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Directors Report of Pidilite Industries Ltd.

Mar 31, 2015

The Members

The Directors take pleasure in presenting the Forty Sixth Annual Report for the year ended 31st March, 2015.

Financial Results 2014-15 2013-14

Gross Turnover 46582 41037

Turnover, Net of Excise 43748 38561

Profit Before Tax 6685 6310

Current Year's Tax 1561 1599

Profit After Current Year's Tax 5124 4711

Deferred Tax 106 25

Profit After Tax 5018 4686

Profit Brought Forward 2184 1792

Profit available for appropriation 7202 6478

Appropriations

Proposed Dividend on Equity Shares 1487 1384

Tax on Dividend 303 235

Transfer to Debenture Redemption Reserve - 41

Transfer to General Reserve 750 2500

Total 2540 4160

Balance Carried to Balance Sheet 4662 2318

7202 6478

*Net of depreciation of Rs. 133.93 million on transition to schedule II of the Companies Act, 2013 on tangible fixed assets with nil remaining useful life (Net of deferred tax).

Financial Performance

The Operating Profit for the year at Rs. 8058 million increased by 11.8% and Net Profit at Rs. 5018 million increased by 7.1%. Income tax for the current year at Rs. 1561 million is lower by 2.4%.

Due to the slow down in the overall economic environment and in particular in the second half of the year, sales of the Company's products were affected.

Sales of Consumer and Bazaar Products grew by 15%, lower than the growth rates recorded in the last 5 years.

Sales of Industrial Products grew at a much slower rate of 6.6% due to weak domestic environment and slowdown in exports.

Margins were adversely impacted by steep increase in input costs particularly in the first half of the year. Selective price increases were taken in a phased manner. Input prices also came down in the second half of the year and this along with the pricing action helped improve margins in the second half.

The Indian Rupee was at Rs. 62.62 to a US $ as on 31st March, 2015 as compared to Rs. 60.05 to a US $ as on 31st March, 2014.

Dividend

The Directors recommend a dividend of Rs. 2.90 per equity share of Rs. 1 each, out of the current year's profit, on 512.66 million equity shares of Rs. 1 each (previous year @ Rs. 2.70 per equity share) amounting to Rs. 1487 million (previous year Rs. 1384 million). Dividend for the current year will be free of tax in the hands of shareholders. The dividend payout amount has grown at a CAGR of 14.8% during the last 5 years.

Term Finance

The Company has no outstanding term loans.

Capital Expenditure

The total expenditure during the year was Rs. 3747 million, spent on fixed assets for various manufacturing units, offices, laboratories, warehouses and on information technology. This also includes the acquisition cost for the adhesive business of Bluecoat Private Ltd.

Synthetic Elastomer Project

As mentioned in the last year's report, the Company was in discussion with several interested parties with a view to finding a strategic partner for the project. While discussions have continued in the last year, they have not reached a conclusive stage. The total investment in the project stands at Rs. 3657.03 million.

Manufacturing Plants

The manufacturing facility at Guwahati to produce Fevikwik and M-seal, was commissioned and commercial despatches commenced from April, 2014.

Equity Dividend Payout & % of Net Profit (excluding exceptional items)

Dividend Payout

including tax on dividend (Rs. in million)

— Dividend Payout (%)

Integration process of the business acquired from Bluecoat Private Ltd. was completed during the year. Capacity expansions were undertaken in Kalaamb Unit 2 for select Fevicol products.

Operations at two units located at Panvel and Taloja were discontinued during the year and capacity augmented in other existing units.

Fixed Deposits

The Company has not accepted any fixed deposits during the year 2014-15.

Subsidiaries

Investment in Subsidiaries

During the year, investment of Rs. 384.7 million was made in subsidiaries. Of these Rs. 382.4 million was invested in overseas subsidiaries and Rs. 2.3 million was invested in a domestic subsidiary.

The investments in overseas subsidiaries were mainly in Pulvitec do Brazil Industria e Comercio de colas e adesivos Ltda. (Rs. 179 million), Pidilite Middle East Ltd.

(Rs. 189.9 million) for onward investments in Jupiter Chemicals (LLC) and Pidilite Chemical PLC (Rs. 12.1 million).

During the financial year, the Company acquired 70% shareholding in Nina Waterproofing Systems Private Ltd. (Nina), making Nina a domestic subsidiary of the Company. Subsequently, in April, 2015, Nina acquired the water proofing business of Nina Concrete Systems Private Ltd. on a slump sale basis. Nina is engaged in the business of supply and installation of waterproofing systems.

Performance of Domestic Subsidiaries

Percept Waterproofing Services Ltd which commenced operations in February, 2014 reported sales ofRs. 200 million and Profit after Tax ofRs. 7.7 million.

Hybrid Coatings reported sales ofRs. 88.6 million and a Profit after Tax ofRs. 10.3 million. Sales have improved in the second half as the Company's products gained greater acceptance with customers.

Performance of Overseas Subsidiaries

Total revenue grew by 15.1% in constant currency terms. However, due to an unfavourable translation impact, the reported growth is 14.2%.

The subsidiary in US reported sales growth of 11.2% at constant currency. The growth in business was driven by strong growth of Sargent Art business in retail segment.

As a part of business strategy, the subsidiary invested in getting more products approved, improve visibility and

build up supply chain for supporting increased business in retail segment. The subsidiary in US reported 8% growth in profit before tax.

The subsidiary in Brazil reported sales growth of 3.1% at constant currency. This was partly due to slow growth in Brazilian economy. During the year, the company undertook various cost reduction and efficiency improvement initiatives. This resulted in 38% reduction in losses at EBITDA level over last year.

The subsidiary in Bangladesh reported net sales growth of 21.2% at constant currency. Higher sales coupled with pricing actions resulted in 21.3% growth in EBITDA.

The subsidiary in Egypt reported sales growth of 22.1% at constant currency. Margins were under stress due to sharp devaluation (~15%) of local currency against the USD.

The subsidiary reported marginal losses of Rs. 5 million at the EBITDA level.

Sales of the subsidiaries in Thailand grew by 10% at constant currency. Business was affected due to political disturbance / elections and slowdown in economy. Margins during the period improved by 200 bps driven by improved product mix. EBITDA grew by 8.5%.

The subsidiary in Dubai reported sales growth of 74.6% at constant currency on comparable basis. Effective November, 2014, the subsidiary expanded its business to include import and distribution of the parent company's products in the GCC and CIS countries. During the year, the subsidiary acquired a brand 'ROK' and hired a new management team. Losses at EBITDA level have reduced by 27% over last year.

The subsidiary in Singapore reported drop in sales by 20%. Losses were lower than last year by 10.3%.

Full year loss (PBT) incurred by overseas subsidiaries was Rs. 20.2 million as compared to loss of Rs. 180.1 million last year. Excluding extraordinary expenses, the overseas subsidiaries have made a profit of Rs. 4.4 million as compared to loss of Rs. 11.2 million last year.

During the year, Pidilite Chemical PLC was incorporated in Ethiopia, as a subsidiary of the Company. The Company has invested Rs. 12.1 million in Pidilite Chemical PLC (as on 31st March, 2015).

During the year the following companies became subsidiaries of the Company

1. Nina Waterproofing Systems Private Ltd.

2. Pidilite Chemical PLC

Consolidated Financial Statements

In accordance with the requirements of Accounting Standards AS 21 (read with AS 23), issued by the Institute of Chartered Accountants of India, the Consolidated Financial Statements of the Company and its subsidiaries and associate are annexed to this Annual Report.

A statement containing the salient features of the Company's subsidiaries and associate company in the prescribed form is attached.

The consolidated financial statements have been prepared on the basis of audited financial statements of the Company, its subsidiaries and associate company, as approved by their respective Board of Directors except the newly incorporated subsidiary Pidilite Chemical PLC for which the financial statements have been approved by the management of the Company.

The consolidated financial statements of the Company for the financial year 2014-15 are prepared in compliance with applicable provisions of the Companies Act, 2013, Accounting Standards and Listing Agreement as prescribed by the Securities and Exchange Board of India (SEBI).

Directors and Key Managerial Personnel

There has been a change in designation of Shri M B Parekh who ceased to be the Managing Director of the Company with effect from 10th April, 2015 and has been designated as a Whole Time Director and as the Executive Chairman of the Company.

The Board has appointed Shri Bharat Puri as the Managing Director of the Company for a period of 5 years with effect from 10th April, 2015.

Shri N K Parekh has ceased to be the Joint Managing Director of the Company and has been appointed as the Non Executive Vice Chairman of the Company with effect from 1st April, 2015.

The term of Shri A N Parekh as a Whole Time Director will expire on 1st July, 2015. The Board of Directors at their meeting held on 19th May, 2015 have re-appointed him for a further period of 5 years.

Shri R Sreeram, Director (Factories Operations) of the Company resigned with effect from 7th November, 2014 on account of taking up an entrepreneurship role.

Shri J L Shah was appointed as Director (Factories Operations) with effect from 4th November, 2014.

He resigned with effect from 19th May, 2015 as he was planning to re-start his consultancy activity.

Shri Yash Mahajan, Independent Director of the Company resigned with effect from 4th November, 2014 on account of personal reasons.

The Directors place on record their sincere appreciation of the valuable services rendered by Shri R Sreeram, Shri J L Shah and Shri Yash Mahajan during their tenure as Directors of the Company.

