AIA Engineering Ltd

To,

The Members,

AIA Engineering Limited

Ahmedabad

Your Directors take pleasure in submitting the 22nd Annual Report and the AuditedAnnual Accounts of the Company for the year ended 31st March, 2012.

1. FINANCIAL HIGHLIGHTS:

2. OPERATIONAL REVIEW:

During the year under review, the Revenue from operations of the Company has gone up toRs127,256.00 Lacs as compared to Rs98,547.19 Lacs in the previous Financial Year. ExportsTurnover has also gone up to Rs75,602.15 Lacs as compared to Rs56,717.19 Lacs in theprevious Financial Year.

During the year under review, Company has registered a Profit Before Tax (PBT) ofRs21,999.12 Lacs and Profit After Tax (PAT) of Rs 15,090.75 Lacs as compared to PBT ofRs18,925.55 Lacs and PAT of Rs12,974.93 Lacs respectively in the previous Financial Year.

During the year under review, on a Consolidated basis, your Company (together with itsSubsidiaries) registered a Revenue from operations of Rs141,666.64 Lacs as compared toRs116,065.68 Lacs in the previous Financial Year. Correspondingly, the Consolidated ProfitAfter Tax (PAT) registered during the year under review is Rs18,120.43 Lacs as compared toPAT of Rs18,358.51 Lacs in the previous Financial Year.

3. DIVIDEND:

The Board of Directors is pleased to recommend a Dividend of Rs3/- (150%) per EquityShares of the face value of Rs2/- each amounting to Rs2,829.61 Lacs for the Financial Year2011-12 subject to the approval of the Shareholders.

The total Dividend outgo for the year ended 31st March, 2012 would be Rs3,287.16 Lacsincluding the Corporate Dividend Tax of Rs 457.55 Lacs.

4. CAPITAL EXPENDITURE OUTLAY:

During the year under review, the Company has incurred Rs10,445.52 Lacs (includingRs1,808.49 Lacs of Capital work-in-progress) on Capital Expenditure.

5. HUMAN RESOURCE POLICY:

The Company has till date witnessed very low attrition levels. This is on account ofits special emphasis on ensuring a fair and sustainable working environment in addition tosufficient growth opportunities. Staff undergoes regular functional and cross-functionaltraining to ensure they are current with skill sets relevant in today’s time. TheCompany has inducted some senior staff to further augment its HR function in this FiscalYear. The Company’s business is highly specialized and involves the periodically fullcycle from design of solutions for specific applications at the customer’s end toproduction of highest quality material to supervision of installation of the parts at thecustomer’s end. It requires dedicated staff at all levels. Company’s HR policiesare reviewed periodically to ensure their relevance.

6. BUSINESS PROSPECTS:

The Company closed the Fiscal Year 2011-2012 with a growth of 22.25% in terms oftonnage and 29.13% in terms of revenue as compared to the previous year. Bulk of thisgrown has come from the mining space. The Company continued its pace of customer additionin this business segment. The Company today services different mineral ores like iron,copper, gold, platinum and zinc for blue chip mining customers in geographies like USA,Canada, Brazil, South Africa, Australia, etc.

The global economic recovery that began in 2009 again showed signs of distress in theFiscal Year and brought increased economic un-certainty. With reported issues in Europe,slow-down in China and un-certain growth in US, there is a lot of skepticism in terms ofeconomic prospects going forward. The Company derives bulk of its revenues from consumablewear parts used in Cement, Mining and Utility industries and its revenues to that extentare shielded from the significant pull back in capital spending.

The Company continues to build on its market share in the Cement and Utility segmentswhile investing in new segments like Aggregate crushing (Quarry) for which it remains verybullish.

For the upcoming Fiscal Year, i.e. 2012-13, the Company expects to further increase itsmarket share in the mining space by targeting increased business from existing customersas well as new customers. In the Cement market, the company will continue to focus oncountries with high growth potential.

In the utility market in India, there is a lot of optimism in relation to the plannedcommissioning of coal fired thermal power stations in the country and the Company willcontinue to benefit from its strong presence in this market.

7. FUTURE EXPANSION:

AIAE’s effective capacity at end of Fiscal Year 2011-2012 stood at 200,000 Metrictons. The Company is also in the process to chart out further expansion plans through acombination of Greenfield and Brownfield projects whereby the Company would be in aposition to increase the overall capacity by additional 100,000 tons per annum.

