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Directors Report of Heritage Foods Ltd.

Mar 31, 2015

The Directors have great pleasure in presenting the 23rd Annual Report of the Company together with the Standalone & Consolidated Audited statement of accounts for the Financial Year ended 31st March, 2015.

Financial Results (Rs,in Lakhs)

Particular 2014-15 2013-14

Revenue from Operations (Gross) 207402.61 172291.58

Less: Excise Duty 105.96 87.59

Total Revenue from operations 207296.65 172203.99

Add: Other Income 702.66 495.40

Total Revenue 207999.31 172699.39

Total Expenditure 199093.36 162705.84

Profit /(Loss) before Finance Cost, 8905.95 9993.54

Depreciation & amortization and

Tax

Finance cost 1593.01 1322.12

Depreciation & Amortization 3399.03 2500.23

Profit /(Loss) before Extraordinary 3913.91 6171.20

Item and Tax

- Extraordinary Item Tax - 50.00

Profit /(Loss) before Tax 3913.91 6121.20

Tax Expenses

- Current & prior period tax 1168.91 1290.59

- Deferred Tax (76.02) 299.38

Net Profit /(Loss) for the Year 2821.02 4531.23

The above are standalone figures, as the subsidiary companies are yet to commenced business. Hence consolidated figures are not given.

Performance of the Company

Your Company, during the year under review earned revenue from operations (Gross) of Rs. 207402.61 Lakhs, achieved an increase of 20.38% over the previous year. The Gross profit was of Rs. 8905.95 (4.28% on total revenue) as against Rs. 9993.54 (5.79% on total revenue) in the previous year. The operating profit after depreciation was amounted to Rs. 5506.92 (2.64% to revenue) as against Rs. 7443.32 (4.31% of revenue) in the previous year.

Dividend

Your Directors have recommended a dividend of Rs. 3/- (30%) per equity share of Rs. 10/- each for the financial year ended March 31, 2015, amounting to Rs. 837.65 lakhs (Rs. 695.97 Lakhs dividend and Rs. 141.68 lakhs tax on dividend). The dividend payout is subject to approval of members at the ensuing Annual General Meeting. Dividend (including dividend tax) as a percentage of net profit after tax is 29.69 % as compared to 17.96% in the previous year.

The Register of Members and Share Transfer Books will remain closed from Thursday, 17th September, 2015 to Thursday 24th September, 2015 (both days inclusive) for the purpose of payment of the final dividend for the financial year ended 31st March 2015, and the Annual General Meeting. The Annual General Meeting is scheduled to be held on 24th September, 2015.

The dividend payout for the year under review has been formulated in accordance with shareholders' aspirations and the Company's policy to pay sustainable dividend linked to long term growth objectives of the Company to be met by internal cash accruals.

Transfer to Reserves

Your Company proposes to transfer Rs. 1000 Lakhs to General Reserve. An amount of Rs. 983.37 Lakhs is proposed to be retained in the Surplus.

Share Capital

The paid up Equity Share Capital as at March 31, 2015 stood at Rs. 23,19,90,000 divided into 2,31,99,000 equity shares of Rs. 10/- each. During the year under review, the Company has not issued shares with differential voting rights nor has granted any stock options or issued sweat equity share to its employees or directors. As on 31st March 2015, none of the Directors or the Company holds instruments convertible into equity shares of the Company.

Fixed Deposits

Your Company has not accepted any deposits from the public and as such, no amount of principal or interest was outstanding as of the Balance Sheet date.

Particulars of Loans, Guarantees or Investments

Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the notes to the financial statements provided in this Annual Report.

Particulars of Contract or Arrangements Made with Related Parties

All related party transactions that were entered into during the fi nancial year were at arm's length basis and were in the ordinary course of the business and that the provisions of Section 188 of the Companies Act, 2013 are not attracted. Thus the disclosure in form AOC-2 is not required. Further there are no materially significant related party transactions during the year under review with Promoters, Directors, Key Managerial Personnel and their relatives, which may have potential conflict with interest of the company at large.

All related party transactions are placed before the audit committee as also to the Board for approval. A statement giving details of all related party transactions are placed before the Audit committee and Board for review and approval on a quarterly basis. The details of the related party transactions during the year are part of the notes on Accounts forming part of the Annual Report.

Material changes and commitments affecting financial position between the end of the financial year and date of report

There are no material changes and commitments affecting financial position of the company between 31st March and the date of Board's Report.

Variation in market capitalization

As at March 31, Increase

2015 2014 (decrease) in % Market Capitalization (Rs, in Crore) 764.17 464.21 64.61

Price earnings ratio 27.08 10.25

Note: Data bases on share prices quoted on BSE

Management's Discussion and Analysis

In terms of the provisions of Clause 49 of the Listing Agreement, the Management's Discussion and Analysis is set out in this Annual Report.

Business Review

Your Company has five Divisions in operation in different States in India.

Dairy Business:

With the economic slowdown, most sectors have been struggling and have reported subdued growth in the last couple of years, except the dairy sector, which has witnessed double digit growth with demand for milk and milk products rising in the country.

The Dairy sector shot up 12.6 per cent from a year ago this financial year and is expected to grow at 15.6 per cent in 2015- 16 driven by strong sector growth both in demand and prices, continued policy and monetary support from the Centre and an expected improvement in the economy.

Domestic prices of milk have remained firm in 2014-15 despite the collapse of global milk and dairy product prices in 2014. The demand for milk and milk-based products remained high due to changing dietary habits and rising buying power. As a result, dairy products witnessed a steep rise in prices in 2014.

The dairy sector will reap benefits from the federal government's increased focus on dairy development, enhanced availability of quality fodder and promotion of bovine breeding, among other aspects of raising milk productivity.

However, despite being the world's largest milk producer, India is not a significant player in the global dairy market. India's dairy exports have remained slow due to a drop in international prices, sluggish global demand, rising cost of domestic milk production and the abolition of skimmed milk powder export incentives by the government in July 2014.

Although FY16 is likely to open up new export markets for India in view of Russia approaching Indian dairy Companies.

Operation Flood' and other initiatives by, several States and central government to improve the livestock productivity and increase the availability of quality fodder helped India to become the world's largest milk producer. The milk production is expected to increase to 151 million tonnes by FY16 from 138 million tonnes in FY14.

During the financial year 2014-15, Dairy Division has increased milk Chilling capacity by 35,000 LPD by commissioning of 22 units which includes Bulk mini chilling units, Mini Chilling units, chilling centres and Franchisee Bulk mini chilling units and Franchisee units to increase the milk procurement and to maintain the quality. The Turnover has grown by 17.14% from Rs. 132819.16 Lakhs to Rs. 155585.71 Lakhs.

Retail Division:

Indian Retail sector has been at the helm of India's growth story. The sector accounts for 22% of the gross domestic product (GDP) and contributes to 8% of the total employment. Indian Retail sector continues to grow despite irregular global economic trends. A report has estimated that the total retail sales in India to grow from $411 billion in 2011 to $804 billion by 2015. Robust economic growth, high disposable income with the end-consumer and rapid construction of organized retail infrastructure are key factors behind the forecast.

Over the last decade, the Indian Retail industry has grown phenomenally with a remarkable shift towards organized retailing formats. However, more than 90% of the Indian retail sector still falls in the unorganized sector category. While, the market of organized retail segment despite the downturn is growing exponentially as economic growth brings more people into the consuming classes and organized retail lures more shoppers, its share remains at nascent 7.50%. Meanwhile, online retail business, which is relatively a new phenomenon in India, a format, which has high potential for growth in the near future, has share of 0.50%.

As observed in past years, the organized retail space in the first decade of this century was viewed as offering enormous potential for growth in India. However, post FY08 the industry witnessed a sharp moderation in expectations with most retailers across formats facing significant head winds in terms of like-to- like growth and viability of stores. Following the pronounced slowdown, the industry witnessed a modest recovery in FY10. This recovery gathered further momentum in the first three quarters of FY11 and yielded strong double-digit like-to-like growth across most credible retail formats. Consumer sentiment thereafter was impacted in FY12 and continued to be muted till the second quarter of FY14 with high infl ation expectations, pronounced interest rates and economic uncertainty being key contributing factors. In the recent quarters consumer sentiment improved, which was seen with retailers reporting an improving trend.

Growing Purchasing Power of Indian Middle Class: This is yet another driving force for the organized retail industry. Most research studies suggest rising incomes in the next decade. This is likely to continue propelling the rise of the middle class whose consumption will become the largest in the country. Therefore, targeting the mid-market seems to offer substantial revenue potential. The number of households with annual income brackets in the range of Rs. 2 lakhs to Rs. 10 lakhs is expected to increase significantly in the next decade.

During the Financial year 2014-15, Retail Division turnover has grown by 30.70% from Rs. 37793 Lakhs to Rs. 49397 Lakhs. The Institutional sales segment achieved sales of Rs. 3049 Lakhs and sales delivered by General Trade FMCG distribution business of Rs. 191 Lakhs. For comparable stores in both the years Retail business has grown by 32.32 %, and also the new stores which are opened this year have delivered more throughput than previous year.

Agri Division:

India has no doubt provided opportunities for multinationals to participate in industrial development with new technologies and resources. However, we cannot neglect agriculture and expect economic progress sans rural development. The opportunities in agri-business are enormous and can be encashed with locally available technologies.

With plenty of labour, land and water resources along with tropical weather conditions, India can compete with other developed countries and capture the global market, with improved agricultural practices and water resources management. These crops can be fruits, vegetables, fl owers and medicinal plants having good export market. The surplus land can also be utilised to cultivate crops like maize and sugarcane and the produce can be diverted to industrial production of alcohol, a substitute for imported petroleum. Such industrial products having good demand can provide assured market and remunerative price to the growers.

The farmers should be oriented to make a swift forecast of the demand for various commodities and exploit the opportunities. There is good scope for setting up market outlets to reach the customers without involving middlemen. Business houses can establish a direct link with farmers' organisations for procuring raw materials. Such agencies can support farmers with seeds of improved varieties, finance and other critical inputs for optimising their crop yield.

Your Company, during the year under review apart from the sourcing the fruits & vegetables and custom farming, started the Veterinary care business with an aim to provide the quality feed , fodder and vet medicines to the farmers to increase the productivity of the animals.

Agri Division of your Company had achieved the turnover of Rs. 8400 Lakhs and 52459 MT with respect to Value & Volume. There is an improvement in Volume of 22.49% over the financial year 2013-14.

Bakery Division:

The Bakery division of your Company had achieved the turnover of Rs. 589 Lakhs in financial year 2014-15 against Rs. 366 lakhs in financial year 2013-14.

Renewable Energy Division:

The Renewable Energy Division of your Company strongly committed to extending the 'Green' footprint. In line with this thinking, Company has embarked on a clean Energy initiative with a 2.34 MW Solar Power Project which provides captive power to Dairy Plant in Hyderabad.

Renewable Energy Division of your Company had achieved the turnover of Rs. 257 Lakhs during the year under review.

Subsidiary / Associate Companies

Your Company is having two Subsidiaries Company's namely M/s. Heritage Foods Retail Limited (CIN:U15400TG2008PLC062054) & M/s. Heritage Conpro Limited (CIN:U52100TG2011PLC072132) and one Associate Company M/s SKIL Raigam Power (India) Limited (CIN:U40102TG2009PLC063671).

During the year, the Board of Directors reviewed the activities of the subsidiaries, associates Companies and noted that these companies are yet to start the commercial productions. However in accordance with Section 129(3) of the Companies Act, 2013 and Listing Agreement with Stock Exchanges, the Company has prepared consolidated financial statements of all its Subsidiaries & Associates in accordance with relevant Accounting Standards Viz. AS-21, AS-23 & AS-27 issued by the Institute of Chartered Accountants of India and form part of the Annual Report. Further, a statement containing the salient features of the fi nancial statement of the Subsidiaries & Associate Companies in the prescribed format AOC-1 is appended as Annexure-1 to the Board's report. The statement also provides the details of performance, fi nancial positions of each of the subsidiaries & Associate.

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements, including the consolidated financial statements and related information of the Company and audited accounts of each of its Subsidiaries & Associate, are available on our website www.heritagefoods.in. These documents will also be available for inspection during the business hours at our registered Office in Hyderabad, India.

During the year, Company has not made any investment in the Subsidiaries & Associate Companies.

Quality

Your Company continues the journey of delivering value to consumers/customers through significant investments in quality programs. While sustaining existing external benchmarks and certifi cations, your Company have added new certifications and further enhanced the programs and initiatives to renew the commitment to the culture of quality.

Your Company adheres to international quality standard certifications such as ISO 22000, (OHSAS) ISO 18001:2007, ISO 14001:2004, SO 2720 and (ENMS) ISO 50001. Your Company has also received an independent auditor's assurance report on compliance to ISO 14001 & 18001 (EMS & OHSAS) 2nd Cycle Re-registration and same was submitted to certifi cation body (SGS, Hyderabad).

The Quality department of your Company handles large change management initiatives to drive quality and productivity improvements across the Company, using various techniques.

Branding

The Heritage brand is a key intangible asset of your Company. The branding initiative is designed to reposition the Company as the next-generation company that would help enterprises renew themselves while creating new avenues to generate value. Marketing reach of your Company extends nationally through advertisements, public relations and digital marketing initiatives. Your Company also organizes several events in various localities to create awareness about the products of the Company.

