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Directors Report of Phillips Carbon Black Ltd.

Mar 31, 2015

Dear Members,

The Directors of your Company have pleasure in presenting their fifty - fourth Annual Report on business and operations of the Company and the audited accounts for the financial year ended 31st March, 2015.

FINANCIAL HIGHLIGHTS (Rs. in crore) Year ended 31.03.15 31.03.14

Total Revenue 2484.61 2297.97

PBDIT 210.21 104.48

Less: Finance and hedging cost 138.35 138.65

PBDT 71.86 (34.17)

Less: Depreciation 57.53 53.74

PBT 14.33 (87.91)

Tax Expense 1.69 (131)

PAT 12.64 (86.60)

Balance brought forward 168.97 255.57

Less: Adjustment consequent to 0.72 ---

revision of useful life of certain assets pursuant to Schedule II of the Companies Act, 2013

Balance brought forward 168.25 255.57

(net of adjustment)

Profit available for Appropriation 180.89 168.97

Proposed Dividend 3.45 ---

Tax on aforesaid Dividend 0.70 ---

Balance carried forward to 176.74 168.97 Balance Sheet

DIVIDEND

For approval of members at the ensuing Annual General Meeting your Directors are happy to recommend a dividend of 10 %

i.e., @ Re. 1/- per share which will absorb Rs. 3.45 crore. The tax on aforesaid dividend, to be borne by the Company, will be Rs. 0.70 crore.

INDUSTRY STRUCTURE & DEVELOPMENT

Led by the recovery in US market, the global automobile industry in FY15 grew by 3 %. Passenger car output in Western Europe was up by 4% largely driven by a rise in passenger car output in Germany and Spain. Sales of heavy truck in Western Europe declined by 6%, while light vehicle sales declined by 10%. Growth in vehicle sales in the world's largest car market, China, halved to 7% as the country's economic expansion slowed. Indian automobile sales grew by an estimated 9%, driven by export sales 17% and domestic sales 8%. The estimated European passenger car and light truck tyre market increased marginally by around 1% in the replacement market and by 3%

in the OEM market with depressed demand in Russia. The US truck tyre market was up by 9-10%. In the Indian Tyre market, domestic demand grew by 6-7% driven by a 5-6% rise in the OEM segment and 6-7% in the replacement segment.

Estimated global annual demand in FY15 for carbon black was 12 million tons, against estimated capacity of 15 million tons. In India, total production capacity was around 1 million tons p.a. while FY15 consumption was approx. 700 KT leading to lower capacity utilization.

The national carbon black industry continues to reel under pressure by unabated dumping of the product by China and South Korea. Estimated FY 15 import of carbon black to India was 105 KT. Import from China and South Korea accounts for 84% of the total import. Due to dumping, procurement of carbon black from national sources was affected and indian carbon black companies had to resort to production cuts during the year.

PERFORMANCE Carbon Black

Your Company's operating profit during FY15 was Rs. 210 crore, a significant jump over Rs.105 crore achieved in the previous year. This was mainly on account of improvement in operational efficiency. While global carbon black demand rose by 4-5%, your company achieved better growth on account of higher national market share and venturing out to new segments in international markets. However, operating efficiency and rise in market share was largely offset by the crash in crude prices resulting in significant inventory write-down.

After a gap of two years, PBT and PAT for the year were in positive trajectory at Rs.14.33 crore and Rs.12.64 crore respectively.

Power

Your Company's power segment revenue (excluding inter segment revenue) was higher at Rs.69 crore vis-a-vis Rs.65 crore last year on account of higher realization.

Manufacturing

Production during FY15 was 311,823 MT compared to 288,676 MT in the previous year.

Capacity utilization is expected to improve further this year with higher volume demand expected from the market and the rise in consumption trend of the automobile sector. With the strategic location of its four plants, your Company is well poised to service the demand from various customers in India and overseas. The close vicinity of seaports to a couple of plants should facilitate logistic costs within India and abroad.

Research and Development

The Research and Development (R&D) units located at Durgapur, Kochi, Palej and Mundra continued to receive recognition as in-house Research and Development units from

the Department of Scientific and Industrial Research, Ministry of Science and Technology.

During the year your Company successfully - i) developed new grades of carbon black for domestic and international markets,

ii) improved product characteristics to meet more stringent customer specifications, iii)continued recasting of Standard Operating Procedures, iv) established state of the art rubber application laboratory v) and modified reactor design operating conditions to improve yield.

Environment, Health, Safety and Social Responsibility

The Company's commitment to preserve and enrich environment by conducting all operations in an environment-friendly and safe manner continues. We are continuing our initiatives to touch the lives of communities in and around our manufacturing units by supporting environmental and health care projects as also educational programs.

Every plant is focussed on driving safe workplace initiatives, which resulted in achieving a no-fatal accident record. Regarding environmental performance, we continued to strictly adhere to all environmental conformances.

Human Resource Development

Focus on Human Resource Development gives an edge to every international business in this era of global competition. We endeavoured to achieve this through promoting a continuous culture of coaching, undertaking various Learning and Development initiatives aimed at providing support to employee building capabilities and helping people to succeed.

One of the initiatives, Nirantar Gyan Vardhan (Continuous Knowledge Enhancement) is focussed on skill development to make your company a great learning organization. This initiative also enhanced both theoretical and operational domain/industry knowledge. Your Company recognizes that in today's fast-paced, competitive business environment, continuous learning is a key to success.

During the year, your Company provided various training programs for its employees across the organization.

The Company also took strong steps in its transformation journey, aimed at driving a cultural change and embracing strategic imperatives.

A Young Executive Board (YEB), an aspirational forum for young managers, supports the Management Committee in strategic issues pertaining to the Company's vision and growth.

Some of the significant progress made during FY15 are :

- Implemented process for employee goal setting, aimed at better alignment of Organizational and Individual performance and rewards.

- Implemented effective Talent Management Process.

- Automated two more processes in "HR Connect - Employee Portal".

- Industrial relation scenario at all the units continued to remain healthy and forward looking.

Internal Control System and Adequacy

Your Company maintains adequate internal control systems in all areas of operation. Services of internal and external auditors are utilized from time to time, as also in-house expertise and resources. The Company continuously upgrade these systems in line with the best available practices.

These reports and deviations are regularly discussed with Management Committee Members and actions taken whenever necessary.

An independent Audit Committee of the Board reviews the adequacy of internal control.

Opportunities and Threats

Your Company is always on the lookout for opportunities that may arise while keeping tab on the likely threats to its business.

Opportunities

- In India, major tyre companies have expansion plans that are currently underway and may go on stream during next 2 to 3 years. Carbon black demand in the domestic market in the coming years is expected to rise.

- Thrust on infrastructure, mining sector development and the Make in India initiative is expected to provide a major boost to Automobile & Tyre Industries.

- Moderation in inflation and likely reduction in interest rate, may revive the automobile sector and raise the demand for tyres / carbon black from the OEM segment.

Threats

- Import of carbon black from China and South Korea continues to be a threat for the national carbon black industry.

- Volatility in raw material price which is linked with the global crude price movement.

- Volatility in Rupee exchange rate vis-a-vis US$.

- Inadequate infrastructure at ports, causing detention of vessels and higher freight cost.

Segment wise Performance

The performance of carbon black and power segments have been covered in this Report earlier.

Risks and Concern

Major raw material for your Company viz., carbon black feedstock (CBFS) is a residue from the distillation process and is subject to daily volatility, whereas the selling price of finished carbon black is revised on a monthly/quarterly basis. In the event the Company is unable to pass on the increase in CBFS cost, it may have an adverse impact on profit.

In view of long transit time in import of CBFS, a sudden crash

in the CBFS price may lead to loss of profit. Increase in import or drop in demand for carbon black may also have significant impact on the Company's bottom-line.

The Company is also exposed to risks from fluctuation of Indian Rupee vis-a-vis other currencies, interest rate, realisation for power and regulations relating to environment.

