Gitanjali Gems Ltd

To,

The members of

Gitanjali Gems Limited

Your Directors are pleased to present the 25th Annual Report on the business andoperations of the Company for the year ended 31^st March, 2011.

FINANCIAL RESULTS

(Rs. in millions)

TURNOVERS & PROFITS

The Directors wish to inform you that during the financial year ended 31^stMarch, 2011 the sales and other income increased from Rs. 33552.52 millions to Rs. 51232.7millions. The net profit before tax stood at Rs. 2289.65 millions as against Rs. 1493.56millions in the previous year. The net profit after tax stood at Rs. 2246.03 millions asagainst Rs. 1420.91 millions in the previous year.

1. DIAMOND AND JEWELLERY MANUFACTURING SEGMENT

The Company engages in an end-to-end diamond processing chain which begins withMarking, Cleaving, Sawing, Cutting and finally, Polishing. It procures rough diamonds fromvarious major reputed diamond suppliers across the globe. These rough diamonds areprocessed and polished in the modern diamond processing units.

The Company is making conscientious efforts in addressing the large marketopportunities that exist in the Diamond Segment both in India and abroad. Exports of Gemsand Jewellery are also on the upswing. Large opportunities exist in exports by convertingdiamond into Jewellery before exports.

The Company also has state of art manufacturing facilities of Jewellery catering to itsdomestic as well as International distribution.

2. BRANDED JEWELLERY SEGMENT

Branded Jewellery Segment is India Focused Segment of the group, which caters to over3600 points of sales across the country. Gitanjali owns 8 out of top 10 brands in thecountry. Asmi, Gili, Nakashtra, and D’Damas have become most dominating brand todayin the jewellery segment in India. All these brands are housed in separate legal entitieswith their manufacturing strength offers India’s largest jewellery distribution andretail model under this segment.

Multi-brands retail outlets are also under this segment to develop company owned andfranchise formats for the group. This segment holds Gitanjali’s lifestyle business ofaccessories and watches.

Gitanjali has been the pioneer in the branded jewellery segment and is amongst thefirst few companies to launch its own outlets to sell branded jewellery in India. TheGroup’s "Gili" brand of jewellery, introduced in 1994, was among the firstbranded jewellery introduced in India. The Group’s brands and sub-brands are aimed atdifferent customer profiles, various markets and price segments and enjoy significantbrand equity and market share.

Gitanjali’s brand portfolio includes leading jewellery brands like GILI,Nakshatra, Asmi, Sangini, D’damas etc. The other important brands under varioussections including jewellery, fashion accessories, watches and silver ware are CollectionG, Gold Expressions, Vivaaha, Glitterati, Maya Gold, Diya, Stefen Hafner, Shuddhi, Lucera,Hoop, Bella, Revv, Rivaaz, Giantti, World of Solitaire, Me Solitaire, World of Silver,Bezel, Morellato etc.

3. INTERNATIONAL DISTRIBUTION AND RETAIL SEGMENT.

Gitanjali forayed into the US market by acquiring Samuels and Rogers, a retail chain inUSA. Gitanjali now has 111 stores in USA. International segment also caters to retail anddistribution in Middle East, China and Japan and other jewellery consumption countries.

Recent acquisition of DIT Group’s assets in Italy aims to target Italian designsof jewellery for Russian and Saudi Arbian Markets while Indian designs have penetrated inAsian Sub-continent.

International segment will compliment company’s vision to become worlds largestjewellery player with integrated model.

DIVIDEND

Your Directors recommended a dividend of Rs. 3.00 per equity share for the year ended31^st March, 2011 at their meeting held on 27^th May, 2011.Subsequently on 3^rd August, 2011, the Company issued 611795 Equity Shares ofRs. 10 each upon conversion of FCCBs worth USD 3 millions. The said shares ranks paripassu with the existing shares and are entitled to get all benefits of existing shares.The payment of dividend is subject to the approval of shareholders at the ensuing AnnualGeneral Meeting.

TRANSFER TO RESERVES

The Company proposes to transfer Rs. 230 millions to the general reserve out of thetotal amount of Rs. 8696.49 millions available for appropriations as on 31^stMarch, 2011.

AUTHORISED SHARE CAPITAL

During the year under review, the Authorised Share Capital of the Company was increasedfrom Rs. 120,00,00,000/- (Rupees One Hundred and Twenty crores) divided into 12,00,00,000(Twelve crores) equity shares of Rs. 10 (Rupees Ten Only) each to Rs. 150,00,00,000/-(Rupees One Hundred and Fifty crores Only) divided into 15,00,00,000 (Fifteen crores)equity shares of Rs. 10 (Rupees Ten only) each. The Authorised Share Capital has beenincreased in order to facilitate raising funds through issuance of new securities.

PAID UP SHARE CAPITAL

On 8^th January, 2011 the Company issued 601598 Equity shares of Rs. 10 eachupon conversion of FCCBs worth USD 2.95 millions. Further on 3^rd August, 2011Company issued 611795 Equity shares of Rs. 10 each upon conversion of FCCBs worth USD 3millions.