Mission & Vision Statement

The Board of Director of your Company adopted the Mission & Vision statement -2020 of the Company with object to accelerate the growth of the Company aiming to be a nationally recognized brand with healthy & fresh products with a revenue of Rs. 6000 Cr by 2020. The full text of the Mission & Vision and Value statement is the farming part the Annual Report.

Awards & Recognitions

During the financial year 2014-15 the Company has received the following awards and recognition.

- The Retail division of your Company has bagged "Most Admired Retailer of the Year 2014 in Food & Grocery category from India Retail Forum Mumbai, during September, 2014.

- The Dairy Division of the Company has received the 1st prize in prestigious 'National Energy Conservation Award' 2014 in Dairy sector from Ministry of Power, Govt. of India during December, 2014. This is the 4th time that the Company has been recognised with this award (previously the Company won the award, 1st prize in the year-2012, 2nd prize in the year-2010 and 1st prize in the year-2008).

- The Retail Division of your Company was awarded most prestigious 'COCA COLA Golden Spoon Award' 2015 for being the IMAGES Most Admired Food & Grocery Retailer of the Year - Regional Chain' at India Food Forum, Mumbai,during the month of January,2015

- Your Company was listed among Prestigious top-500 Indian Companies list for the year 2014 compiled by The Economic Times, on the basis of Industry Respect and Key Financial Parameters.

Human Resources and Industrial Relations

Your Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. To ensure good human resources management, your Company focus on all aspects of the employee lifecycle. This provides a holistic experience for the employee as well. During their tenure at the Company, employees are motivated through various skill- development, engagement and volunteering programs. Your Company has a structured induction process at all locations and management development programs to upgrade skill of managers. Objective appraisal systems based on Key Result Areas are in place for senior management members.

Your Company is committed to nurturing, enhancing and retaining top talent through superior Learning & Organizational Development. This is a part of Corporate HR function and is a critical pillar to support the organization's growth and its sustainability in long run.

The total strength of your Company at the end of financial year 2014-15 was 4244, with an increase of 352 as compared with the end of the previous financial year.

Particulars of Employees

The table containing the names and other particulars of employees in accordance with the provisions of Section 197(12) of the Companies Act, 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in Annexure-2A to the Board's report.

A statement containing the names of every employee employed throughout the financial year and in receipt of remuneration of Rs. 60 lakh or more PA, or employed for part of the year and in receipt of Rs. 5 lakh or more in a month, under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is enclosed as Annexure-2B to the Board's report.

Corporate Governance

Corporate governance is an ethically driven business process that is committed to values aimed at enhancing an organization's brand and reputation. This is ensured by taking ethical business decisions and conducting business with a firm commitment to values, while meeting stakeholders' expectations. It is imperative that your company affairs are managed in a fair and transparent manner. This is vital to gain and retain the trust of the stakeholders.

Your Company complies with the Securities and Exchange Board of India (SEBI)'s guidelines on corporate governance. Your Company has documented internal policies on corporate governance. During the year, Company continued to comply with the Companies Act, 2013. Company Corporate governance report for financial year 2014-15 forms part of this Annual Report. All Corporate policies are available in Company website i.e. www.heritagefoods.in Corporate Policies

Auditors' certificate on Corporate Governance

As required by Clause 49 of the Listing Agreement, the auditors' certificate on corporate governance is forming part of the Annual Report.

Board Diversity

Your Company recognizes and embraces the importance of a diverse board in its success. Company believe that a truly diverse board will leverage differences in thought, perspective, knowledge, skill and industry experience, cultural and geographical background, age and gender, which will help the Company retain its competitive advantage. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Policy is available in the Company website www.heritagefoods.in.corporate.policies.BD

Meetings of the Board

The Board met five times during the financial year, the details of which are given in the Corporate Governance Report that forms part of this Annual Report. The intervening gap between any two meetings was within the period prescribed by the Companies Act, 2013.

Policy on Directors' Appointment and Remuneration

The current policy is to have an appropriate mix of Executive and Non-executive & Independent and Women Directors to maintain the independence of the Board, and separate its functions of governance and management. As on March 31, 2015, the Board consists of 9 members, three of whom are executive / whole- time directors and six are Non-Executive directors. The Board periodically evaluates the need for change in its composition and size.

The policy of your Company on directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Sub-section (3) of Section 178 of the Companies Act, 2013, adopted by the Board. It is affirmed that the remuneration paid to the directors is as per the terms laid out in the nomination and remuneration policy of the Company.

Declaration by Independent Directors

Your Company has received necessary declaration from each independent director under Section 149 of the Companies Act, 2013, that he/she meets the criteria of independence laid down in Section 149 of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

Board Evaluation

Clause 49 of the Listing Agreement mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated.

The evaluation of all the directors and the Board as a whole was conducted based on the criteria and framework as suggested by Nomination & Remuneration Committee adopted by the Board. The Board approved the evaluation results as collated by the nomination and remuneration committee.

None of the independent directors are due for re-appointment.

Training of Independent Directors

Every new independent director of the Board attends an orientation program. To familiarize the new inductees with the strategy, operations and functions of your Company, the executive directors / senior managerial personnel make presentations to the inductees about the Company's strategy, operations, product and service offerings, markets, organization structure, quality and risk management etc.

Further, at the time of appointment of an independent director, your Company issues a formal letter of appointment outlining his/her role, function, duties and responsibilities as a director.

Appointment/Re-Appointment

Sri N Lokesh (DIN: 02230945) Non-Executive Directors of the Company retire by rotation and being eligible offer himself for re-appointment at the ensuing Annual General Meeting as per the provisions of Section 152 of the Companies Act 2013 and rules made thereof.

During the year Sri K Durga Prasada Rao (DIN06888949) has been appointed as a Whole Time Director effective from 1st August, 2014 as per the provisions of 196 & 197 and rules made thereof and read with Schedule V of the Companies Act, 2013.

During the year Sri M Siva Rama Vara Prasad (DIN: 00170919) has been appointed as Non-Executive Independent Director w.e .f . 1st August 2014 in accordance with Section 149,152,161(1) read with Schedule IV and other applicable provisions of the Companies Act, 2013 rules made thereof.

Retirements and Resignations

During the year A Appa Rao (DIN: 00003745), Non Executive Independent Director of the Company had passed away on 30th April, 2014. On sudden / untimely death of A Appa Rao, the Board of Directors had expressed their deep condolence to the departed soul. The Board placed on record the invaluable contribution made by him towards the progress of the company from the date of appointment (27th January 2000) until his death.

During the year Dr N R Siva Swamy (DIN:00003749) Non- Executive Independent Director of the Company had resigned from the Board w.e.f. 16th July, 2014 due to his personal reasons and other commitments. The Board placed on record the invaluable contribution made by him, towards the progress of the company from the date of appointment until his resignation.

Sri N P Ramakrishna (DIN: 00003751) Non-Executive Director of the Company retire by rotation and being eligible for re- appointment but he expressed his intention not to seek re- appointment. The vacancy in the Board caused by his retirement shall not be filled up for the time being. The members of the Board place on record their deep sense of appreciation for services rendered by Sri N P Ramakrishna during his tenure as member of the Board.

Key Managerial Personnel

During the year under review, the Company has appointed following persons as Key Managerial Personnel.

Name of the Official DIN/M. No Designation

Smt N Bhuvaneswari 00003741 Vice Chairperson & Managing Director

Smt N Brahmani 02338940 Executive Director Sri A Prabhakara Naidu FCA 200974 Chief Financial Officer

Sri Umakanta Barik FCS 6317 Company Secretary

Committees of the Board

Currently, the Board has Six committees: the Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee, Stakeholders Relationship Committee, Management Committee and Risk Management Committee.

A detailed note on the Board and its committees is provided under the Corporate Governance Report section in this Annual Report. The composition of the committees and compliances, as per the applicable provisions of the Act and Rules, are as follows:

Name of the Composition of the Highlights of duties, responsi- bilities and activities Committee Committee

Audit committee Sri D Seetharamaiah - All recommendations made by the audit committee during the year were Chairperson accepted by the Board.

Sri N Sri Vishnu Raju - Reviewing, with the management, the quarterl financial statements before Dr A Appa Rao* submission to the Board for approval.

Dr N R Siva Swamy# - Approval or any subsequent modification of transactions of the Company

Sri M Siva Rama Vara Prasad with related parties

Dr V Nagaraja Naidu

Sri N Loksh - Reviewing, with the management, the performance of statutory auditors and internal auditors, adequacy of internal control systems, etc.

Nomination and Sri N Sri Vishnu Raju - The committee oversees and administers executive compensation, Remuneration Chairperson operating under a written charter adopted by our Board of Directors.

Committee Sri D Seetharamaiah - The nomination and remuneration committee has framed the nomination Dr A Appa Rao* and remuneration policy.

Dr N R Siva Swamy#

Sri M Siva Rama Vara Prasad

Sri N Lokesh

Corporate Social Sri D Seetharamaiah - To formulate and recommend to the Board, a Corporate Social Responsibility Chariperson Responsibility (CSR) Policy indicating activities to be undertaken by the

Committee Sri N Sri Vishnu Raju Company in compliance with provisions of the Companies Act, 2013 and Smt N Bhuvaneswari rules made there under.

- To monitor the implementation of the CSR Policy of the Company from time to time

Stakeholders Dr V Nagaraja Naidu - The committee reviews and ensures redressal of investor grievances.

Relationship Chariperson - The committee noted that all the grievances of the investors have been Committee Sri D Seetharamaiah resolved during the year.

Dr A Appa Rao*

Sri N Sri Vishnu Raju

Smt N Bhuvaneswari

Management Sri D Seetharamaiah - Setting the strategic direction to guide and direct the activities of the Committee Chariperson organization;

Dr A Appa Rao* - Ensuring the effective management of the organization and its activities;

Sri N Sri Vishnu Raju and

Sri N Lokesh - Monitoring the activities of the organization to ensure they are in keeping Smt N Bhuvaneswari with the founding principles, objects and values.

Risk Management Sri M Siva Rama Vara Prasad - The purpose of the committee is to assist the Board in fulfilling its corporate Committee Chairperson governance with regard to the identification, evaluation & mitigation of Sri D Seetharamaiah operational, strategic and environmental risks effi- ciently and effectively.

Sri N Sri Vishnu Raju - The Company has developed and implemented a risk management Smt N Bhuvaneswari framework that includes identification of elements of risk, if any, which in

Sri K Durga Prasada Rao the opinion of the Board may threaten the existence of the Company.

* Dr A Appa Rao, Passed away on 30th April, 2014 & Ceased to be Director from the Board & Committees w.e.f. 30th April, 2014.

# Dr. N R Siva Swamy Resigned from the Board w.e.f. 16th July, 2014.

Auditors & Auditors Report Statutory Auditors:

At the Annual General Meeting held on 26th September, 2014, M/s. Raju & Prasad, Chartered Accountants (F No: 003475S), Hyderabad were appointed as statutory auditors of the Company to hold office till the conclusion of the 25th Annual General Meeting to be held in the calendar year 2017. In terms of the first provision to Section 139 of the Companies Act, 2013, the appointment of the auditors shall be placed for ratification at every Annual General Meeting. Accordingly, the appointment of M/s. Raju & Prasad, Chartered Accountants, as statutory auditors of the Company, is placed for ratification by the shareholders. In this regard, the Company has received a certificate from the auditors to the effect that if they are reappointed, it would be in accordance with the provisions of Section 141 of the Companies Act, 2013.

The notes on Standalone & Consolidated Financial statement referred to in the Standalone & Consolidated Auditor's Report are self-explanatory and do not call for any further comments.

Secretarial Auditor:

M/s. Savita Jyothi, Practicing Company Secretary (CP No:1796), was appointed to conduct the Secretarial Audit of the Company for the fi nancial year 2014-15, as required under Section 204 of the Companies Act, 2013 and Rules made thereunder. The secretarial audit report for financial year 2014-15 issued by M/s. Savita Jyothi, Practicing Company Secretary in form MR-3 is provided in the Annexure-3 to the Board's report.

The Secretarial Auditor's Report is self-explanatory and do not call for any further comments.

The Board has appointed M/s. Savita Jyothi, Practicing Company Secretaries, as Secretarial Auditor of the Company for the financial year 2015-16 as per the provisions of the Companies Act, 2013 and Rules made thereof and the applicable provisions of Listing Agreement.

Cost Audit Report:

The Cost Audit Report for the previous financial year 2013- 14 signed by M/s Sagar & Associates, Cost Accountant (F No: 00118), Hyderabad was filed in extensible Business Reporting Language (XBRL) made on 3rd September 2014, within due date.

Significant of Material Orders Passed by the Regulators

There is no order passed by the regulators or Courts during the year under review.

Extracts of Annual Return

In accordance with Section 134(3)(a) of the Companies Act, 2013 an extract of the annual return is prescribed in form MGT-9 is provided in Annexure-4 to this report.

Internal Audit & Control Systems

Your Company has a well-defined and documented internal control system, which is adequately monitored. Checks & balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control systems are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements.

These are supplemented by internal audit of all divisions of your Company carried out by reputed firms of Chartered Accountants across India. Your Company has an Audit Committee consisting of Five Directors in whom all are Non Executive and three are independent Directors. The Audit Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically apprised of the internal audit fi ndings and corrective actions taken. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control system and suggests improvements if any for strengthening them. Your Company has a robust Management Information System which is an integral part of the control mechanism.