In terms of Section 203 of Companies Act, 2013, Shri Sandeep Batra is the Chief Financial Officer of the Company (who was already functioning as Chief Financial Officer designated as Director - Finance).

Shri Sabyaschi Patnaik has been appointed as an Additional Director by the Board of Directors with effect from 19th May, 2015. In terms of Section 161 of the Companies Act, 2013, he holds office upto the date of ensuing Annual General Meeting. Notice in writing with requisite deposit has been received from a member proposing his candidature for the office of Whole Time Director. The Board has also appointed him as Director - Operations, with effect from 19th May, 2015, subject to approval of members.

In accordance with the Articles of Association of the Company, Shri N K Parekh and Shri A N Parekh, Directors of the Company, retire by rotation and being eligible, offer themselves for re-appointment.

Shri Sanjeev Aga is Non-Executive Independent Director of the Company, liable to retire by rotation. In terms of Sections 149, 152 read with Schedule IV and other applicable provisions, if any, of the Companies Act, 2013, he is proposed to be re-appointed as a Director who will be an Independent Director for a term of 5 years from the date of this Annual General Meeting upto the conclusion of the Fifty First Annual General Meeting of the Company to be held in respect of financial year ending 31st March, 2020.

The Company has received requisite notice in writing from a member, proposing Shri Sanjeev Aga for appointment as an Independent Director.

Shri Sanjeev Aga shall not be liable to retire by rotation.

He has given the declaration of independence as per Section 149 (6) of the Companies Act, 2013.

The members' approval is being sought at the ensuing Annual General Meeting for the above appointments.

Directors' Responsibility Statement

Your Directors confirm that:

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

- the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company

at the end of the financial year ended 31st March, 2015 and of the profit of the company for that period;

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

- the directors have prepared the annual accounts on a going concern basis; and

- the Board has laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively;

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

Annual Evaluation by the Board of its Own Performance, its Committees and individual Directors

The Board of Directors of the Company has initiated and put in place evaluation of its own performance, its committees and individual directors. The result of the evaluation is satisfactory and adequate and meets the requirement of the Company.

Familiarisation Programme

Your Company has put in place an induction and familiarisation programme for all its Directors including the Independent Directors.

The familiarisation programme for Independent Directors in terms of provisions of Clause 49 of the Listing Agreement is uploaded on the website of the Company and can be accessed through the following link: https://www.pidilite.com/

Number of Meetings of Board of Directors Nine meetings of the Board of Directors of the Company were held during the year. For further details, please refer to Corporate Governance section of this Annual Report.

Statement of Declaration on Independence given by Independent Directors

Shri B S Mehta, Shri Ranjan Kapur, Shri Uday Khanna and Smt. Meera Shankar, Independent Directors of the Company have given declarations that they meet the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

Shri Sanjeev Aga has also given a declaration that he meets the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

Corporate Governance

Reports on Corporate Governance and Management Discussion and Analysis, in accordance with Clause 49 of the Listing Agreements with Stock Exchanges, along with a certificate from M/s M M Sheth & Co., Practising Company Secretaries, are given separately in this Annual Report.

Statutory Auditors

In accordance with the provisions of Companies Act, 2013, at the Annual General Meeting held on 25th September,

2014, the shareholders had appointed M/s Deloitte Haskins & Sells, Chartered Accountants as Statutory Auditors of the Company, for a period of 4 years i.e. upto the conclusion of 49th Annual General Meeting to be held for the adoption of accounts for the financial year ending 31st March, 2018. M/s Deloitte Haskins & Sells, Chartered Accountants, have consented to be the Auditors of the Company, if their appointment is ratified by the members at the Annual General Meeting and have also confirmed that their appointment is as per the provisions of Section 141 of the Companies Act, 2013 and Rule 4 of Companies (Audit and Auditors) Rules, 2014.

Corporate Social Responsibility Committee

The Corporate Social Responsibility Committee (CSR Committee) comprises of directors namely Shri N K Parekh, Shri Sanjeev Aga and Shri A B Parekh as members.

The report as per Section 135 of the Companies Act, 2013 read with Companies (CSR Policy) Rules, 2014 is attached as Annexure 1.

Audit Committee

The Audit Committee comprises of Directors namely Shri B S Mehta (Chairman), Shri N J Jhaveri, Shri Ranjan Kapur and Shri M B Parekh as other members. All the recommendations made by the Audit Committee were accepted by the Board.

Vigil Mechanism / Whistle Blower Policy

The Company has established a Vigil mechanism for Directors & employees and the same has been communicated to the Directors & employees of the Company and the same is also posted on the website of the Company.

Policy relating to Sexual Harassment

The Company has formulated a Sexual Harassment Policy and has formed an Internal Complaints Committee.

Cost Auditor and Cost Audit Report

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, cost audit records are maintained by the Company. As required under the Companies Act, 2013, a resolution seeking approval of the members in this regard is included in the Notice convening the Annual General Meeting.

Cost Audit Report for the year ended 31st March, 2015 will be submitted in due course.

The Company has filed the Cost Audit Report for the year ended March, 2014 with the Central Government.

Secretarial Auditor and Secretarial Audit Report

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 M/s M M Sheth & Co., Practising Company Secretaries to undertake the Secretarial Audit of the Company. The Report of the Secretarial Auditor is attached as Annexure 2.

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

The particulars under Section 134 of the Companies Act, 2013, read with the Companies (Accounts) Rules, 2014 are attached to this Report as Annexure 3.

Risk Management

During the year your Directors constituted a Risk Management Committee which has been entrusted with roles and powers which include a) Review and approval of risk management plan b) Review progress on the risk management plan c) Propose methodology on risk classification and measurement.

A Risk Management Policy was reviewed and approved by the Committee.

Contracts and arrangements with Related Parties

All Contracts/arrangements entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. During the year, the Company did not enter into any contract/ arrangement/transaction with related parties which could be considered material.

The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed through the following link:

http://www.pidilite.com/financials-policies.html

Your Directors draw attention of the members to Note no. 42 to the financial statement which sets out related party disclosures.

Particulars of Loans, Guarantees or 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 Statements.

Employees Stock Option Scheme

During the financial year 2013-2014, 49,000 options were granted in one tranche to the eligible employees of the Company in terms of Employees Stock Option Scheme - 2012 (ESOS- 2012). During the current financial year, 20,500 options were exercised by the employees. Accordingly, the Company made an allotment of 20,500 equity shares on 15th November, 2014.

The applicable disclosure as stipulated under the SEBI Guidelines as on 31st March, 2015 with regard to Employee Stock Option Scheme is provided in Annexure 4 to this report.

Extract of Annual Return

Extract of Annual Return of the Company is attached as Annexure 5 to this Report.

Particulars of Employees and related disclosures

Disclosure pertaining to remuneration as per Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is attached as Annexure 6 to this Report.

Details of employee remuneration as required under provisions of Section 197 of the Companies Act, 2013 and Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are available at the Registered Office of the Company during working hours and shall be made available to any shareholder on request.

Industry Structure and Development

There is no material change in the industry structure as was reported in the last year.

The Company operates under two major business segments i.e. Branded Consumer & Bazaar Products and Industrial Products.

Products such as Adhesives, Sealants, Art Material, Construction and Paint Chemicals are covered under branded Consumer & Bazaar Products segment.

These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices etc.

Industrial Products segment covers products such as industrial adhesives, synthetic resins, organic pigments, pigment preparations, surfactants etc and caters to various industries like packaging, textiles, paints, printing inks, paper, leather etc.

In both the above business segments, there are a few medium to large companies with national presence and a large number of small companies which are active regionally. There is a growing presence of multinationals in many of the product categories in which the Company operates. The share of imports is less than 10% of domestic volumes in most of the product categories.

The "Others" segment, largely comprises manufacture and sale of Speciality Acetates. As mentioned in last year's report, the VAM plant has been modified to make a range of Speciality Acetates as import of VAM continues to remain more viable as opposed to in-house manufacture.

The technology for these Speciality Acetates has been indigenously developed and these products are gaining acceptance with customers.

Current Year Outlook

Recent trends suggest a weak economic scenario in the current year. This will have an impact on the demand for the Company's products. It is expected that the economic scenario may improve only by the end of the year.

Prices of VAM, a key input for the Company's products, had sharply increased towards end of last year and peaked in July / August 2014. Prices in $ terms have since corrected and together with price increases, taken in last year, would have a positive impact on margins, in the short term.

The Company has 7 manufacturing units in Himachal Pradesh which enjoy exemption from excise duty and income tax. Three of these units will be completing their tax holiday period in 2015-16. While the excise benefit will cease on the 10th anniversary of the setting up of these units, no income tax exemption will be eligible on the profits from these three units for the financial year 2015-16.

The Company's major subsidiaries are in USA, Brazil, Thailand, Egypt, Dubai and Bangladesh.

The economic situation in Brazil is challenging with several key sectors like construction and real estate showing contraction. This is likely to have a negative effect on the performance of Brazilian subsidiary. Other overseas subsidiaries, in aggregate, are working towards an improved performance, subject to no significant adverse impact on current business environment.

Outlook on Opportunities, Threats, Risks and Concerns

The Indian economy provides a large opportunity to the Company to market its differentiated products. Higher growth in select global economies could provide a boost to exports. Slower growth of the Indian economy could impact the performance of the Company.

