Linde India Ltd

AND MANAGEMENT DISCUSSION AND ANALYSIS.

The Directors have pleasure in submitting their Report together with the AuditedAccounts of your Company for the year ended 31 December 2012:

The results for the year and for the previous year are summarised below:

Change of name

With a view to benefit from the global brand image of Linde AG in gases and engineeringbusinesses and communicate one identity, particularly to the global customers of thepromoter group, your Company initiated action for change of its name to align it with theLinde Group. Pursuant to the special resolution passed by the members of the Companythrough postal ballot and e-voting on 6 February 2013 and consequent upon all relevantapprovals, the name of your Company has been changed to ‘Linde India Limited’with effect from 18 February 2013.

Financial performance

Your company recorded a rather subdued performance during the year 2012 against thebackdrop of weak economic conditions and sluggish performance across most industrialsectors. During the year under review, your Company had to contend with significantheadwinds, which among others included lower demand from major customers, delay in majorprojects related to customer delays, inflationary trends in power and other costs, etc.Revenue from Operations for the year 2012 at Rs. 14,113.45 million showed an increase ofabout 16 % over the previous year. Turnover from the gases business grew by nearly 15 %mainly driven by commissioning of new air separation units, viz. a 2550 tonnes per day AirSeparation Unit for Tata Steel Works at Jamshedpur and a merchant Air Separation Unithaving a total liquid capacity of 450 tonnes per day at Taloja. The commissioning of a newsteam methane refined hydrogen plant for Sterlite Technologies at Aurangabad and a VacuumPressure Swing Adsorption plant for Vishnu Chemicals at Vishakhapatnam also contributed tohigher revenues in the tonnage business. Healthcare business also contributed to thehigher turnover by achieving higher volumes of liquid and compressed medical oxygen ascompared to the previous year. Other drivers of growth for the Gases business were thepackaged gases and special gases. The Project Engineering Division achieved its highestever turnover during the year amounting to Rs. 3,888.55 million, which recorded anincrease of about 16 % over the previous year. The growth of the Project Engineeringbusiness was mainly driven by execution of large customer projects relating to airseparation units, nitrogen VPSA plants, hydrogen PSA plants, pressure reducing stationsacross refinery and steel industries both in public and private sectors. The ProjectEngineering Division’s revenues include billings from overseas projects beingexecuted in Bangladesh, Sri Lanka and Indonesia.

The profit before depreciation, interest and taxes for the year 2012 stood at Rs.2,065.76 million as compared to Rs. 2,462.05 million in the previous year. The profit fromoperations during the year before exceptional items however, was significantly lower atRs. 536.38 million as compared to Rs. 1,748.50 million recorded in the previous year.

This sharp decrease in the profits is the result of significantly higher finance costson long term borrowings and higher depreciation following the capitalization of newplants. The depreciation includes impairment provision of Rs. 84.52 million relating toassets at an electronic gases customer’s site, arising from the discontinuance oftheir operations. During the year, your Company disposed of surplus factory land at Vizagand Ban-galore and a profit of Rs. 718.62 million arising from the same has been accountedfor as an exceptional item.The profit before tax for the year amounted to Rs. 1,255.00million as compared to Rs. 1,748.50 million in the previous year and the net profit aftertax for the year 2012 amounted to Rs. 894.80 million as compared to Rs. 1,216.57 millionachieved in the previous year.

Dividend

Your directors are pleased to recommend a dividend of 15 % (Rs. 1.50 per equity shareof Rs. 10 each) for the year 2012 in respect of 85,284,223 equity shares of Rs. 10 each inthe Company. The Board has recommended this dividend after careful consideration of theneed to cater to the expectation of the shareholders on a sustained basis and the need toconserve resources for financing the ongoing investment program towards setting up of newplants and potential acquisitions. The dividend together with dividend tax will result ina cash outlay of Rs. 148.68 million. The Board has also recommended a transfer to GeneralReserve of Rs. 44.74 million (previous year Rs. 60.83 million) in compliance with theCompanies (Transfer of Profits to Reserves) Rules, 1975.