8. SUBSIDIARY COMPANIES:

As required under the Listing Agreements with the Stock Exchanges and in accordancewith the Accounting Standard 21 (AS-21), Consolidated Financial Statements being preparedby the Company includes financial information of its Subsidiaries.

In accordance with the provisions laid down in Section 212 of the Companies Act, 1956,the Company is required to attach the Annual Accounts of the Subsidiary Companies to itsAnnual Accounts.

Pursuant to the General Circular No. 2/2011 of the Central Government, Ministry ofCorporate Affairs and its Order No. 5/12/2007-CL-III dated 8th February, 2011, the BalanceSheet, Statement of Profit and Loss Accounts and other documents of Subsidiary Companiesare not being attached with the Balance Sheet of the Company.

The Company has Subsidiaries in India and Abroad. In compliance with the said Circular,a statement containing brief financial details of these companies for the year ended 31stMarch, 2012 forms part of this Annual Report. The Annual Accounts of the SubsidiaryCompanies will be available for inspection by any member at the Registered Office of theCompany and also at the respective Subsidiary Companies. The Annual Accounts of theSubsidiary Companies and the related detailed information will be made available to themembers of the Company seeking such information at any point of time.

9. INSURANCE:

The Company has taken adequate insurance coverage of all its assets and Inventoriesagainst various calamities viz. fire, floods, earthquake, cyclone etc.

10. DEPOSITS:

The Company has not accepted any deposit from the public during the year under review,within the meaning of Section 58A of the Companies Act, 1956.

11. INDUSTRIAL RELATIONS:

The Company is extremely sensitive in dealing with its staff and workers and continuesto take steps towards achieving the highest standards of industrial harmony. All statutorycompliances are maintained and its focused efforts towards nurturing its Staff arereflected in its work culture. Company has always tuned its policy and process to helpstaff and workers to have a quality life and keep high morale in the organization. Companyhas continued regular interaction with the business and industrial fraternity throughprestigious institutions like Confederation of Indian Industries (CII), Gujarat Chamber ofCommerce and Industries (GCCI), Ahmedabad Management Association (AMA) and otherrecognized associations and institutes.

12. INTERNAL CONTROL AND AUDIT:

Company has a proper and adequate system of Internal Control commensurate with its sizeand the nature of its operations to ensure that all assets are safeguarded and protectedagainst loss from un-authorised use or disposition and those transactions are authorised,recorded and reported correctly.

During the year under review, Internal Audit of the Company has been carried out byM/s. Kunte & Associates, Chartered Accountants, Ahmedabad.

13. CORPORATE GOVERNANCE:

In line with the Company’s commitment to good Corporate Governance Practices, yourCompany has complied with all the mandatory provisions of Corporate Governance asprescribed in Clause 49 of the Listing Agreement with the Stock Exchanges.

A separate report on Corporate Governance and Practicing Company Secretaries Reportthereon are included as a part of the Annual Report.

14. MANAGEMENT’S DISCUSSION AND ANALYSIS (MDA):

MDA covering details of operations, International markets, Research and Development,Opportunities and Threats etc. for the year under review is given as a separate statement,which forms part of this Annual Report.

15. DIRECTORS:

Mr. Rajendra S. Shah and Dr. S. Srikumar, Directors of the Company retire by rotationat the ensuing Annual General Meeting and being eligible, offered themselves forre-appointment.

The Board recommends the re-appointments of Mr. Rajendra S. Shah and Dr. S. Srikumar,as Directors of the Company.

16. STATUTORY AUDITORS:

M/s. Talati & Talati, Chartered Accountants, the Company’s Statutory Auditorswill retire at the conclusion of the ensuing Annual General Meeting and being eligibleoffer themselves for re-appointment.

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

17. COST AUDITORS:

In compliance with the Ministry of Corporate Affairs’ order No. 52/26/CAB-2010dated 3rd May, 2011, the Board of Directors of the Company on the approval of the CentralGovernment, has appointed M/s. Kiran J. Mehta & Co., Cost Accountants, Ahmedabad asthe Cost Auditors of the Company to audit the Cost Accounting Records of the Company forthe Financial Year 2011-12.

The first Cost Audit Report for the Financial Year 2011-12 will be submitted to CentralGovernment on or before 27th September, 2012.

18. PARTICULARS OF EMPLOYEES:

The particulars of employees, as required under Section 217 (2A) of the Companies Act,1956 read with the Companies (Particulars of Employees) Rules 1975 as amended are given asan Annexure - A to this report.