Overseas subsidiaries by virtue of their relatively smaller size remain vulnerable to the political and economic uncertainties of their respective countries.

Internal Control Systems and their Adequacy

The Company has adequate internal financial control procedures commensurate with its size and nature of business.

The Company has appointed Internal Auditors who periodically audit the adequacy and effectiveness of the internal controls laid down by the management and suggest improvements.

The Audit Committee of the Board of Directors periodically reviews the audit plans, internal audit reports, adequacy of internal controls and risks management plan.

Significant/Material orders passed by the Regulators

There are no significant/material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of the Company and its operations in future.

Human Resources

The company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels.

The 'Talent Management Process', initiated in the previous year has now been strengthened.

The total number of employees as on 31st March, 2015 was 4,904.

Appreciation

Your Directors wish to place on record their appreciation of the contribution made by employees at all levels to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation to the shareholders, dealers, distributors, consumers, banks and other financial institutions for their continued support.

FOR AND ON BEHALF OF THE BOARD

Mumbai M B Parekh Date : 19th May, 2015 Executive Chairman


Mar 31, 2014

The Members

The Directors take pleasure in presenting the Forty Fifth Annual Report together with Audited Statements of Accounts for the year ended 31st March, 2014.

Financial Results

(Rs. in million) 2013-14 2012-13

Gross Turnover 41037 35287

Turnover, Net of Excise 38561 33118

Profit Before Tax 6310 6196

Current Year''s Tax 1599 1559

Profit After Current Year''s Tax 4711 4637

Deferred Tax 25 29

Profit After Tax 4686 4608

Profit Brought Forward 1792 1303

Profit available for appropriation 6478 5911

Appropriations

Proposed Dividend on Equity Shares 1384 1333

Tax on Dividend 235 226

Transfer to Debenture Redemption Reserve 41 60

Transfer to General Reserve 2500 2500

Total 4160 4119

Balance Carried to Balance Sheet 2318 1792

6478 5911

Financial Performance

The Operating Profit for the year at Rs. 7209 million increased by 6.8% and Net Profit at Rs. 4686 million increased by 1.7%. Income tax for the current year at Rs. 1599 million is higher by 2.6% due to increase in the surcharge on income tax from 5% to 10%.

GDP growth and in particular industrial growth in India declined over last year and was the lowest in comparison to the growth in the last 5 years. This affected sales of Company''s products.

Sales of Consumer & Bazaar products grew by 16.3%, below the historical trends.

Sales of Industrial products grew by 15.2%, on account of higher exports, faster than the 10.6% growth recorded in the previous year.

The Indian Rupee was at Rs. 60.05 to a US $ as on 31st March, 2014 as compared to Rs. 54.28 to a US $ as on 31st March, 2013. However the exchange rate was very volatile with the Rs. toucing 68.75 to a dollar during the year. This impacted margins especially in the fourth quarter.

Dividend

The Directors recommend a dividend of Rs. 2.70 per equity share of Rs. 1 each, out of the current year''s profit, on 512.64 million equity shares of Rs. 1 each (previous year Rs. 2.60 per equity share) amounting to Rs. 1384 million (previous year Rs. 1333 million). Dividend for the current year will be free of tax in the hands of shareholders. The dividend payout amount has grown at a CAGR of 16.3% during the last 5 years.

Term Finance

The Company has no outstanding term loans.

Capital Expenditure

The total expenditure during the year was Rs. 1686 million, of which approximately Rs. 1608.7 million was spent on fixed assets for various manufacturing units, offices, laboratories, warehouses and on information technology. This also includes the amount spent for acquiring the business of Suparshva Adhesives Limited.

Synthetic Elastomer Project

As mentioned in last year''s report, the Company has decided to explore induction of a strategic partner in the project. While discussions were held with several interested parties, the Company is yet to finalize a partner for the project.

The total amount spent on the project during the year is Rs. 70.6 million and the total investment in the project stands at Rs. 3696.5 million.

Manufacturing Plants

Environment Management System( EMS ) / Occupational Health & Safety Assessment System (OHSAS) certification process is being extended to the manufacturing units at Secundrabad and Mahad. This is in continuation of the implementation done last year at 17 manufacturing units and the Research & Development facility at Kondivita, Mumbai.

Pidilite Safety, Health & Environment Excellence Model has been deployed at all the manufacturing locations of the Company. This model includes self audit by the units on defined parameters and is followed up by periodical peer audits. This has enabled benchmarking of performance amongst manufacturing units.

Installation of process waste heat recovery system and solar thermal system helped reduce fuel consumption. This together with utilization of power generated from wind farms reduced carbon footprint and manufacturing cost.

Implementation of water conservation initiatives across plants resulted in reduction of water consumption by 3500 kl/month

Non - Convertible Debentures

During the year, the Company redeemed the outstanding 600 Non-Convertible Debentures aggregating to Rs. 600 million.

Fixed Deposits

The Company has not accepted any fixed deposits during the year 2013-14.

Subsidiaries

Investment in Subsidiaries

During the year, investment of Rs. 623.8 million was made in subsidiaries, of which Rs. 549.8 million was in overseas subsidiaries.

Domestic

As on 31st March, 2014, the Company has invested Rs. 24 million in Building Envelope Systems India Limited (BESI), a company engaged in manufacturing of construction chemicals in which the Company holds 60% of the share capital.

During the year, Percept Waterproofing Services Limited (PWSL), was incorporated, as a 100% subsidiary of the Company, for the purpose of carrying on business of services relating to waterproofing including consultancy and project based services. The Company has invested Rs. 48 million in PWSL (as on 31st March, 2014). The present shareholding of the Company in PWSL is 80%.

Overseas Subsidiaries

Total revenue grew by 11.7% in constant currency terms. However, due to a favourable translation impact, the reported growth is 16.8%.

The subsidiary in US reported sales growth of 2.5%. EBITDA for the year improved by 195% mainly due to improvement in margins by 200 bps. It may be recalled that last year an exceptional provision of Rs. 25 million had been made on account of receivables from a customer who had filed for bankruptcy. Excluding this one time provision the growth in EBITDA is 58.7%.

The subsidiary in Brazil reported improvement in performance. Sales grew by 18.4% and margins improved by 790 bps over last year. Despite healthy growth in sales and improvement in margin, the decline in losses at EBITDA level was only 7.3% due to cost related to restructuring of manufacturing operations and higher legal and tax provisions.

The subsidiary in Bangladesh reported sales growth of 36.4% inspite of political unrest and market disturbance for 5 months (September, 2013-January, 2014). Business reported a 68.6% growth in EBITDA. During the year, the subsidiary declared an interim dividend of Rs. 35 million.

The subsidiary in Egypt reported sales growth of 19.6% despite political disturbances in the country. The business improved margins and controlled costs resulting in a positive EBITDA as compared to marginal loss last year.

Sales of the subsidiaries in Thailand grew by 14.2%. EBITDA grew by 38.2%.

The subsidiary in Dubai reported sales de-growth of 7.1%. Losses increased over last year due to lower sales and higher staff cost.

Sales of the subsidiary in Singapore more than doubled due to higher sales from traded products. Losses however, were marginally higher than last year due to provision for slow moving inventory.

Full year losses (PBT) incurred by overseas subsidiaries were Rs. 180.1 million as compared to losses of Rs. 441.7 million last year.

Consolidated Accounts

In accordance with the requirements of Accounting Standards AS 21 (read with AS 23), issued by the Institute of Chartered Accountants of India, the Consolidated Accounts of the Company and its subsidiaries are annexed to this Annual Report. Additionally, a statement giving prescribed particulars of information, in aggregate for each subsidiary, is attached.

In terms of the General Circular No. 2/2011 dated 8th February, 2011, issued by the Government of India, Ministry of Corporate Affairs, the Annual Reports of the subsidiary companies are not annexed to this Report. Members desiring to have a copy of audited Annual Accounts and the related detailed information of the above subsidiaries may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon request. Annual Accounts of these subsidiary companies will also be kept for inspection of the members at the Registered Office of the Company as well as at the Registered Office of the subsidiary companies.

Directors

Shri S K Parekh had been associated with the Group for the last 5 decades and was the Vice Chairman and member of the Board of Directors of the Company. He resigned with effect from 3rd April, 2014 on health grounds.

The Directors place on record their sincere appreciation of the valuable services rendered by him to the Company during his long tenure as a Promoter / Director of the Company.

Shri D Bhattacharya, Director of the Company resigned with effect from 20th May 2014 on account of his inability to devote quality time to the Board owing to increased work load in his current engagements. The Directors place on record their sincere appreciation of the valuable services rendered by him during his tenure as a Director of the Company.

The tenure of Shri R Sreeram, Director (Factories Operations) will expire on 7th November, 2014. The Directors at their meeting held on 28th May 2014 have re-appointed him for a further period of 3 years.

Shri Uday Khanna and Smt. Meera Shankar have been appointed as Additional Directors by the Board of Directors with effect from 3rd April, 2014 and 30th July, 2014, respectively. In terms of Section 161 of the Companies Act, 2013, they hold office only upto the date of the ensuing Annual General Meeting. Notice in writing with requisite deposit has been received from members proposing their candidature for the office of Independent Director.