Industry developments

The gases business is capital intensive by nature as it requires large investments insetting up of air separation units as well new packaged gases sites. The supply chain inthe gases business also requires significant investments in the form of distributionassets and storage networks to service bulk volumes as well as in the form of cylinders toservice relatively smaller volumes in packaged gases business. The industry comprises oflarge captive users in steel, fertilizer and refinery sectors and a large number ofmerchant liquid customers primarily in metal, glass, automobile, petrochemicals andpharmaceutical sectors, besides customers for medical gases. New applications in segmentslike oil and gas, food freezing, refrigeration, fire suppression, cement, paper, etc.continue to provide growth opportunities. This growth is being further supported by‘Build Own Operate’ (BOO) type of supply scheme opportunities from the usersmainly in steel and refinery sectors, which are increasingly outsourcing their gasesrequirements.

Business segments

Your Company’s business has two broad segments, viz. Gases and Related Productsand Project Engineering in line with the operating model of its parent, Linde AG.

Gases and related products

The Gases and Related Products segment comprises of pipeline gas supplies to very largeindustrial customers (tonnage), gases in bulk and packaged gases for industrial andhealthcare segments. The tonnage customers are supplied gaseous oxygen, nitrogen and argonby pipelines directly from the tonnage plants. Gases in bulk consist of liquid oxygen,nitrogen and argon and packaged gases consist of compressed industrial, electronic andspecial gases. The Healthcare business is served by a mix of bulk and compressed medicalgases, such as medical oxygen, nitrous oxide, etc.

The strategy of the tonnage and bulk business continues to be building and sustainingmarket leadership through aggressive but profitable growth. The strategy of the healthcarebusiness is to sustain its leadership position in the large hospitals in metro cities andincrease penetration in tier 2 cities with particular focus on supporting private hospitalchains in providing total gas management solutions.

The turnover of your Company’s gases business for the year 2012 recorded a growthof about 15 % as compared to the previous year. This growth has been mainly driven byincremental revenues from the commissioning of new plants during the year, viz. the 2550tonnes per day Air Separation Unit for Tata Steel works at Jamshedpur, merchant AirSeparation Unit at Taloja, a new steam methane reformed hydrogen plant for SterliteTechnologies at Aurangabad and a Vacuum Pressure Swing Adsorption plant for VishnuChemicals at Vishakhapatnam.

Healthcare business also contributed to the higher turnover by achieving higher volumesof liquid and compressed medical oxygen as compared to the previous year. During the yearunder review, your Company entered into an agreement for taking over the assets and gasesbusiness of Uttam Gases, comprising Uttam Air Products and Uttam Special Gases, one of theprominent players in the healthcare segment in North India. The acquisition is in anadvanced stage of completion and is expected to strengthen your Company’s positionand enhance its healthcare revenues in the years ahead. Other drivers of growth for theGases business were the packaged gases and special gases.

The markets during the year witnessed sluggish demand for industrial gases with some ofour customers consolidating or reducing their capacity utilization. The demand landscapefrom some of the major customers forced some of our tonnage plants to operate at lowerthan full capacity during the year. Our primary markets, viz. steel, glass, automobile,pharmaceuticals, construction and infrastructure sectors demonstrated lower investmentappetite for growth. The gases demand was not supported by significant greenfieldexpansions especially in the automobile sector. The delay in commissioning of largetonnage projects, particularly SAIL Rour-kela Steel Plant ASU, which is being constructedon build, own and operate (BOO) basis has adversely impacted the gases business during theyear.

The year 2012 also witnessed rising input costs especially, power and diesel in most ofthe states in India. The power cost increase in West India was quite significant and thesluggish market situation made it difficult to fully recover such increased costs, therebyputting margins under pressure. The steel production in the country in 2012 was more orless stable as the steel majors, Tata Steel and SAIL had to meet their local and exportdemand despite the cost pressures arising from increased cost for coking coal and ironore. Our customers among smaller non integrated steel mills also showed flat demand forgases and reeled under liquidity and input cost pressures in 2012. The demand from autoand anciliiary industries as well as stainless steel industry also remained flat round theyear. This sector is a major consumer of Argon and has a significant impact on high valueArgon sales. Besides, commissioning of a captive onsite ASU by one of the customers inEastern India significantly reduced the demand for liquid oxygen in these markets.