Major Expansion Plans

Projects are proceeding at a pace considered appropriate in the prevailing economic situation, global scenario and the Company's business strategy.

Subsidiary Companies

In accordance with the provisions of Section 129(3) of the Companies Act, 2013, the Company has prepared a Consolidated Financial Statement of the Company and of all the subsidiaries namely, Phillips Carbon Black Cyprus Holding Limited, PCBL Netherlands Holdings B.V, Phillips Carbon Black Vietnam Joint Stock Company and Goodluck Dealcom Private Limited, in the form and manner as that of its own, duly audited by M/s. Price Waterhouse, the auditors, in compliance with the applicable accounting standards and the listing agreement with the Stock Exchanges. The Consolidated Financial Statement for the year 2014-15 form a part of the Annual Report and Accounts and shall be laid before the Annual General Meeting while laying its financial statements under sub-section (2) of the said section. A report on the performance and the financial position of the Subsidiary Companies in form AOC-1, forms a part of the Consolidated Financial Statement.

The Company does not have any material subsidiary in the immediately preceding accounting year. However, as per revised Clause 49 of the Listing Agreement, SEBI has made it mandatory for all listed companies to formulate a policy for determining 'material' subsidiaries. Accordingly, a policy on 'material' subsidiaries was formulated by the Audit Committee of the Board of Directors and the same is also posted on the website of the Company and may be accessed at the link http://pcblltd.com/investorrelations/investorrelations.php .

FUTURE OUTLOOK

Carbon Black

Demand for carbon black in India is expected to grow @ 6-7% during the next couple of years and is likely to receive boost when new capacity for tyre manufacturing hits the market. Your Company is well poised to cater to higher demand as and when such need arises in the national market.

Overseas demand for carbon black is expected to grow @4-4.5%. Your Company has established offices and logistics network overseas to widen its presence and reduce the delivery period in the international market. This will continue to be a major thrust area for your Company in the coming years.

Steps in Manufacturing and Procurement

Your Company continues to focus on various initiatives to

improve operational efficiencies like improving yield, exploring new geographies for feedstock sourcing as well as investing in technical capabilities for developing new grades particularly for non-rubber applications.

Share Capital

The paid up Equity Share Capital as on 31st March, 2015 was Rs. 34.46 crore. During the year under review, the Company has not issued shares with differential voting rights, neither granted stock options nor sweat equity. As on 31 st March, 2015, none of the Directors of the Company hold shares or convertible instruments of the Company.

Conservation Of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

As required under provisions of Section 134 of the Companies Act, 2013 and read with Rule 8(3) of the Companies (Accounts) Rules, 2014, details relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo are given in the 'Annexure - B', which is annexed hereto and forms part of the Board's Report.

Public Deposits

The Company does not have any Public Deposit Scheme and has repaid all Public Deposits that matured and were claimed by the depositors under the earlier Public Deposit Schemes. Matured unclaimed deposits amounted to Rs. 45,000/- have been transferred to Investor Education and Protection Fund during the year and there is no outstanding balance as on 31st March, 2015.

Details of significant and material orders passed by the Regulators, Courts and Tribunals

No significant and material order has been passed by the regulators, courts, tribunals impacting the going concern status and company's operations in future.

Particulars of Loans, Guarantees and Investments

Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the financial statement.

Audit Committee

The Audit Committee of the Board of Directors of the Company comprises Mr. K S B Sanyal as Chairman and Mr. C R Paul, Mr. O P Malhotra, Dr. Ram S Tarneja, Mr. Paras K Chowdhary as members. The Company Secretary is the Secretary of the Committee. The Managing Director and Chief Financial Officer are permanent invitees to the meeting. The details of all related party transactions, if any are placed before the Audit Committee. During the year there was no instance where the Board had not accepted the recommendations of the Audit Committee.

The Audit Committee has also been delegated the responsibility of monitoring and reviewing risk management assessment and minimization procedures, implementing and monitoring the risk management plan and identifying, reviewing and mitigating all elements of risks which the Company may be exposed to.

The details of terms of reference of the Audit Committee, number and dates of meetings held, attendance of the Directors and remuneration paid to them are given separately in the attached Corporate Governance Report.

Stakeholders Relationship Committee

A Stakeholders Relationship Committee was constituted with Mr. C R Paul as Chairman and Mr. K S B Sanyal as Member of the Committee. The Company Secretary act as the Secretary to this Committee. The Committee has delegated the responsibility for share transfers and other routine share maintenance work to the Company Secretary and to M/s. Link Intime India Pvt. Ltd., the Registrar and Share Transfer Agent of the Company. All requests for dematerialization and rematerialisation of shares, transfer or transmission of shares and other share maintenance matters are completed within 10 days of receipt of valid and complete documents. Minutes of the Committee meetings are circulated to all Directors and discussed at the Board meetings. The details of the member and dates of meetings of this Committee which were held during the year ended 31st March, 2015, attendance of the Directors and remuneration paid to them are given separately in the attached Corporate Governance Report.

Nomination and Remuneration Committee

A Nomination and Remuneration Committee was constituted with Mr. K S B Sanyal as Chairman, Mr. C R Paul and Mr. O P Malhotra as Members of the Committee. The Company Secretary acts as the Secretary of this Committee.

The details of terms of reference of the Nomination and Remuneration Committee, number and dates of meetings held, attendance of the Directors and remuneration paid to them are given separately in the attached Corporate Governance Report.

Corporate Social Responsibility Committee

A Corporate Social Responsibility Committee was constituted with Mr. K S B Sanyal as Chairman, Mr. Kaushik Roy and Mr. Shashwat Goenka as Members of the Committee.

The terms of reference of the Corporate Social Responsibility Committee, number and the date of the meeting held, attendance of the Directors and remuneration paid to them are given separately in the attached Corporate Governance Report.

The detail of the CSR Policy is also posted on the website of the Company and may be accessed at the link http://pcblltd.com/investorrelations/investorrelations.php .

Pursuant to the requirement under Section 135 of the Companies Act, 2013 and Rules made thereunder, a Report on CSR activities in the prescribed format is given in 'Annexure - C', which is annexed hereto and forms part of the Board's Report.

Vigil Mechanism /Whistle Blower Policy

In compliance with provisions of Section 177(9) of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Company

has framed a Whistle Blower Policy / Vigil Mechanism to report concerns about the Company's working or about any violation of its policies. The details of the Vigil Mechanism/ Whistle Blower Policy is also posted on the website of the Company and may be accessed at the link http://pcblltd.com/investorrelations/ investorrelations.php .

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its Audit, Nomination and Remuneration and other Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.

Remuneration Policy

The Board has on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The extract of Remuneration Policy is stated in the Corporate Governance Report.

Related Party Transactions

All Related Party Transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. Hence, the provisions of Section 188 of the Companies Act, 2013 are not attracted. Thus, disclosure in Form AOC-2 is not required. Further, there are no materially significant Related Party Transactions during the year under review made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons.

All Related Party Transactions are placed before the Audit Committee for approval.

The policy on Related Party Transactions as approved by the Board is uploaded on the website of the Company and may be accessed at the link http://pcblltd.com/investorrelations/ investorrelations.php .

Risk Management

Risk Management is the process of identification, assessment, and prioritization of risks followed by coordinated efforts to minimize, monitor and mitigate/control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. The Company has laid a comprehensive Risk Assessment and Minimization Procedure, which is reviewed by the Audit committee and approved by the Board from time to time. These procedures are reviewed to ensure that executive management controls risk through means of a properly defined framework.

Extract of Annual Return

The details forming part of the extract of the Annual Return in Form MGT - 9 as required under Section 92 of the Companies

Act, 2013, is marked as 'Annexure - A', which is annexed hereto and forms a part of the Boards' Report.

Particulars of Employees

As required under provisions of the Companies Act, 2013 and Rule 5(2) and 5(3) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules, 2014, particulars of the employees concerned forms a part of the Board's Report. Having regard to the provisions of Section 136 of the Companies Act, 2013, the Annual Report excluding the aforesaid information is being sent to the members of the Company. Any member interested in obtaining such particulars may write to the Company Secretary of the Company.