In accordance with the Articles of Association of the Company, Shri A B Parekh, a Director of the Company, retires by rotation and being eligible, offers himself for re-appointment.

Shri B S Mehta, Shri Ranjan Kapur and Shri Bharat Puri are Non-Executive Independent Directors of the Company, who are liable to retire by rotation. In terms of Sections 149, 152 read with Schedule IV and other applicable provisions, if any, of the Companies Act, 2013, they are proposed to be appointed as Independent Directors for a term of 5 years from the date of this Annual General Meeting upto the conclusion of the Fiftieth Annual General Meeting of the Company to be held in respect of financial year ending 31st March, 2019.

The Company has received requisite notices in writing from members, proposing Shri B S Mehta, Shri Ranjan Kapur and Shri Bharat Puri for appointment as Independent Directors.

These Independent Directors shall not be liable to retire by rotation. All the Independent Directors have given the declaration of independence as per Section 149 (6) of the Companies Act, 2013.

The members'' approval is being sought at the ensuing Annual General Meeting for the above appointments.

Directors'' Responsibility Statement

Your Directors confirm that:

in the preparation of the Annual Accounts, the applicable accounting standards have been followed;

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

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

The Directors have prepared the Annual Accounts on a going concern basis.

Corporate Governance

Reports on Corporate Governance and Management Discussion and Analysis, in accordance with Clause 49 of the Listing Agreement with Stock Exchanges, along with a certificate from M/s M M Sheth & Co., Practising Company Secretaries, are given separately in this Annual Report.

Auditors

In accordance with the provisions of Companies Act, 2013 it is proposed to appoint M/s Deloitte Haskins & Sells, Chartered Accountants, Statutory Auditors of the Company, for a period of 4 years i.e. upto the conclusion of Annual General Meeting to be held for the adoption of accounts for the year ending 31st March, 2018. M/s Deloitte Haskins & Sells, Chartered Accountants, have consented to be the Auditors of the Company, if appointed by the members at the Annual General Meeting and have also confirmed that their appointment is as per the provisions of Section 141 of the Companies Act, 2013 and Rule 4 of Companies (Audit and Auditors) Rule, 2014.

Corporate Social Resposibility Committee

During the year, Directors have constituted the Corporate Social Resposibility Committee (CSR Committee) comprising Shri N K Parekh, Shri Sanjeev Aga and Shri A B Parekh as members.

The said committee has been entrusted with the responsibility of formulating and recommending to the Board, a Corporate Social Resposibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, monitoring the implementation of the CSR policy and recommending the amount to be spent on CSR activities. The Board has approved the CSR Policy in its meeting held on 28th May, 2014.

Cost Auditor

As per the Companies (Cost Records and Audit) Rules, 2014, the Company is not required to conduct cost audit for the financial year 2014-15.

The Cost Audit Report for the year ended March 2014 will be submitted in due course.

The Company has filed the Cost Audit Report for the year ended March 2013 with the Central Government.

Conservation of Energy, Technology Absorption, etc.

The particulars under Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are attached to this Report as Annexure I.

Employees Stock Option Scheme

Nomination and Remuneration Committee of the Board of Directors of the Company inter alia administers and monitors the Employees Stock Option Scheme of the Company, in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (SEBI Guidelines).

The applicable disclosures as stipulated under the SEBI Guidelines as on 31st March, 2014 with regard to Employee Stock Option Scheme are provided in Annexure II to this report.

The Company has received a certificate from the auditors of the Company as required under the SEBI guidelines and it would be placed at the Annual General Meeting of the Company for inspection by the members.

Particulars of Employees

A statement of particulars pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, forms part of this Report as Annexure III. As per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report, together with Accounts, is being sent to the Shareholders of the Company, excluding the statement of particulars of employees under Section 217(2A) of the Companies Act, 1956. Members desiring to have a copy of the same may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon request.

Industry Structure and Development

There is no material change in the industry structure as was reported in the last year.

The Company operates under two major business segments i.e. Branded Consumer & Bazaar Products and Industrial Products.

Products such as Adhesives, Sealants, Art Materials, Construction and Paint Chemicals are covered under branded Consumer & Bazaar Products segment. These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices, etc.

Industrial Products segment covers products such as Industrial Adhesives, Synthetic Resins, Organic Pigments, Pigment Preparations, Surfactants, etc. and caters to various industries like packaging, textiles, paints, printing inks, paper, leather, etc.

In both the above business segments, there are a few medium to large companies with national presence and a large number of small size companies that are active regionally. There is growing presence of multinationals in many of the product categories in which the Company operates. The share of imports is less than 10% of domestic volumes in most of the product categories.

The "Other" segment largely consists of the VA M manufacturing unit.

VAM

As mentioned earlier, due to the global demand supply situation it was viable to import VA M rather than manufacture in-house. Going forward, import of VA M is likely to remain more viable. Manufacture of speciality acetates in this plant is continuing and is likely to be scaled up based on the response from customers.

Current Year Outlook

The demand for the Company''s products is linked to the market demand both in India and worldwide. The current year''s outlook is uncertain. However, economic scenario is likely to improve towards the year end.

Prices of VAM, a key input for the Company''s products have sharply increased in the last few months owing to demand supply imbalance in the global market. The Company is taking suitable steps for price increases to offset the cost increase but due to a time lag between increase in costs and pricing action, margins could be impacted in the short term.

The Company''s major subsidiaries are in USA, Brazil, Thailand, Egypt and Bangladesh.

The overseas subsidiaries in aggregate, are expected to show improved performance. However, the economic environment in Brazil and Egypt is uncertain and may have an adverse impact on the performance of subsidiaries in these countries.

Outlook on Opportunities, Threats, Risks and Concerns

The Indian economy provides a large opportunity to the Company to market its differentiated products. Higher growth in select global economies could provide a boost to exports.

Slower growth of the Indian economy could impact the performance of the Company.

Overseas subsidiaries by virtue of their relatively smaller size remain vulnerable to the political and economic uncertainties of their respective countries.

Internal Control Systems and their Adequacy

The Company has adequate internal control procedures commensurate with its size and nature of business.

The Company has appointed Internal Auditors who audit the adequacy and effectiveness of the internal controls laid down by the management and suggest improvements.

The Audit Committee of the Board of Directors periodically review the audit plans, internal audit reports and adequacy of internal controls and risk management.

Human Resources

The Company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels.

The ''Young Talent Management (YTM)'' program instituted a few years back has been made more robust. A structured ''Talent Management process'' has been initiated across the Company to provide a talent pipeline to fulfill the future managerial needs.

The Company also enhanced the Capability Building process at all levels through various learning initiatives.

The total number of employees as on 31st March, 2014 was 4,651.

Appreciation

Your Directors wish to place on record their appreciation of the contribution made by employees at all levels to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation to the shareholders, dealers, distributors, consumers, banks and other financial institutions for their continued support.

FOR AND ON BEHALF OF THE BOARD

Mumbai M B Parekh

Date : 30th July, 2014 Chairman & Managing Director


Mar 31, 2013

To The Members

The Directors take pleasure in presenting the Forty Fourth Annual Report together with Audited Statements of Accounts for the year ended 31st March 2013.

Financial Results

(Rupees in million)

2012-13 2011-12

Gross Turnover 35287 29579

Turnover, Net of Excise 33118 27995

Profit Before Tax 6196 4441

Current Year''s Tax 1559 1051

Profit After Current Year''s Tax 4637 3390

Deferred Tax 29 45

Profit After Tax 4608 3345

Profit Brought forward 1303 1073

Profit available for appropriation 5911 4418

Appropriations

Proposed Dividend on Equity Shares 1333 965*

Tax on Dividend 226 157

Transfer to Debenture Redemption Reserve 60 243

Transfer to General Reserve 2500 1750

Total 4119 3115

Balance Carried to Balance Sheet 1792 1303

5911 4418

*Includes dividend for the prior year paid on 3,49,388 equity shares issued on conversion of FCCBs after the balance sheet date but prior to the book closure.

Financial Performance

The Operating Profit and Net Profit for the year at Rs. 6752 million and Rs. 4608 million increased by 26% and 38% respectively. Income Tax for the current year at Rs. 1559 million is higher by 48%, due to completion of the first five year tax holiday period for one manufacturing unit located in Himachal Pradesh. With this all units have completed their first five year tax holiday period.

Slow down in industrial growth in India combined with a weak global economy, impacted sales of industrial products. As a result, sales of industrial products grew by 10.6%, below the historical trends.

Sales of Consumer & Bazaar products grew by 20.7%. Volume growth, however, was lower than past trends.

The Indian Rupee was at Rs. 54.28 to a US $ as on 31st March 2013 as compared to Rs. 50.87 to a US as on 31st March 2012. Moreover the Rupee saw high volatility during the year and at times quoted above Rs. 57 to a US $. This made imports costlier and impacted margins. This movement adversely impacted the liability on account of outstanding Foreign Currency Convertible Bonds (FCCBs). However, this impact was partly offset by conversion of 128 FCCBs which resulted in write back of the earlier exchange fluctuations. Consequently, exchange loss for the year was only Rs. 5 million as compared to Rs. 85 million in the previous year.