The Board of Directors on the recommendation of the Audit Committee has appointed Internal Auditors for the financial year 2015-16 as per the provision of Section 138 of the Companies Act, 2013 and Rules made thereof and as per the provisions of the Listing Agreement with Stock Exchanges.

Corporate Social Responsibility (CSR)

Your Company has been an early adopter of corporate social responsibility (CSR) initiatives. Along with sustained economic performance, environmental and social stewardship is a key factor for holistic business growth.

CSR activities, as per the provisions of the Companies Act, 2013 and rules made thereof, may be undertaken by the Company or through a registered trust or a registered society. The CSR Committee of the Board evaluated the various options to implement the CSR activities and decided to transfer the mandated CSR amount to the NTR Memorial Trust, Hyderabad, to carry out the activities such as promoting education, enhancing the vocational skill & supply of clean drinking water etc., as part of the CSR activities of the Company. As the NTR Memorial Trust is operating since 1997 towards the improvement of health, education of the needy people in the society and running the school for the poor people and lot more other initiative for the up-liftmen of the backward and needy population in the society. The Company works with NTR Memorial Trust, Hyderabad towards promoting education, enhancing vocational skill and supply of clean water, apart from its own trust namely Heritage Farmers Welfare Trust

These projects are in accordance with Schedule VII of the Companies Act, 2013 and the Company's CSR Policy. The Report on CSR activities as required under Companies (Corporate Social Responsibility Policy) Rules, 2014 is set out as Annexure-5 forming part of the Board's Report.

Apart from the CSR activities under the Companies Act, 2013 your Company continues to voluntarily support the following social initiatives through Heritage Farmers Welfare Trust (HFWT).

- Veterinary care and cattle management practices through

Heritage Mobile Veterinary Clinic, (equipped with necessary tools and trained human resources for providing door-step veterinary services to the Milch Animals and empowering cattle owners with advanced technology and knowledge on best cattle management and feeding practices through entertainment cum education mode). The Mobile veterinary van reaches to needy places for educational video film in the evening and free health camp on the next day morning in a village.

- Extending Insurance coverage for natural death, Incentive for fodder development & reward for Meritorious Students.

- Extended relief activities and distributed cattle feed with subsidy in Srikakulam, Vijayanagaram and Visakhapatnam during the Cyclone HUDHUD.

Your Company's CSR committee comprises Sri D Seetharamaiah (Chairperson), Sri N Sri Vishnu Raju, and Smt N Bhuvaneswari. The committee is responsible for formulating the CSR policy and monitoring the CSR expenditure of the Company.

The policy is available in the Company website www.heritagefoods.in.corporate.policies.CSR

Energy Conservation, Technology Absorption & Foreign Exchange Earnings & Outgo

The particulars as prescribed under Sub-section (3)(m) of Section 134 of the Companies Act 2013, read with the Companies (Accounts) Rules, 2014 are provided in the Annexure-6 to the Board Report.

Transfer of Un-Claimed Dividends

Pursuant to Section 124(5) of the Companies Act, 2013 [Section 205C (2) of the Companies Act, 1956] read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 as amended from time to time the unclaimed/unpaid dividend amount of Rs. 7,00,965/- (Rupees Seven Lakh Nine Hundred Sixty Five Only) for the year 2006-07 was transferred to the Investor Education and Protection Fund during the financial year 2014-15 and the unclaimed/unpaid dividend for the year 2007-08 is due for transfer to the fund during the current Financial year 2015-16.

Risk Management

During the year, your Directors have constituted a Risk Management Committee pursuant to Section 134 (3) (n) of the Companies Act, 2013 & Clause 49 of the listing agreement, which has been entrusted with the responsibility to assist the Board in (a) Overseeing and approving the Company's enterprise wide risk management framework; and (b) Overseeing that all the risks that the organization faces such as strategic, fi nancial, credit, market, liquidity, security, property, IT, legal, regulatory, reputational and other risks have been identified and assessed and there is an adequate risk management infrastructure in place capable of addressing those risks.

The Committee had formulated a Risk Management Policy for dealing with different kinds of risks which it faces in day to day operations of the Company. Risk Management Policy of the Company outlines different kinds of risks and risk mitigating measures to be adopted by the Board. The Risk Management Procedure will be reviewed by the Risk Management Committee and Board of Directors on a half-yearly basis at the time of review of Financial Results of the Company.

The policy is available in the Company website:

www.heritagefoods.in.corporate.policies.RMPolicy

Vigil Mechanism / Whistle Blower Policy

During the year, the Board of Directors of your Company have adopted Whistle Blower Policy as per the provisions of Section 177 (9) of Companies Act, 2013 and as per the Amendment to the Clause 49 of the Listing Agreement as amended form time to time. The Whistle Blower Policy aims for conducting the affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behaviour. All permanent employees of the Company are covered under the Whistle Blower Policy.

A mechanism has been established for employees to report concerns about unethical behaviour, actual or suspected fraud or violation of code of conduct or ethics of the Company. It also provides for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairperson of the Audit Committee. The guidelines are meant for all members of the Organization from the day they join and are designed to ensure that they may raise any specific concern on integrity, value adherence without fear of being punished for raising that concern.

The Whistle Blower Policy is available in the company's website: www.heritagefoods.in.corporate.Policy.WBPolicy

Prevention of Insider Trading:

The Company has adopted a Code of Conduct to Regulate, Monitor & Report Trading by Insiders and Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information as per the SEBI (Prohibition of Insider Trading) Regulation 2015, with a view to regulate trading in securities by the Directors and designated employees of the Company. The Code requires pre-clearance for dealing in the Company's shares and prohibits the purchase or sale of Company shares by the Promoters, Directors and the designated employees while in possession of unpublished price sensitive information in relation to the Company and during the period when the Trading Window is closed and other certain situations. The Board is responsible for implementation of the Code.

All Board Directors and the designated employees have confirmed compliance with the Code

The Code of Conduct to Regulate, Monitor & Report Trading by Insiders as per the SEBI (Prohibition of Insider Trading) Regulation 2015 is available in the Company website: www.heritagefoods.in.corporate.Policies.Code of Conduct

The Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information as per the SEBI (Prohibition of Insider Trading) Regulation 2015 is available in the Company website: www.heritagefoods.in.corporate. Policies-Code of fair disclosure

Nomination and Remuneration Policy

The Board of Directors of your Company has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management of

the Company. This policy also lays down criteria for selection and appointment of Board Members.

The Policy is available in the company's website:

www.heritagefoods.in.corporate.R&MPolicy

Policy on Sexual Harassment

Your Company has in place an Anti Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

The following is a summary of sexual harassment complaints received and disposed off during the year 2014-15

No of complaints received : Nil

No of complaints disposed off : Nil

Director's Responsibility Statement as required under Section 134 (3)(c) of the Companies Act, 2013,

The financial statements are prepared in accordance with the Generally Accepted Accounting Principles (GAAP) under the historical cost convention on accrual basis except the sale proceeds received under REC Mechanism of the Renewable Energy. GAAP comprises mandatory accounting standards as prescribed under Section 133 of the Companies Act, 2013 ('the Act'), read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified ) and guidelines issued by the Securities and Exchange Board of India (SEBI). There are no material departures from prescribed accounting standards in the adoption of these standards.

The Directors confirm that:

- In the preparation of the annual accounts for the financial year 2014-15, applicable accounting standards have been followed along with proper explanation relating to material departures.

- They have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the Financial year 2014-15 and of the profit and loss of the Company for that period.

- They have taken Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities,

- They have prepared the annual accounts of the company on a going concern basis.

- They have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and

- They have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Green Initiatives

The Company started a sustainability initiative with the aim of going green and minimizing our impact on the environment.

Electronic copies of the Annual Report 2014-15 and Notice of the 23rd Annual General Meeting were sent to all members whose email addresses are registered with the Company / Depository Participant(s). For members who have not registered their email addresses, physical copies of the Annual Report 2014-15 and the Notice of the 23rd Annual General Meeting are send in the permitted mode. Members requiring physical copies can send a request to the Company.

Acknowledgement

The Board takes this opportunity to thank all customers, farmers, vendors, investors, bankers and Statutory Authorities for their continued support during the year. The Board also wishes to place on record its sincere appreciation of the effort/ contribution made by its employees at all levels. The Company consistent growth was made possible by their hard work, solidarity, cooperation and support and look forward to their continued support in the future.

For and on behalf of

HERITAGE FOODS LIMITED



D SEETHARAMAIAH

Chairperson

DIN: 00005016

Registered Office:

6-3-541/C, Punjagutta,

Hyderabad – 500 082

CIN : L15209TG1992PLC014332

Ph : 04023391221/2

E-mail : hfl @heritagefoods.in

Date : 22nd July, 2015


Mar 31, 2014

Dear members,

The Directors have great pleasure in presenting the 22nd Annual Report of the Company together with the Audited statement of accounts for the Financial Year ended 31st March, 2014.

FINANCIAL RESULTS (Rs. in Lakhs) Particular 2013-14 2012-13

Revenue from Operations (Gross) 172291.58 160259.49 Less: Excise Duty 87.59 78.21 Add: Other Income 495.40 419.95

Total Revenue 172699.39 160601.23

Total Expenditure 162705.84 150072.33

Profit / (Loss) before Finance 9993.54 10528.90 Cost, Depreciation & amortization and Tax

Finance cost 1322.12 1670.20 Depreciation & Amortization 2500.23 2202.03

Profit / (Loss) before 6171.20 6656.67 Extraordinary Items and Tax

-Extraordinary Item Tax 50.00 291.34

Profit / (Loss) before Tax 6121.20 6365.33

-Current Tax 1291.05 1275.80

-Prior period Tax (0.46) (44.39)

-Deferred Tax 299.38 137.76

Net Profit / (Loss) for the Year 4531.23 4996.16

The above are standalone figures, as the Subsidiary Companies & Associate Company are yet to commence business. Hence consolidated figures are not given.

PERFORMANCE OF THE COMPANY

Your Company, during the year under review earned revenue from operations (Gross) of Rs. 172291.58 Lakhs achieved an increase of 7.51 % over the previous year. Your Company registered a net profit of Rs. 4531.23 Lakhs.

DIVIDEND

Your Directors have recommended a dividend of Rs. 3.00 (30%) per equity share of Rs. 10/- each for the financial year ended March 31, 2014, amounting to Rs. 814.25 lakhs (Rs. 695.97 Lakhs dividend and Rs. 118.28 lakhs tax on dividend). The dividend payout is subject to approval of members at the ensuing Annual General Meeting.

The dividend will be paid to members whose names appear in the Register of Members as on the record date in respect of shares held in dematerialised form & Physical form.

The dividend payout for the year under review has been formulated in accordance with shareholders'' aspirations and the Company''s policy to pay sustainable dividend linked to long term growth objectives of the Company to be met by internal cash accruals.

INCREASE OF AUTHORISED CAPITAL

During the year the Company has increased the Authorized Share Capital of the Company from Rs. 20,00,00,000/- (Rupees Twenty Crores Only) divided into 1,80,00,000 (One Crore Eighty Lakhs) Equity Shares of Rs. 10/- each and 20,00,000 (Twenty Lakhs) Preference Shares of Rs. 10/- each to Rs. 50,00,00,000/- (Rupees Fifty Crores Only) divided into 4,80,00,000 (Four Crores Eighty Lakhs) Equity Shares of Rs. 10/- each and 20,00,000(Twenty Lakhs only) Preference Shares of Rs. 10/- each

ISSUE OF BONUS EQUITY SHARES

During the year under report the Board of Directors of the Company approved/allotted Bonus Shares to the existing Equity Shareholders of the company as on the record date i.e 29th July 2013 in proportion of 1 (One) Bonus Equity Share of Rs. 10/- (Rupees Ten Only) each credited as fully paid-up for every 1 (One) eligible existing fully paid-up Equity Shares of Rs. 10/- (Rupees Ten Only ) each by capitalizing of Rs. 11,59,95,000/- (Rupees Eleven crores Fifty Nine lakhs Ninety Five thousand only) out of the sum outstanding to the credit of security premium account/General Reserve of the Company.

After the allotment of Bonus shares, the Paid up Capital of the Company has increased from 11,59,95,000/-(Rupees Eleven Crores Fifty Nine Lakhs Ninety Five Thousand only) divided into 1,15,99,500 (One Crore Fifteen Lakh Ninty Nine Thousand Five Hundred) Equity Shares of Rs. 10/- each, to 23,19,90,000/- (Rupees twenty Three Crores Ninteen Lakhs Ninty Thousand only) divided into 2,31,99,000 (Two Crore Thity one Lakhs Ninty Nine thousand only) Equity Shares of Rs. 10/- each.

CHANGE OF NAME OF THE COMPANY

During year the shareholders of the Company had approved the change of name of the company from "Heritage Foods (India) Limited" to "Heritage Foods Limited" by deleting the word ''(India)'' in the existing name of the Company. The Company has received the fresh incorporation Certificate with the change of name from Registrar of Companies, Andhra Pradesh, Hyderabad and the company had also received necessary approvals for change of name from the Stock Exchanges (Bombay Stock Exchange Ltd and National Stock Exchange of India Limited) where the shares of the Company are listed. The change of name of the Company as aforesaid does not change the legal status or constitution of the Company, nor does it affect any rights or obligations of the Company.