Details relating to Remuneration of Directors, Key Managerial Personnel and employees

Disclosure pertaining to remuneration and other details as required under 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 marked as 'Annexure - D', which is annexed hereto and forms a part of the Board's Report.

Corporate Governance

Under Clause 49 of the Listing Agreement with the Stock Exchanges, a section on Corporate Governance together with a certificate from the Company's Auditors confirming compliance is set out in the Annexure forming part of this Annual Report.

Number of meetings of Board of Directors

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

Directors' Responsibility Statement

Pursuant to Section 134(3) (c) of the Companies Act, 2013, the Directors to the best of their knowledge and belief confirm that:

i) in the preparation of the annual accounts for the financial year ended 31st March, 2015, the applicable accounting standards have been followed;

ii) appropriate accounting policies have been selected and applied 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 financial year and of the profit and loss of the Company for the period;

iii) proper and sufficient care have been taken 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;

iv) the annual accounts have been prepared on a going concern basis;

v) Internal financial controls laid down by the Directors have been followed by the Company and such internal financial controls are adequate and were operating effectively.

vi) proper systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

Declaration by Independent Directors

Mr. C R Paul, Mr O P Malhotra, Dr. Ram S Tarneja, Mr. K S B Sanyal, Mr. Pradip Roy and Mrs. Kusum Dadoo, are Independent Directors on the Board of the Company. The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of Independence as prescribed both under the Companies Act, 2013 and Clause 49 of the Listing Agreement.

Auditors

Pursuant to the provisions of Section 139 of the Companies Act, 2013 and the rules framed thereunder, M/s. Price Waterhouse (Firm Registration No. 301112E), Chartered Accountants, were appointed as Statutory Auditors of the Company from the conclusion of the 53rd Annual General Meeting (AGM) of the Company held on 30th July, 2014 till the conclusion of 56th AGM to be held in the year 2017, subject to ratification of their appointment at every AGM. Accordingly, a Resolution seeking Members ratification for their appointment is included at item no. 4 of the Notice convening the Annual General Meeting.

Cost Audit

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, the Cost Audit records maintained by the Company relating to manufacture of Carbon Black and generation and transmission of electricity at the plants located at Durgapur, Cochin, Palej and Mundra, of the Company is required to be audited. Your Directors had, on the recommendation of the Audit Committee, appointed Messrs Shome & Banerjee, to audit the cost accounts of the Company for the financial year 2015-2016 on a remuneration of Rs. 3,50,000/- (Rupees three lacs fifty thousand only). As required under the Companies Act, 2013, the remuneration payable to the Cost Auditors is required to be placed before the members in a Annual General Meeting for their ratification. Accordingly, a Resolution seeking Members ratification for the remuneration payable to Messrs Shome & Banerjee, Cost Auditors is included at item no. 8 of the Notice convening the Annual General Meeting.

The Company submits its Cost Audit Report with the Ministry of Corporate Affairs within the stipulated time period.

Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Anjan Kumar Roy & Co., Company Secretaries (Membership No. FCS 5684) to undertake the Secretarial Audit of the Company. The Secretarial Audit Report for the Financial Year ended 31st March, 2015 is annexed herewith and marked as 'Annexure - E'.

Directors

Mr. Altaf Jiwani, who was a Whole Time Director and Chief Financial Officer of the Company, resigned from the services of the Company at the close of the business on 30th January, 2015. The Board has placed on record its appreciation for the invaluable support and guidance received from Mr. Altaf Jiwani during his association with the Company.

Mr. Shashwat Goenka, was appointed by the Board of Directors at its meeting held on 30th July, 2014 as an Additional Director of the Company with effect from 1st September, 2014. Mr. Shashwat Goenka holds office as an Additional Director of the Company upto the date of the ensuing Annual General Meeting. The Company has received a notice pursuant to Section 160 of the Companies Act, 2013 along with prescribed deposit from a member of the Company signifying his intention to propose the candidature of Mr. Shashwat Goenka for the office of the Director of the Company. Details of the proposal for appointment of Mr. Shashwat Goenka is mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 54th Annual General Meeting.

The Companies Act, 2013 and the revised Clause 49 of the Listing Agreement require that a Woman Director should be a member of the Board of Directors. Mrs. Kusum Dadoo was appointed by the Board of Directors at its meeting held on 22nd January, 2015 as an Additional Director of the Company with effect from 1st April, 2015. Mrs. Kusum Dadoo holds office as an Additional Director of the Company up to the date of the ensuing Annual General Meeting. The Company has received a notice pursuant to Section 160 of the Companies Act, 2013 along with prescribed deposit from a member of the Company signifying his intention to propose the candidature of Mrs. Kusum Dadoo for the office of a Director of the Company. Details of the proposal for appointment of Mrs. Kusum Dadoo is mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 54th Annual General Meeting.

Mr. Paras K Chowdhary, retires by rotation at the forthcoming Annual General Meeting and being eligible offers himself for re-appointment.

Key Managerial Personnel

The following persons were formally appointed as Key Managerial Personnel of the Company effective from 1st April, 2014 in compliance with the provisions of Section 203 of the Companies Act, 2013:

a) Mr. Kaushik Roy, Managing Director.

b) Mr. Kaushik Mukherjee, Company Secretary.

c) Mr. Altaf Jiwani, Chief Financial Officer (till 30th January, 2015).

d) Mr. Raj Kumar Gupta, Chief Financial Officer (w.e.f 1st February, 2015).

Mr. Altaf Jiwani having resigned at the close of business on 30th January, 2015, Mr. Raj Kumar Gupta was appointed as the Chief Financial Officer and Key Managerial Personnel effective from 1st February, 2015. Remuneration and other details of the Key Managerial Personnel for the year ended 31st March, 2015 are mentioned in the extract of the Annual Return, which is attached as 'Annexure - A' and forms a part of the Board's Report.

Forward - looking Statement

This Report contains forward-looking statements that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. Significant factors that could make a difference to the Company's operations include domestic and international economic conditions affecting demand-supply and price conditions, foreign exchange fluctuations, changes in government regulations, tax regimes and other statutes.

Acknowledgement

Your Directors record their deep appreciation for the encouragement, assistance and co-operation received from members, government authorities, banks and customers. They also thank them for the trust reposed in the Management and wish to thank all employees for their commitment and contribution.

For and on behalf of the Board Sanjiv Goenka Kolkata Chairman 6th May, 2015 (DIN: 00074796)


Mar 31, 2013

The Directors have pleasure in presenting the Fifty-second Report and Accounts of Phillips Carbon Black Limited for the financial year ended 31st March, 2013.

FINANCIAL HIGHLIGHTS

(Rs. in crore) Year ended 31.03.13 31.03.12

Revenue -

- Carbon Black 2192.14 2096.97

- Power 88.58 83.69

- Other Income 9.27 10.44

- Other Operating Revenues 4.19 6.12

Total Revenue 2294.18 2197.22

PBDIT 74.97 210.29

Less: Interest 64.22 58.28

PBDT 10.75 152.01

Less: Depreciation 50.79 48.59

PBT (40.04) 103.42

Provision for Taxation (19.39) 16.30

(Net of deferred tax)

PAT (20.65) 87.12

Balance brought forward 278.23 215.85

Profit available for Appropriation 257.58 302.97

Proposed Dividend 1.72 13.79

Tax on aforesaid Dividend 0.29 2.24

Transfer to General Reserve -- 8.71

Balance carried forward to 255.57 278.23

Balance Sheet

DIVIDEND

Your Directors recommend for approval of Members at the ensuing Annual General Meeting, a dividend of 5% i.e. @ Re. 0.50/- per share out of past profits, in view of the absence of profit during the year under review, which will absorb Rs. 1.72 crore. The tax on aforesaid dividend to be borne by the Company will be Rs. 0.29 crore.

