Directors Report of Pearl Engineering Polymers Ltd.

Mar 31, 2010

The Directors are pleased to present the Sixteenth Annual Report and Audited Annual Accounts for the Financial Year ended 31st March, 2010.

FINANCIAL HIGHLIGHTS

The financial performance of the Company, for the year ended 31st March, 2010 is summarized below:

(Amount in Rs 000)

PARTICULARS For the Year Ended For the Year Ended

31st March, 2010 31st March 2009

Net Sales 1395418 1632989

Other Income 20792 13130

Total Income 1416210 1646119

Total Expenditure 1445311 1600294

Profit/(Loss) before Depreciation & Tax (29101) 45825

- Exceptional/ Extra-ordinary Items 18492 (33973) - Depreciation (48582) (47781)

- Tax Expense (26) (1151)

Net Profit/(Loss) after Depreciation & Tax (59217) (37080)

MANAGEMENT DISCUSSION AND ANALYSIS

Highlights of Financial and Business Performance

During the year, the Company incurred a Net loss of Rs. 592.17 Lacs. The losses were mainly on account of reduction in sales that caused a decline in the operating income of the Company. The reduced sales were due to cash flow constraints and at times due to lack of availability of raw materials. Anticipating that the falling raw material costs would keep pulling polyester chip prices further down, it was considered prudent to trim down sales. During such period of sluggish demand, increasing crude oil prices and falling feedstock prices, the Company reported a Gross turnover of Rs.14740.95 lacs against a gross turnover of Rs.17336.04 lacs in the previous year.

Amidst fluctuating feedstock prices and anticipating a further volatility, your company thought it fit to maintain minimal inventories. Also the Company had to shut down its factory for Annual maintenance, affecting the production levels further. The Company lowered the production levels against the lowered demand of Pet Chips in the market and achieved production of 22731.196 MT during the year compared to 26000.245 MT in the previous year.

Dividend

In absence of availability of distributable profits, the Directors regret their inability to recommend dividend on Equity Shares of the Company for the year ended 31st March, 2010.

Industry Structure and Business

Pearl Engineering is a manufacturer of PET Resin (Bottle and Super Bright Textile Grade) and has its production facility located at Kurkumbh, Pune in Maharashtra. It is a raw material supplier for containers used for packaging of numerous items including carbonated soft drinks, mineral water, edible oil, juices, personal care products, dairy & alcoholic beverages, pharmaceuticals, toiletries etc.

Attributes like transparency, lightweight, break-resistant & heat-resistant characteristics and above all its safe- to-use feature has made "PET Resin" the most preferred material of the FMCGs in the Packaging Industry. With ever-increasing consumer products and their multiple packaging schemes, your Directors foresee a growing market for its end product- PET Resin.

Economic Scenario and Outlook

As the world economy recovers, PET industry finds itself passing through a period of transformation. Though, the recession caused a slowdown in many markets globally, the Indian economies were affected to a lesser extent. However, it caused unprecedented levels of fluctuations in commodity prices which impacted the sales worldwide.

PET markets too had borne the brunt of the global economic slump and market growth slowed to 3.4% in 2009. Polyester chip margins went down in Asian region, pulled by weak PTA and falling feedstock cost. As a consequence of dip in feedstock costs, PET resin prices too remained lower during the earlier part of the year, but gradually increased thereafter and were in the range $985/MT to $1300/MT during the year.

Further, the polyester chip market kept consolidating with a downtrend in the Asian region. Although enquiries increased, buyers remained cautious and sidelined with a low buying interest, continuing to buy at hand to mouth levels, despite the fact that most of them had started to run their plants at higher rates in expectation of a recovery in PET demand with high season for beverage bottles drawing near. The tightening credit controls also made buyers cautious on their purchases before they could see a real improvement on their end businesses. Besides the ongoing structural change in the market, light-weighting continued to be prevalent, whereby the manufacturers reduced the amount of PET resin content in their product by 30-50%.

