shri K.N. Memani, Shri A.V. Agarwal and Shri H.V. Agarwal, Directors of the Company, retire by rotation and being eligible, offer themselves for reappointment.

During the year the Board of Directors have reappointed Shri S.K. Goenka, Managing Director, Shri Mohan Goenka, Shri A.V. Agarwal, Shri H.V. Agarwal, Executive Directors of the Company, for a period of five years after completion of their present term subject to the approval of members of the Company.

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 systems of internal controls commensurate with its size, requirements and the nature of operations. These systems were 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 carries out internal audit at all manufacturing locations, head offices and sales depots situated across the country through its internal team and reputed internal audit firms. 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 departments 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.

The Company appointed Ernst & Young, an eminent consultancy firm for capacity building of the Company's Internal Audit Department.

Risk management

The following is an analysis of the Company's key business risks and mitigation plans:

Industry risk

An industry slowdown could affect business sustainability.

Mitigation

- The FMCG industry is expected to grow at least 12% annually to X 400,000 crore by 2020.

- India's per capita income is projected to grow significantly from USD1,017 to USD3,213 in 2020.

- Rural consumers spend about USD9 billion per annum on FMCG and product categories; they account for more than half the sales in some large FMCG categories.

- The rural FMCG market growth at 18% exceeded that of urban markets at 12%. While the rural market comprise only 34% of the total FMCG market, given the current growth, its share is expected to increase to 45-50% by 2020.

Raw material risk

Soaring raw material costs could result in product inflation; raw material non-availability could affect operations

Mitigation

- The Company procures raw materials (menthol, micro crystal wax, hard paraffin, stearic acid and methyl salicylate) through imports and forward contracts, booking them in advance proactively and ensuring timely availability.

- The Company procured raw materials from local vendors and vendors in non-excisable areas - Guwahati (Assam), Baddi (Himachal Pradesh)- at cost-effective prices.

- The Company implemented value engineering projects for cost control

Climatic risk

Inadequate monsoons could affect rural incomes.

Mitigation

- India's south-west monsoon is likely to be normal in 2011 as per meteorological forecasts.

- India's per capita rural income increased significantly from the 2001 levels to reach X 16,327 in 2009-10 and is poised to rise in the coming years owing to various income- generating initiatives undertaken by the government.

Launch failure risk

Any delay in launching new products could affect earnings

Mitigation

- The Company invests heavily in R&D, introduces new products in a timely way and markets products aggressively, leading to a strong marketplace presence.

- The Company conceives and tests products with the plan of a prospective launch.

Quality risk

Declining product quality could affect Emami's brand and profitability

Mitigation

- The Company implemented Total Production Maintenance (TPM) across all its production units.

- The Company's units received ISO 9001, ISO 14001 and WHO GMP certifications.

- The Company established protocols to standardise herb quality and procurement.

- Emami's R&D team, Himani Ayurvedic Science Foundation and Zandu Foundation for healthcare work to deliver innovative and effective products.

Brand risk

Growing competition could affect market share.

Mitigation

- The Company enjoys a pan-India presence and brand recall owing to effective and innovative products, ayurvedic positioning and a value-for-money proposition.

- The Company invested extensively in advertisements and celebrity product endorsements to enhance brand recall

- The Company created contemporary commercials and innovative packaging to attract consumer attention.

- The Company's units are located in tax-exempted zones (accounting for over 80% per cent of turnover).

Counterfeit risk

Product imitation could dent profitability.

Mitigation

- The Company switched from a single blow mould to multi- cavity moulding, improving product quality.

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

Shareholder returns

The Company continues to work toward two objectives: Firstly, to develop effective and innovative products, based on the natural science of ayurveda using modern laboratory practices and market them aggressively; secondly, to grow the business aggressively while keeping costs under control.

Directors' responsibilities

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 March 31, 2011, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) The Directors have selected such accounting policies and applied them consistently and made judgements 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, 2011 and of the profit of the Company for that 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 & accounts

The Company's 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 Sec. 224 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 2011-12 subject to approval of Central Government.

Auditors' report

The observations made in the Auditors' report are self- explanatory and no qualification is reported by them, hence do not call for 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 net worth of the Group as on March 31st, 2011 is Rs. 690 crore as against Rs. 625 crore, as at the end of the previous year.

Energy, technology & foreign exchange

The particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo in accordance with the provisions of Sec 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is annexed and forms 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.

Group for inter se transfer of shares

Pursuant to intimation from the Promoters, the names of the persons and entities comprising “group” is annexed to the Directors' Report for the purpose of SEBI (substantial acquisition of shares and takeovers) Regulations 1997.

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 to its progress.

Cautionary statement

Statements in the Directors' Report and the Management Discussion and 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

Kolkata R.S. AGARWAL

19th May, 2011 Chairman


Mar 31, 2009

The Directors have pleasure in presenting their report on the business and operations of the Company and audited accounts for the year ended March 31, 2009.

