AFFLUENCE

Directors' Report

To:

The Members,

Mafatlal Denim Limited

Your Directors have pleasure in presenting the Seventeenth Annual Report together with the audited accounts for the financial year ended 31st March 2012.

FINANCIAL RESULTS

REVIEW OF OPERATIONS

Production and Sales:

The sales volume during the year was 158.98 lac metres, marginally lower than the sales in the previous year of 161.23 lac metres. While the domestic demand was quite strong and the selling prices firm, the export demand faced decline due to the recessionary conditions in the global market. In this background, the Company sharpened its focus in the domestic market, developed new and value-added products to address the market needs and improved the sales volumes and the margins. The production during the year was 156.60 lac metres as against 165.23 lac metres in the previous year.

Raw Material & Utilities:

The price of Cotton, a prime Raw Material in the manufacture of Denim Fabrics, which was on a sharply increasing trend in the previous year due to damage to cotton crop in Pakistan and China from devastating floods which led to global shortage in supply was on a steadily declining trend during the year under review. However, the average cost of cotton for the Company for the full year was about Rs. 103.50 per kg as against Rs. 92.61 for the previous year. The overall cost of raw-materials, power and other utilities were higher by about 16% (about Rs. 14.50 per metre) due to the high prices of cotton, dyes & chemicals and the cost of power and fuel.

Selling Prices:

In the previous year (FY 2010-11), the selling prices had increased sharply in line with the sharply increasing cotton prices. During the year under review, the selling prices declined in line with the trend in cotton prices. With continued efforts to enrich the product-mix in favour of value-added products, the average selling prices for the full year were higher during the year at about Rs. 160 per metre as against Rs. 130 per metre in the previous year, showing an increase of over 23%.

Operating profit:

The operating Profit (EBITDA) for the year was significantly higher at Rs. 50.03 crores as compared to the previous year’s operating profit of Rs. 34.93 crores.

RESTRUCTURING OF DEBTS WITH SECURED CREDITORS :

The petition filed by the Company in February 2009 with the Hon’ble Gujarat High Court for Sanction of a ‘Scheme of Compromise / Arrangement’ with all the Secured Creditors under Sections 391-394 of the Companies Act, 1956 (Sec. 391 Scheme) as duly approved by Statutory majority Creditors constituting more than 75% of the votes is still pending before the Hon’ble High Court for Sanction.

Meanwhile, pending the Sanction of the Sec. 391 Scheme, the Company continues to account for the interest on the loans from Axis Bank Limited and Export-Import Bank of India on the basis of the Scheme of Debt-Restructuring under the Corporate Debt Restructuring (CDR) mechanism agreed with them.

CURRENT YEAR OUTLOOK

The encouraging demand scenario for Denim Fabrics in the Domestic Markets is expected to continue in the current year and the Global Markets are also expected to show some improvement with the concerted global efforts to resolve European economic crisis. With steady cotton prices at the prevailing relatively lower levels, the selling prices may also decline a bit to settle at lower levels narrowing the margins. The overall profitability of the Company is expected to come down to sustainable levels as against the extraordinary performance seen during this year.

QUALIFICATION / RESERVATION IN AUDIT REPORT

The Financial Statements read with the ‘Notes to Accounts’ fully reply the qualifications / reservations in the Auditors’ Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREGN EXCHANGE EARNINGS AND OUTGOINGS:

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Information pursuant to Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the Report of Board of Directors) Rules, 1988 is given here below: -

A. Conservation of energy

The Company accords importance to energy conservation and the following measures were taken in this direction: -

(i) An arrangement has been made to recover hot water from Caustic recovery Plant.

(ii) In some of the steam traps, conventional steam trapping system has been replaced by compact trapping system based on Piston technology, thus reducing radiation losses and minimising steam leakages.

(iii) Installation of PNLD trap in 2 Centac compressors to increase the quantity of compressed air with same power consumption.

(iv) One of the stenter machines was reinsulated to minimise heat losses.

(v) The furnace of the Boiler was reinsulated to minimise heat losses.

Power and fuel consumption

B. Technology absorption

Efforts made in Technology absorption

Research and Development (R &D)

1. Specific areas in which research is carried out:

- Manufacture of differentiated styles of denim fabric

2. Benefits to be derived as a result of the above R & D work

- Manufacture of specialty products leading to higher sales and better realisations.

3. Future plan of action

- The efforts in the above areas will be continued.