The slowdown in the solar photovoltaic industry reported last year did not show anysigns of recovery. During the year, one of the major electronic gases customerdiscontinued operations in view of their thin film photovoltaic cell technology becominguncompetitive. As a result, your Company had to take a significant hit by way ofimpairment of assets at the customer’s plant.

The Application Technology sales organization in the gases business which was set uplast year has been successful in securing business by enhancing productivity ofcustomers’ processes in varying industries. Success stories of the ApplicationTechnology sales include REBOX Oxyfuel conversion at Kalyani Carpenter Steel, Pune,LINSPRAY for metal coating at GE Infrastructure Energy, HIGHJET, for cupola furnacesand CRYOFLEX, a cryo treatment equipment using liquid nitrogen in the automotivesegment. Your Company has also made successful foray into cement industry with a trialorder at a leading cement plant in India for their rotary kilns and deco risers. This isthe first such initiative for converting air –fuel to oxy fuel kiln operations in thecountry and is expected to open opportunities in the cement industry. Our packagedshielding gases witnessed significantly higher volumes as a result of focus on technologysales in 2012.

During the year under review, your company steadily expanded its product and serviceofferings by adding hydrogen, helium and CO in its portfolio.

A new Helium transfill station was commissioned in 2012 at Taloja. New applicationbased sales leveraging Linde’s expertise continues to be an opportunity. This is oneof the growth strategies for the gases business of your Company moving forward. TheCompany also plans to make new investments for growing its retail packaged gases businessin 2013 with a view to regain market share in select geographies.

Sharp increase in power costs and poor quality and reliability of power supplycontinues to be a major concern for our operations. Our ASUs in Hyderabad and Selaqui inNorth India continue to be impacted as a result of these issues. Economic slowdown andcompetitive activities owning to over capacity in the market also puts our business undersignificant pricing pressures.

Project engineering

The Project Engineering segment comprises the business of designing, supply,installation and commissioning of tonnage Air Separation Units (ASU) of medium to largesize, apart from projects relating to setting up of nitrogen plants, Pressure SwingAdsorption (PSA) plants and gas distribution systems. The Project Engineering Division(PED) also manufactures cryogenic vessels for in-house use as well as for sale to thirdparty customers.

The year 2012 witnessed another spectacular performance from the Project Engineeringbusiness, which achieved revenue of Rs. 3,888.55 million from third party projects. Thisperformance of the Division surpassed previous year’s all time high revenue of Rs.3,360.22 million achieved by PED and is therefore, the highest ever turnover recorded bythe Division so far. As in the previous year, this sterling performance of PED was drivenby execution of several projects relating to large air separation units, nitrogen plants,pressure reducing stations (PRS), cryogenic storage tanks and hydrogen PSA plants acrossrefineries and steel industries both in public and private sector.

The Division commissioned a nitrogen plant for Mangalore Refinery and is currentlyengaged in commissioning of several other nitrogen plants at LNG Kochi Terminal, NationalFertilisers Ltd., Nangal and ONGC Manglore Petrochemicals Ltd. Besides these, severalnitrogen plant projects are at different stages of execution including those for ONGCPetro, Dahej and Matix Fertilizers, Durgapur and at GAIL, Pata. The Division has thusmaintained its leadership in cryogenic nitrogen plants. In addition, during the year, theDivision also successfully commissioned an oxygen plant for Sesa Goa.

The Division is also currently engaged in the execution of record number of third partylarge ASU and other projects, progress of which are satisfactory. The 600 tonnes per dayoxygen plant for Bhusan Power & Steel and a 420 tonnes per day ASU for Neelachal Ispatare under commissioning. The Scale 1000 oxygen plant for Bhusan Steel Ltd, Angul isprogressing well. During the year, the Project Engineering Division bagged its largestever order from National Mineral Development Corporation to the tune of Rs. 3,707 millionfor supply of 2x1250 tonnes per day Oxygen Plants at Nagarnar, which is under execution.The execution of export orders for Oxygen Plants for customers in Sri Lanka, Indonesia andBangladesh are also progressing well.