INDUSTRY STRUCTURE & DEVELOPMENT

While global demand for carbon black remained stable during 2012 at 11.3 million MT, global capacity stood as 14.8 million MT - capacity utilization was 76%.

In India, consumption of carbon black increased 3.9% from 6,70,000 MT in 2011 to 6,95,000 MT in 2012. Total production during 2012 was 6,76,000 MT. Total capacity of the Indian carbon black industry stood at 10,27,000 MT during 2012, with a capacity utilization of 66%.

The domestic carbon black industry was impacted by a

slowdown within the automobile sector as well as by increased dumping of carbon black into India by China and other countries. Total imports of carbon black in India rose to 1,28,000 MT during FY13 from 1,17,000 MT in the earlier year, the major chunk of imports was from China, at 88,000 MT. As a result, domestic sales of carbon black were impacted and all carbon black companies had to undertake production cuts during the second half of the year.

Your Company completed expansion of its 8 MW co-generation power plant at Mundra within the scheduled time and expects to commission shortly the second line of 50,000 MT capacity at Kochi.

PERFORMANCE

Carbon Black

Your Company, made operating profit (PBDIT) of Rs. 74.97 crore in FY 13 vis-à-vis Rs. 210.29 crore in the previous year. Amongst the major reasons for this swing in operating profit are --

1. Drop in domestic contribution per MT due to dumping by China, coupled with the inability to pass on the cost increase.

2. Drop in export volume and contribution due to slowdown in Europe, as well as dumping by China in South East Asia.

Power

Revenue from sale of power was higher in FY13 - Rs. 88.58 crore vis-à-vis Rs. 83.69 crore in FY12.The Company''s overall power generation capacity rose to 76 MW with the commissioning of the 8 MW co-generation power plant at Mundra.

Manufacturing

Your Company improved its global ranking to No. 6 (based on year end capacity) during the year. The strategic location of its four plants in different parts of India should facilitate your Company and optimize logistics costs within India and outside.

Research and Development

All the R & D units located at Durgapur, Kochi, Palej and Mundra continue to receive recognition as in-house Research and Development units from the Department of Scientific and Industrial Research, Ministry of Science and Technology.

Your Company successfully - i) developed more new grades for domestic and international markets, ii) improved product characteristics to meet more stringent customer specifications, iii) continued recasting of Standard Operating Procedures iv) State of the Art Rubber Application Laboratory established, v) Reactor design and operating conditions suitably modified to improve yield.

Environment, Health, Safety and Social Responsibility

PCBL is committed to preserve and enrich environment by conducting all its operations in an environment friendly and safe manner. The CSR initiatives are also focused to touch the lives of the communities in and around our manufacturing units by supporting environmental, health care and educational programmes.

The CSR team at Kochi has completed five years in providing evening tuition classes to below poverty line children. The CSR team at Durgapur in association with Rotary club of Durgapur has started a computer literacy program for housewives and students of nearby communities.

The Kochi team has bagged awards in safety and CSR area: State Safety Award for 2012 in the Large Factories category in the Chemical/Petro-Chemical Sector and Global CSR Award. The Palej unit has received Greentech Environment award in Gold category.

Human Resource Development

Focus on Human Resource Development continues to give an edge to the business in this era of global competition. We are marking our presence across geographies by putting teams at USA, Europe, South East Asia and Japan.

We continue with our efforts to enhance the transparency and accessibility of all HR processes to our people across locations by adding new features like online suggestion system, online access to PF account and online health insurance system on the employee portal. These efforts have been recognized by Greentech Foundation who has awarded PCBL its Greentech HR Award 2013 for "Technology Excellence in HR” in Platinum Category.

Industrial relation scenario at all the units has remained healthy and forward looking. The Palej Team has received prestigious Greentech HR Award 2013 for "Best IR Strategy” in Silver Category.

Internal Control System and Adequacy

Your Company has adequate internal control systems in every area of operation. Services of internal and external auditors are utilized from time to time, as also its in-house expertise and resources. The Company continuously upgrades these systems in line with the best available material practices.

These reports and deviations are regularly discussed with members of Management Committee and actions taken whenever necessary.

An independent Audit Committee of the Board reviews the adequacy of Internal Control.

Opportunities and Threats

Your Company is always on the lookout for opportunities that exist in its business.

Opportunities

- Major tyre companies had expanded their capacity and capacity utilization is expected to improve further during FY 14/15.

- Government''s thrust on development of infrastructure continues. While the short term growth outlook in India suffered a setback during FY13, the fundamentals of the economy remain strong. With the RBI expected to step in to lower interest rates during the coming year, investments are expected to pick up and the growth story would come back on track.

- Power continues to be an attractive segment for your company for improving profitability.

Threats

- Imports of carbon black from China continue to be a major threat for the entire domestic industry.

- Simulltaneous expansion of carbon black manufacturing capacities by all domestic competitors.

- Inadequate infrastructure at ports, causing detention of vessels and higher freight cost.

- Continuing high inflation which may put a dampner on the purchasing power of customers.

- Fluctuation of Rupee and increase in financing cost.

Segment wise Performance

The Performance of Carbon Black and Power segment has been covered in this Report earlier.

Risks and Concern

The main raw material for the Company - Carbon Black Feedstock (CBFS) is residual oil from distillation process of crude and is subject to frequent volatility, whereas the price of finished carbon black is revised every quarter. In the event the Company is unable to timely pass on increased CBFS cost, it may have adverse impact on the Company''s profit. Increase in carbon black import or drop in carbon black demand may have serious implications on the activity level of the carbon black segment and consequently the availability of lean gas for the power segment.

The Company is also exposed to risks from fluctuation of Indian Rupee vis-à-vis other currencies, interest rate, realisation for surplus power and regulations relating to environment.

Major Expansion Plans

Your Company expects to commission the 8 MW co-generation power plant at its Palej facility, which will take its total power generation capacity from 76 MW to 84 MW.

Your company is also planning to set up a greenfield carbon black plant of capacity 140,000 MT at Chennai along with a 28 MW power plant, and is in the process of obtaining all approvals for the same. A Memorandum of Understanding (MOU) for the same has been signed with the Tamilnadu Government.

The company''s global footprint plan is in place with the greenfield plant at Vietnam. The project is proceeding at a pace considered appropriate in view of the current global economic scenario and the Company''s business strategy.

The Company''s new carbo-chemical business will be in place with setting up of a new coal tar distillation plant in Orissa with capacity of 1,50,000 mtpa coal tar processing and 50,000 mtpa soft pitch processing. The plant is expected to be commissioned within 12 months from the date of receipt of environment clearance.

Subsidiaries

In accordance with the general exemption granted by Ministry of Corporate Affairs under section 212(8) of the Companies Act, 1956, (''the Act'') the accounts of the subsidiaries namely, Phillips Carbon Black Cyprus Holdings Limited, PCBL Netherlands Holdings B.V., Phillips Carbon Black Vietnam Joint Stock Company and Goodluck Dealcom Private Limited for the year 2012-13 and the related detailed information will be made available to the holding and subsidiary companies investors seeking such information at any point of time. Hence, accounts of such subsidiaries are not attached. Copies of the annual accounts of the subsidiary companies will also be kept open for inspection by any investor in the Registered Office of the Company and of the subsidiary companies concerned. The Company shall furnish a hard copy of accounts of subsidiaries to any shareholder on demand. The Company publishes Consolidated Financial Statements of the Company and its subsidiaries duly audited by Messrs Price Waterhouse, Kolkata, Auditors, prepared in compliance with the applicable Accounting Standards and the Listing Agreement with the Stock Exchanges. The Consolidated Financial Statements for the year 2012-13 form part of the Annual Report and Accounts.