CHANGE OF CORPORATE IDENTIFICATION NUMBER (CIN) OF THE COMPANY

Due to the division of state (united Andhra) into State of Telangana and State of Andhra Pradesh on June 2nd 2014,The Ministry of Corporate Affairs, Govt. of India, had changed /allotted the New Corporate Identification Number (CIN) of the Company from L15209AP1992PLC014332 to L15209TG1992PLC014332.

TRANSFER TO RESERVES

The Company proposes to transfer Rs. 1000.00 Lakhs to General Reserve.

Dairy Business: Dairy industry is of crucial importance to the growth of Indian economy. Dairy comes under fragmented industry as per the definition of Dairy by uber guru on strategy Michael Porter, which means "local requirements have to be met through local supplies as the production is scattered and available locally". The strategy for dairy development till date lies with decentralising the production and centralizing the processing and marketing.

India has one of the largest livestock populations in the world which contains Fifty percent of the buffaloes and twenty percent of the cattle in the world are found in India. Milk is one of the most important item of common vegetarian diet of Indian people. With an estimated 86.8 million tons of annual milk production from animals managed by nearly 70 million farmers. Milk and milk products are rated as one of the most promising sectors. The total milk production is over 72 million tonnes whereas the demand is estimated at around 80 million tonnes. The per capita milk availability is about 296 grams per day.

India is the world''s largest consumer of dairy products, consuming almost 100% of its milk produce (about 15% of world''s production). Going forward, according to industry reports, the current market size of US$10bn of the Indian dairy industry is expected to grow at a CAGR of 13-15% till FY 2020. Robust growth is expected on the back of various reasons- A) Milk considered as an inevitable part of Indian diet B) Rising health consciousness C) Heightened consumer interest in protein diets; all coupled with D) Rising disposable incomes.

According to the Indian Dairy Association (IDA), the organised sector (cooperatives, producer companies and private players) handles 30% of the marketable milk suppliers. However in the interest of both producers and consumers, it is necessary to increase the share of the organised sector. Hence, the National Dairy Plan (NDP) has set a target to increase this share to 65% by 2030. Consequently, efforts towards increasing the organised sector''s share are expected to benefit our Compny and drive its future growth.

The Company has its major milk sales concentrated in four states i.e Andhra Pradesh, Telangana, Tamil Nadu and Karnataka, contributing 93% to the revenue. Barring to expand the boundaries might have an impact on the margins of the company eventually. Also, the unrest owing to separation of Telangana as an independent State can hinder the inter-state milk supply (a perishable commodity) and thereby affect the company''s sales.

During the financial year 2013-14, Dairy Division has increased milk Chilling capacity by 138000 LPD by commissioning 26 units which includes Bulk mini chilling units, Mini Chilling units, chilling centres and Franchisee Bulk mini chilling units and Franchisee units to increase the milk procurement and to maintain the quality. The Turnover has grown by 4.69% from Rs. 126862 Lakhs to Rs. 132819 Lakhs.

Retail Division: Retail-which literally means to put on the market, is a very important aspect of every city. Without a well organized retail industry we would not have our necessities and luxuries fulfilled. Though organized retailing industry began much earlier in the developed nations, India has not actively participated. However with its vast expanse and young population, India in the 21st century emerges as a highly potential retail market. The journey of retailing in India has been riveting and the future promises further growth.

At present the Retail industry in India is accelerating. Though India is still not at an equal pace with other Asian counterparts, it is geared to become a major player in the Retail Market. Also with a highly diverse demography, India provides immense scope for companies brining in different products targeting different consumers.

According to the Global Retail Development Index, India is positioned as the foremost destination for retail investment and business development. The factor that is presently playing a significant role here is the fact that a large section of Indian population is in the age group of 20-34 with a considerably high purchasing power; this has caused the increase in the demand in the urban market resulting in consistent growth in the Retail business.

As the market becomes more and more organized the Indian retail industry will gain greater worth. The Retail sector in the small towns and cities will increase by 50 to 60 % pertaining to easy and inexpensive availability of land and demand among consumers.

Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban consumers.

The Retail Division of your Company achieved a sale of Rs. 37793 Lakhs during the Financial Year 2013-14. The Institutional sales segment achieved Rs. 2257 Lakhs and sales delivered by General Trade FMCG distribution business of Rs. 945 Lakhs. For comparable stores in both the years Retail business has grown by 10.45 %, and also the new stores which are opened this year have delivered more throughput than previous year.

Agri Division: Agriculture is the third largest sector of India''s economy after services and industry. It Contributes 25% of Gross Domestic Product (GDP) of the country. The Current average growth rate of the agriculture sector is 2.2%. The sector which requires consistent monitoring, creating a conducive environment for farmers to increase their productivity and sell their products at competitive prices. There is still a lot of scope for increasing the productivity in India by adopting scientific methods of cultivation. During the past five years agriculture sector has witnessed spectacular advances in the production and productivity of food grains, oilseeds, commercial crops, fruits, vegetables, food grains, poultry and dairy. India has emerged as the second largest producer of fruits and vegetables in the world besides being the largest overseas exporter of cashews and spices.

Agri Division of your Company had achieved the turnover of Rs. 6783 Lakhs and 42550 MT with respect to Value & Volume. However, there is an improvement in Volume by 62% over the financial year 2012-13.

Bakery Division:

Bakery Division of your Company had achieved the turnover of Rs. 366 Lakhs.

Renewable Energy Division:

It is great pleasure to inform you that your Company had Set up/Commissioned 2.34 MW solar power plant at, Masjid Adavi Village, Mulugu Mandal, Medak Dist, Telangana on 29th September, 2013, to meet for the captive power requirement.

The 2.34 MWp Solar Power Plant is equipped to supply 3.75 million units of clean and green energy annually. It is expected to displace nearly 3,300 MT of CO2 annually. The plant, spread across an area of 14 acres of land comprises of 9,360 Solar PV modules using multi crystalline technology.

The SWOT Analysis:

Strengths

* The vast livestock population of the country could prove to be a vital asset for the country and unlike many other natural resources which will deplete over the years, a sustainable livestock production system will continue to propel Indian economy.

* Purchasing power of the consumers is on the upswing with growing economy & continually increasing population of middle class.

* Milk consumption in India is a regular part of the dietary programme irrespective of the region and hence demand is likely to rise continuously.

* Vast pool of highly trained and qualified technical manpower is available at all levels to support R&D as well as industry operations

* The income of an average Indian is increasing and thus there is a proportional increase in the purchasing power.

* Indian economy and its policies are also becoming more and more liberal making way for a wide range of companies to enter Indian market.

* Employment opportunities both direct and indirect have been increased. Farmers get better prices for their products through improvement of value added food chain,

* A high growth industry has significant future potential.

* Technology proven, with low operation and maintenance costs, and scalable.

* Availability of soft loans and government incentives for growth and expansion

Weaknesses

* Though cross breeding programmes have significantly improved animal productivity, milk production system in many parts of the country is still largely dominated by low yielding animals.

* Poor condition of roads and erratic power supply remain a major challenge for procurement and supply of good quality raw milk.

* Maintenance of cold chain is still a major handicap. For organized marketing of milk, the milk produced is required to be transported to nearby processing plant which incurs cold storage and transportation costs which are quite high.

* It will mainly cater to high-end consumers placed in metros and will not deliver mass consumption goods for customers in villages and small towns.

* Retail chain are yet to settle down with proper merchandise mix for the outlets.

* Small size outlets are also one of the weaknesses in the Indian retailing

* Owing to high capital costs, the business needs external incentives to be economically feasible, thus increasing dependence on governmental policies.

* The capital intensive nature of the business might favour larger businesses over smaller ones.

* The distributed and intermittent nature of solar energy makes it difficult for utilities to rely on solar PV for their base load.

Opportunities

* Expanding market will see creation of enormous job and self employment opportunities.

* Economy is growing at the rate of nearly 8% of GDP. Consequently, the investment opportunities are also increasing continually.

* Demand for dairy products is income elastic. Continued rise in middle class population will see shift in the consumption pattern in favour of value added products besides the growth in demand for liquid milk.

* Greatly improved export potential for indigenous as well as western milk products.

* Opening of the world market offers opportunities for utilization of byproducts of the dairy industry for manufacturing value added products for import substitution.

* Difficult to target all segments of society,

* Emerge of hyper and super markets trying to provide customer with value, variety and volume,

* The unorganized sector has dominance over the organized sector because of low investment needs.

* Governments ambitious targets and attractive policies opens up many avenues for investment,

* Opportunities exist all along the solar PV business value chain, not just for power plants.

* It can become one of the largest industries in terms of numbers of employees and establishments,

Threats

* Excessive grazing pressure on marginal and small community lands has resulted in almost complete degradation of land.

* Indiscriminate crossbreeding for raising milk productivity could lead to disappearance of valuable indigenous breeds.

* There is a gross lack of awareness among farmers about the quality parameters, including microbiological and chemical contaminants as well as residual antibiotics.

* Entry of multinationals could result in a large portion of milk being diverted towards value added products which, though it augers well for the producers, is likely to affect the availability of liquid milk supply for mass consumption especially for the poor urban class

* Rural retailing is still unexploited Indian market.

* Off-peak seasons reduce cash flow.

* Industry is new, so finding skilled workforce could be a problem.

EXEMPTION FROM ATTACHING THE BALANCE SHEETS, ETC. OF THE SUBSIDIARY COMPANIES WITH THE BALANCE SHEET OF THE COMPANY

The Ministry of Corporate Affairs ("MCA") has granted a general exemption under Section 212(8) of the Companies Act, 1956 from attaching copies of the Balance Sheet, Statement of Profit and Loss, Directors'' Report and Auditors'' Report of its subsidiary companies with the Balance Sheet of the Company, subject to fulfillment of certain conditions.

In terms of the said circular, copies of the Balance Sheet, Statement of Profit and Loss, Report of the Board of Directors and the Report of the Auditors of the Subsidiary Companies have not been attached to the Balance Sheet of the Company. The Company has presented Consolidated Financial Statements comprising Heritage Foods Ltd (HFL) and its subsidiaries duly audited by the Statutory Auditors of the Company. The Consolidated Financial Statements prepared by the Company are in compliance with the Accounting Standard (AS-21) as prescribed by the Companies (Accounting Standards) Rules, 2006 and the Listing Agreement with the Stock Exchanges. The annual accounts and related documents of all the Subsidiary Companies are made available for inspection to the shareholders of the Company and its subsidiaries at the Registered Office of the Company from Monday to Friday between 11.00 A.M. to 1.00 P.M. The Company will also make available physical copies of such documents on request by any Member of the Company (or its subsidiaries) interested in obtaining the same and the same would also be made available on the website of the Company

DIRECTORS

Dr. A. Appa Rao (DIN: 00003745), Non Executive Independent Director of the Company had passed away on 30th April, 2014. On sudden / untimely death of Dr A. Appa Rao, the Board of Directors had expressed their deep condolence to the departed soul. The Board placed on record the invaluable contribution made by him towards the progress of the company from the date of appointment (27th January 2000) until his death.

Dr.VNagaraja Naidu (DIN: 00003730), Non-Executive Director of the Company retires by rotation and being eligible offer himself for reappointment at the ensuing Annual General Meeting as per the provisions of Section 152 of the Companies Act 2013 and rules made thereof.

The Board of Directors of the Company has appointed Sri D.Seetharamaiah (DIN: 00005016), Director as Non-Executive Independent Director (designated as Chairman of the Company) for a term upto 5 years as per the provisions of Section of 149 & 152 of the Companies Act, 2013 and rules made thereof from the conclusion of this Annual General Meeting till the conclusion of 27th Annual General Meeting to be held in 2019, not liable to retire by rotation.

The Board of Directors at their meeting held on 22nd October, 2013 appointed N. Sri Vishnu Raju (DIN: 00025063) as an Additional Director in accordance with Section 161 read with Schedule IV and other applicable provisions of the Companies Act, 2013 and rules made thereof and in terms of the Articles of Association of the Company. N. Sri Vishnu Raju is proposed to be appointed for a term upto 5 Years as a Non-Executive Independent Director from this Annual General Meeting till the conclusion of 27th Annual General Meeting to be held in 2019, not liable to retire by rotation.

The Board of Directors at their meeting held on 30th July, 2014, has appointed Sri. M. Siva Rama Vara Prasad (DIN: 00170919) as an Additional Director in accordance with Section 161 read with Schedule IV and other applicable provisions of the Companies Act, 2013 and rules made thereof and in terms of the Articles of Association of the Company. Sri. M.Siva Rama Vara Prasad is proposed to be appointed for a term upto 5 Years as a Non- Executive Independent Director from this Annual General Meeting till the conclusion of 27th Annual General Meeting to be held in 2019, not liable to retire by rotation.

The Board of Directors at their meeting held on 30th July, 2014 appointed Sri. K. Durga Prasada Rao (DIN: 06888949) as an Additional Director w.e.f. 1st August, 2014 in accordance with Section 161 read with Schedule V and other applicable provisions of the Companies Act, 2013 and the Companies (Appointment and Qualification of Directors) Rules, 2014 and in terms of Articles of Association of the Company. Sri. K.Durga Prasada Rao has been appointed as a Whole Time Director for a term upto 5 years effective from 1st August, 2014 as per the provisions of Sections 196 & 197 and rules made thereof and read with Schedule V of the Companies Act, 2013.