The Division continues to provide greater focus to execution of in-house ASU projectsfor the Gases Division and is currently executing several large size internal projects forthe Company. During the year, the Division successfully commissioned a 2550 tonnes per dayASU at Jamshedpur for supply of gases to Tata Steel pursuant to a long term contract withthem. This plant is the largest ASU in India and is also the largest ASU of the LindeGroup in South and East Asia. The Division also commissioned a merchant ASU at Talojahaving capacity of 450 tonnes per day of merchant products and a 1270 NM3 per hour VPSAOxygen Plant for Vishnu Chemicals at Vizag for the Gases Division of the Company. TheCompany’s supply scheme project of 2x853 tonnes per day ASUs located at RourkelaSteel Plant are under pre-commissioning stages. During the year, PED has started executionof 2 nos. scale 1000 Project for Tata Steel at Kalinganagar, which is one of the largeststrategic in-house projects under execution.

The Division has given highest priority to make its business more competitive and hastaken several initiatives in this regard. Such initiatives include indigenous manufactureof erstwhile imported components like radial absorber vessels, ambient vaporizers andspecial spiral wound steam heated vaporizers, etc.

The Division’s effective collaboration with Linde Engineering as their technologypartner continues. This partnership has been successful in bidding and winning severalprestigious projects and your Company expects further enhancement in the consortiumactivities in near future. The Division bagged orders valuing about Rs. 4,491 millionduring the year taking the total third party orders in hand to about Rs. 6,837 million ason 31 December 2012.

Your Company’s business in both its Segments – Gases and Project Engineeringis exposed to a variety of risks, which emanate from both internal and external sources.As explained in the report on Corporate Governance, the Company has an adequate riskmanagement system that takes care of identification, assessment and review of risks aswell as their mitigation plans put in place by their risk owners. The risks identified andbeing addressed by the Company during the year under review included risk concerningcoordination issues in the execution model of the Company for its projects, risks relatedto merchant and plant loading targets in view of the economic slowdown, over dependence ofthe business on steel sector, risk of reliability and cost of power at existing plants,risk of competitive pressures, etc. Since the Project Engineering Division of your Companyis engaged in execution of various in house and third party projects, it has an inherentrisk of time and cost overruns due to various reasons. Your Board of Directors providesoversight of the risk management process in the Company and reviews the progress of theaction plans for each of the identified key risks on a quarterly basis.

Finance

The Company had two fully drawn down loan facilities by way of External CommercialBorrowing (ECB) totalling EUR 122 million from Linde AG for funding of 2550 tonnes per dayASU for Tata Steel and 2x853 tonnes per day ASUs for Steel Authority’s Rourkela SteelPlant projects. As on 31 December 2012, the aggregate outstanding against the aforesaidECBs was EUR 115.6 million (Rs. 8,389.57 million). The said ECBs are fully hedged bothwith regard to the principal and interest payments.

During the year, the Company negotiated a two year term loan facility of Rs. 1,000million from Citibank for financing of ongoing relatively smaller capital expenditurerequirements. As on 31 December 2012, this facility is fully drawn down.

Further, during the year, for financing the Tata Steel Kalinganagar project and AsianPeroxide’s project, the Company has finalized funding arrangement of EUR 77.6 million(Rs. 5,553.83 million) by way of a new ECB facility from the parent Company, Linde AG.

Capital expenditure of Rs. 3,820.62 million during the year was mainly towards settingup of 2550 tonnes per day ASU for Tata Steel at Jamshed-pur, 450 tonnes per day merchantASU at Taloja and towards procurement of distribution resources.

Prescribed particulars

The prescribed particulars required under Section 217 (1) (e) and 217 (2A) of theCompanies Act, 1956, read with the Rules made there under as amended up to date are givenby way of Annexure to this Report.