Dividend

The Directors recommend a dividend of Rs. 2.60 per equity share of Rs. 1 each, out of the current year''s profit, on 512.64 million equity shares of Rs. 1 each (previous year @ Rs. 1.90 per equity share) amounting to Rs. 1333 million (previous year Rs. 965 million). Dividend for the current year will be free of tax in the hands of shareholders. The dividend payout amount has grown at a CAGR of 32% during the last 5 years.

Term Finance

The Company has no outstanding term loans.

Capital Expenditure

The total expenditure during the year was Rs. 1284 million, of which approximately Rs. 1209.5 million was spent on fixed assets for various manufacturing units, offices, laboratories, warehouses and on information technology. The expenditure on the Synthetic Elastomer Project was approximately Rs. 74.5 million.

Investment in Subsidiaries

During the year, investment of Rs. 265.3 million was made in subsidiaries, of which Rs. 265 million was in overseas subsidiaries.

Synthetic Elastomer Project

As mentioned in last year''s report, construction work on the Synthetic Elastomer Project remained suspended as the Company was evaluating various alternatives regarding the future of the project.

With due consideration to techno-commercial factors and completion of a strategic review, the Company has decided to explore induction of a strategic partner for the project.

The total amount spent on this project is Rs. 3625.9 million.

Manufacturing Plants

EMS (Environment Management System)/OHSAS (Occupational Health & Safety Assessment System) Certification has been obtained for 17 manufacturing locations and the Research & Development facility at Kondivita, Mumbai.

Implementation of these systems enables better control on safety management systems at the units and is one of the indicators of good manufacturing practices.

During the year, the Company commissioned a manufacturing unit at Mahad for producing PVC film.

The Company made an investment of Rs. 352.9 million and expanded capacity of various products to meet market demand.

Implementation of water conservation initiatives across plants resulted in reduction of water consumption by 275kL/month.

Foreign Currency Convertible Bonds Of the US $ 40 million raised through issue of 400 zero coupon Foreign Currency Convertible Bonds (Bonds) in 2007-2008, 333 Bonds aggregating US $ 33.3 million were outstanding as on 31st March 2012. 128 Bonds worth US $ 12.8 million were converted during the year and 4,993,704 Equity shares issued. The remaining 205 Bonds were redeemed on due date.

Fixed Deposits

The Company has not accepted any fixed deposit during the year 2012-13.

Subsidiaries

Domestic

During the year, a Joint Venture Company, Building Envelope Systems India Limited was incorporated for manufacture of a select range of construction chemicals for application in waterproofing and thermal insulation. All these products will be sold through the Company. These products will address demand for high end waterproofing solutions. The Company holds 60% of the capital in the Joint Venture Company.

Overseas Subsidiaries

Total revenue grew by 6.6% in constant currency terms.

The business in US reported sales growth of 10.2%. EBIDTA for the year declined by 21.6% due to higher material costs and item as detailed later.

The subsidiary in Brazil continued to perform below expectations. Sales declined by 0.9%. However due to actions taken to improve performance, sales growth in the second half was 6.7% as compared to a decline of 7.9% in the first half. Actions taken to improve performance include strengthening the management as well as to reduce cost and improve margin.

The subsidiary in Bangladesh reported sales growth of 34%. The business scope was extended to include trading operations which started in December 2012.

Sales growth after including the revenue from trading operations was 42%. The manufacturing facility was expanded to produce a wider range of adhesives.

Full benefit of these initiatives will be reflected in the current year.

The subsidiaries in Thailand reported sales growth of 22%. The manufacturing operations in Thailand were rationalised by shutting down one manufacturing facility to reduce operating costs.

The subsidiary in Egypt had a sales growth of 25%.

Losses were significantly reduced.

The subsidiary in Dubai reported sales decline of 42%. With measures taken to reduce costs, losses were lower than last year.

Due to the reasons mentioned above, the overseas operations continue to report losses.

Full year losses incurred by overseas subsidiaries were Rs. 440 million as compared to a loss of Rs. 254 million last year. This was mainly due to the following items:

i. Provision for receivables due from a Rs. 25 million customer who has filed for bankruptcy in US

ii. Provision for goodwill impairment Rs. 94 million in Brazil

iii. Provision for disputed tax liabilities of Rs. 46 million previous years & other disputed items in Brazil

iv. One off expenses for closure of factory Rs. 12 million in Thailand

Total Rs. 177 million

The total investment in overseas subsidiaries as on 31st March 2013 stands at Rs. 3032.34 million.

Consolidated Accounts

In accordance with the requirements of Accounting Standards AS 21 (read with AS 23), issued by the Institute of Chartered Accountants of India, the Consolidated Accounts of the Company and its subsidiaries are annexed to this Annual Report. Additionally, a statement giving prescribed particulars of information, in aggregate for each subsidiary, is attached.

In terms of the General Circular No. 2/2011 dated 8th February 2011, issued by the Government of India, Ministry of Corporate Affairs, the Annual Reports of the subsidiary Companies are not annexed to this Report. Members desiring to have a copy of audited Annual Accounts and the related detailed information of the above subsidiaries may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon such a request. Annual Accounts of these subsidiary Companies will also be kept for inspection of the Members at the Registered Office of the Company as well as at the Registered Office of the subsidiary Companies.

Directors

Shri B K Parekh, Founder Chairman of the Company passed away on 25th January 2013. Shri B K Parekh was a visionary of unassuming quality and was a warm, loving and caring leader with strong business acumen.

The tenure of Shri M B Parekh as Managing Director, Shri N K Parekh as Joint Managing Director and Shri A B Parekh as Whole-time Director will expire on 31st July 2013. The Directors at their meeting held on 10th June 2013 have re-appointed them for a period of 5 years.

The Members'' approval is being sought at the ensuing Annual General Meeting for above re-appointments.

In accordance with the Articles of Association of the Company, the tenure of Shri R M Gandhi as a Director expires at the ensuing Annual General Meeting.

Shri R M Gandhi has expressed his unwillingness to be re-appointed as a Director. The Directors place on record their sincere appreciaton of the valuable contribution made by him during his tenure on the Board.

In accordance with the Articles of Association of the Company, Shri Yash Mahajan, Shri N J Jhaveri,

Shri S K Parekh and Shri A N Parekh, Directors of the Company, retire by rotation and being eligible, offer themselves for re-appointment.

At the Board meeting held on 28th May 2013,

Shri M B Parekh was appointed as the Chairman & Managing Director of the Company.

Directors'' Responsibility Statement

Your Directors confirm that:

- in the preparation of the Annual Accounts, the applicable accounting standards have been followed;

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

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

- The Directors have prepared the Annual Accounts on a going concern basis.

Corporate Governance

Reports on Corporate Governance and Management Discussion and Analysis, in accordance with Clause 49 of the Listing Agreements with Stock Exchanges, along with a certificate from M/s M M Sheth & Co. Practising Company Secretaries, are given separately in this Annual Report.

Auditors

M/s Haribhakti & Co. the Company''s Auditors are not seeking re-appointment at the forthcoming Annual General Meeting. The Directors place on record their appreciation of the valuable services rendered by them during their tenure as the Auditors of the Company.

It is proposed to appoint M/s Deloitte Haskins & Sells, Chartered Accountants as the Statutory Auditors to hold office from the conclusion of this Annual General Meeting till the conclusion of the next Annual General Meeting. M/s Deloitte Haskins & Sells, Chartered Accountants, have consented to be the Auditors of the Company, if appointed by the members at the Annual General Meeting and have also confirmed that their appointment would be within the limits specified under Section 224(1B) of the Companies Act, 1956.

Cost Auditor

The Company has appointed M/s V J Talati & Co. as Cost Auditor to conduct cost audit for the financial year 2013-14, subject to the approval of the Central Government.

The Cost Audit Report for the year ended March 2013 will be submitted in due course.

The Company duly filed the Cost Audit Report for the year ended March 2012 with the Central Government on 30th January 2013.

Conservation of Energy, Technology Absorption, etc.

The particulars under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are attached to this Report as AnnexureI.

Particulars of Employees

A statement of particulars pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 forms part of this Report as Annexure II. As per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report, together with Accounts, is being sent to the Shareholders of the Company, excluding the statement of particulars of employees under Section 217(2A) of the Act. Members desiring to have a copy of the same may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon such a request.

Industry Structure and Development

There is no material change in the industry structure as was reported last year.

The Company operates under two major business segments i.e. Branded Consumer & Bazaar Products and Industrial Products.

Products such as Adhesives, Sealants, Art Materials, Construction and Paint Chemicals are covered under branded Consumer & Bazaar Products segment.

These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices, etc.

Industrial Products segment covers products such as Industrial Adhesives, Synthetic Resins, Organic Pigments, Pigment Preparations, Surfactants, etc. and caters to various industries like packaging, textiles, paints, printing inks, paper, leather, etc.

In both the above business segments, there are a few medium to large companies with national presence and a large number of small size companies that are active regionally. There is growing presence of multinationals in many of the segments in which the Company operates. The share of imports is less than 10% of domestic volumes in most of the product segments.

The "Other" segment largely covers manufacture and sale of VAM. As mentioned earlier, due to global demand supply situation it was viable to import VAM rather than manufacture in-house and accordingly the plant remained shut last year. Going forward, import of VAM is likely to remain more viable. As mentioned earlier, the Company has started manufacturing few speciality acetates at the plant. Market feedback, from the products manufactured and sold in the current year, has been positive.