The Board at its meeting held on 30thJuly, 2014 on recommendation of Nomination & Remuneration Committee and subject to the approval of the members at the ensuing Annual General Meeting had re-appointed Smt. N. Bhuvaneswari as whole time Director designated as Vice Chairperson & Managing Director of the Company, for a period of 5 (five) years with effect from 1st July, 2014 as per the provisions of Sections 196 & 197 and rules made thereof and read with Schedule V of the Companies Act, 2013.

The Board at its meeting held on 30th July, 2014 on recommendation of Nomination & Remuneration Committee and subject to the approval of the members at the ensuing Annual General Meeting had re-appointed Smt. N. Brahmani as whole time Director designated as Executive Director of the Company, for a period of 5 (five) years with effect from 1st June, 2014 as per the provisions of Sections 196 & 197 and rules made thereof and read with Schedule V of the Companies Act, 2013.

During the year under report Dr Arvind Pandalai (DIN: 00352809), who was appointed as an Additional Director by the Board of Directors at their meeting held 22nd October 2013 has submitted his resignation from the office of Director due to his personal reasons and resigned from the Board on 23rd October 2013.

Dr. N.R Sivaswamy (DIN: 00003749), Non - Executive Independent Director of the Company had resigned from the Board w.e.f 16th July, 2014 due to his personal reasons and other commitments. The Board placed on record the invaluable contribution made by him, towards the progress of the company from the date of appointment until his resignation.

The Board of Directors of the Company appointed Smt N.Bhuvaneswari, Vice Chairperson & Managing Director, Smt N.Brahmani, Executive Director, Sri A Prabhakara Naidu, Chief Financial Officer (CFO) and Sri Umakanta Barik, Company Secretary as Key Managerial Persons (KMP) as per the provisions of Section 203 of the Companies 2013, during the year under review.

Brief resume of the Directors proposed to be appointed, nature of their expertise in specific functional areas and names of companies in which they hold directorship and membership/ chairmanship of the Board/Committee as stipulated by Clause 49 of the listing agreement with the stock exchange are provided elsewhere in the Annual Report.

AUDITORS AND AUDITORS'' REPORT

Statutory Auditors: M/s. Raju & Prasad, Chartered Accountants, Hyderabad, Statutory Auditors of the Company, hold office till the conclusion of the ensuing Annual General Meeting and are eligible for reappointment.

As per the Section 139 of the Companies Act 2013 M/s. Raju & Prasad, Chartered Accountants, Hyderabad Statutory Auditors of the Company will be appointed for a period of three years from the conclusion of this Annual General Meeting till the conclusion of the Twenty Fifth Annual General Meeting and the Company has received letters from them to the effect that their reappointment, if made, would be within the prescribed limits under section 141 of the Companies Act 2013 and rules made thereof The Notes on Financial Statements referred to in the Auditors'' Report are self-explanatory and do not call for any further comments.

Secretarial Auditor: As a measure of good corporate governance practice and as per the Section 204 of the Companies Act, 2013 and rules made thereof , the Board of Directors of the Company appointed Ms. Savita Jyoti, Practicing Company Secretary, to conduct Secretarial Audit. The Secretarial Audit Report for the financial year ended March 31, 2014, is provided in the Annual Report.

Cost Auditor: The Central Government had approved the appointment of M/s. Sagar & Associates, Cost Accountants, Hyderabad as Cost Auditor of the Company for the financial year 2013-14. The Cost Audit Report will be filed with Central Government within 180 days from the close of the Financial Year. The Cost Audit Report for the previous financial year 2012-13 signed by M/s. Sagar & Associates. Cost Accountants, Hyderabad was filed in extensible Business Reporting Language (XBRL) mode on September 06, 2013, within due date.

INTERNAL AUDIT & CONTROL SYSTEMS

Your Company has a well-defined and documented internal control system, which is adequately monitored. Checks & balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control systems are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements.

These are supplemented by internal audit of all divisions of the Company carried out by reputed firms of Chartered Accountants. Your Company has an Audit Committee consisting of Five Directors; in whom two are Non Executive and remaining of them are Non-Executive Independent Directors. The Audit Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically apprised of the internal audit findings and corrective actions taken. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control system and suggests improvements if any for strengthening them. The Company has a robust Management Information System which is an integral part of the control mechanism. The Board of Directors has appointed Internal Auditors for the FY 2014-15, as per the provision of Section 138 of the Companies Act, 2013 and rules made thereof

CONSTITUTION & RESTRUCTURING OF COMMITTEES:

i. Constitution of Corporate Social Responsibility Committee: The Board of Directors at their meeting held on 21st March 2014 has constituted the Corporate Social Responsibility Committee (CSR Committee) w.e.f. 1st April, 2014, as per the provisions of the Section 135 and other applicable provisions of the Companies Act, 2013 and Companies (Corporate Social Responsibility Policy) Rules 2014 comprising of Sri. D. Seetharamaiah as the Chairman and N. Sri Vishnu Raju & Smt N. Bhuvaneswari as members.

The said Committee has been entrusted with the responsibility of formulating and recommending to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, monitoring the implementation of the framework of the CSR Policy and recommending the amount to be spent on CSR activities etc.

ii. Stakeholders Relationship Committee: During the year the Board of Directors of the Company has changed/altered the name of the Share Transfer and Investor Grievance Redressal Committee to Stakeholders Relationship Committee w.e.f. 1st April,2014, as per the provisions of Section 178 of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

iii. Nomination & Remuneration Committee: During the year the Board of Directors of the Company had changed/ altered the name of the Remuneration Committee to Nomination & Remuneration Committee w.e.f. 1st April, 2014 as per the provisions of Section 178 of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

The details of the Committee members are provided in the corporate information Page.

INDUSTRIAL RELATIONS

Industrial relations in all the locations of your Company remained cordial and peaceful throughout the year.

INSURANCE

All the assets and insurable interest of your Company including inventories, buildings, plant & machineries etc., are adequately insured.

AWARDS & RECOGNITIONS

It is great honour to state that during the year Smt.N.Bhuvaneswari, Vice Chairperson & Managing Director of your Company, named as one of the most powerful business women in India, and placed at 45th Rank in the list of Fortune-50 Most Powerfull Business Women in India for the year 2013.

During the year your Company enlisted into the list of top 500 companies across the Country and also recognized as one of the top 16 Companies based in Hyderabad, that figured in top 500 Companies in India, listed by Economic Times for the year 2013. Your Company has positioned at 477th rank in the List of ET- top 500 Companies in India.

PARTICULARS OF EMPLOYEES

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

TRANSFER OF UN-CLAIMED DIVIDENDS

Pursuant to Section 205C (2) of the Companies Act, 1956 read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 as amended from time to time the unclaimed dividend amount of Rs. 6,51,006/- (Rupees Six Lakh Fifty one Thousand and Six Only) for the year 2005-06 was transferred to the Investor Education and Protection Fund during the year and the unclaimed dividend for the year 2006-07 is due for transfer to the fund during the current Financial year.

FIXED DEPOSITS

The Company has not accepted any public deposits and as such, no amount on account of principal or interest on public deposits was outstanding as on the date of the balance sheet.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars relating to energy conservation, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are provided in the Annexure to this Report.

MANAGEMENT DISCUSSION AND ANALYSIS

In compliance with the requirements of Clause 49 of the Listing Agreement, a separate Report contains a detailed Management Discussion and Analysis, forms an integral part of this Report.

CORPORATE GOVERNANCE

In compliance with the requirements of Clause 49 of the Listing Agreement, a separate Report on Corporate Governance along with the Auditors Certificate on its compliance forms an integral part of this Report.

CSR ACTIVITIES

As a corporate citizen with enduring relationships in rural India, your Company has a history of collaboration with communities to enhance dairy productivity and the rural resource base. Inspired by the vision of making a contribution to the improvement of quality of life of dairy farmers your Company has started implementing the CSR activities through registered trust namely Heritage Farmers Welfare trust (HFWT). The trust has chosen Health, Safe drinking water and Livelihoods as the thrust areas for discharging its activities. Apart from the above thrust areas, your company strives to serve the society through various other measures like distribution of clothes and relief materials during natural calamities etc.

In the month of October, 2013 the Cyclone Phailin has hit Gopalpur in Odisha and Sompeta, Tekkali and Gara mandals of Srikakulam district in Andhra Pradesh and devastated trees, crops and cattle. To help the needy people your Company through its trust reached the victims and interacted with the people to understand their concerns and announced cyclone relief package, and started conducting 42 free veterinary health camps and supplied 1020 subsidised cattle feed bags those needy villages.

The Trust has Launched 6 Heritage Mobile Veterinary Clinic (HMVC) for providing door- step veterinary services to the Milch Animals and empowering cattle owners with advanced technology and knowledge on best cattle management and feeding practices through entertainment cum education mode. It is a Mobile Clinic equipped with necessary tools and trained human resources on Veterinary treatment and cattle management practices.

During the year your Company has started:-

Fodder resource development: Various locations of the Company distributed the fodder strips to the producers / farmers free of cost to produce consistency in milk production apart from improvement in the general health of the animals and quality of milk.

Veterinary Health Care Services: Various preventive and curative health care services are offered including medicines for free of cost by veterinary doctors through Heritage Mobile Veterinary Clinics.

Feed Ingredients supply: In view of the non-availability of good quality animal feed, the trust initiated to supply good quality of feed ingredients to the farmers at subsidized price.

Insurance: Group Personal Accident Scheme with Medical Extension & Disability Compensation — to the MCC Members and the Farmers Members enrolled in the Heritage Farmers Welfare Trust

DIRECTOR''S RESPONSIBILITY STATEMENT

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

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

* They have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the Financial year 2013-14 and of the profit for that period;

* They have taken Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; and

* They have prepared the annual accounts of the company on a going concern basis.

ACKNOWLEDGEMENT

The Board takes this opportunity to thank all its employees for their dedicated service and firm commitment to the goals of the Company. The Board also wishes to place on record its sincere appreciation for the wholehearted support received from shareholders, distributors, farmers, bankers and all other business associates, and from the neighborhood communities of the various locations. We look forward to continued support of all these partners in progress.

Your Directors look forward to the future with confidence.

For and on behalf of HERITAGE FOODS LIMITED Registered Office:

#6-3-541/C, Punjagutta, Hyderabad - 500 082 CIN : L15209TG1992PLC014332 Ph : 04023391221/2 e-mail : hfl@heritagefoods.in D. SEETHARAMAIAH Chairman Date : 30th July, 2014 (DIN: 00005016)


Mar 31, 2013

Dear Members,

The Directors have great pleasure in presenting the 21st Annual Report of the Company together with the Audited statement of accounts for the Financial Year ended 31st March, 2013.

FINANCIAL RESULTS

The financial performance for the Financial Year 2012-13 is summarised in the following table:

(Rupees in Lakhs)

Year ended Year ended Particular March 31, March 31, 2013 2012

Revenue from Operations (net) 160181.28 139340.57

Other Income (net) 419.95 320.73

Total Income 160601.23 139661.30

Operating Expenditure 150072.33 134207.70

Profit before Finance Cost, Depreciation & Amortization and Tax 10528.90 5453.59

Finance cost 1670.20 1977.28

Depreciation & Amortization 2202.03 2118.65

Profit before Taxes and Extraordinary items 6656.67 1357.67

Extraordinary Items 291.34 0.00

Profit before Taxes 6365.33 1357.67

Tax Expenses 1369.17 424.24

Net Profit for the Year 4996.16 933.42

The above are standalone figures, as the subsidiary companies are yet to commence business. Hence consolidated figures are not given.

PERFORMANCE OF THE COMPANY

Your Company, during the year under review earned revenue from operations (net) of Rs.160181.29 Lakhs representing an increase of 14.96% over the previous year. Your Company has registered a net profit of Rs.4996.16 Lakhs, as compared to previous year''s net profit of Rs.933.42 Lakhs.

The increase in the profitability is due to economies of scale, leveraging on a pan India presence of milk products leading to increased turnover and better margins, rationalization of logistics costs, elimination of wastages and effective cost control measures.

DIVIDEND

Your Directors have recommended a dividend of Rs.3 per Equity Share (30%) face value of Rs.10/- each for the Financial Year ended March 31, 2013, amounting to Rs.405.13 Lakhs (T346.28 Lakhs as dividend and Rs.58.85 lakhs tax on dividend). The dividend will be paid, subject to the approval of the members at the ensuing Annual General Meeting to those members whose names appear in the Register of Members as on record date.

The dividend payout for the year under review has been formulated in accordance with shareholders'' aspirations and the Company''s policy to pay sustainable dividend linked to long term growth objectives of the Company to be met by internal cash accruals.