There were 7 employees who were employed throughout the year and were in receipt ofremuneration aggregating to Rs. 6 million or more or were employed for part of the yearand were in receipt of remuneration aggregating to Rs. 0.5 million per month or moreduring the year ended 31 December 2012. In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder as amended, the names andother particulars of employees are set out in the annexure to the Directors’ Report.However, in terms of the provisions of Section 219 (1) (b) (iv) of the Companies Act,1956, the Directors’ Report is being sent to all the shareholders of the Companyexcluding the said information. The aforesaid statement is available for inspection byshareholders at the Registered Office of the Company during business hours on working daysup to the date of the ensuing Annual General Meeting. Any shareholder interested inobtaining a copy of the said information may write to the Company Secretary at theRegistered Office of the Company.

Human resources

The Human Resources function ensures that all employees are aligned to theorganisation’s shared values, management principles and a high performance culture.To this end, the Human Resource function endevours to acquire employees best suited to theGroup, nurture them and to build long term loyalty. Your Company offers all its employeessafe and attractive working conditions, fair and respectful treatment and reward forexcellent performance. The Company has some of the best practices in place to become an"Employer of Choice" and in this area regularly seeks inputs and feedback fromemployees. Linde maintains a competitive edge by ensuring the right talent for the rightjob. This is ensured by using multi-pronged selection tools like assessment centers andone on one interview. Our recruitment process is now being managed online throughrecruitment software which connects various stakeholders on a common platform. We alsohave a visibility on various social networking sites and have created a strong employerbrand.

At Linde India, learning and development is a way of life. We encourage our employeesto show their skills and provide a conducive environment for personal and professionalgrowth. In the year 2012, training needs were identified for 100 % of employees insupervisory and management roles. Each employee had been encouraged to identify his / hertraining needs, depending on their role in the organisation. Based on the training needs,we drew up a detailed training calendar comprising training programmes, which are a blendof national and international programmes. In addition to this, all new employees underwenta structured induction program ‘SAMPARK’. The induction programme provides anopportunity to all new recruits to engage with Company’s senior management and tounderstand the organization vision, business pattern and functional roles.

Our Graduate Development programme called ‘CATALYST’ which was launched inthe previous year for recruitment and development of bright graduates has been verysuccessful and has inspired young graduate trainees for taking higher responsibilities inthe organization in the years ahead. As a result, your Company was recognized by the GreatPlace To Work Institute and The Economic Times as India’s best company to work for in2012 in a special category and your Company also received recognition for PeopleExcellence in the Linde Group. We also launched the Emerging Talent Development Programme– Linde Cluster Talent Circle (LCTC) 2012. It is a unique two-year developmentprogramme for emerging talent, which is aimed to nurture and groom talent in South AsiaCluster.

The organisation’s rewards philosophy is in line with the competitive rewardsystem in the market that motivates employees for achieving stretch business performance.Various reward schemes are in place to motivate and retain skilled employees to achievebusiness strategy and goals. Your organization has improved processes for many HumanResource interfaces with employees to drive process excellence and higher level ofemployee satisfaction. Various other initiatives like Health Awareness Programs, CSRactivities, team building exercises for employees across locations were carried out duringthe year.

Your company had manpower strength of 797 as on 31 December 2012 and continues to enjoyharmonious industrial relations at all its plants and offices across the country.

Safety, health, environment and quality (SHEQ)

As a member of The Linde Group, your Company continues to make steady progress on thesafety journey while maintaining the highest standards of safety, health and environmentalprotection covering all aspects of its operations, distribution and project execution.

Safety is one of the foundation principles upon which the Linde value system is builtand is therefore a top priority for The Linde Group in its own business processes as wellas in use of it products by customers. This view is well articulated in the LindeGroup’s SHEQ policy which is embraced by your Company. It states that "The LindeGroup will avoid harm to people, society and the environment while providing qualityproducts and services to our customers".

In order to reinforce on the SHEQ agenda, your Company continues to focus on ensuringcompliance with Linde’s Golden Rules of Safety , which are a set of 7 mandatory rulesframed to manage, mitigate and control high risk jobs across all operations of the Companyboth in the Gases and Project Engineering Division at all times. During the year, theGases Division of your Company achieved a significant safety milestone by completing 500Major Incident free days, which demonstrates commitment of our teams to the safety agenda.