Current Year Outlook

The demand for the Company''s products is linked to the market demand both in India and globally. The current year''s outlook is uncertain due to the present weakness in the underlying economic scenario.

With the Indian Rupee likely to remain weak versus the US $ due to the high fiscal deficit, margins are not likely to improve as higher cost of imports could offset gains from lower commodity prices.

The Company''s major subsidiaries are in USA, Brazil, Thailand, Egypt and Bangladesh.

All these units are making efforts to improve performance through demand generation and cost reduction initiatives.

Outlook on Opportunities, Threats, Risks and Concerns

The Indian economy provides a large opportunity to the Company to market its differentiated products. Recovery in select global economies could provide a boost to exports.

However, slower growth of the Indian economy could impact the performance of the Company. A weak Indian currency could make imports costlier thereby putting pressure on margins.

Overseas subsidiaries by virtue of their relatively smaller size remain vulnerable to the political and economic uncertainties of their respective countries.

Internal Control Systems and their Adequacy

The Company has adequate internal control procedures commensurate with its size and nature of business.

The Company has appointed Internal Auditors who audit the adequacy and effectiveness of internal controls laid down by the management and suggest improvements.

The Audit Committee of the Board of Directors periodically reviews the audit plans, internal audit reports and adequacy of internal controls and risk management.

The internal audit process of the Company detected a fraud whereby goods, described as samples were misappropriated. The total amount of misappropriation is Rs. 170.1 million. The Company had intimated the Stock Exchanges and initiated legal proceedings. This led to recovery of part of the amount. The nature of the misappropriation was such that its impact had already been reflected in the Company''s financial results for the earlier years. The Company has taken adequate steps to strengthen the internal control procedures to prevent such instances in future.

Human Resources

The Company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels.

The Performance Management System has undergone considerable improvement and has enabled sharpening of the process of setting Goals & Major Initiatives.

During the year, the organisation structures of all key functions have been reviewed and strengthened so as to facilitate delivery of business goals.

The total number of employees as on 31st March 2013 was 4358.

SAP Implementation

The Company has implemented SAP across all its plants, depots and Head Office effective May 2013. This will improve productivity and provide accurate real time information for improved analysis and decision support.

Appreciation

Your Directors wish to place on record their appreciation of the contribution made by employees at all level to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation to the shareholders, dealers, distributors, consumers, banks and other financial institutions for their continued support.

FOR AND ON BEHALF OF THE BOARD

Mumbai M B Parekh

Date : 10th June 2013 Chairman & Managing Director


Mar 31, 2012

To

The Members

The Directors take pleasure in presenting the Forty Third Annual Report together with Audited Statements of Accounts for the year ended 31st March 2012.

Financial Results

(Rupees in million) 2011-12 2010-11

Gross Turnover 29579 24883

Turnover, Net of Excise 27995 23538

Profit Before Tax 4441 3974

Current Year's Tax 1051 941

Profit After Current Year's Tax 3390 3033

Deferred Tax 45 (6)

Profit After Tax 3345 3039

Profit Brought forward 1073 1006

Profit available for appropriation 4418 4045

Appropriations

Proposed Dividend on Equity Shares

965* 886 (@ T 1.75 per share for the FY 2010-11)

Tax on Dividend 157 144

Transfer to Debenture Redemption Reserve 243 42

Transfer to General Reserve 1750 1900

Total 3115 2972

Balance Carried to Balance Sheet 1303 1073

4418 4045

*Includes dividend for the prior year paid on 3,49,388 equity shares issued on conversion of FCCBs after the balance sheet date but prior to the book closure.

Financial Performance

The Operating Profit and Net Profit, for the year at Rs. 5343 million and Rs. 3345 million increased by 8% and 10% respectively Income Tax for the current year at Rs. 1051 million is higher by 11.7%, due to completion of the first five year tax holiday period for one manufacturing unit located in Himachal Pradesh This is the fourth unit, out of six, which has completed the first 5 year tax holiday period

Business performance in the first half of the current year was better than in second half. The global economic situation affected exports, particularly of ndustrial products where the growth rates in the second half of the year were much below the past trends and significantly lower than what was recorded in the first half of the year. However, the Consumer & Bazaar segment maintained its growth in line with past trends. In addition, input prices increased steeply which, coupled with the weakening of the Rupee vis a vis US dollar, mpacted margins.

The Indian Rupee was at Rs. 50.87 to a USD as on 31st March 2012 as compared to Rs. 44.40 to a USD as on 31st March 2011. As a result, the exchange loss in the year was Rs. 85 million as compared to a loss of Rs. 8.4 million last year. The Company has opted to amortize the exchange rate difference on Foreign Currency Convertible Bonds over the remaining period of the Bonds and accordingly Rs. 55.5 million is carried forward in the balance sheet to be amortized between April 2012 and November 2012.

* After deferred tax of Rs. 140 million and prior year's tax provision written back of Rs. 4 million

** After deferred tax of Rs. 18 million and prior year's tax provision written back of Rs. nil.

*** After deferred tax reversal of Rs. 25 million and prior year's tax provision written back of Rs. 44 million.

# After deferred tax reversal of Rs. 6 million and before exceptional item of Rs. 250 million. ## Excludes exceptional item.

Dividend

The Directors recommend a dividend of Rs. 1.90 per equity share of Rs. 1 each out of the current year's profit, on Rs. 507.65 million equity shares of Rs. 1 each (previous year @ Rs. 1.75 per equity share) amounting to Rs. 965 million which includes dividend for the prior year paid on 3,49,388 equity shares issued on conversion of Foreign Currency Convertible Bonds (FCCBs) after the balance sheet date but prior to the book closure (previous year Rs. 886 million). In accordance with the terms of issue of FCCBs, shares allotted on conversion of FCCBs will also be entitled to Dividend for the year ended 2011-12, where request for conversion is received before the book closure. The dividend for the current year will be free of tax in the hands of shareholders. The dividend payout amount has grown at a CAGR of 21.3% during the last 5 years.

Term Finance

The Company had borrowed USD 17 million through an ECB Term loan amounting to Rs. 796.2 million, repayable in 3 annual installments. During the year the Company repaid the final installment amounting to USD 5.67 million equivalent to Rs. 231.7 million.

Capital Expenditure

The total expenditure during the year was Rs. 1474 million, of which approximately Rs. 1005 million was spent on fixed assets for various manufacturing units, offices, laboratories, warehouses and information technology. The expenditure on the Synthetic Elastomer Project was approximately Rs. 469 million.

Investment in Subsidiaries

During the year, investment of Rs. 189.2 million was made in

overseas subsidiaries.

Synthetic Elastomer Project

Work on the construction of the Synthetic Elastomer Plant has been kept on hold, as a detailed techno commercial review of the project is underway.

During the year Rs. 469 million was spent on the project, which includes interest on loans of Rs. 65.7 million and foreign exchange fluctuation of Rs. 74.0 million.

The total amount spent on this project is Rs. 3551.4 million.

Manufacturing Plants

EMS (Environment Management System)/OHSAS (Occupational Health & Safety Assessment System) Certification has been obtained for 18 manufacturing locations.

Implementation of these systems enables better control on safety management systems at the units and is one of the indicators of good manufacturing practices.

During the year the Company commissioned a manufacturing unit at Secunderabad for manufacture of construction chemicals.

Manufacturing capacity of emulsion polymers, Fevikwik, Steelgrip, stainers, white glues and construction chemicals were enhanced.

Foreign Currency Convertible Bonds (FCCBs) Of the USD 40 million raised through issue of zero coupon Foreign Currency Convertible Bonds in 2007-2008, Bonds aggregating USD 33.3 million were outstanding as on March 2012. Bonds worth USD 3.9 million were converted during the year and 15,14,014 equity shares issued. The bond holders remain entitled to convert their holdings into Equity shares anytime upto 1st December, 2012. These Bonds are redeemable on 7th December, 2012.

Fixed Deposits

Your Company has not accepted any fixed deposits during the year 2011-12.

Subsidiaries - Overseas Subsidiaries

Total revenue grew by 1.8% in constant currency terms.

The business in USA reported a 2.5% decline in sales (in constant currency terms). However, due to actions taken to improve margin and control costs, EBIDTA for the year was higher by 10%.

The subsidiary in Brazil performed below expectations. Sales declined by 4.3% due to competitive pressures. Due to inability to fully pass on cost increases, the business reported significantly higher losses than last year.

The subsidiary in Bangladesh strengthened its market position with sales growing by 20.2%. Profitability was impacted by increase in commodity cost and sharp depreciation of the currency. The company is expanding its manufacturing facility to produce an additional range of adhesives which are currently being imported from India.

The subsidiaries in Thailand reported a 12.4% growth in sales despite weak economic situation and floods in the country. Profitability improved during the year due to actions taken to improve margins and reduce costs.

The subsidiary in Dubai reported a 24.7% growth in sales, although on a lower base. While losses were significantly reduced, the business still reported a cash loss in the year.

The operations in Egypt showed signs of recovery with sales growth of 63.3%. However, margins were impacted due to steep increase in input costs.

Due to the reasons mentioned above, the overseas subsidiaries, in aggregate, reported losses higher than last year by 20%.