Consequently, paid up capital of the Company increased from Rs. 84,27,00,000 consistingof 8,42,70,000 Equity shares of Rs. 10 each at the begining of the year to Rs.85,48,33,930 consisting of 8,54,83,393 Equity shares of Rs. 10 each as on date.

1. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB)

As on 1^st April, 2010 the Company had a balance of USD 2 millions from thenet proceeds of FCCBs in deposits pending utilisation. During the year, the Company hasutilised entire FCCB proceeds and as on 31^st March, 2011 the Company has NILbalance of FCCBs proceeds.

2. GLOBAL DEPOSITORY RECEIPTS (GDRS)

The Company had a balance of USD 2.215 millions from its GDR Proceeds as on 1^stApril, 2010. After utilisation of funds towards the objects for which it was raised as on31^st March, 2011 the balance net proceeds of GDR of USD 0.066 millions was keptas deposits with overseas banks pending utilisation.

SUBSIDIARIES

The Company had the following Subsidiaries/ Step down Subsidiaries at the beginning ofthe year:

1. Mehul Impex Limited

2. Gitanjali Exports Corporation Limited

3. Shubalavanyaa Jewel Crafts Private Limited

4. Gili India Limited

5. Gitanjali Brands Limited (formerly known as Fantasy Jewellery Private Limited)

6. Brightest Circle Jewellery Limited (formerly known as Brightest Circle JewelleryPrivate Limited)

7. D’Damas Jewellery (India) Private Limited

8. Asmi Jewellery India Limited (formerly known as Asmi Jewellery India PrivateLimited)

9. Gitanjali Lifestyle Limited

10. CRIA Jewellery Private Limited

11. Gitanjali Infratech Limited

12. *Aurangabad SEZ Limited

13. *Nanded SEZ Limited

14. *Nagpur Multi-Product Services SEZ Limited

15. Hyderabad Gems SEZ Limited

16. Raigad Gems SEZ Limited

17. Nashik Multi Services SEZ Limited

18. Gitanjali Jewellery Retail Private Limited

19. Mohar Jewels Limited

20. Samuels Jewelers Inc.

21. Gitanjali USA, Inc.

22. Gitanjali Ventures DMCC

23. Gitanjali Retail Ventures Limited

24. Modali Gems Private Limited

25. Decent Securities & Finance Private Limited

26. Eureka Finstock Private Limited

27. West Bengal SEZ Limited

28. *Gitanjali Holdings Limited

29. MMTC Gitanjali Private Limited

30. Spectrum Jewellery Limited (formerly known as Spectrum Jewellery Private Limited)

31. Gitanjali Capital Private Limited (formerly known as Bezel India Private Limited)

STEP DOWN SUBSIDIARIES

1. Tri-Star Worldwide LLC (Subsidiary of Gitanjali USA, Inc.)

2. **Lucera Retail Venture Private Limited (Subsidiary of Gitanjali Lifestyle Limited)

3. **Trinity Expositions Private Limited (Subsidiary of Gitanjali Lifestyle Limited)

4. **Hoop Retail Ventures Private Limited (Subsidiary of Gitanjali Lifestyle Limited)

5. Kolkata Axis Mall Limited (Subsidiary of Gitanjali Infratech Limited)

6. Maya Retail Limited (formerly known as Salasar Retail Limited - Subsidiary ofGitanjali Lifestyle Limited)

7. MobileNXT Teleservices Private Limited (Subsidiary of Gitanjali Lifestyle Limited)

8. ***Alliance Jewelleries Private Limited (Subsidiary of Brightest Circle JewelleryLimited)

9. Diamlink Inc. USA (Subsidiary of Gitanjali USA, .Inc)

10. Diamlink Jewelery Inc. (Subsidiary of Diamlink Inc. USA)

11. Jewelry Marketing Comp, LLC (Subsidiary of Diamlink Jewelery Inc)

12. LJOW Holdings, LLC (Subsidiary of Diamlink Jewelery Inc)

The following subsidiaries/step-down subsidiaries were wholly / partly acquired orincorporated during the year:

1. N&J Finstocks Private Limited

2. Gitanjali Resources

3. Giantii Italia SRL

4. ***Pink Jewellery Private Limited (subsidiary of Brightest Circle Jewellery Limited)

Notes:

* Aurangabad SEZ Limited, Nanded SEZ Limited and Nagpur Multi-Product Services SEZLimited were struck off under Easy Exit Scheme, 2011. Further Gitanjali Holdings Ltd,U.A.E. has been deregistered as there were no operations in it.

** Hoop Retail Ventures Private Limited, Trinity Expositions Private Limited and LuceraRetail Venture Private Limited, step down subsidiaries were amalgamated with GitanjaliLifestyle Limited, wholly owned subsidiary as per Bombay High Court Order dated May 06,2011.

*** Pink Jewellery Private Limited and Alliance Jewelleries Private Limited, stepdownSubsidiaries were amalgamated with Brightest Circle Jewellery Limited, wholly ownedSubsidiary as per Bombay High Court Order dated April 15, 2011.