However, amidst such conditions the demand for PET Resin has improved, though scantly from some market sectors, still much lower in comparison to last year but is expected to grow at 7.5% during the next year. Bottle grade chips have picked up and range around 1055- 1065 $/ ton. PET (Polyethylene Terephthalate) being a highly versatile and energy efficient packaging material, is irreplaceable in the FMGC industry. Accordingly, despite current market situation there remains a substantial long-term growth potential for PET.

Opportunity and Threats

The industry continues to witness new capacity additions accompanied by a low demand growth, forcing PET margins to remain at breakeven. To add to the challenges further, concepts like light-weighting and increased use of recycled PET have set its feet affecting the PET demand further.

However, attributes like lightweight, break and heat resistance and safe to use features, have made PET Market, recession resistant. Further, with increasing population, urbanization, increasing disposable urban incomes, growth in FMCG sector and usage of PET over other traditional materials like glass etc. opportunities for PET Industry are expected to increase.

Due to softness of conversion margins in Super Bright Textile Grade & Bottle Grade, the Company is making efforts towards developing specialty grade resins where company expects better margins.

Risk Management

The company has mapped and identified risks and formulated a risk management and mitigation system to identify, assess, prioritize and mitigate risk. The risks are periodically assessed and reviewed and corrective actions are taken to mitigate effects.

Internal Control System

The Company has a robust internal control system in place to provide assurance regarding effectiveness and adequacy of controls and compliance with policies and procedures laid down in the Company. An extensive program of internal audit and management review supplements the process of internal control. M/s Khanna & Mathur, Chartered Accountants who are appointed as the Internal Auditors independently evaluate the effectiveness and adequacy of internal control system established in the company by conducting audit of the transactions in the Company.

Independence of the audit conducted is ensured by reporting of the internal audit findings via periodic internal audit reports alongwith the Management comments thereon to the Audit committee and the Board of Directors. Further the CEO/ CFO certification also confirms the adequacy of internal control system and procedures in the Company.

CAUTIONARY STATEMENT

Certain statements in this section may be forward looking and be based on expectations/ projections about the future. Company’s actual results, performance could thus differ materially from those projected in any such forward looking statements. The company assumes no responsibility to publicly amend, modify or revise any of such forward looking statements on the basis of subsequent developments, information or events.

LISTING OF EQUITY SHARES

The equity shares are listed on the Bombay Stock Exchange Ltd. (BSE) and the National Stock Exchange of India Ltd (NSE).

HUMAN RESOURCE/ INDUSTRIAL RELATION

The Company continued with its initiatives to foster people development, harness their creativity and ensure a motivated and contended work team. Your Company is privileged to have the right blend of professionals and executives in the organization and makes sincere efforts to ensure numerous opportunities for their growth in the organization.

The Industrial relations at all levels of the Company have remained cordial during the year. As on 31st March, 2010 the Company had an employee strength of 145.

PUBLIC DEPOSITS

During the year under review, the Company has not accepted any deposit under Section 58A and 58AA of the Companies Act, 1956 read with the Companies (Acceptance of Deposits) Rules, 1975.

DIRECTORS

During the year, Mr. Dinesh Chandra Kothri, Director resigned from the Board w.e.f 12th November, 2009. The Board placed on record its deep sense of appreciation for the invaluable contribution made by Mr. Dinesh Chandra Kothari as a Non- Executive & Independent Director on the Board.

Mr. Ashok Khanna, Director retires at the ensuing Annual General Meeting and being eligible offers himself for re-appointment. Brief resume of the director offering himself for re-appointment is furnished in the statement annexed to the Notice of the ensuing Annual General Meeting.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, with respect to the Directors’ Responsibility Statement, it is hereby confirmed that:

- In preparation of Annual Accounts, the applicable Accounting Standards have been followed.