Financial results

Consequent to the acquisition of 68.9% stake in The Zandu Pharmaceutical Works Limited (Zandu) in November, 2008, Zandus FMCG business was demerged into Emami Limited. Simultaneously, real estate undertaking of Emami comprising of Emamis interest into Emami Realty Ltd and Zandus non-core business comprising real estate was demerged into Emami Infrastructure Ltd w.e.f. November 05, 2008.

Audited accounts therefore include and exclude performances of Zandus FMCG business and Emamis realty business respectively w.e.f. November 05, 2008. Previous years figures are therefore not comparable with the current years figures.

Financial results are summarised below: (Rs. in Lacs)

Particulars 2008-09 2007-08

Operating Income 72,235 57,282

Profit before interest, depreciation & taxation 12,964 9,867

Interest 1,963 (1,353)

Depreciation & Amortisation 1,789 728

Less: Transferred from general reserve* 964 825 - 728

Profit before taxation 10,176 10,492

Less : Provision for taxation

- Current tax (including FBT ) 1,200 1,240

- Deferred Tax ( net ) 250 (22)

- Provision for taxation of earlier years (26) -

Profit after taxation 8,752 9,274

Balance brought forward 1,648 1,190

Profit available for appropriation 10,400 10,464

Appropriation

General reserve 3,953 5,545

Proposed dividend 3,405 2,797

Corporate dividend tax 579 475

Balance carried forward 2,463 1,647

10,400 10,464



Dividend

The Board of Directors has recommended a dividend of Rs. 4.50 per share (i.e., 225%) to the members for their approval. The dividend, if approved, will be paid to the members including the new members who will be allotted shares on demerger of Zandu FMCG undertaking in terms of clause 6.5 of Part III of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956. The total dividend for the year including dividend distribution tax amounts to Rs. 3,983.11 lacs and dividend pay out ratio works out at 45.51%.

Review of Operations

With a view to achieve inorganic growth through acquisition that provide significant cost and revenue synergies and enhance market position, the Company acquired 68.9% stake in The Zandu Pharmaceutical Works Ltd. (Zandu), a century old leading ayurvedic company at Rs. 713 crores. The Company believes that this acquisition will open up many more areas of growth and will be highly EPS accretive.

During the year under review, the turnover of the Company grew to Rs. 722.35 crores representing an overall increase of 26.11% (including inorganic growth of 13.51%). However, EBIDTA of the Company rose to Rs. 129.64 crores showing an increase of 31.39% over last year and after considering interest cost of Rs. 19.63 crores, due to utilisation of fund in acquisition, against income of Rs. 13.53 crores in previous year, profit after tax is arrived at Rs. 87.52 crores. Consolidated turnover of the Company, however grew to Rs. 747.46 crores representing an overall increase of 29.12% (including inorganic growth of 13.38%) over last year. And consolidated EBIDTA and profit after tax after minority interest of the Company at Rs. 135.23 crores and Rs. 91.86 crores grew by 36% and 2% respectively.

Despite sluggish economic and recessionary market conditions, your Company has posted one of its strongest performances. Emami continued to offer innovative, effective and value- added products based on traditional ayurvedic science with adoption of modern manufacturing technology. The Company focused on further strengthening brand equity through innovative ideas and differentiated offerings. It also increased the depth and breadth of distribution networks for robust sustainable growth.

Emami capitalised on every available opportunity. It acquired Zandu, consolidated its operations, undertook strategic initiatives coupled with a robust marketing strategy to exploit the full industry potential. Besides, Emami made efforts towards cost reduction and improved efficiency at all the levels. The margin improvement and cost reduction measures undertaken at Zandu yielded satisfactory results.

On a strategic front, the FMCG business of Emami and Zandu was Consolidated into Emami and the realty business into Emami Infrastructure Ltd through a scheme of arrangement sanctioned by the Honble High Court at Kolkata. The Company has also raised Rs. 310 crores by issuing new shares to the qualified institutional bidders in July 2009, thereby further strengthening the Companys financial position.

With strong brand equity, penetrative distribution network, innovative R&D, a dynamic management team and aggressive business approach, your Company looks to the future with determination and confidence.

Internal control system and information technology

Internal control systems, established by your Company throughout the organisation are in operation and working properly. These systems have been designed keeping in view the nature of activities carried out at each location and the various business operations. The Companys in-house internal audit department carries out the internal audit at all manufacturing locations, head office and sales depots situated across the country. Their objective is to assess the existence and operation of financial and operating control set up by the Company. A summary of all audit reports containing significant findings by the audit departments along with the follow-up action thereon, is placed before the Audit Committee for review. The Audit Committee reviews the comprehensiveness and effectiveness of the report and provides valuable suggestions.

Listing

The equity shares of your Company are listed on the National Stock Exchange of India Limited, Bombay Stock Exchange Limited and the Calcutta Stock Exchange Association Limited. The listing fees for the financial year 2008-09 have been paid.