FUTURE OUTLOOK

Carbon Black

Demand growth for carbon black continues to be robust with the global demand expected to grow at a CAGR of 4.8 % from 2011 to 2015. Expansion plans of all tyre manufacturers in India as well as a few global majors are on track and are expected to be completed within FY14-FY15. Domestic demand for carbon black is expected to grow at a CAGR of 6.6% during FY 11 to FY 15. With the expansion plans as detailed in this respect, your Company is well poised to meet the increasing demand in the domestic market.

Overseas demand for carbon black is expected to grow further during FY14. Your Company has made significant forays into overseas markets such as Europe, South East Asia and US. The company will continue to place emphasis

on exports during FY14 to mitigate any possible situation of excess supply in domestic markets.

Power

Your Company''s initiative to create additional revenue from power is likely to grow further in the coming years. With the commissioning of 8 MW CPP at Palej, the total installed capacity will reach 84 MW.

Steps in manufacturing and procurement

To remain competitive in the current challenges of economy and industry, the Company has taken following steps in manufacturing and procurement:

a. Improve yields.

b. Develop new sources for procurement of raw materials like CBFS and CBO which are contributing by way of better yields and lower prices.

c. Strengthen marketing and technical functions.

d. Undertaken initiatives in manufacturing to reduce variability in process.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

A statement giving details of conservation of energy, technology absorption, foreign exchange earnings and outgo, as required under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 is annexed. This forms an integral part of this Report.

Public Deposits

The Company does not have any Fixed Deposit Scheme and has repaid all Fixed Deposits that matured and were claimed by the depositors under the earlier Fixed Deposit Schemes. Matured unclaimed deposits as on 31st March, 2013 amounted to Rs. 45,000/- Apart from matured unclaimed deposits, no amount is outstanding as on 31st March, 2013. Reminders have been sent to depositors who have not claimed repayment of matured deposits.

Particulars of Employees

The information as required in accordance with Section 217(2A) of the Act read with the Companies (Particulars of Employees) Rules,1975, as amended, is set out in an annexure to this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and the Accounts are being sent to all the Shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such information may write to the Company Secretary at the Registered Office of the Company. The said information is also available for inspection at the Registered Office during working hours up to the date of the Annual General Meeting.

Corporate Governance

Under Clause 49 of the Listing Agreement with the Stock Exchanges, a section on Corporate Governance together with a certificate from the Company''s Auditors confirming compliance is set out in the Annexure forming part of this Annual Report.

Directors'' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that:

i) in the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures;

ii) appropriate accounting policies have been selected and applied 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 financial year and of profit or loss of the Company for the period;

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

iv) the annual accounts have been prepared on a going concern basis.

Auditors

The Auditors, Messrs Price Waterhouse, retire at the ensuing Annual General Meeting and are eligible for re-appointment.

Cost Audit

The Central Government has approved the appointment of Messrs Shome & Banerjee, Cost Accountants, for conducting cost audit for the financial year ended 31st March, 2013.

Messrs Shome & Banerjee, Cost Accountants, have given their consent along with their Certificate of Independence for conducting the audit of the cost accounts for the financial year ending 31st March, 2014, if appointed.

Cost Audit Report for the financial year ended 31st March, 2012 was filed on 30th January, 2013.

Directors

Mr. C R Paul and Mr. Paras K Chowdhary, retire by rotation and being eligible offer themselves for re-appointment.

Dr. R P Goenka, Chairman Emeritus, passed away on 14th April, 2013.

Forward - looking Statement

This Report contains forward-looking statements that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. Significant factors that could make a difference to the Company''s operations include domestic and international economic conditions affecting demand-supply and price conditions, foreign exchange fluctuations, changes in government regulations, tax regimes and other statutes.

Acknowledgement

Your Directors record their grateful appreciation for the encouragement, assistance and co-operation received from members, government authorities, banks and customers. They also thank them for the trust reposed in the Management and wish to thank all employees for their commitment and contributions.

For and on behalf of the Board

Kolkata Sanjiv Goenka

23rd May, 2013 Chairman


Mar 31, 2012

The Directors have pleasure in presenting the Fifty first Report and Accounts of Phillips Carbon Black Limited for the financial year ended 31st March, 2012.

FINANCIAL HIGHLIGHTS

(Rs. in crore)

Year ended 31.03.12 31.03.11

Revenue -

- Carbon Black 2,096.97 1,614.11

- Power 83.69 76.04

- Other Income 10.44 20.91

- Other Operating Revenues 6.12 5.57

Total Revenue 2,197.22 1,716.63

PBDIT 210.29 238.59

Less: Interest (net) 58.28 35.66

PBDT 152.01 202.93

Less: Depreciation 48.59 38.58

PBT 103.42 164.35

Provision for Taxation 16.30 48.07

PAT 87.12 116.28

Balance brought forward 215.85 133.41

Profit available for Appropriation 302.97 249.69

Proposed Dividend 13.79 16.61

Tax on aforesaid Dividend 2.24 2.69

Dividend including taxes - 2.89 on dividend paid on 4,964,376 shares to Qualified Institutional Buyers allotted during the year

Transfer to General Reserve 8.71 11.65

Balance carried forward to Balance Sheet 278.23 215.85

DIVIDEND

For approval of Members at the ensuing Annual General Meeting, your Directors recommend a dividend of 40% i.e, @ Rs. 4/- per share which will absorb Rs.13.79 crore. The tax on aforesaid dividend, to be borne by the Company, will be Rs. 2.24 crore.

INDUSTRY STRUCTURE & DEVELOPMENT

Global demand for carbon black rose by 5.8 % during 2011 from 10.2 million MT to 10.8 million MT. Global capacity for carbon black was 13.9 million MT and capacity utilization was 77% during 2011. The demand growth was led by North America (9.0%), European Union (11.0%) and Eastern Europe (14.7%), while Asia (excluding China) saw a modest growth of 5.2% compared to last year YOY growth of 18%.

In India, the demand for carbon black during FY12 was 657,000 MT vis-a-vis 641,000 MT in FY11, i.e., a growth of 2.5%. Total production during FY12 was 694,000 MT, which is at the same level as FY11. The total capacity of the Indian carbon black industry stood at 935,000 MT, with capacity utilization of 74%.

The domestic carbon black industry was impacted by a slowdown within the automobile sector as well as by the increasing dumping of carbon black into India by China and other countries. Total imports of carbon black in India rose to 117,000 MT during FY12 from 70,000 MT in the earlier year, and the major chunk of mjogep was from China, at 83,000 MT. As a result of this, domestic sales of carbon black were impacted and all carbon black companies resorted to production cuts during the second half of the year.

Your Company completed expansion of carbon black plant of 50,000 MT at Mundra and 10 MW Co-generation Power Plant at Kochi within the scheduled time. Your Company also debottlenecked capacity at its Durgapur facility by 11,000 MT and expects to shortly commission the second line of 50,000 MT capacity at Kochi. With this the total installed carbon black capacity of your Company will stand at 471,000 MT. PERFORMANCE Carbon Black

Your Company achieved profit before tax (PBT) of Rs. 103.42 crore in FY12 and Operating Profit (PBDIT) of Rs. 210.29 crore. The profit is lower compared to last year's PBT and PBDIT of Rs. 164.35 crore and Rs. 238.59 crore respectively.

Power

Revenue from sale of power was higher in FY12 Rs. 83.69 crore vis-a-vis Rs. 76.04 crore during FY11. The Company's overall power generation capacity rose to 68 MW with the commissioning of the 10 MW captive power plant at Kochi.

Manufacturing

Your Company improved its global ranking to No. 7 during the year. The strategic location of its four plants in different parts of India should facilitate your Company to optimize logistic costs within India and outside.

Research and Development

All the 4 R&D units located at Durgapur, Kochi, Palej and Mundra continue to receive recognition as in-house Research and Development units from the Department of Scientific and Industrial Research, Ministry of Science and Technology.

Special carbon black grades for non rubber applications continue to be accepted well by customers in the domestic market, as their performance is comparable to international standard. While the contribution of these grades in the overall top line of the Company was modest during FY12, the Company has chalked out plans to raise sales from this segment in the coming years.

