Cheslind Textiles Ltd

Dear Shareholders,

The Directors present the Annual Report together with the Audited Balance Sheet as at30th September 2012 and the Statement of Profit and Loss of CHESLIND TEXTILES LIMITED forthe period ended on 30th September 2012 (18 months).

COMPANY’S PERFORMANCE

Your Company’s performance during the financial year 2011-12 (18 months) andfinancial year 2010-11 is summarised below:

FINANCIAL RESULTS:

(Rs. lakhs)

OPERATIONAL PERFORMANCE

The year 2011-12 was a highly challenging year and the performance of the Indian cottontextile industry got affected badly from April 2011 on account of Government policydecisions about export of cotton and cotton yarn during FY 2010-11. International anddomestic Cotton prices crashed from the peak of Rs.62,500 per candy in March 2011 toRs.32,000 per candy by June 2011. The Government’s ban on export of Cotton Yarnduring December 2010 to March 2011 resulted in accumulation of yarn stocks with the millsand yarn prices got dropped by over 40% in the first 3 months of the FY 2011-12. Duringthe year the interest costs on the borrowings also increased. High cost raw materialstocks, drop in yarn prices and high interest costs have led to steep fall in the profitsin the FY 2011-12.

Consequent to losses suffered during the first half of the FY 2011-12, the Companyapproached financial institutions and banks for restructuring of debt. Bankers agreed forthis and debts have been restructured under CDR Mechanism which was approved in March2012. As part of the

CDR scheme, the promoter’s loan to the company was converted into equity and alsothe promoters have brought in additional equity as per the CDR Scheme.

The power situation in the state of Tamil Nadu remained critical causing regular powercuts, load shedding and peak hour restrictions. The power rate was increased from Rs.4.84per unit to Rs.6.47 per unit w.e.f 01.04.2012. Captive power generation become unviabledue to high HFO cost. Due to Southern Grid Corridor problem and load restrictions, evenIEX power available in Northern grid could not be bought.

The lenders have reduced the interest rates on the loans as per the CDR Scheme. TheCompany also entered into an agreement with wind power generators for a long term supplyof power at competitive price. The operational team of unit at Bagalur took variousmeasures to debottleneck the production process and have increased production from 21 MTper day to 23 MT per day.

All these measures lead to improvement in the performance of the Company from April2012.

Looking to CDR approval and its implementation, the Company decided to extend theaccounting year from 31st March 2012 to 30th September 2012, therefore 18 months accountshave been made for the financial year 2011-12.

DIVIDEND

Your Directors are unable to recommend any Dividend on the Equity Shares in view of thefinancial position of the Company.

CORPORATE GOVERNANCE:

Your company is committed to good Corporate Governance practices. Your Directorsendeavour to adhere to the standards set out by the Securities and Exchange Board ofIndia’s (SEBI) Corporate Governance practices and accordingly has implemented all themajor stipulations prescribed. The Practicing Company Secretary’s certificate dated13th October 2012 in line with Clause 49 of the Stock Exchange Listing Agreement isattached to this report.

CONTRIBUTION TO THE EXCHEQUER

Your company has contributed an amount of Rs.246.05 lakhs in terms of taxes and dutiesto the exchequer.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors state that:

• in the preparation of the Annual Accounts the applicable Accounting Standardshave been followed;

• appropriate Accounting Policies have been selected and applied consistently andthey have made judgments and estimates that are reasonable and prudent so as to give atrue and fair view of the state of affairs of the Company on 30th September 2012 and ofthe Profit and Loss of the Company for the period ended on that date;

• 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;

• the Annual Accounts have been prepared on a going concern basis.

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information required to be disclosed pursuant to Section 217(1)(e) of the CompaniesAct, 1956 read with Companies (Disclosure of Particulars in the report of Board ofDirectors) Rules, 1988, is given in Annexure which forms part of the Report.

DIRECTORS

The following Directors retire by rotation and being eligible offer themselves forre-appointment:

• Mr. Prakash Maheshwari

• Mr. S C Parasrampuria

INTERNAL CONTROL SYSTEMS

The Company has in place proper, adequate and effective Internal Control Systemscommensurate with the nature and size of its operations, to ensure that all systems andprocedures are functioning satisfactorily and all policies are being duly complied with.The operations of the Company are regularly reviewed by the Audit Committee, whichexamines and evaluates the adequacy, relevance and effectiveness of the Internal ControlSystems and its compliance with prevailing laws and regulations. The Audit Committee makesappropriate recommendations for improvement in efficiencies and effectiveness of theInternal Control Systems.

PARTICULARS OF EMPLOYEES

There is no employee drawing remuneration falling within the limits specified underSection 217(2A) of the Companies Act, 1956 hence no statement is enclosed.

AUDITORS

The Company’s Auditors M/s. K P Rao & Company, Chartered Accountants and M/s.M Bhaskara Rao & Company, Chartered Accountants retire at the conclusion of theensuing Annual General Meeting of the Company and being eligible, offer themselves forreappointment.

ACKNOWLEDGEMENTS

Your Directors take this opportunity to express their gratitude and thank theCustomers, Dealers and Suppliers, Investors, Members, Banks, Financial Institutions,Central and State Governments for their continued support and co-operation. Your Directorsalso thank the employees of the Company across all levels for the sincere and hard workput in by them during the year under review.

1. CONSERVATION OF ENERGY

a) Energy conservation measures taken:

• Arrested the leakages in Compressed Air system and there by stopping ofCompressor.

• Replacement of old compressor with High Efficient compressor with betterSpecific Power consumption.

• Usage of 28W electronic ballast in place of 36W.

• ?Maintaining the wartsila DG in Hot standby mode with HSD instead of HFO,thereby reducing the auxiliary consumption.

b) Additional investment & proposals, under study

• To use lower slippage Spindle tapes in Ring frames and thereby reducing theSpecific Power consumption of Ring frames.

• Installation of Power and Production monitoring system in Ring frames to findout the difference if Power consumption between Ring frames and to take corrective actionson Higher Power consumption machines.

• Use of LED lightings in few of the areas.

• ?Detailed study about harmonics and installation of suitable filters to arrestthe harmonics.

c) Impact of measures taken under (a) above for the reduction of energy consumption andconsequent impact on the production of goods

The above measures reduced the Power consumption by 2000 units/day.

POWER AND FUEL CONSUMPTION

Specified areas of R&D carried out by the Company and future plan of action

Double slub yarn and Fair Trade yarns are developed for various value addedapplications as per customers need. Fine counts with Indian long staple cotton are regularproduction items and further changes are in progress as per needs of the customers.

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

- Conversion of pneumatic drafting loading into spring loading in simplex machines

- Replaced Analog signal processor to Digital Signal processor in Draw frame

- Provided Over Head Cleaner in simplex to enhance productivity and quality

- Implemented Mist Nozzle in packing and Waste area to improve Moisture

b) Benefit derived as a result of the above efforts

Overall cost reduction by applying energy saving devices, value addition to ourproducts.

c) In case of recently imported technology, the requisite information in brief

Not applicable.