The total investment in overseas subsidiaries as on 31st March 2012 stands at Rs. 2767.37 million

Consolidated Accounts In accordance with the requirements of Accounting Standards AS 21 (read with AS 23), issued by the Institute of Chartered Accountants of India, the Consolidated Accounts of the Company and its subsidiaries are annexed to this Annual Report. Additionally, a statement giving prescribed particulars of information, in aggregate for each subsidiary, is attached.

In terms of the General Circular No. 2/2011 dated 08.02.2011, issued by the Government of India, Ministry of Corporate Affairs, the Annual Reports of the Subsidiary Companies are not annexed to this Report. Members desiring to have a copy of audited Annual Accounts and the related detailed information of the above subsidiaries may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon such a request. Annual Accounts of these subsidiary companies will also be kept for inspection of the Members at the Registered Office of the Company as well as at the Registered Office of the subsidiary companies.

Directors

In accordance with the Articles of Association of the Company, Shri Bansi S. Mehta, Shri Ranjan Kapur Shri D. Bhattacharya and Shri A B Parekh, Directors of the Company, retire by rotation and being eligible, offer themselves for re-appointment.

Shri J L Shah was a Whole-time Director of the Company upto 20th October, 2011. He resigned from directorship with effect from 8th November, 2011. Directors place on record their sincere appreciation of the valuable contribution made by him during his tenure on the Board

Shri Sanjeev Aga and Shri R Sreeram have been appointed as Additional Directors by the Board of Directors and they hold office upto the date of the ensuing Annual Genera Meeting. Subject to approval of members, Shri R Sreeram has also been appointed by the Board of Directors as Whole-time Director, designated as Director (Factories Operations), with effect from 8th November, 2011. Notices in writing with requisite deposit have been received from members proposing Shri Sanjeev Aga and Shri R Sreeram as candidates for the office of Director.

Directors' Responsibility Statement

Your Directors confirm that:

In the preparation of the Annual Accounts, the applicable accounting standards have been followed;

The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financia year ended 31st March 2012 and of the profit of the Company for the year ended on that date;

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

The Directors have prepared the Annual Accounts on a going concern basis.

Corporate Governance

Reports on Corporate Governance and Management Discussion and Analysis, in accordance with Clause 49 of the Listing Agreements with Stock Exchanges, along with a certificate from M/s M M Sheth & Co, Practising Company Secretaries, are given separately in this Annual Report.

Auditors

Members are requested to re-appoint M/s Haribhakti & Co., Chartered Accountants, as Auditors of the Company and also for its branches/C & F depots/depots, for the current financial year and to fix their remuneration

Cost Auditor

The Company has appointed M/s. V. J. Talati & Co., as Cost Auditor to conduct cost audit for the financial year 2012-13, subject to the approval of the Central Government.

The Cost Audit Report for the year ended March, 2012 will be submitted in due course.

The Company has filed the Cost Audit Report for the year ended March, 2011 with the Central Government on 23rd August, 2011. The due date for the same was 27th September, 2011

Conservation of Energy, Technology Absorption, etc.

The particulars under Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are attached to this Report as Annexure I

Particulars of Employees

A statement of particulars pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, forms part of this Report as Annexure II. As per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report, together with Accounts, is being sent to the Shareholders of the Company, excluding the statement of particulars of employees under Section 217(2A) of the Act. Members desiring to have a copy of the same may write to the

Company Secretary at the Registered Office of the Company and they will be provided with the same upon such a request.

Industry Structure and Development

There is no material change in the industry structure as was reported in the last year.

The Company operates under two major business segments i.e. Branded Consumer & Bazaar Products and Specialty Industrial Chemicals.

Products such as Adhesives, Sealants, Art Materials, Construction and Paint Chemicals are covered under branded Consumer & Bazaar Products segment. These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices, etc.

Specialty Industrial Chemicals segment covers products such as Industrial Adhesives, Synthetic Resins, Organic Pigments, Pigment Preparations, Surfactants, etc. and caters to various industries like packaging, textiles, paints, printing inks, paper, leather, etc.

In both the above business segments, there are a few medium to large companies with national presence and a large number of small size companies that are active regionally. There is growing presence of multinationals in many of the segments in which the Company operates. The share of imports is less than 10% of domestic volumes in most of the product segments.

The "Other" segment largely covers manufacture and sale of VAM. As mentioned earlier, due to the global demand supply situation it was viable to import VAM rather than manufacture in-house and accordingly the plant remained shut last year. Going forward, import of VAM is likely to remain more viable. The Company is exploring alternate products which can be manufactured in the same plant.

Current Year Outlook

The current year's outlook is somewhat uncertain due to various factors like weakening demand, high interest rates and high inflation.

In addition, the volatility in currency rates impact input costs and due to a lag between the cost inflation and price increase, margins could get impacted in the short term.

The Company's major subsidiaries are in USA, Brazil, Thailand, Egypt and Bangladesh. Although initiatives are underway to improve performance of the subsidiaries, they are likely to face difficulties due to weak economic outlook in their respective markets. The business in Brazil remains susceptible to competitive pressures and high inflation.

Outlook on Opportunities, Threats, Risks and Concerns

The larger size of the Indian economy continues to provide an opportunity to the Company to bring in differentiated and value added products for addressing customer requirements. Recovery in the global economy could revive growth of exports.

Input cost increases, led by high crude oil prices and a weak rupee, could put pressure on margins in the short term.

The relative small size of overseas subsidiaries renders them vulnerable to local political/economic uncertainties, competitive and inflationary pressures.

Internal Control Systems and their Adequacy The Company has adequate internal control procedures commensurate with its size and nature of business.

The Company has appointed Internal Auditors who audit the adequacy and effectiveness of internal controls laid down by the management and suggest improvements.

For overseas subsidiaries, this is being done by their Statutory Auditors.

The Audit Committee of the Board of Directors periodically reviews the audit plans, internal audit reports and adequacy of internal controls and risks management.

Human Resources

The Company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels.

During the year, the Talent Management process has further evolved and the Learning & Development cell has been strengthened, with the objective of providing adequate support and resources to develop a talent pipeline.

As part of capability building across the organization, certain key support functions have been restructured and strengthened.

The total number of employees as on 31st March 2012 was 4223.

Appreciation

Your Directors wish to place on record their appreciation of the contribution made by employees at all level to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation for the shareholders, dealers, distributors, consumers, banks and other financial institutions for their continued support.

FOR AND ON BEHALF OF THE BOARD

Mumbai S K Parekh M B Parekh

Date : 24th May 2012 Vice Chairman Managing Director




Mar 31, 2011

The Directors take pleasure in presenting the Forty Second Annual Report together with Audited Statements of Accounts for the year ended 31st March 2011.

Financial Results

(Rupees in million)

2010-11 2009-10

Gross Turnover 24883 20240

Turnover, Net of Excise 23538 19322

Profit Before Tax 3975 3289

Current Years Tax 942 423

Profit After Current Years Tax 3033 2866

Deferred Tax (6) (25)

Profit After Current and Deferred Tax 3039 2891

Add: Prior Year Tax Provision written back - 44

Profit After Tax 3039 2935

Profit Brought Forward 1006 779

Profit available for appropriation 4045 3714

Appropriations

Proposed Dividend on Equity Shares 886 759

Tax on Dividend 143 126

Transfer to Debenture Redemption Reserve 42 323

Transfer to General Reserve 1900 1500

Total 2971 2708

Balance Carried to Balance Sheet 1074 1006

4045 3714

Financial Performance

The Operating Profit and Net Profit, for the year at Rs 4945 million and Rs 3039 million increased by 20% and 5% respectively. Income Tax for the current year at Rs 942 million is higher than Rs 423 million in the last year, due to completion of the first five year tax holiday period for 3 manufacturing units located in Himachal Pradesh.

Due to the improvement in the economic conditions in India, as evidenced by the strong GDP growth, sales growth was higher than last few years trend. The economic revival in the developed markets in the world also resulted in growth in exports, particularly in the second half of the year.

However, there has been an increase in the input costs, largely in the last quarter, due to firming up of commodity prices and that has put pressure on margins particularly of Industrial Products.

The stable Indian Rupee and cost control measures taken by the Company have helped to maintain the profitability at levels similar to that of the previous year.

The exchange rate of Indian Rupee was at Rs 44.40 to a USD in March 2011 as compared to Rs 44.97 to a USD in March 2010. Accordingly there was a nominal credit of Rs 1.99 million to carrying cost of depreciable assets and Rs 8.05 million was credited to the Foreign Exchange Monetary Item Translation Account. Out of the said Foreign Currency Monetary Item Translation Account, Rs 1.07 Million has been amortised in the current year.

After deferred tax of Rs 34 million and prior years tax provision written back of Rs 2 million

After deferred tax of Rs 140 million and prior years tax provision written back of Rs 4 million

After deferred tax of Rs 18 million and prior years tax provision written back of Rs nil.

After deferred tax reversal of Rs 25 million and prior years tax provision written back of Rs 44 million.