Environment, Health, Safety and Social Responsibility

During the year, your Company took various initiatives to achieve greater heights in Environment, Health and Safety. New policies have been adopted for greener surroundings. The Company continues to work closely with India Trees Foundation, while strictly adhering to Environment, Health and Safety norms at all its manufacturing locations.

Concerted efforts in corporate social responsibility (CSR) continued during FY12 for e.g., eye check up camps, support in cataract surgeries, rural area development, free distribution of educational kits to Below Poverty Line (BPL) students. The CSR Team at Kochi completed the third & fourth batch of Computer Literacy Programme offered by IGNOU for house-wives from the local community. Our CSR Volunteers also provide regular educational support e.g. tuition to class VII and IX students from the local community. The CSR Team at Durgapur conducted computer literacy course for the underprivileged jointly with Rotary Club of Durgapur.

Human Resource Development

Human Resource Development continues to remain a focus area for sustainable growth of your company. A number of special initiatives were taken to facilitate the growth of all employees at all locations.

To enhance the effectiveness of Performance Management System the entire PMS has been further redesigned to capture the entire process through on line e-system.

Employee engagement score has also improved substantially indicating higher retention of talent and commitment to excel in all aspects of your company's operations.

The Company's manpower requirements for the greenfield project at Vietnam and all units across India have been carefully planned. Industrial relations scenario at all the units continue to remain healthy and forward looking.

Internal Control System and Adequacy Your Company has adequate internal control systems in every area of operation. Services of internal and external auditors are utilized from time to time as also its in-house expertise and resources. The Company continuously upgrades these systems in line with the best available material practices. These reports and variance analysis are regularly discussed with members of Management Committee and actions taken whenever necessary.

An independent Audit Committee of the Board reviews the adequacy of Internal Control.

Opportunities and Threats

Your Company is always on the lookout for opportunities that exist in its business.

Opportunities

- Expansion plans of all major tyre companies in India are on track and their plants are expected to come up during FY13 - FY15. JK Tyres commissioned its new plant during the year at Chennai, Tamil Nadu.

- Government's thrust on development of infrastructure continues. While the short term growth outlook in India suffered a setback during FY12, the fundamentals of the economy remain strong. With the RBI expected to step in to lower interest rates during the coming year, investments are expected to pick up and the growth story would come back on track.

- Power continues to be an attractive segment for your company for improving profitability.

Threats

- Imports of carbon black from China continues to be a major threat for the entire domestic industry.

- Expansion of carbon black manufacturing capacities simultaneously by all domestic competitors.

- Withdrawal of Anti Dumping Duty on carbon black.

- Inadequate infrastructure at ports, causing detention of vessels and higher freight cost.

- Continuing high inflation which may put a dampner on the purchasing power of customers.

- Depreciation of Rupee, increase in financing cost.

Segmentwise Performance

The Performance of Carbon Black and Power segment has been covered in this Report earlier.

Risks and Concern

The main raw material for the Company - Carbon Black Feedstock (CBFS) is residual oil from distillation process of crude and is subject to frequent volatility, whereas the price of finished carbon black is revised every quarter. In the event the Company is unable to timely pass on increased CBFS cost, it may have adverse impact on the Company's profit. Increase in carbon black import or drop in carbon black demand may have serious implications on the activity level of the carbon black segment and consequently the availability of lean gas for the power segment.

The Company is also exposed to risks from fluctuation of Indian Rupee vis-a-vis other currencies, interest rate, realisation for surplus power and regulations relating to environment.

Major Expansion Plans

Your Company expects to shortly commission the 8 MW capacity captive power plant at its Mundra facility, which will take its total power generation capacity from 68 MW to 76 MW.

Your Company is also planning to set up a greenfield carbon black plant of capacity 140,000 MT at Chennai along with a 25 MW power plant, and is in process of obtaining all approvals for the same. Memorandum of Understanding (MoU) for the same has been signed with the Tamilnadu Government.

The Company's global footprint plan is in place with the greenfield plant at Vietnam expected to be commissioned in FY14.

The Company's new carbo-chemical business will start by the end of the coming year with setting up of a new coal tar distillation plant in Orissa with capacity of 1,50,000 mtpa coal tar processing and 50,000 mtpa soft pitch processing. The plant is expected to be commissioned in FY14.

Qualified Institutional Placement (QIP) and Preferential Warrants issue

Pursuant to SEBI Guidelines and necessary approval of the members, 12,50,000 convertible warrants of Rs. 196/- each which were allotted on 30th April, 2010, were converted into 12,50,000 Equity Shares of Rs. 10/- each at a premium of Rs. 186/- per share fully paid up on 28th October, 2011. Subsidiaries

In accordance with the general exemption granted by Ministry of Corporate Affairs under Section 212(8) of the Companies Act, 1956, ('the Act') the accounts of the subsidiaries namely, Phillips Carbon Black Cyprus Holdings Limited, PCBL Netherlands Holdings B.V, Phillips Carbon Black Vietnam Joint Stock Company and Goodluck Dealcom Private Limited for the year 2011-12 and the related detailed information will be made available to the holding and subsidiary companies investors seeking such information at any point of time and are not attached. Copies of the annual accounts of the subsidiary companies will also be kept open for inspection by any investor in the Registered Office of the Company and of the subsidiary companies concerned. The Company shall furnish a hard copy of accounts of subsidiaries to any shareholder on demand. The Company publishes Consolidated Financial Statements of the Company and its subsidiaries duly audited by Messrs Price Waterhouse, Kolkata, Auditors, prepared in compliance with the applicable Accounting Standards and the Listing Agreement with the Stock Exchanges.

The Consolidated Financial Statements for the year 2011-12 form part of the Annual Report and Accounts.

FUTURE OUTLOOK Carbon Black

Demand growth for carbon black continues to be robust with the global demand expected to grow at a CAGR of 4.6% from 2010 to 2015. Expansion plans of all tyre manufacturers in India as well as a few global majors are on track and are expected to be completed within FY13-FY14. Domestic demand for carbon black is expected to grow @ 7-8% during FY13. With the expansion plans as detailed in this respect, your Company is well poised to meet the increasing demand in the domestic market. Overseas demand for carbon black is expected to grow further during FY13. Your Company has made significant forays into overseas markets such as South East Asia and US. The Company will continue to place emphasis on exports during FY13 to mitigate any possible situation of excess supply in domestic markets. Power

Your Company's initiative to create additional revenue from power is likely to grow further in the coming years, with the forthcoming commissioning of 8 MW CPP at Mundra and further 8 MW planned at Palej, the total installed capacity is expected to reach 84 MW.

Conservation Of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

A statement giving details of conservation of energy, technology absorption, foreign exchange earnings and outgo, as required under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 is annexed. This forms an integral part of this Report.

Public Deposits

The Company does not have any Fixed Deposit Scheme and has repaid all Fixed Deposits that matured and were claimed by the depositors under the earlier Fixed Deposit Schemes. Matured unclaimed deposits as on 31st March, 2012 amounted to Rs. 1.87 lakh. Apart from matured unclaimed deposits, no amount is outstanding as on 31st March 2012. Reminders have been sent to depositors who have not claimed repayment of matured deposits.

Particulars of Employees

The information as required in accordance with Section 217(2A) of the Act read with the Companies (Particulars of Employees) Rules,1975, as amended, is set out in an annexure to this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and the Accounts are being sent to all the Shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such information may write to the Company Secretary at the Registered Office of the Company. The said information is also available for inspection at the Registered Office during the working hours up to the date of the Annual General Meeting.

Corporate Governance

Under Clause 49 of the Listing Agreement with the Stock Exchanges, a section on Corporate Governance together with a certificate from the Company's Auditors confirming compliance is set out in the Annexure forming part of this Annual Report.

Directors' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that:

i) in the preparation of the annual accounts, the applicable accounting standards have been followed, and that there are no material departures;

ii) appropriate accounting policies have been selected and applied 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 financial year and of profit or loss of the Company for the period;

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

iv) the annual accounts have been prepared on a going concern basis.