- The Accounting Policies selected, have been applied consistently and judgments and estimates made are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as at March 31st,2010 and of the loss of the Company for the year ended on that date;

- Proper and sufficient care has been taken for maintenance of adequate Accounting Records in accordance with the provisions of this Act for safeguarding the Assets of the Company and for preventing and detecting frauds and other irregularities;

- The Annual Accounts of the Company have been prepared on a “Going Concern Basis”

AUDITORS

M/s J.C.Bhalla & Co., Chartered Accountants, Statutory Auditors of the Company hold office until conclusion of the ensuing Annual General Meeting and are eligible for reappointment. They have expressed their willingness to continue as the Statutory Auditors, if re-appointed at the Annual General Meeting to hold office until the conclusion of the next Annual General Meeting.

The Company has received from the auditors, a Certificate stating that their appointment, if made, would be within the prescribed limit under section 224(1B) of the Companies Act, 1956 and that they are not disqualified for such reappointment within the meaning of Section 226 of the said Act.

AUDITORS REPORT

The notes to Accounts referred to in the Auditors Report are self-explanatory and therefore do not call for any further comments.

CLARIFICATION TO REMARKS CONTAINED IN POINT 4 (f) OF THE AUDITORS REPORT

Point 4 (f): Based on the legal opinion given by the legal advisors of the Company, the Foreign Financial Institution (AFIC) or its Assignee, cannot enforce any outstanding against the Company in any court of law despite existence of debt, as the same has become a time barred debt under provisions of the Limitations Act, 1963. Based on the said opinion of the advisors, the outstanding by way of secured and unsecured loan and interest aggregating to Rs. 1,61,924 thousands thereon has been shown as an “Erstwhile loan barred by limitation” in the Balance Sheet of the Company for the financial Year ended 31st March, 2010.

CORPORATE SOCIAL RESPONSIBILTY

As a socially responsive organization, your Company is committed to ensuring well being of the communities around it while recognizing interest of all its shareholders, consumers, employees, and suppliers at all times. During the year, your Company continued with the following initiatives:

Safety : During the year, 39th National safety week was observed from 4th to 11th of March, 2010 to sensitize employees towards safer work practices and habits. Safety pledge was taken by all employees. Various competitions like safety slogan writing and poster making were organized during the week and category wise prizes were awarded to the winners.

Training : During the year, various training programs were organized at the plant. Fire fighting drills & rescue operations were conducted by the staff and workers at MIDC. Special training on First Aid was also imparted during the period. A special training on Ball bearings for technical employees was conducted in co-operation with M/s. New Ball Bearing Company – the authorized representative for SKF bearings.

Environment : The Company organized the World Environment day on 5th June, 2010 thereby promoting awareness for a clean, green and healthy environment amongst the employees and planting 50 trees to spread the spirit of Go Green.

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

The statement of particulars relating to conservation of energy, technology absorption and Foreign exchange earnings & outgo, prescribed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosures of Particulars in Report of Board of Directors) Rules, 1988 form part of this Report as Annexure-I.

PERSONNEL

The statement of particulars of employees, prescribed under Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975, form part of this report as Annexure-II.

CORPORATE GOVERNANCE

Your Directors reaffirm their continued commitment to good Corporate Governance practices. Your Company adheres to all major stipulations laid down in this regard, as provided in Clause 49 of the Listing Agreement with Stock Exchanges, which relates to Corporate Governance.

A report on Corporate Governance along with the Certificate from the Statutory Auditors of the Company certifying due compliance with the said requirements, forms part of this report

ACKNOWLEDGEMENTS

Your Directors acknowledge with gratitude the assistance and co-operation received from financial institutions, Banks and Governmental & Non- Governmental authorities and thank all members for their continued support and confidence reposed in the management. Your Directors also wish to express deep sense of appreciation for the commitment and dedication shown by the entire work team at Pearl Engineering.

On behalf of the Board of Directors

For PEARL ENGINEERING POLYMERS LIMITED

Place : New Delhi Chand Seth

Date : 12th August, 2010 Chairman & Managing Director