After deferred tax reversal of Rs 6 million and before exceptional item of Rs 250 million. $ Excludes exceptional item of Rs 250 million

Dividend

The Directors recommend a dividend of Rs 1.75 per equity share of Rs 1 each out of the current years profit, on 506.1 million equity shares of Rs 1 each (previous year @ Rs 1.50 per equity share including Rs 0.50 per equity share as "Golden Jubilee Special Dividend"), amounting to Rs 886 million (previous year Rs 759.2 million). In accordance with the terms of issue of Foreign Currency Convertible Bonds (FCCBs), shares alloted on conversion of FCCBs will also be entitled to Dividend, where request for conversion is received before the book closure for payment of dividend for the financial year 2010-11. The dividend for the current year will be free of tax in the hands of shareholders. The dividend payout amount has grown at a CAGR of 23.68 % during the last 5 years.

Term Finance

The Company had borrowed USD 17 million through an ECB Term loan amounting to Rs 796.2 million, repayable in 3 annual installments. During the year the Company has repaid the 2nd of the 3 annual installments amounting to USD 5.67 million equivalent to Rs 241.18 million.

Capital Expenditure

The overall expenditure during the year was Rs 1235.68 million. Out of this approximately Rs 711.72 million was spent on fixed assets for various manufacturing units, offices, laboratories and warehouses and on information technology. The expenditure on the Synthetic Elastomer Project was approximately Rs 458.59 million.

Investment in Subsidiaries

During the year, Investment of Rs 131.73 million was made in overseas subsidiaries.

Synthetic Elastomer Project

The Company has started the construction of the Synthetic Elastomer Plant. Civil work at site has commenced and Company is targeting completion in the first half of the next financial year.

The total amount spent on this project is Rs 3106.61 million.

Manufacturing Plants

Health, Safety and Environment activities continued during the year bringing greater focus on safety and environment at all manufacturing units.

Continuous improvement plans in the manufacturing units resulted in 400 plus Kaizens leading to productivity and process improvement.

Manufacturing capacity of insulation tapes, Fevikwik and Fevicol were enhanced.

Technology and automation projects initiated and completed on various lines like Fevigum, Fevicol, M-seal, insulation tapes, Fevikwik and various industrial products.

Foreign Currency Convertible Bonds (FCCB)

Of the USD 40 million raised through issue of zero coupon Foreign Currency Convertible Bonds in 2007-2008, bonds aggregating USD 37.2 million were outstanding as on March 2011. The bond holders are entitled to convert their holdings into Equity shares anytime on or after 16th January 2008 upto 1st December 2012.

Fixed Deposits

Your Company has not accepted any fixed deposits during the year 2010-11.

Subsidiaries - Overseas Subsidiaries

During the year, Pidilite Industries Trading (Shanghai) Company Limited was incorporated in China as a wholly owned subsidiary of Pidilite International Pte. Ltd., Singapore (which is a wholly owned subsidiary of the Company).

The business in USA reported a 11.4% growth in sales. This growth together with improvement in operating margins helped the subsidiary to post cash profits as compared to cash losses last year.

While the subsidiary in Brazil, reported a 10.5% growth in sales, due to increase in input costs, the unit incurred losses from operations.

The operations in Bangladesh continued to gain strength with increased market penetration. The unit reported a profit after tax in its first full year of operations. Though the operations in Thailand reported higher cash profits than in the previous year, sales growth was lower than expected. Post tax losses were at levels similar to last year. Performance of the subsidiary in Dubai was impacted by adverse conditions in the markets serviced by the subsidiary.

Operations and performance of the subsidiaries in Egypt were disturbed due to political developments in the country and neighboring areas.

Due to the reasons mentioned above the overseas operations made a nominal cash loss. The net loss before tax was higher than the previous year. Total revenue from overseas subsidiaries for the year stood at Rs 3021 million, up by 11.4% over the previous year. The total investment in overseas subsidiaries as on 31st March 2011 stands at Rs 2578 million

A statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiaries in India and abroad, is attached hereto.

Consolidated Accounts

In accordance with the requirements of Accounting Standards AS 21 (read with AS 23) issued by the Institute of Chartered Accountants of India, the Consolidated Accounts of the Company and its subsidiaries are annexed to this Annual Report. Additionally, a statement giving prescribed particulars of information, in aggregate for each subsidiary, is attached.

In terms of the General Circular No. 2/2011 dated 08.02.2011, issued by the Government of India, Ministry of Corporate Affairs, the Annual Reports of the Subsidiary Companies are not annexed to this Report. Members desiring to have a copy of audited Annual Accounts and the related detailed information of the above subsidiaries may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon such a request. Annual Accounts of these subsidiary Companies will also be kept for inspection of the Members at the Registered Office of the Company as well as at the Registered Office of the subsidiary companies.

Directors

In accordance with the Articles of Association of the Company, Shri B K Parekh, Shri S K Parekh, Shri A N Parekh and Shri Bharat Puri, Directors of the Company, retire by rotation and being eligible, offer themselves for re-appointment.

Directors Responsibility Statement

Your Directors confirm that:

In the preparation of the Annual Accounts, the applicable accounting standards have been followed;

The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March 2011 and of the profit of the Company for the year ended on that date;

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

The Directors have prepared the Annual Accounts on a going concern basis.

Corporate Governance

Reports on Corporate Governance and Management Discussion and Analysis, in accordance with Clause 49 of the Listing Agreements with Stock Exchanges, along with a certificate from M/s. M M Sheth & Co, Practising Company Secretaries, are given separately in this Annual Report.

Auditors

Members are requested to re-appoint M/s. Haribhakti & Co, Chartered Accountants, as Auditors of the Company and also for its branches/C & F depots/depots, for the current financial year and to fix their remuneration.

Cost Auditor

The Company has received the approval of the Central Government for the appointment of M/s. V J Talati & Co. as Cost Auditor to conduct cost audit for the financial year 2011-12.



Conservation of Energy, Technology Absorption, etc.

The particulars under Section 217(1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, are attached to this Report as Annexure I .

Industry Structure and Development

There is no material change in the industry structure as was reported last year

The Company operates under two major business segments i.e. Branded Consumer & Bazaar Products and Speciality Industrial Chemicals.

Products such as Adhesives, Sealants, Art Materials, Construction and Paint Chemicals are covered under branded Consumer & Bazaar Products segment. These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices, etc.

Speciality Industrial Chemicals segment covers products such as Industrial Adhesives, Synthetic Resins, Organic Pigments, Pigment Preparations, Surfactants, etc. and caters to various industries like packaging, textiles, paints, printing inks, paper, leather, etc.

In both the above business segments, there are a few medium to large companies with national presence, and a large number of small size companies that are active regionally. There is growing presence of multinationals in many of the segments in which the Company operates. The share of imports is less than 10 % of domestic volumes in most of the product segments.

The "Other" segment largely covers manufacture and sale of VAM. As mentioned earlier, due to global demand supply situation it was viable to import VAM rather than manufacture in-house and accordingly the plant remained shut last year. Going forward, in the near future, import of VAM is likely to remain more viable. The Company is exploring alternate products which can be manufactured in the same plant.

Current Year Outlook

During the current year, due to the inflationary pressures, the Reserve Bank of India has been steadily increasing interest rates. This is expected to adversely impact overall economic growth and therefore could impact the demand for the Companys products, thereby impacting the sales growth.

Due to the steep increase in commodity prices, input costs have gone up sharply. Though the Company does pass on these increases by way of price increases, this could impact margins as there is a lag between the cost increase and the price increase.

The Companys major subsidiaries are in USA, Brazil, UAE, Thailand, Egypt and Bangladesh. While all the units are expected to show improved performance, the business in Brazil is vulnerable to high inflation and slow down in growth rate. The operations in Egypt and U.A.E. could be impacted by the local political situation.

Outlook on Opportunities, Threats, Risks and Concerns

Stable economic growth in India will provide an opportunity to the Company to grow its business and introduce differentiated products for meeting customer expectations. The improving global economy will facilitate growth of export oriented products.

Increasing interest rates could slow down economic demand thereby impacting Companys sales in the current year. In addition input costs increases are likely to put pressure on margins in the short term.

Though the Company has strengthened its management structure in the overseas subsidiaries, due to the political uncertainties in some countries and the small size of the overseas operations, the performance in these units could be impacted by local events.

Internal Control Systems and their adequacy

The Company has adequate internal control procedures commensurate with its size and nature of business.

The Company has appointed Internal Auditors who audit the adequacy and effectiveness of internal controls laid down by the management and suggest improvements.

For overseas subsidiaries, this is being done by their Statutory Auditors.

The Audit Committee of the Board of Directors periodically reviews the audit plans, internal audit reports, and adequacy of internal controls and risks management.

Human Resources

The Company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels.

A New Performance & Potential Management System, branded as PILglobin has been launched. This process is likely to provide a steady stream of talent across the Company with clear career plans to occupy key jobs.

Further to improve the operational efficiency, the Company has also initiated automation of all its HR processes.

The total number of employees as on 31st March 2011 was 4130.

A statement of particulars pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, forms part of this Report as Annexure II. As per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report, together with Accounts, is being sent to the Shareholders of the Company, excluding the statement of particulars of employees under Section 217(2A) of the Act. Members desiring to have a copy of the same may write to the Company Secretary at the Registered Office of the Company and they will be provided with the same upon such a request.

Appreciation

Your Directors wish to place on record their appreciation of the contribution made by employees at all levels to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation for the shareholders, dealers, distributors, consumers, banks and other financial institutions for their continued support.

FOR AND ON BEHALF OF THE BOARD

Mumbai

Date: 19th May 2011 B K PAREKH

CHAIRMAN

 
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