In the backdrop of our aspirations of becoming the leading gases and engineeringcompany in India, your Company has made significant investment in setting up large AirSeparation Units, new state of the art packaged gases sites, covered increasingly highernumber of kilometers for delivery of its products in a very challenging environment, andgrown its project engineering business to its all time high. All this was achieved withoutany Lost Time Injury to our employees and contractors during the year, which demonstratesthat we are taking the first early steps towards an "injury free" organization.

Your Company continues to mandate complete transparency in SHEQ reporting and allaccidents and incidents, even the minor ones are reported. Thereafter, depending on theincidents, they are duly investigated, corrective actions are identified and actionedupon. The "Lessons from Incidents" (LFIs) of all major Incidents are circulatedto prevent repeat of similar incidents.

Transport Safety remains the single biggest challenge and focus area for improvement.Your Company has risen to the challenge by significantly improving its focus on this area.Trained staff at our Fleet Control Room (FCR) monitor driver behaviour for our entirefleet of over 400 transport tankers. The FCR monitors speed, driving hours / rest hours,harsh braking, night driving restrictions and this has significantly contributed to saferdriving and lesser transport related incidents.

Your Company also aims to establish a minimum standard for health management and topromote various measures to improve the health management of its employees andcontractors. On the Health and Occupational Hygiene front, various training &awareness initiatives and mitigation actions have been taken covering manual handling,asbestos and noise management.

Your Company has set up water recycling and rain harvesting facilities at a number ofits sites. As an integral part of its initiative to protect the environment, your Companymonitors waste generation, emission of green house gases, effluents, quality of air, etcat the plant sites. Most of our key sites have already been covered under ISO 14001:2004accreditation while the other sites are in the process of acquiring the certification.

Air Separation plants are highly energy intensive and our greatest challenge is tocontinuously use energy efficiently as well as in reducing green house gas emissions. Whenour gases are transported by road whether they be liquefied gases transported in tankersor compressed gases transported in cylinders, we take care to optimize routes so as toreduce fuel consumption and thereby reduce emission of green house gases. Across allindustry sectors there are gases applications which can make the processes moreenvironment friendly whether by substituting materials, improving the efficiency of thecombustion processes or by reducing emissions and waste.

Security arrangements at the plant sites and offices have been reviewed to make themmore effective and alert against all possible threats with a view to make our plants andwork places safer. Security vulnerability risk assessments are being carried out at highrisk sites and CCTV monitoring arrangements are being made to improve security at oursites and offices.

Outlook

The global economy has witnessed weaker growth in 2012 as a result of, among others,high sovereign debt worldwide, volatile financial markets, currency fluctuations andpolitical unrest in some parts of the world. Indian economy has not been any exception andhas witnessed sluggishness throughout 2012. The economy is facing historically highcurrent account deficit, high fiscal deficit, inflationary trends and deepening growthconcerns with GDP growth rate for 2012 – 2013 estimated to fall below 5.5 %. YourCompany thus has had a difficult and challenging 2012, which reflected the gloomyconditions in the economy.

The global economy led by a fall in unemployment data and housing recovery in the US isexpected to show some improvement in 2013. Indian economy is also expected to benefit fromeasing liquidity, lower interest rates, speed on policy reforms and hopefully normalmonsoons. The presence of a large and young population, particularly the large middleclass is expected to drive demand to ensure continued economic growth in India, whichaugurs well for the long term prospects of the industrial gases business of the Company.

Your Company has already committed significant investments in the gases business forsetting up large capacities for catering to the customers in steel sector and merchantmarkets. Although, the outlook for the steel sector remains somewhat uncertain in theshort term, the medium to long term outlook appears positive and the demand is likely topick up in the next financial year on the back of expected revival in economic growth andthe need to increase investments in the infrastructure sector. Your Company’sstrategy to increase penetration in hospitals in tier 2 cities with focus on privatehospital chains and of leveraging the Group’s industry specific expertise in gasapplications is likely to have a positive impact on the gases business in the medium tolong term. Your Company has also been making steady progress in its HPO (high performanceorganistion) journey and will continuously endeavour to leverage the strengths of itsparent, in growing its businesses across the gases and engineering segments. The overalloutlook for 2013 is therefore cautiously optimistic.