4. Expenditure on R & D

- Nil.

Technology absorption, adaptation and innovation

1. Efforts, in brief, made towards technology absorption, adaptation and innovation:

- Updating/Adopting of Improved Technology as regards manufacture of new products, improvements in the existing products, new and more efficient manufacturing process etc. has been an ongoing process.

2. Benefits derived as a result of the above effort

- Up gradation of product, improvement of process efficiency, innovative products to meet demands of changing style.

- Improvement in product quality.

3. In the case of imported technology (imported during the last 5 years, reckoned from the beginning of the financial year), the following information is furnished:

C. Foreign exchange earnings and outgo

PARTICULARS OF EMPLOYEES:

Information as per Section 217(2A) of Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 is annexed hereto and forms part of this Report.

DIRECTORS RESPONSIBILITY STATEMENT:

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors state that:

i. in the preparation of the annual accounts, the applicable accounting standards have been followed;

ii. your 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 and of the profit or loss of the Company for that period;

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

iv. your Directors have prepared the annual accounts on a going concern basis.

AUDIT COMMITTEE:

The audit committee consists of Mr. Praful R. Amin, Mr. Atul K. Srivastava, Mr. Vilas R. Gupte and Mr. Pradip N. Kapadia all of whom are non-executive directors.

REMUNERATION COMMITTEE:

The Company has a remuneration committee, which consists of Mr. Vilas R. Gupte, Mr. Praful R. Amin, and Mr. Pradip N. Kapadia all of whom are independent and non-executive directors.

AUDITORS:

M/s. S.R. Batliboi & Associates, Chartered Accountants, the Statutory Auditors of the Company retire at the ensuing Annual General Meeting. The members are requested to re-appoint them and fix their remuneration.

ACKNOWLEDGEMENT

Your Directors wish to gratefully acknowledge to the Company’s Bankers and Financial Institutions and the employees of the Company for their valuable support and contribution.

For and on behalf of the Board,

H.A. MAFATLAL

Chairman

Mumbai,

April 23, 2012

A. Conservation of energyThe Company accords importance to energy conservation and the following measures were taken in this direction: -(i) An arrangement has been made to recover hot water from Caustic recovery Plant.(ii) In some of the steam traps, conventional steam trapping system has been replaced by compact trapping system based on Piston technology, thus reducing radiation losses and minimising steam leakages.(iii) Installation of PNLD trap in 2 Centac compressors to increase the quantity of compressed air with same power consumption.(iv) One of the stenter machines was reinsulated to minimise heat losses.(v) The furnace of the Boiler was reinsulated to minimise heat losses.Power and fuel consumption March 31, 2012 March 31, 20111. Electricity a. Purchased Unit Kwh. 15,489,360 7,522,480 Total Amount Rs. Lacs 1031.86 514.07 Rate per Unit Rs./Kwh. 6.66 6.83 b. Own Generated i. Through Co-Generation Plant Unit Kwh. 18,408,190 17,383,990 Unit per Ton of Fuel Kwh/Ton 725.47 823.55 (Coal, Lignite & Baggase) Cost per Unit Rs./Kwh. 4.96 4.73 ii. Through Gas Engine Unit Kwh. 863,739 8,975,822 Unit per Cu.M.of Natural Gas Kwh/CuM 3.42 3.61 Cost per Unit Rs./Kwh. 7.39 4.65 2. Coal Coking Coal Quantity Tonnes 14,806.81 12,425.23 Total Cost Rs.Lacs 515.47 450.18 Average Rate Rs./Tonne 3,481.30 3,623.11 Consumption per unit of Production Denim Fabric Electricity Kwh/Metre 2.22 2.05 Coal Kgs./Metre 0.95 0.75

C.Foreign exchange earnings and outgo - Earnings in Foreign Exchange :Rs. 307,376,272Foreign Exchange Outgo:Rs.147,287,684

Information as per Section 217(2A) of Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 is annexed here to and forms part of this Report.

DIRECTORS RESPONSIBILITY STATEMENT - In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors state that:i.in the preparation of the annual accounts, the applicable accounting standards have beenfollowed;ii.your 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 and of the profit or loss of the Company for that period;iii.your Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;iv.your Directors have prepared the annual accounts on a going concern basis.

QUALIFICATION / RESERVATION IN AUDIT REPORT - The Financial Statements read with the Notes to Accounts' fully reply the qualifications / reservations in the Auditors' Report.