19. PARTICULARS OF ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGEEARNINGS AND OUTGO:

The additional information regarding conservation of energy, technology absorption andforeign exchange earnings and outgo, stipulated under Section 217 (1) (e) of the CompaniesAct, 1956 read with the Companies (Disclosures of Particulars in the Report of Board ofDirectors) Rules, 1988 are provided as an Annexure–B to this report.

20. DIRECTORS’ RESPONSIBILITY STATEMENT:

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

(i) in the preparation of the Annual Accounts, the applicable accounting standards havebeen followed;

(ii) sound accounting policies have been selected and applied consistently andjudgments and estimates made that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of the Financial Year ended 31stMarch, 2012 and the Profit for the year ended on that date;

(iii) proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956, forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;

(iv) the Annual Accounts have been prepared on a going concern basis.

21. SUSTAINABLE DEVELOPMENT:

The Company is firm in its commitment towards sustainable growth and its socialresponsibility. Various initiatives are planned which are explained in more detail inAnnexure ‘C’ of this report.

22. Environment, Health and Safety:

The Company is committed to health and safety of its employees, contractors andvisitors. We are compliant with all EHS Regulations stipulated under the Water (Preventionand Control of Pollution) Act, The Air (Prevention and Control of Pollution) Act, TheEnvironment Protection Act and The Factories Act and Rules made thereunder. Our mandate isto go beyond compliance and we have made a considerable improvements.

23. ACKNOWLEDGEMENT:

Your Directors would like to express their appreciation for the assistance andco-operation received from the Company’s customers, vendors, bankers, auditors,investors and Government bodies during the year under review. Your Directors place onrecord their appreciation of the contributions made by employees at all levels. YourCompany’s consistent growth was made possible by their hard work, solidarity,co-operation and support.

ANNEXURE- "A" TO THE DIRECTORS’ REPORT

Information under section 217(2A) of the Companies Act, 1956 read with the Companies(particulars of employees) Rules, 1975 and forming part of the Directors’ report forthe year ended 31st March, 2012.

(A) Employed throughout the financial year under review and were in receipt ofremuneration for the Financial Year in the aggregate of not less than Rs 6.00 Lacs p.a.

(B) Employed for part of the Financial Year under review and were in receipt ofremuneration at the rate of not less than Rs 5 Lacs per month : Nil

ANNEXURE – "B" TO THE DIRECTORS’ REPORT

Information under section 217(1)(e) of the Companies Act, 1956 read with CompaniesDisclosure of particulars in the report of Board of Directors) Rules, 1988 and formingpart of the Directors’ Report for the year ended 31st March, 2012.

FORM - A

A) CONSERVATION OF ENERGY :

(i) Conversion of G. M. Heat Treatment Furnaces from LDO to PNG combustion system withincorporation of Technologically advanced recuperator and increased loading will reduceenergy consumption as well as Green House Gases Emission.

(ii) Installation of Technologically advanced Fixed Hearth Furnaces with Fullyautomatic Loader in place of conventional Bogie Hearth Furnaces will reduce energy lossesas well as Green House Gases Emission.

(I) POWER & FUEL CONSUMPTION:

II. CONSUMPTION PER UNIT OF PRODUCTION:

a) Specific areas in which R & D carried out by the Company.

• Development of new alloys of High Chrome Grinding Media for application inMining Industry. b) Benefits derived as a result of the above R & D.

• High Chrome Grinding Media is expected to perform superior to forged GrindingMedia presently being used in the Industry.

c) Future plans of action.

• Continue to introduce solutions with higher performance. d) Expenditure on R& D (Rs Lacs).

a) Efforts in brief made towards technology absorption, adaptation and innovation.

• Installation of fully automated facility for heat treatment of big castings.

b) Benefits derived as a result of the above efforts.

• Reduction in manpower.

• Safe and efficient Operation.

c) Imported technology.

Equipment and technology imported from Itlay.

d) Foreign Exchange Earnings and outgo:

(Rs Lacs)

Corporate Sustainability

AIA is geared to meet evolving customer expectations; comply with present and futureregulations; build brand reputation and adopt sustainable growth strategies. SustainableDevelopment is particularly relevant for us since we service environmentally sensitiveindustry sectors (mining, cement, power, aggregate and utilities) and are present indiverse and global geographies. AIA’s sustainability drivers are represented below:

Keeping in view expected future regulation, customer’s requirement and itsreputation, the Company has decided to implement Sustainability initiatives in thefollowing operational areas:

Reducing our Carbon Footprint

An external agency has been hired to assist in preparing our Green House Gas (GHG)Inventory from all our activities and operations. Once we have calculated our GHGemissions, we hope to take on reduction targets per ton of production. Our tree plantationproject at the Air Force Base in Chiloda, Gandhinagar is making progress with 7500 treesalready planted. Plant level initiatives such as switch over to low carbon fuels andprocess efficiency are being implemented at all our facilities.