Auditors

The Auditors, Messrs Price Waterhouse, retire at the ensuing Annual General Meeting and are eligible for re-appointment. Cost Audit

The Central Government has approved the appointment of Messrs Shome & Banerjee, Cost Accountants, for conducting cost audit for the financial year ended 31st March, 2012. Messrs Shome & Banerjee, Cost Accountants, have given their consent along with their Certificate of Independence for conducting the audit of the cost accounts for the financial year ending 31st March, 2013, if appointed.

Cost Audit Report for the financial year ended 31st March, 2011 was filed on 26th September, 2011.

Directors

Mr. K. S. B. Sanyal and Mr. Sanjiv Goenka retire by rotation and being eligible offer themselves for re-appointment. Forward - looking Statement

This Report contains forward-looking statements that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. Significant factors that could make a difference to the Company's operations include domestic and international economic conditions affecting demand- supply and price conditions, foreign exchange fluctuations, changes in government regulations, tax regimes and other statutes.

Acknowledgement

Your Directors record their grateful appreciation for the encouragement, assistance and co-operation received from members, government authorities, banks and customers. They also thank them for the trust reposed in the Management and wish to thank all employees for their eager commitment and contributions.

For and on behalf of the Board

Kolkata Sanjiv Goenka

29th May, 2012 Chairman


Mar 31, 2010

The Directors are pleased to present the Forty-Ninth Report and Accounts of Phillips Carbon Black Limited for the financial year ended 31st March, 2010.

FINANCIAL HIGHLIGHTS

(Rs. in crore) Year ended 31.03.10 31.03.09 Revenue - -Carbon black 1,178.05 1,060.51 -Power 54.52 15.51 -Other Income 2.81 14.44 Total Revenue 1,235.38 1,090.46 PBDIT 190.67 (50.18) Less: Interest (net) 28.94 27.48 PBDT 161.73 (77.66) Less: Depreciation 31.15 19.64 PBT 130.58 (97.30) Provision for Taxation 7.89 (32.46) PAT 122.69 (64.84) Balance brought forward 39.49 104.33 Profit available for Appropriation 162.18 39.49 Proposed Dividend 11.30 - Proposed Golden Jubilee Year Dividend 2.83 - Tax on aforesaid Dividends 2.34 - Transfer to General Reserve 12.30 - Balance carried forward to Balance Sheet 133.41 39.49

DIVIDEND

Your Directors recommend for approval of members at the ensuing Annual General Meeting a dividend of 40% which will absorb Rs.11.30 crore and Golden Jubilee Year dividend of 10% on the paid up share capital of the Company which will absorb Rs.2.83 crore. The tax on aforesaid dividends to be borne by the Company will be Rs.2.34 crore.

INDUSTRY STRUCTURE & DEVELOPMENT

During 2009, global demand for carbon black dropped 7.5% from 9.78 million MT to 9.05 million MT. Global capacity for carbon black was 12.7 million MT but capacity utilization was 71% during 2009 due to continuing lower demand in USA, Europe and South East Asian markets. Defying the global trend, India and China witnessed significant growth on the

back of strong domestic consumption and stimulus packages implemented by the Government. A few of the plants in the Asia Pacific region, which had been moth-balled earlier, were restarted during 2009.

In India, demand for carbon black during FY10 was 605,000 MT vis-a-vis 470,000 MT in FY09, i.e., a growth of 29%. Total production during FY10 was 633,000 MT. Your Company commissioned its 90,000 MT carbon black plant at Mundra during second half of FY10 and a new entrant commenced operation with a 40,000 MT plant in eastern region during first half of FY10. Recently, one of the global players in the carbon black industry has announced closure of its facility in India. With this development, total installed carbon black capacity in India now stands at 700,000 MT.

Anti-dumping duty was imposed on import of carbon black from China, Russia, Australia and Thailand for a period of 5 years. Despite imposition of anti dumping duty, carbon black imports increased by 30% during FY10. The threat of dumping will continue to prevail as long as global carbon black capacity utilization remains lower than that in India.

PERFORMANCE

Carbon Black

Your Company for the first time since inception achieved triple digit profit (PAT) of Rs.122.69 crore in FY10 and Operating Profit (PBDIT) of Rs. 190.67 crore. Factors which contributed significantly to this healthy turn around in FY10 are higher sales volume of 255,777 MT vis-a-vis 210,553 MT in FY09 and jump in power revenue as detailed below.

Power

Your Companys power generation capacity received tremendous boost during FY10 with the commencement of commercial operation of 30 MW Co-generation Power Plant (CPP) at Durgapur on 1st April, 2009 and 16 MW CPP at Mundra on 24th December, 2009. Revenue from power sale was 3.5 times higher in FY10 i.e. Rs. 54.52 crore vis-a-vis Rs. 15.51 crore during FY09. The contribution of power segment to the Companys profit increased significantly in FY10 with the commissioning of aforesaid CPPs, coupled with higher unit price realization during FY10.

Manufacturing

The commissioning of the 90,000 MT carbon black plant (greenfield) at Mundra on 17th October, 2009 helped the Company to move up in the global ranking from 10th to 8th. The strategic location of its four plants in different parts of India should facilitate your Company to optimize logistics costs within India, as well as for export to Europe.

Research and Development

Research and Development activities during FY10 received noticeable boost with your Company launching special carbon black grades for non rubber applications. These new grades have been accepted well by customers in the domestic market, as their performance is comparable to imported products. While the contribution of these grades in the overall top line of the Company was modest during FY10, the Company has chalked out plans to ramp up sales from this segment in the coming years.

Environment, Health, Safety and Social Responsibility

Your Company took various initiatives to achieve greater heights in Environment, Health and Safety. It has adopted new policies for greener surroundings and is currently working with India Trees Foundation, while strictly adhering to the Environment, Health and Safety norms at all its manufacturing locations.

Concerted efforts to incorporate Corporate Social Responsibility (CSR) continued during FY10 for e.g., Health/Eye check up camps, Hepatitis B & C screening tests, Rural Area Development, Free distribution of medicines, Aids Awareness Programme and support to a few institutions engaged in social service were organised.

Sustained emphasis was put on education initiatives. The Company tied up with SMILE Foundation, an NGO working in 21 states reaching out to over 100,000 children. The CSR team at Kochi has completed the first batch of Computer Literacy Programme offered by IGNOU for housewives from the local community. Educational kits were distributed to under- privileged children.

Human Resource Development

Human Resources continue to be a focus area for your Company. Several initiatives were taken to facilitate the performance and developmental requirements of employees. The efforts to enhance the effectiveness of Balanced Business Scorecard were strengthened by the newly launched 360 degree appraisal system viz. "EXCEL" and online training through portal.

Your Companys manpower requirements for the greenfield plant at Mundra and existing manufacturing units were carefully planned and benchmarked with global organizations. The recruitment for Mundra was organised timely, facilitating flawless commissioning of the plant.

Industrial relations scenario at all units continues to be healthy.

Internal Control System and Adequacy

Your Company which has adequate internal control systems in all areas of operation, utilizes the services of internal and external auditors from time to time and also its in-house experts and resources. The Company continuously upgrades these systems in line with the best available practices. These

reports and variance analysis are regularly discussed with members of Management Committee and actions taken wherever necessary.

An independent Audit Committee of the Board reviews the adequacy of Internal Control.

Opportunities and Threats

Your Company is on the lookout for opportunities and threats that exist in its business and is geared up to make the best of the opportunities while facing the threats.

Opportunities

- Currently almost all tyre companies in India are executing green field/brown field expansion projects to meet increasing demand for tyres from replacement as well as OE segments, particularly for passenger radial tyres.

- A few major global automakers have announced significant investments in India which will raise the demand for carbon black in future.

- The thurst on infrastructure development, particularly roads, coupled with the rise in domestic disposable income should have favourable impact on demand for tyres and consequently carbon black.