SHARE CAPITAL

The Paid up Capital of the Company has increased from Rs.11,52,95,000/- (Rupees Eleven Crore Fifty Two Lakhs Ninty Five Thousand only) divided into 1,15,29,500 (One Crore Fifteen Lakh Twenty Nine Thousand Five Hundred ) Equity Shares of Rs.10/- each to. Rs.11,59,95,000/-(Rupees Eleven Crores Fifty Nine Lakhs Ninety Five Thousand only) divided into 1,15,99,500 (One Crore Fifteen Lakh Ninty Nine Thousand Five Hundred) Equity Shares of Rs.10/- each, due to allotment of 70,000 (Seventy Thousand only) Sweat Equity Shares during the year. The details of the above issue is as follows as per the provisions of Act

Number of shares issued to an employee of the company 70,000 (Seventy Thousand only) face value of Rs.10/- each to Dr. M. Sambasiva Rao, President of the Company

The pricing formula the pricing of the Share arrived as per the SEBI (Issue of Sweat equity shares) Regulations, 2002

The total number of shares arising as a result of issue of sweat equity shares 70,000 (Seventy Thousand only) face value of Rs.10/- each

Money realized or benefit accrued to the company from the issue of sweat equity shares

The share issued to Dr. M. Sambasiva Rao, Employee of the company designated as president for a consideration other than cash in recognition of value addition to the business of the Company and for creating the aspiration and motivation to achieve the further growth of the company.

Diluted earnings per share after issuance of sweat equity shares 43.28

Your Board of Directors had obtained a certificate from the M/s. Raju & Prasad Statutory Auditors of the Company regarding the issue of Sweat Equity shares in accordance with the SEBI (Issue of Sweat Equity Shares) Regulations 2002 & applicable provisions of the Companies Act 1956. The copy of the certificate is forming part of the Annual Report.

CHANGE OF NAME OF THE COMPANY

The Board of Directors had approved to change the name of the company from "Heritage Foods (India) Limited" to "Heritage Foods Limited" by deleting the word ''(India)'' in the existing name of the Company subject to approval of share holders and statutory Authorities. The Company has received the approval for name availability from Registrar of Companies, Andhra Pradesh, Hyderabad. The change of name of the Company as aforesaid does not change the legal status or constitution of the Company, nor does it affect any rights or obligations of the Company.

TRANSFER TO RESERVE

The Company proposes to transfer Rs.2500.00 Lakhs to General Reserve.

BUSINESS REVIEW

Dairy Business: Dairy industry is of crucial importance to the growth of Indian economy. Our country is the world''s largest milk producer, accounting for more than 17% of world''s total milk production. It is also the world''s largest consumer of dairy products, consuming almost 100% of its own milk production. Dairy products are a major source of nutritious food to millions of people in India and the only acceptable source of animal protein for large vegetarian segment of Indian population. Dairying has been considered as one of the activities aimed at alleviating the poverty and unemployment especially in the rain- fed and drought-prone rural regions. In India, about three-fourth of the population live in rural areas. The progress in this sector will result in a more balanced development of the rural economy, particularly among the landless, small or marginal farmers.

Considering the current scenario, the Milk demand is expected to reach 180MiHion MT by 2021-22.An Annual Incremental growth of 5-6million MT is estimated over the next 10 years to meet the growing demand of Milk in the country. The Industry is to witness a boom in the demand for milk in the next decade due to the following factors:

- Milk serves as an important source of protein for a sizeable portion of India''s large vegetarian population

- Rising income and aspiration levels further accelerated by impact of the 6th pay commission in urban India.

- Advent of urbanization leading to demand for greater variety of value added dairy products.

- Rising health consciousness driving product innovations in the global dairy market like pro-biotics and other fortified dairy products.

During the financial year 2012-13, Dairy Division of your Company has increased milk procurement capacity by 72000 LPD by commissioning of 21 units which includes Bulk Coolers/Mini Chilling Units and Franchisee units to increase the milk procurement and to maintain the quality. The Turnover has grown by 15.96% from Rs.109397.20 Lakhs to Rs.126862.15 Lakhs. The liquid milk Turnover grown by 12.08% and Value Added Products by 27.43%.

Retail Business: The Indian Retail Industry is the largest among all the industries, accounting for over 10% of the country''s GDP and around 8% of the employment. The Retail Industry in India has comeforth as one of the most dynamic and fast paced industries with several players entering the market. But all of them have not yet tasted success because of the heavy initial investments that are required to break-even.

Recently the Government of India had allowed Foreign Direct Investment (FDI) upto 51% in multi brand retail and the impact of this policy is to be seen yet.

Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and Jewellery are widely accepted by the urban consumers.

The Retail Division of your Company has achieved a sale of Rs.32657.46 Lakhs during the year 2012-13. The Institutional sales segment achieved a sales of 2063 Lakhs and sales delivered by General Trade FMCG distribution business of Rs.1438 Lakhs. For comparable stores in both the years Retail business has grown by 6.51%. Average bill value has grown by 14% and also the new stores which are opened this year have delivered more throughput.

Your company entered in the trading & manufacturing (except Bread) of Bakery products. The business shall be nurtured during the current financial year. Bakery product sales remain same over the last financial year with the improvement in Dairy & Retail Channel. The direct sales channel de grew as it discontinued few kiosk models out of IT Parks and Fresh Outlets due to non viability.

Agri Division: Agriculture is the third largest sector of India''s economy after services and industry. It requires consistent monitoring, creating a conducive environment for farmers to increase their productivity and sell their products at competitive prices. There is still a lot of scope for increasing the productivity in India by adopting scientic methods of cultivation. India has emerged as the second largest producer of fruits and vegetables in the world besides to being the largest overseas exporter of cashews and spices.

Agri Division of your Company had achieved the turnover of Rs.3993.67 Lakhs and 26479 MT with respect to Value and Volume. There is an improvement in Volume of 62% over the financial year 2011-12.

EXEMPTION FROM ATTACHING THE BALANCE SHEETS, ETC. OF THE SUBSIDIARY COMPANIES WITH THE BALANCE SHEET OF THE COMPANY

The Ministry of Corporate Affairs ("MCA") has vide its Circular No. 02/2011 dated 8th February, 2011, granted a general exemption under Section 212(8) of the Companies Act, 1956 from attaching copies of the Balance Sheet, Statement of Profit and Loss, Directors'' Report and Auditors'' Report of its subsidiary companies with the Balance Sheet of the Company, subject to fulfillment of certain conditions.

In terms of the said circular, copies of the Balance Sheet, Statement of Profit and Loss, Report of the Board of Directors and the Report of the Auditors of the Subsidiary Companies have not been attached to the Balance Sheet of the Company. The Company has presented Consolidated Financial Statements comprising Heritage Foods (India) Ltd and its subsidiaries duly audited by the Statutory Auditors of the Company. The Consolidated Financial Statements prepared by the Company are in compliance with the Accounting Standard AS-21 as prescribed by the Companies (Accounting Standards) Rules, 2006 and the Listing Agreement with the Stock Exchanges. The statement required under Section 212 of the Companies Act, 1956 is attached to the annual accounts of the Company. The annual accounts and related documents of all the Subsidiary Companies shall be made available for inspection to the shareholders of the Company and its subsidiaries at the Registered Office of the Company from Monday to Friday between 11.00 a.m. to 1.00 p.m. The Company will also make available physical copies of such documents upon request by any Member of the Company (or its subsidiaries) interested in obtaining the same and the same would also be made available on the website of the Company.

DIRECTORS

Sri D.Seetharamaiah, Chairman and Sri N.P Ramakrishna, Directors retire by rotation and being eligible offer themselves for reappointment at the ensuing Annual General Meeting.

The Board at its meeting held on May 30, 2013 on recommendation of Remuneration Committee and subject to the approval of the members at the ensuing Annual General Meeting had appointed Smt. N.Bhuvaneswari as Vice Chairperson & Managing Director of the Company, for a period of 5 (five) years with effect from 1st July, 2013.

During the year on the recommendation of Remuneration Committee, the Board of Directors had recommended to the Shareholders for the re-appointment and revision of remuneration of Sri. Nara Lokesh as Executive Director of the Company for a period of three years w.e.f 1st October, 2012. The Shareholders had approved the appointment through postal Ballot, the result of which was declared on 08th December, 2012.

Smt. N.Brahmani was appointed as an Additional Director of the Company w.e.f 22nd April 2013, to hold office upto date of the ensuing Annual General Meeting. Notice was received from members under Section 257 of the Companies Act, 1956 proposing her candidature as the Director of the Company. The Board at its meeting held on May 30, 2013, on recommendation of Remuneration Committee and subject to the approval of the members at the ensuing Annual General Meeting had appointed Smt. N.Brahmani as a Wholetime Director designated as an Executive Director of the Company, for a period of 5 (five) years with effect from 1st June, 2013.

Sri N.Lokesh has submitted his resignation from the office of Executive Director, but he will continue as non Executive Director in the Board of the Company, with the same terms as applicable to the Non-executive Directors of the Board. The Members of the Board place on record their deep sense of appreciation for services rendered by Sri N. Lokesh during his tenure as an Executive Director of the Company.

AUDITORS AND AUDITORS'' REPORT

Statutory Auditors: M/s. Raju & Prasad, Chartered Accountants, Hyderabad, Statutory Auditors of the Company, hold office till the conclusion of the ensuing Annual General Meeting and are eligible for reappointment.

The Company has received letters from them to the effect that their reappointment, if made, would be within the prescribed limits under Section 224(1B) of the Companies Act, 1956 and that they are not disqualified for reappointment within the meaning of Section 226 of the said Act.

The Notes on Financial Statements referred to in the Auditors'' Report are self-explanatory and do not call for any further comments.

Cost Auditor: M/s. Sagar & Associates, Cost Accountants, Hyderabad were appointed as the Company''s Cost Auditors subject to the consent of the Government of India to conduct an audit of Cost Accounting records relating to Packaged Food Products and for issuance of Cost Audit Report for the financial year 2013 - 2014.

Secretarial Auditor: As a measure of good corporate governance practice, the Board of Directors of the Company appointed Ms. Savita Jyoti, Practicing Company Secretary, to conduct Secretarial Audit. The Secretarial Audit Report for the financial year ended March 31, 2013, is provided in the Annual Report.

INTERNAL AUDIT & CONTROL SYSTEMS

Your Company has a well-defined and documented internal control system, which is adequately monitored. Checks & balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control systems are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements.

These are supplemented by internal audit carried out by reputed firms of Chartered Accountants. Your Company has an Audit Committee consisting of four Directors; all of them are Non- Executive Independent Directors. The Audit Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically apprised of the internal audit findings and corrective actions taken. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control system and suggest improvement(s) if any. The Company has a robust Management Information System which is an integral part of the control mechanism.

CORPORATE SOCIAL RESPONSIBILITY

The core theme of your company''s Corporate Social Responsibility policy (CSR Policy) is giving back to the society from which it draws its resources by extending a helping hand to the needy and the underprivileged. To implement the CSR policy effectively, the Company makes need based allocation of funds from its earnings through Heritage Farmers Welfare Trust (The Trust). The trust has chosen Health, Safe drinking water and Livelihoods as the thrust areas for discharging its Corporate Social Responsibility. Apart from the above thrust areas, your company strives to serve the society through various other measures like distribution of clothes and relief materials during natural calamities etc.

Your Company has been extending help to villages where the Company plants are located, as part of our Corporate Social Responsibility. Your Company had started through the trust, free veterinary services through mobile veterinary clinic with a fully equipped instruments and trained Doctors/Staff, and through audio visuals presentations. Your company organized several free health camps at various places at part of the CSR activities during the year under review.

INDUSTRIAL RELATIONS

Industrial relations in all the locations of your Company remained cordial and peaceful throughout the year.

OTHER EVENTS

The following unfortunate incidents happened after close of the Financial year before the date of the Board''s Report.

On Sunday the 07th April 2013 at the refrigeration section 2 (under trial commissioning) at Bayyavaram packing station, Vishakhapatnam district, fire broke due to an electro-mechanical failure, resulting in loss of life of three workers employed by M/s. Thermal Engineers and contractors, excuting the works and damaging the assets worth around Rs.30 Lakhs. There is proper insurance coverage for the assets. In addition to the financial assistance available under workmen''s compensation act covered by the contractor, the company has decided to extend an additional financial assistance of Rs.10 Lakhs per each family of the deceased. One willing member of each family will be provided regular employment in Company and further support towards education of the children will also be extended.

Another incident occurred at Pamarru Packing Station at Endagandi Village, East Godavari District on 06th of May 2013. Two Children brought their Cattle for grazing at open land of the company outside the compound wall, unfortunately these two children had got in to the pond adjacent to the open land for swimming and drowned. The Company had extended a financial assistance of Rs.5 Lakhs to each family of deceased persons.

Another incident occurred on 21st of May 2013 at Pamarru Packing station. One of the workers had attempted to unplug the electronic weighing machine without switching of the supply and died due to electric shock. The Company had extended a financial assistance of Rs.10 Lakhs to deceased family and offered regular employment to one of his family members.

There was no impact on the performance/operations of the Plants/Company. Your company has taken various preventive measures, such as safety training to the employees, warning boards at appropriate places, safety rules displayed at the prominent places of the plants.

PARTICULARS OF EMPLOYEES

In terms of the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 as amended from time to time, the names and other particulars of the employees required are annexed to the Directors'' Report. Having regard to the provisions of Section 219(1) (b) (iv) of the said Act, the Annual Report excluding the aforesaid information is being sent to all the members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

TRANSFER OF UN-CLAIMED DIVIDENDS

Pursuant to Section 205C (2) of the Companies Act, 1956 read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 as amended from time to time, the unclaimed dividend of Rs.9,74,208 (Rupees Nine Lakh Seventy Four Thousand and Two Hundred and Eight Only) for the year 2004-05 was transferred to the Investor Education and Protection Fund during the year and the unclaimed dividend for the year 2005-06 is due for transfer to the fund.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits from the public during the year under review.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars relating to energy conservation, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are provided in the Annexure to this Report.