Reducing our Water Footprint

AIA plans to treat all its domestic and industrial waste water and reuse it. Workplanned on sewage and effluent treatment will be commissioned in the current FinancialYear. It will cover all facilities in Ahmedabad and will enable us to reduce our freshwater requirement by 150 m3 per day. Through rain water harvesting we hope to rechargemore than .327 MM3 (million meter cube) of water this monsoon.

Waste Minimization and Recycling

The management of AIA has made it a priority to reduce the consumption of fresh sand bysand reclamation and reusing discarded sand, fines and slag residue in making nonstructural bricks and blocks. Samples bricks and blocks have been developed and tested.The project will be scaled in the current Financial Year.

Environment, Health and Safety

In the current Financial Year, in line with our commitment to devote relevant resourcesand management priority, we have inducted a senior person to head the EHS Division.Moreover, a new variable bonus scheme has been introduced for all our plant staff whereina portion of their salary will be linked to improvement in EHS performance at the plantlevel. Senior Management is actively involved in improving the work area environmentthrough monthly review meetings chaired by the Managing Director.

Our Sustainability Policy and Charter has undergone revision. It was the result ofconsultation with employees, customers and regulatory authorities. Key sustainabilityissues, risks and opportunities relevant to our company were incorporated.

SUSTAINABILITY POLICY AND CHARTER

Vision

To deliver superior value to our customers, shareholders, employees, environment andsociety.

Sustainability Policy

We, AIA Engineering Ltd., are the solution provider and supplier of wear resistant andallied components for applications in cement, power, mining, aggregate manufacturing andother industry segments. We recognize sustainable development as a corporate priority andkey to our growth and commit ourselves;

1. To integrate environmental, social and economic policies and practices into businessprocesses and conduct our business in a fair and ethical manner.

2. To set objectives and targets for continual improvement and periodically review ourperformance.

3. To regularly engage with our stakeholders to understand and address their concernsand expectations.

4. To comply with the applicable statutory requirements and global charters subscribedby us.

5. To continuously upgrade technology and infrastructure and remain EVA +.

6. To develop and offer products and services of superior quality, which are efficient,safe and environment friendly.

7. To integrate and train our people to conduct their business in line with companypolicies.

This policy has been communicated to all the employees and is available to public ondemand.

Sustainability Charter Economic

The organization is committed to remain EVA positive by:

O Following good governance practices,

O Continuously upgrading technology and infrastructure, and

O Continually improving quality, productivity and optimizing manufacturing cycle

Human Rights

O We are committed to continually improve our human capital through integration andgrowth of our people

O We follow the policy of freedom of association, collective bargaining,non-discrimination and non employment of forced or child labor

O We encourage our suppliers and sub-contractors to adhere to HR principles followed byAIA Engineering

Sustainable Business Growth

O We are committed to sustainable business growth by consistently striving to expandour current market share and developing unserved markets. We shall achieve this byintroducing new technologies and new products conforming to our sustainability policy

O We will ensure that our products are energy efficient, reduce ecological footprintsand minimize waste

O We shall foster social entrepreneurship and encourage community driven activities togenerate and distribute wealth in our neighborhood

O The organization will periodically carry out risk assessments, implement and reviewmanagement plans

Environment, Health and Safety

O We believe that continual improvement in Health, Safety and Environmental performancewill contribute to the sustainable growth of our organization.

O We are committed to promoting EHS Management practices in our organization byensuring statutory compliance, training and awareness, periodic health examination, safework environment and work practices.

Resource Conservation and Climate Change

O The organization is committed to utilizing natural resources in an efficient mannerby adopting the policy of Reduce, Recover, Renew, Reuse & Recycle (5R).

O We will reduce energy consumption in our operations by implementing energy efficiencymeasures,

O We will promote use of renewable energy.

O We shall consistently reduce our carbon footprint.

Community Development

O AIA Engineering recognizes that the community in and around its enterprises is animportant stakeholder and can offer conducive environment for business growth. We commitourselves to contribute our share towards improving their quality of life.

Knowledge Management

O AIA Engineering is developing its knowledge base through

- Innovation and Research,

- Partnering with customers ,

- Keeping abreast with latest developments in technology.

O Promoting internal communication to develop and share individual knowledge andexperience across the organization.