Subsidiary Companies

As on March 31, 2009, the Company includes following wholly

owned overseas subsidiary Companies;

Emami UK Ltd

Emami Bangladesh Ltd.

Emami International FZE

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

In terms of the approval granted by the Central Government under Section 212(8) of the Companies Act 1956, the Audited Statements of account of the subsidiary companies and the Auditors Reports thereon, for the year ended March 31, 2009, along with the report of the Board of Directors, have not been attached. The Company will make the documents available upon request by any member interested in obtaining the same.

However, in compliance with the Accounting Standard 21 on 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 following information in aggregate for each subsidiary is also being enclosed (a) Capital (b) Reserves (c) Total Assets (d) Total Liabilities (e) Detail of Investments (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.

Issue of shares to QIBs

In the month of July 2009, the Company has raised a sum of Rs. 310 crores through offer and issue of 1,00,00,000 equity shares of Rs. 2/ each at a premium of Rs. 308/- per share. Proceeds of the issue were used for repayment of debt outstanding in the books for acquisition of controlling stake in The Zandu Pharmaceutical Works Ltd.

Scheme of Arrangement

Upon approval at the court convened meeting, the scheme of arrangement for consolidation of FMCG business of Zandu with Emami Ltd and realty business into Emami Infrastructure Ltd was

submitted before the Honble High Court at Kolkata for its approval.

The Honble Court has approved the said scheme and consequently the Zandus FMCG business was demerged and transferred to and vested into Emami Limited, on a going concern basis. Simultaneously, real estate undertaking of Emami comprising Emamis interest in Emami Realty Ltd and Zandus non-core business comprising real estate was transferred into Emami Infrastructure Ltd w.e.f. November 05, 2008. Certified copy of the order was filed with the Registrar of Companies, West Bengal on December 02, 2009 to make the scheme effective.

Consolidation of FMCG business will deliver business, cost and margin synergies, improve research & development base and provide a bigger basket of power brands and opportunity of entry into new segments in time to come.

Board of Directors

The Board of Directors have re-appointed Shri R S Agarwal as Executive Chairman of the Company with effect from April 01, 2009 subject to the approval of shareholders at the ensuing Annual General Meeting.

Shri R S Goenka, Shri K N Memani, Shri K K Khemka and Padmashree Vaidya Suresh Chaturvedi, Directors of the Company, retire by rotation and being eligible, offer themselves for reappointment. A brief resume of the Directors, proposed to be re-appointed 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.

Auditors report

The observations made in the Auditors report are self- explanatory and therefore, do not call for any further comments.

Auditors

The auditors, M/s. S K Agrawal & Co, chartered accountants, retire at the forthcoming Annual General Meeting and being eligible offer themselves for reappointment.

M/s V Parekh and Associates, Chartered Accountants, auditors for the Units at Vapi, Talasari, Masat and Uttrakhand of FMCG undertaking of The Zandu Pharmaceutical Works Ltd offers themselves for reappointment as auditors of the aforesaid units

for the financial year 2009-2010 under section 228 of the Companies Act 1956.

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, the applicable accounting standards have been followed along with proper explanation relating to material departures;

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

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

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

Considering the substance over the legal form, and with the approval of the shareholders of the transferor and transferee entities, the Company has obtained specific approval of the High Court of Kolkata and the consent of Regional Director, Ministry of Corporate Affairs, and has accounted for the transactions relating to acquisition of FMCG business of Zandu, under AS 14 (Accounting for Amalgamations).

Corporate Governance

The information pursuant to the provisions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement are hereby presented in a separate report and annexed along with this report.

Group for inter se transfer of shares

As required under Clause 3(1) (e) of the Securities and Exchange

Board of India (Substantial Acquisitions of Shares and Takeovers) Regulation, 1997, persons constituting “Group” (within the meaning as defined in the Monopolies and Restrictive Trade Practice Act, 1969) for the purpose of availing exemption from applicability of the provisions of Regulation 10 to 12 of the aforesaid regulations, are given in the separate annexure attached herewith and forms part of this Annual Report.

Energy, technology and foreign exchange

Information pursuant to Section 217 (1)(e) of the Companies Act, 1956, in respect of the conservation of energy, technology absorption and the foreign exchange earning, is annexed and forms part of this Annual Report.

Personnel

Information pursuant to Section 217(2A) of the Act read with the Companies (Particulars of Employees) Rules, 1975, as amended by the Companies (Particulars of Employees) Amendment Rules 1999 forms part of this Report. Although in accordance with the provisions of Section 219(1)(b)(iv) of the Act 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 wish to appreciate the dedication and commitment displayed by the employees of the Company including its subsidiary companies at all levels and also express their sincere thanks and appreciation to financial institutions, banks, government authorities, business associates, distributors, retailers, stakeholders and the consumers of its products, for their continued support.

For and on behalf of the Board Kolkata R S Agarwal December 03, 2009 Chairman

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