MANAGEMENT DISCUSSION AND ANALYSIS

An Annexure to this Report contains a detailed Management Discussion and Analysis, which, inter alia, covers the following:

- Over view of the Economy

- Industry structure and development

- Opportunities and Threats

- Risks and Concerns

- Internal control systems and their adequacy

- Discussion on financial and operational performance

- Segment-wise performance

CORPORATE GOVERNANCE

The Report on Corporate Governance as stipulated under Clause 49 of the Listing Agreement forms part of the Annual Report.

The Certificate from the Statutory Auditors of the Company confirming compliance with the conditions of Corporate Governance as stipulated under the aforesaid Clause 49 of the lising Agreement is attached to this Report.

DIRECTOR''S RESPONSIBILITY STATEMENT

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

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

- They 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 2012-13 and of the profit for that period;

- They have taken Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; and

- They have prepared the annual accounts of the company on a going concern basis.

ACKNOWLEDGEMENT

The Board takes this opportunity to thank all its employees for their dedicated service and firm commitment to the goals of the Company. The Board also wishes to place on record its sincere appreciation for the wholehearted support received from shareholders, suppliers, farmers, customers, bankers and all other business associates, and from the neighborhood communities of the various locations.

Your Directors look forward to the future with confidence.

For and on behalf of the Board of Directors

Place: Hyderabad D. SEETHARAMAIAH

Date: 30th May 2013 Chairman


Mar 31, 2012

The Directors have pleasure in presenting the 20th Annual Report of the Company together with the audited statement of accounts for the year ended 31st March, 2012.

FINANCIAL RESULTS

The financial performance for the Financial Year 2011-12 is summarised in the following table:

(Rs. in Lakhs)

Particulars 2011-12 2010-11

Total Income from operations 139340.57 109608.61

Total Expenditure 136332.90 108020.76

Profit from operations before other Income, finance costs & exceptional 3007.67 1587.84 items

Other Income 320.73 480.66

Profit from ordinary activities after 1357.57 294.61

1357.57 294.61

Finance costs and exceptional items

Profit from ordinary activities before 1357.67 294.61

1357.67 294.61 Tax

Net Profit for the period 933.42 111.93

Basic and diluted EPS before 8.10 0.97 Extraordinary items for the period

The above figures are standalone figures, as the subsidiary companies, are yet to commence business; hence consolidated figures are not given.

DIVIDEND

Your Directors have recommended a dividend of Rs. 2 per Equity Share (20%) for the financial year ended March 31, 2012, amounting to Rs. 268.00 lakhs (Rs.. 230.59 Lakhs dividend Rs.. 37.41 lakhs tax on dividend). The dividend will be paid to members whose names appear in the Register of Members as on record date if, approved at the forth coming Annual General Meeting.

The dividend payout for the year under review has been formulated in accordance with shareholders' aspirations and the Company's policy to pay sustainable dividend linked to long term growth objectives of the Company to be met by internal cash accruals.

RESULTS FROM OPERATIONS

The Financial Year 2011-12 was a challenging year. The global economy, continue to witness lower growth, resulting primarily from the Euro Zone debt crisis. India being one of the growth engines of the global economy was forced to tighten liquidity to tame rising inflation. Despite of these constraints and the challenging environment, the Company performed reasonably well and the highlights of the performance are as under:

- Revenue from operations increased by 27 % to Rs. 139340.57 lakhs

- Profit from operations before other income, finance costs & exceptional items increased by 89% to Rs. 30.07 Crores

- Profit from ordinary activities after finance costs and operational items increased by 361% to Rs. 13.57 Crores

- Net Profit increased by 733 % to Rs. 9.33 Crores BUSINESS REVIEW

Dairy Business: The Dairy Industry plays a vital role in the development of Agriculture Sector. Demand for milk and milk products is increasing day by day. Milk and milk products are second largest agricultural commodity produced in our country next to rice. Milk is the only agro-based commodity that offers immediate marketability and consistent revenue to the farmers. Considering the demand for milk and milk products, there is still a lot of scope for increasing the milk production in India by adopting scientific methods of breeding and nutrition.

During the financial year Dairy Division has increased milk handling capacity by 1,06,000 LPD by commissioning of 33 units which includes Bulk Coolers / Mini Chilling Units and Franchisees units to increase the milk procurement and to maintain the quality. The Turnover has grown by 21.2% from Rs. 860.60 Crores to Rs..1093.97 Crores. The liquid milk Turnover grown by 22.7% and Value Added Products by 60%. During the year Dairy Division has exported 25 Metric Tonnes of butter to Kingdom of Bahrain.

During the year the Dairy Division of the company has taken- up effective measures to reduce / minimize inward freight cost by altering the route distances or re-organizing milk routes and closure of unviable milk routes. Several steps were taken up to improve the clean milk production across all locations, reduced the operational costs as compared to previous year. The Kalluru Chilling Centre has been upgraded as a Packing Station and commenced packing operations w.e.f 27th June' 2011. To encourage the farmers for increasing their milk production, technical inputs program is being implemented across the location which includes animal health camps, supply of feed and fodder seeds, Vaccination etc.

During the financial year Heritage Institute of Milk Sciences (HIMS) first batch of 23 students have successfully completed their Dairymen course and were placed at various locations in Dairy Division. Second batch of 26 students have completed the theory classes. Admission process for the 3rd batch has been initiated in the months of April/May 2012.

Retail Business: Organized retail represents a large untapped market in India that is likely to see tremendous growth in the coming years. The Retail Industry in India is evolving as one of the most dynamic and fast growing industry. New entrants are bound to see large returns. However, they must adapt themselves to the unique state of retail in India where infrastructure and regulations provide little support. They must also understand the tastes of the Indian consumers, who have only recently started treating retail as a form of leisure.

Your Retail Division achieved a sale of Rs. 250.28 crores during the year 2011-12. The Institutional sales segment achieved a sales of 18.75 Crores and sales delivered by General Trade FMCG distribution business of Rs..13.31 crores. For comparable stores in both the years Retail busness has grown by 8%. On all inclusive store bases we have grown by 17%. Average bill value has grown

by 14% and also the new stores which are opened this year have delivered more throughput than previous year.

Private Label Strategy is built around providing exceptional value to customers. It was focused on optimising private Label sales mix, which witnessed tremendous customer acceptability across categories like instant food, snacks, beverages, culinary etc. During the year Retail Division has initiated several measures through private label to create new business comprising general trade, parlor etc., During the year the private label products reached to 149 distributors and 20649 Outlets.

Your company entered with the trading & manufacturing (except Bread) of Bakery products. The business shall be nurtured during the financial year. Bakery product Sales remains same over the last financial year with the improvement in Dairy & Retail Channel. The direct sales channel de grew in sales as it discontinued few kiosk models out of IT Parks and Fresh Outlets due to non viability.

Agri Division: The agriculture sector requires consistent monitoring, creating a conducive environment for farmers to increase their productivity and sell their products at competitive prices. There is still a lot of scope for increasing the productivity in India by adopting scientific methods of cultivation and farming.

Agri Division had achieved the turnover of Rs.. 33.04 Crores and 31749 MT with respect to Value & Volume. However, there is an improvement in Volume of 18% over the financial year10-11.

The present fill rate is 69% against the requirement of Retail Business & efforts are being made to deliver 75% supply across regions, Developing new sourcing bases in coordination with other retailers to meet the Retail requirement of off season & non local SKU's, Procurement of SKUs at competitive price through all available channels.

Agri Division has planned for extension of services i.e. Strengthened extension activities to the custom farmers and facilitating farmers to get crop loans, subsidies on power tiller and drip irrigation schemes, weekly training classes for field staff on Pests and disease control, trained the farmers and field staff on Soil treatment & Land Management and the importance of Crop Rotation and water conversation.

SUBSIDIARY COMPANIES

During the year under review the Company has two subsidiary Companies namely M/s. Heritage Foods Retail Limited and M/s. Heritage Conpro Limited. M/s SKIL Raigam Power (India) Limited ceased to be a subsidiary of the Company as per the provision of the Section 4 of the Companies Act, 1956. In accordance with the general circular issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Statement of Profit and Loss and other documents of the subsidiary companies need not be attached with the Balance Sheet of the Company. However the financial information of the subsidiary companies is disclosed in the Annual Report in compliance with the said circular. The Company will make available the annual accounts of the subsidiary companies and the related detailed information to any member of the Company who may be interested in obtaining the same. The annual accounts of the subsidiary companies will also be kept open for inspection at the Registered Office of the Company. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies.

CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to Clause 32 of the Listing Agreement with Stock Exchanges and in accordance with the Accounting Standard AS- 21 on Consolidated Financial Statements read with Accounting Standard AS-23 on Accounting for Investments in Associates, the audited Consolidated Financial Statements are provided in the Annual Report.

ENVIRONMENT AND SAFETY

The Company is conscious of the importance of environmentally clean and safe operations. The Company's policy requires the conduct of all operations in such a manner so as to ensure safety of all concerned, compliance of statutory and industrial requirements for environment protection and conservation of natural resources to the extent possible.

DIRECTORS

Dr. A. Appa Rao and Dr. V. Naga Raja Naidu Directors retire by rotation and being eligible; offer themselves for reappointment at the ensuing Annual General Meeting.

During the year on the recommendation of Remuneration Committee, the Board of Directors had recommended to the Shareholders for the re-appointment of Smt. Nara Bhuvaneswari as Vice Chairperson & Managing Director of the Company for a period of three years w.e.f 1st April, 2012. The Shareholders had approved the appointment through postal Ballot, the result of which was declared on 9th May, 2012.

AUDITORS AND AUDITORS' REPORT

Statutory Auditors: M/s. Raju & Prasad, Chartered Accountants, Hyderabad Statutory Auditors of the Company, hold office until the conclusion of the ensuing Annual General Meeting and are eligible for reappointment.

The Company has received letters from them to the effect that their reappointment, if made, would be within the prescribed limits under Section 224(1B) of the Companies Act, 1956 and that they are not disqualified for re-appointment within the meaning of Section 226 of the said Act.

The Notes on Financial Statements referred to in the Auditors' Report are self-explanatory and do not call for any further comments. Cost Auditor: As per the requirement of the provisons of Sec. 209(1 )(d) and Section 233B of the Companies Act, 1956 and pursuant to the Companies (Cost Accounting Records) Rules, 2011, your Company carries out an audit of Cost Accounting records relating to Packaged Food Products for the year 2011-12. Subject to the approval of the Central Government, the Company has appointed M/s. Sagar & Associates, Cost Accountants, as Cost Auditor of the Company for the Financial Year 2012-13.

Secretarial Auditor: As a measure of good corporate governance practice, the Board of Directors of the Company appointed Ms. Savita Jyothi, Practicing Company Secretary, to conduct Secretarial Audit. The Secretarial Audit Report for the financial year ended March 31, 2012, is provided in the Annual Report.

The Secretarial Audit Report confirms that the Company has complied with all the applicable provisions of the Companies Act, 1956, Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996 and all the Regulations and Guidelines of the Securities and Exchange Board of India (SEBI) as applicable to the Company, including The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and Listing Agreements with the Stock Exchanges.

CORPORATE SOCIAL RESPONSIBILITY

Your Company is committed to good corporate citizenship and makes constant efforts to build and nurture long lasting relationships with members of the society in general and the communities around its operating facilities in particular.

The core theme of this company's CSR Policy is giving back to the society from which it draws its resources by extending a helping hand to the needy and the underprivileged. To implement the CSR policy effectively, the company makes need based allocation of funds from its earnings through trust. The trust has chosen Health, Education and Livelihoods as the thrust areas for discharging its Corporate Social Responsibility. Apart from the above thrust areas, your company strives to serve the society through various other measures distribution of clothes and relief materials during natural calamities etc..

Your Company has started supporting small scale Industry Producers, through the Private Labels and encouraged them by marketing the products through Heritage Fresh and Heritage Parlours.

INTERNAL CONTROL SYSTEMS

Your Company has a well-defined and documented internal control system, which is adequately monitored. Checks and balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control system are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements.

There is a proper definition of roles and responsibilities across the organization to ensure information flow and monitoring. These are supplemented by internal audit carried out by reputed firms of Chartered Accountants. Your Company has an Audit Committee consisting of four Directors, all of them are independent directors. The Audit Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically appraised of the internal audit findings and corrective actions taken. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control system and suggests improvements, if any for strengthening them. The Company has a robust Management Information System which is an integral part of the control mechanism.

PARTICULARS OF EMPLOYEES

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

DEPOSITORY SYSTEM

As the Shareholders are aware, your Company's Shares are tradable in electronic form and the Company has established connectivity with both the Depositories i.e. National Securities Depository Limited and Central Depository Services (India) Limited. In view of the advantages offered by the Depository System, the shareholders are requested to avail the facility of dematerialization of the Company's shares.

TRANSFER OF UN-CLAIMED DIVIDENDS

Pursuant to Section 205C (2) of the Companies Act, 1956 read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 as amended from time to time the unclaimed dividend amount of Rs. 7,30,198 (Rupees Seven Lakhs Thirty Thousand and One Hundred and Ninety Eight Only) for the year 2003-04 was transferred to the Investor Education and Protection Fund during the year and the unclaimed dividend for the year 2004-05 is due for transfer to the fund.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits from the public during the year.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars relating to energy conservation, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are provided in the Annexure to this Report.

MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis on the Industry structure, developments, opportunities, threats and review of operational performance and risk as required under Clause 49 of the Listing Agreement with the Stock Exchanges forms part of the Annual Report.

CORPORATE GOVERNANCE

The Company is committed to maintain the highest standards of Corporate Governance and adhere to the Corporate Governance requirements as set out by the Securities and Exchange Board of India (SEBI). The Company has also implemented several best Corporate Governance practices.

The Report on Corporate Governance as stipulated under Clause 49 of the Listing Agreement forms part of the Annual Report.

The requisite Certificate from the Statutory Auditors of the Company confirming compliance with the conditions of Corporate Governance as stipulated under the aforesaid Clause 49 is attached to this Report.

DIRECTOR'S RESPONSIBILITY STATEMENT

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

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

- They 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 2011-12 and of the profit for that period;

- They have taken Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; and

- They have prepared the annual accounts of the company on a going concern basis.

APPRECIATION

Your Directors would like to express their appreciation for the assistance and co-operation received from the financial institutions, banks, Government authorities, customers, vendors, farmers, distributors, franchise and members during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the committed services by the executives, staff and workers of the Company.

Your Directors look forward to the future with confidence.

For and on behalf of

HERITAGE FOODS (INDIA) LIMITED

Place: Hyderabad D. SEETHARAMAIAH

Date: 30th July, 2012 Chairman


Mar 31, 2010

The Directors have pleasure in presenting the 18th Annual Report of the Company together with the audited statement of accounts for the year ended 31st March 2010.

FINANCIAL RESULTS

The financial performance for the Finanacial year 2009-10 is summarised in the following table:

(Rupees in lakhs) Particulars 2009-10 2008-09 Net Sales / Income from Operations 90038.47 79602.86 Add:Other Income 292.59 322.56

Less:Total Expenditure 85628.49 79925.42 Profit before Interest,Depreciation and Tax 4702.57 342.86 Less: Interest 1667.47 1458.31 Depreciation & Amortisation 1964.25 1722.43 Profit before tax 1070.85 (2837.87) Less:Provision for current taxation 195.52 0.00 Less:Provision for deferred taxation 302.95 612.89 Less:Provision for Fringe Benefit Tax 0.00 45.02 Profit/(loss) after tax 572.38 (3495.77) Less:Prior period expenses & taxation 12.79 65.52 Profit after prior period expenses 559.59 (3561.29) Balance brought forward 0.00 1210.70 Amount available for appropriation 559.59 (2350.59) Appropriations General Reserve 50.00 0.00 Dividend 207.53 0.00 Tax on Dividend 34.47 0.00 Balance carried to Balance Sheet 267.59 (2350.59) Total 559.59 (2350.59)

The above figures are standalone figures, as two subsidiary companies which are yet to commence the business therefore consolidated figures are not given.

DIVIDEND

The Board of Directors are happy to recommend a dividend of Rs. 1.80 per Equity Share (18 percent) aggregating to Rs. 2.42 Crores (including dividend tax) for the year 2009-10. The dividend, if approved at the forthcoming Annual General Meeting, will be paid to all eligible equity shareholders on or after 30th July 2010(within the statutory time limit of 30 days). The dividend pay out for the year under review has been formulated in accordance with the Companys policy of striving to pay stable dividend linked to performance. Your Directors believe that this would increase shareholders value and eventually lead to a higher return and wealth creation to all the stakeholders.

OPERATING RESULTS

During the year under review your Company registered a turnover (Net Sales) of Rs 900.38 crores an increase of 13.11% over that of the previous year. Your Company registered a gross profit of Rs.47.03 Crores, as compared to previous years profit of Rs 3.43 Crores.

OPERATIONS

The financial year 2009-10 was significant for the company in terms of growth. The company has further strengthened its leadership position in the fields of Dairy, Retail and Agri Divisions. Last half of the year has witnessed a unexpected floods in the state of Andhra Pradesh, where your company has substantially operation with respect to Dairy and Retail Division and there is no material impact of the operations of the business of the company due to floods in the state of Andhra Pradesh during the year under review.

EQUITY SHARE CAPITAL

The Authorised Capital of the Company is Rs.20, 00,00,000 (Rupees Twenty Crores only) divided into 1,80,00,000 (One Crore Eighty Lakhs) Equity Shares of Rs.10 (Rupees Ten only) each and 20,00,000 (Twenty Lakhs) Preference Shares of Rs.10 (Rupees Ten only) each. 2,60,500 convertible warrants issued/ allotted to Smt.N.Bhuvanewari and 8,00,000 convertible warrants issued / allotted to Sri Nara Lokesh were forfeited during the year under review due to non-payment of balance amount within the time prescribed.

BUSINESS REVIEW

Dairy Business: During the year milk and various milk products were launched and new areas in the States of Maharastra, Kerala and Orissa have been covered. New facilities for making various products such as Cup curd, Doodh Peda, Paneer, Ice Cream, Ghee are added in the existing plants. Your Companys market share with respect to milk and milk products in South India increased during the year under review.

During the current financial year, your Company proposes to invest over Rs.22.95 Crores for setting up of supporting facilities to improve the performance and effective utilisation of existing installed capacities of packing and processing plants. To increase the revenue share from products, your Company is establishing / increasing the production capacities for value added products and planning to tie up for UHT packaging for Milk, Cream and Flavoured Milk.

The major thrust areas in the current financial year would be in the domestic Dairy Ingredients, Milk Products and Ice Cream apart from Milk. This will help your Company to diversify its product profile and enable it to maintain its leadership position.

Retail Business: The retail industry is going through difficult time in the country in general and with the global meltdown adversely affecting the Indian economy In response to the difficult external environment, your company focused on factors that are under its control viz: i) restricting the roll out of new stores to ensure alignment with business model ii) monitoring and control of inventory and iii) vigorous pursuit of various cost reduction initiatives undertaken

including closure / shifting of non performing and unviable stores, rationalising manpower in line with sales, rent/size reduction in stores, reduction in rent/surrender of office space, brokerage and restrictions on travel etc. All these efforts not only helped the company in minimizing the cash burden in the short term but has built a strong foundation to enable delivery of improved performance on sustainable basis in the future. Your company also taken the steps to take the advantages of Hygenic, good quality and modern bakery products demand to met at the retail stores and outside of the retail stores through bakery division of the company.

Private Label: Your Company is renowned for its high quality, private label offering. This is a key driver of footfalls at Heritage retail stores. A key focus is to further improve private label offering by introducing new unique products. Your company is committed to significantly increase the share of private labels of its total business and has initiated countrywide marketing and promotional efforts in this direction.

Brand enhancement: Your Company has the benefit of a strong 18 years old brand which is uniquely positioned in the minds of the South Indian consumer.

Agri Division: Your Company has undertaken custom farming activity directly with farmers for certain fruits, vegetables and established two pack houses and cold storage facilities, one is near Hyderabad and the other in Chittoor District of Andhra Pradesh.

SUBSIDIARY COMPANIES

Ministry of Corporate Affairs, Government of India has granted approval that the requirement to attach various documents in respect of subsidiary companies, as set out in sub-section (1) of Section 212 of the Companies Act, 1956, shall not apply to the Company. Accordingly, the Balance Sheet, Profit and Loss Account and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. Financial information of the subsidiary companies, as required by the said approval, is disclosed in the Annual Report. The Company will make available the Annual Accounts of the subsidiary companies and the related detailed information to any member of the Company who may be interested in obtaining the same. The annual accounts of the subsidiary companies will also be kept open for inspection at the Registered Office of the Company and that of the respective subsidiary companies.

CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to Clause 32 of the Listing Agreement with Stock Exchanges, applicable provisions of the Companies Act, 1956 and as per Accounting Standard (AS) 21, (AS) 17 and other applicable accounting standards, Consolidated Financial Statements and the Segment Reporting for the year ended on 31st March 2010 have been provided DIRECTORS

In accordance with Article 107 of the Articles of Association of your Company and provisions of Section 255, 256 and other applicable provisions, if any, of the Companies Act, 1956, Sri D.Seetharamaiah and Sri N.P.Ramakrishna retire by rotation and being eligible, offer themselves for re-appointment.

AUDITORS

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

The notes on accounts referred to in the Auditors Report are self - explanatory and therefore do not call for any further comments. CORPORATE SOCIAL RESPONSIBILITY

Your Company has co-ordinated various Community Development Activities during the year. Your Company has organized free eye camps at various places and has made arrangements for clean drinking water, Ready to eat food packets, clothes etc., in flood-affected areas in the states of Andhra Pradesh and Karnataka.

Your company created/ generated small ENTREPRENEURS through the Heritage Parlour where the huge employment potential was generated. Your company also helped the MARGINAL AND SMALL FARMERS cultivate in a modern Agri format by using latest technology and cost effective under the custom firming format. During the year your company also established a trust for the welfare of the farmers for providing the facilities such as education, health, drinking water and commodity development activities. INTERNAL CONTROL SYSTEMS

The company has established a good system of internal controls in all spheres of its activities. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding the assets from unauthorised uses (or losses), executing the operations with proper authorisation and ensuring compliance of corporate policies.

The company has also appointed Chartered Accountant firms across the business locations to oversee and carryout internal audit of the companys activities. The audit is based on the internal audit plan, which is reviewed each year in consultation with the Statutory Auditors and the Audit Committee.

The Audit committee met the Companys Statutory Auditors to ascertain inter alia, their views on the adequacy of the internal control systems in the company and keep the Board of Directors informed of its observations from time to time. INDUSTRIAL RELATIONS

Industrial relations in all the units and branches remained cordial and peaceful throughout the year.

DEPOSITORY SYSTEM

As the Shareholders are aware, your Companys Shares are tradable in electronic form and the Company has established connectivity with both the Depositories i.e. National Securities Depository Limited and Central Depository Services (India) Limited. In view of the advantages offered by the Depository System, the shareholders are requested to avail of the facility of dematerialization of the Companys shares.

CONSERVATION OF ENERGY/TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars required in accordance with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, in respect of Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo are furnished in the prescribed format as Annexure -1 to this report. MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Management Discussion and Analysis on the Industry structure, developments, opportunities, threats and review of operational performance and risk as required under clause 49 of the listing agreement with the stock exchanges, is given as a separate statement in the Annual Report.

TRANSFER OF UN-CLAIMED DIVIDENDS

Pursuant to section 205C (2) of the Companies Act, 1956 read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 the unclaimed dividend amount for the year 2001-02 was transferred to the Investor Education and Protection Fund during the year and the unclaimed dividend for the year 2002-03 is due for transfer in July 2010.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits from the public

during the year.

CORPORATE GOVERNANCE

Our efforts are widely recognized by investors in India and overseas. For fiscal year 2010, the compliance report is provided in the Corporate Governance section of the Annual Report. The auditors certificate on compliance with the mandatory provisions of Corporate Governance is also provided in the Annual Report.

COMPLIANCE CORPORATE GOVERNANCE VOLUNTARY GUIDELINES 2009

During the year, the Ministry of Corporate Affairs, Government of India, published the Corporate Governance Voluntary Guidelines 2009. These Guidelines have been published keeping in view the objective of encouraging the use of better practices through voluntary adoption, which not only serves as a benchmark for the corporate sector but also helps them in achieving the highest standard of corporate governance. These guidelines provide corporate India a framework to govern themselves voluntarily as per the highest standards of ethical and responsible conduct of business. The Ministry hopes that adoption of these guidelines will also translate into a much higher level of stakeholders confidence, which is crucial to ensure the long-term sustainability and value generation by business. The guidelines broadly focuses on areas such as Board of Directors, responsibilities of the Board, audit committee functions, roles and responsibilities, appointment of auditors, Compliance with Secretarial Standards and a mechanism for whistle blower support.

SECRETARIAL AUDIT REPORT

In tune with your Companys belief in transparent Corporate Governance practices, Our Company has voluntarily subjected to Audit of all its secretarial records maintained under various statutes and rules, regulations, bye-laws etc. made there under. The

Secretarial Audit report, given by Ms. Savita Jyoti, Practicing Company Secretary, forms part of the Annual Report.

PERSONNEL

Your directors would like to place on record their deep sense of appreciation of the devoted services of the executives, staff and workers of your Company. In terms of the provisions of section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, the names and other particulars of the employees are required to be set out in the Annexure to the Directors report. Having regard to the provisions of Section 219 (1)(b)(iv) of the said Act, the Annual Report excluding the aforesaid information is being sent to all the members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the registered office of the Company.

DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility Statement, it is hereby confirmed that,

(i) In the preparation of the annual accounts, applicable accounting standards have been followed.

(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 31st March, 2010 and of the profit or loss 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; and

(iv) The Directors have prepared the annual accounts of the company on a going concern basis.

ACKNOWLEDGEMENTS

Your Directors thank the Companys Bankers and the Financial Institutions for their help and co-operation extended throughout the year. Your Directors place on record their appreciation for the support and co-operation that the Company received from its stakeholders, customers and suppliers. Your Directors also record their appreciation for the excellent operational performance of the staff of the Company that contributed to the achievements of the Company. The Directors also acknowledge with much gratitude, the continued trust and confidence reposed by the franchisees of the Company.

For and on behalf of HERITAGE FOODS (INDIA) LIMITED Place : Hyderabad D. SEETHARAMAIAH Date :27 May, 2010 Chairman

 
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