- Launch of the smaller car during FY10 has paved the way for development of smaller cars by other players in the auto industry, which should push the four-wheeler population in India. The auto companies may also cater to demand for smaller car in overseas markets from their facilities in India resulting in higher demand for carbon black particularly for OE segment.

- Your Company can generate electricity from lean gases (which are currently flared in one of its plants) to improve overall profitability.

Threats

- Carbon black/tyre import.

- Expansion of carbon black manufacturing capacities simultaneously by domestic competitors.

- Withdrawal of Anti Dumping Duty on carbon black.

- Inadequate infrastructure at ports, resulting into detention of vessels and higher freight cost.

Segmentwise Performance

The Performance of Carbon Black and Power segment has been covered in this Report earlier.

Risks and Concern

The raw material for the Company i.e. Carbon Black Feedstock (CBFS) is residual oil from distillation process of crude and is subject to high volatility, whereas the price of carbon black is revised once a quarter. In the event the Company is unable to timely pass on increased CBFS cost, it may have adverse

impact on the Companys profit. Increase in carbon black import or drop in carbon black demand may have serious implications on raw material inventory write down as well as the activity level of the carbon black segment and consequently the availability of lean gas for the power segment.

The Company is also exposed to risks from fluctuation of Indian Rupee vis-a-vis other currencies, interest rate, realisation for surplus power and regulations relating to environment.

Major Expansion Plans

Your Company has decided to expand carbon black capacity at Mundra by setting up another 50,000 MT plant, which is expected to be commissioned during Q3FY11. The Company will also expand cogeneration power capacity by 8 MW at Mundra which is expected to be commissioned during next financial year. Further, a 10 MW CPP is being set up at Kochi for which orders have been placed for critical equipment. Construction activity is in full swing. This project is expected to be commissioned during Q4FY11. The existing 2.5 MW CPP at Kochi will be de-commissioned when the 10 MW CPP commences commercial operation. Upon completion of aforesaid projects, PCBLs total carbon black manufacturing capacity will reach 410,000 MT and power generation capacity 76 MW.

Statutory clearances for proposed 65,000 MT carbon black and 12 MW CPP at Vietnam are awaited. Project is scheduled to be commissioned within 24 months of receipt of statutory clearances.

Qualified Institutional Placement (QIP) and Preferential Warrants Issue

Pursuant to members approval and in accordance with SEBI Regulations, the Company has received applications from Qualified Institutional Buyers for 49.64 lakh shares @ Rs.200/- per share. The allotment process will be completed shortly.

In accordance with SEBI Regulations and necessary approval of members, the Company has offered to the promoter group 12,50,000 convertible warrants @ Rs.196/- each with an option to subscribe to one equity share of Rs.10/- each at a premium of Rs.186/- per share fully paid up within 18 months from the date of allotment.

Wholly Owned Subsidiary

In compliance with the requirements of Section 212(2) of the Companies Act, 1956, the Directors Report, the Balance Sheet and Profit and Loss Account of the wholly owned subsidiaries viz., Phillips Carbon Black Cyprus Holdings Limited (PCBL Cyprus) and PCBL Netherlands Holdings B.V. (PCBL Netherlands) along with the Report of the auditors of PCBL Cyprus and PCBL Netherlands are annexed to this Annual Report.

The Consolidated Financial Statements of the Company and its aforesaid subsidiaries duly audited by the statutory auditor

of the Company prepared in compliance with the applicable Accounting Standards and the Listing Agreements with the stock exchanges is included in this Annual Report.

FUTURE OUTLOOK

Carbon Black

The quick recovery of the Indian economy and its return to the growth trajectory, coupled with the revival of auto sector have resulted in significant demand growth for carbon black. As mentioned earlier, almost all major customers in tyre segment have either announced or undertaken major green field/brown field expansion projects which are expected to commence commercial production during the next 12 to 18 months. A couple of global tyre majors have also announced plans to initiate manufacturing facilities in India. Domestic demand for carbon black is expected to grow @ 9% to 10% for FY11. Further, a few major automobile companies are developing smaller cars for domestic as well as overseas market, which may see India emerge as an export hub for smaller cars, resulting into exponential demand growth for carbon black after 3 to 5 years. With the commissioning of 90,000 MT carbon black facility at Mundra and further expansion of 50,000 MT at the same location, your Company is well poised to meet the increasing demand for carbon black in the domestic market.

Demand for carbon black in overseas markets, particularly USA and Japan, has started picking up in the recent past, whereas the demand in Europe may take a little longer to recover. Your Company has already initiated process for product approval, particularly for the Mundra facility, with potential customers in Europe and USA. The Company will lay significant thurst on export during FY11.

Any increase in carbon black import from current level may have adverse impact on the demand supply situation in the domestic market.

Power

Your Companys initiative to create additional revenue stream from power received encouraging response during FY10. It is likely to grow further in the coming years. The full year impact of 16 MW CPP commissioned at Mundra will be visible in FY11. Further, 10 MW CPP is expected to be commissioned during Q4FY11 at Kochi and a 8 MW CPP at Mundra during FY12. Total installed capacity will increase to 68 MW in FY11 and 76 MW by FY12. The quantum of power available for sale is expected to double in FY11 and keeping in view the prevailing gap between demand and supply of electricity the net realization is expected to be higher in FY11 vis-a-vis FY10.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

A statement giving details of conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 217(1)(e) of the Companies Act, 1956 read

with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 is annexed. This forms an integral part of this Report.

Public Deposits

The Company does not have any Fixed Deposit Scheme and have repaid all Fixed Deposits that matured and were claimed by the depositors under the earlier Fixed Deposit Schemes. Matured unclaimed deposits as on 31st March, 2010 is Rs.5.05 lakh. Apart from matured unclaimed deposits, no amount is outstanding as on 31st March 2010. Reminders have been sent to all depositors who have not claimed repayment of matured deposits.

Notes on Accounts

Regarding the Auditors comments on remuneration to Managing Director, the Directors draw your attention to Note 2.2 of Schedule 19 forming part of Accounts. The observations made by auditors should be read together with the note referred to, which is self explanatory.

Particulars of Employees

Pursuant to the provision of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, the Particulars of Employees, though forming part of this Report is not being mailed to members and the same is available for inspection at the Registered Office of the Company during working hours for a period of clear twenty-one days before the date of Annual General Meeting. Any member interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office.

Corporate Governance

Under Clause 49 of the Listing Agreement with the Stock Exchanges, a section on Corporate Governance together with a certificate from the Companys Auditors confirming compliance is set out in the Annexure forming part of this Annual Report.

Directors Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that:

i) in the preparation of the annual accounts, the applicable accounting standards have been followed, and that there are no material departures;

ii) appropriate accounting policies have been selected and applied 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 financial year and of profit or loss of the Company for the period;

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

iv) the annual accounts have been prepared on a going concern basis.

Auditors

The Auditors, Messrs Price Waterhouse, retire at the ensuing Annual General Meeting and are eligible for reappointment.

Cost Audit

The Central Government has approved the appointment of Messrs Shome & Banerjee, Cost Accountants, for conducting cost audit for the financial year ended 31st March 2010.

Messrs Shome & Banerjee, Cost Accountants, have given their consent for conducting the audit of the cost accounts for the financial year ending 31st March 2011, if appointed.

Directors

Mr. C R Paul and Mr. P K Chowdhary retire by rotation and being eligible offer themselves for reappointment.

Forward - looking Statement

This Report contains forward-looking statements that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. Significant factors that could make a difference to the Companys operations include domestic and international economic conditions affecting demand-supply and price conditions, foreign exchange fluctuations, changes in government regulations, tax regimes and other statutes.

Acknowledgement

Your Directors record their grateful appreciation for the encouragement, assistance and co-operation received from members, Government authorities, banks and customers. They also thank them for the trust reposed in the Management and wish to thank all employees for their commitment and contributions.

For and on behalf of the Board Kolkata Sanjiv Goenka 28th April, 2010 Chairman

 
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