Internal control systems and their adequacy

Your Company has an adequate system of internal control commensurate with the size andthe nature of its business, which ensures that transactions are recorded, authorised andreported correctly apart from safeguarding its assets against loss from wastage,unauthorised use and removal.

The internal control system is supplemented by documented policies, guidelines andprocedures. The Company’s Internal Audit Department continuously monitors theeffectiveness of the internal controls with a view to provide to the Audit Committee andthe Board of Directors an independent, objective and reasonable assurance of the adequacyof the organization’s internal controls and risk management procedures. The InternalAudit function submits detailed reports periodically to the management and the AuditCommittee. The Audit Committee reviews these reports with the executive management with aview to provide oversight of the internal control systems. The Company reviews itspolicies, guidelines and procedures of internal control on an ongoing basis in view of theever changing business environment.

Your Company’s statutory auditors have, in their report, confirmed the adequacy ofthe internal control procedures.

Corporate governance

As a member of The Linde Group, your Company recognises the importance of goodcorporate governance. Your Company is therefore, committed to business integrity, highethical values and professionalism in all its activities. As an essential part of thiscommitment, the Board of Directors supports high standards in corporate governance. It isthe endeavor of the Board and the executive management of your Company to ensure thattheir actions are always based on principles of responsible corporate management. In TheLinde Group, corporate governance is seen as an ongoing process. Your Company’s Boardwill therefore closely follow future developments in the governance norms and will takelead in ensuring compliance with the same. A separate report on Corporate Governance alongwith the certificate of the Auditors, B S R & Co., confirming compliance of theconditions of corporate governance, as stipulated under Clause 49 of the Listing Agreemententered into with the Stock Exchanges is annexed.

Responsibility statement

As required by Section 217 (2AA) of the Companies Act, 1956, the Directors state andconfirm:

That in preparation of the annual accounts for the year ended 31 December 2012,applicable accounting standards had been followed along with proper explanations relatingto material departures, if any.

That they had selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company at the end of the aforesaid financial year and ofthe profit or loss of the Company for that period.

That they had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theAssets of the Company and for preventing and detecting fraud and other irregularities.

That they had prepared the aforesaid annual accounts on a going concern basis.

Directors

Mr Aditya Narayan, an additional director w.e.f. 9 February 2012 was appointed as aDirector of the Company at the 76th Annual General Meeting held on 17 May 2012. There hasnot been any change in the Board of your Company since the last Annual General Meeting.

Mr Sanjiv Lamba, Chairman of the Board, retires by rotation at the ensuing AnnualGeneral Meeting and being eligible, offers himself for reappointment. Necessary resolutionfor reappointment of Mr Lamba as a Director of the Company is included in the Notice ofthe ensuing Annual General Meeting. The Board recommends the said resolution for yourapproval.

Cost audit

The Central Government’s directions vide their Order dated 10 August 2000 pursuantto Section 233 B of the Companies Act, 1956, requires audit of the cost accounting recordsof the Company relating to Industrial Gases, for every financial year. Messrs S. Gupta& Co., a firm of Cost Accountants in Kolkata conducted this audit for theCompany’s financial year ended 31 December 2011. The Cost Auditors’ appointmentfor the financial year 2012 was considered by the Board of Directors on the recommendationof the Audit Committee and necessary application for approval of the appointment of thecost auditor had been filed with the Central Government. The Company has subsequentlyreceived the approval of the Ministry of Corporate Affairs in the Central Government forappointment of M / s. Rammani Sarkar & Co. as Cost Auditors for auditing the costaccounts relating to industrial gases as well as Project Engineering Division for thefinancial year ended 31 December 2012. The Cost Auditor would take up the audit as soon aspossible and would submit its report for the year 2012 within the due date.

Auditors

Messrs B S R & Co., Chartered Accountants, Auditors of the Company retire, andbeing eligible, offers themselves for re-appointment. The Company has obtained a writtenconsent from Messrs B S R & Co. to the effect that their re-appointment if made, willbe within the limits specified under Section 224 (1B) of the Companies Act, 1956.

With regard to the Statutory Auditors’ remarks in their report about utilizationof short term funds for long term purposes, your Company believes that this gap in thelong term funds was temporary in nature, when it had to utilize short term funds forprocurement of distribution assets and towards setting up of a packaged gases site.

Disclaimer

Certain statements in this report relating to Company’s objectives, projections,outlook, expectations, estimates, etc may be forward looking statements within the meaningof applicable laws and regulations. Although the Company believes that the expectationsreflected in such forward looking statements are reasonable, no assurance can be giventhat such expectations will prove to have been correct. Accordingly, actual results orperformance could differ materially from such expectations, projections, etc whetherexpress or implied as a result of among other factors, changes in economic conditionsaffecting demand and supply, success of business and operating initiatives andrestructuring objectives, change in regulatory environment, other government actionsincluding taxation, natural phenomena such as floods and earthquakes, customer strategies,etc over which the Company does not have any direct control.

On Behalf of the Board

a) Energy conservation measures taken:

(i) Commissioned new ASU at Taloja to replace old inefficient plants at Tarapur andTaloja resulting in reduction in power consumption per unit of output.

(ii) Several operating plants have been taken under Remote Operation Centre (ROC) forefficient plant operation by centralized team of experts.

(iii) Installation of ABT Meter at Hyderabad plant for getting power through OpenAccess with a view to optimize energy cost.

(iv) Ongoing energy conservation measures such as maintaining power factor, demandmanagement, best operating practices, use of energy efficient lights and equipment wereundertaken across most of the plant sites.

b) Additional investments and proposals:

(i) Major investment planned towards turn around maintenance of 1290 tonnes per dayplant at Jamshedpur for improving efficiency of plant operations.

(ii) Major investment planned for interconnection of wet air lines between plants inJamshedpur for improving overall system efficiency.

c) Impact of above measures on energy consumption and cost of production:

The above measures will have a positive impact on the electrical power usage and willlead to significant reduction in specific power usage per unit of output.

d) Energy conservation in respect of specified industries:

Not applicable

1. Areas in which R&D carried out:

(i) Widening application of shielding gases for fusion welding and allied processesspecific to customer requirement.

3. Future plan of action:

(i) Continue to explore new applications of ASU gases and shielding gases to meetspecific need of the market.

(ii) As a member of The Linde Group, the Company has access to various Research &Development carried out by the Group globally. In view of this, the R&D activities ofthe Company are restricted to specific local requirements.

4. Expenditure on R&D:

1. Efforts made:

1. Commissioning of (NG) new generation state of the art packaged gases sites at Vizagand Bangalore as per Linde’s engineering standards for improving safety andproductivity.

2. Implementing "Project Condor plus" for oxygen filling for improved safety.

3. Commissioning of helium debulking centre and filling of 200 bar cylinders and liquiddewars.

4. Implementation of remote carbide charging in generator of the DA plants for avoidingmanual intervention and improving safety.

5. Providing alternate energy through hydrogen for powering cellular phone towers.

2. Benefits derived:

1. Improved productivity and safety in compressed gases business.

2. Gaining of significant market share in merchant helium business.

3. Improving safety standards in operations.

3. Technology Imported:

Nil

f) Activities relating to exports, initiatives taken to increase exports, and exportplans:

During the year, the Company’s export activities recorded a significant increasemainly on account of revenues from export orders executed by the Project EngineeringDivision. The export revenues are largely towards sale of oxygen plants by the ProjectEngineering Division to Sri Lanka and Bangladesh. Besides, Gases Division also exportedliquid oxygen, argon, medical oxygen and nitrous oxide to Bangladesh. The Company willcontinue to explore export opportunities in the Project Engineering business as well asexport of ASU gases to neighboring countries, especially Bangladesh in short to mediumterm.

g) Total foreign exchange used and earned:

Total foreign exchange used during the year was Rs. 7392.10 million and total foreignexchange earned during the year was Rs. 1470.38 million, which included Rs. 1425.77million from exports.