A statement containing brief financial details of subsidiaries is included in theannual report.

As required under listing Agreements with the Stock Exchanges, a consolidated financialstatement of the Company and all it’s subsidiaries is attached. The consolidatedfinancial statement has been prepared in accordance with accounting standard 21, 23 and 27issued by Institute of Chartered Accountants of India and show the financial resources,assets, liabilities, income, profits and other details of the Company, its subsidiariesand Joint ventures.

PARTICULARS UNDER SECTION 212 OF THE COMPANIES ACT, 1956

The Ministry of Corporate Affairs, Government of India vide circular no. 2/2011 dated 8^thFebruary, 2011 has granted general exemption from attaching the Balance Sheet, Profit andLoss Account and other documents of the subsidiary companies with the Balance Sheet of theCompany as set out in sub-section (1) of Section 212 of the Companies Act, 1956.Accordingly, the Board of Directors in their Meeting held on 27^th May, 2011passed a resolution giving consent for not attaching the Balance Sheet, Profit and LossAccount and other documents of the subsidiary companies with the Balance Sheet of theCompany. A statement containing brief financial details of the Company’s subsidiariesfor the financial year ended 31^st March, 2011 is included in the Annual Report.

The Company will make available the Annual Accounts of the subsidiary companies and therelated detailed information to any member of the Company who may be interested inobtaining the same. The annual accounts of the subsidiary companies will also be availablefor inspection at the Corporate Office of the Company. The Company shall furnish a copy ofdetails of annual accounts of subsidiaries to any member on demand. We believe that theconsolidated accounts present a full and fair picture of the state of affairs and thefinancial condition and are accepted globally.

CONSOLIDATED FINANCIAL STATEMENTS

Your Directors have pleasure in attaching the consolidated financial statement which isprepared in accordance with applicable accounting standards prescribed by Institute ofChartered Accountants of India in this regard. The Auditors report does not contain anyqualification.

RELATED PARTY TRANSACTIONS:

Related party transactions have been disclosed in the notes to accounts.

FIXED DEPOSITS AND LOANS & ADVANCES:

During the year under review, your Company has neither invited nor accepted any fixeddeposits from the public within the meaning of Section 58A of the Companies Act, 1956.

DIRECTORS:

In accordance with the Articles of Association, Mr. Dhanesh Sheth, Director retires byrotation and being eligible, offers himself for re-appointment. Your Directors recommendhis re-appointment for your approval.

Brief resume of all the Directors on the Board has been given in the Annual Report in"Corporate Governance Report" section.

GROUP:

Pursuant to intimation from the Promoters, the names of the Promoters and entitiescomprising the ‘group’ are disclosed in the Annual Report for the purpose of theSEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

AUDITORS & AUDITORS REPORT:

M/s. Ford, Rhodes, Parks & Co., Chartered Accountants, the present StatutoryAuditors retire at the ensuing Annual General Meeting and are eligible for re-appointmentu/s 224 (1B) of the Companies Act, 1956. The Company proposes to re-appoint M/s. Ford,Rhodes, Parks & Co., Chartered Accountants as Statutory Auditors of the Company fromthe conclusion of the ensuing Annual General Meeting up to the conclusion of the nextAnnual General Meeting of the Company.

The Audit Committee and the Board recommend the appointment of M/s. Ford, Rhodes, Parks& Co., Chartered Accountants as Statutory Auditors of the Company.

In respect of the observations made by Auditors in their report, your Directors wish tostate that the respective notes to the Accounts are self explanatory and therefore do notcall for any further comments.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 withrespect to Directors’ Responsibility Statement, it is hereby confirmed:

(i) that in the preparation of the annual accounts, for the financial year ended 31^stMarch, 2011, the applicable accounting standards have been followed along with properexplanation relating to material departures, if any;

(ii) that the Directors have selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as at 31^stMarch, 2011 and of the profit of the Company for the said period;

(iii) that the Directors have taken proper and sufficient care for the maintenance ofadequate 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 andother irregularities; and

(iv) that the Directors have prepared the accounts for the financial year ended 31^stMarch, 2011 on a ‘going concern’ basis.

The above statements have been reviewed by the Audit Committee at its meeting held on27^th May, 2011.

SIGNIFICANT DEVELOPMENTS DURING THE YEAR

(a) During the year, the Company has acquired 100% Shares of N&J Finstocks PrivateLimited (N&J), By way of this acquisition, N&J has become a wholly ownedsubsidiary of the Company.

(b) During the year, the Company has acquired 100% stake in ‘Giantti ItaliaS.R.L.’, a Company based in Milan, Italy. By virtue of this acquisition ‘GianttiItalia S.R.L.’ has become a direct subsidiary of the Company. The said acquisitionwill be useful for growth of the branded jewellery business overseas and gain thedesigning and branding concepts expertise from Italy.

(c) During the year with a view to rationalise the group structure, the Company hasacquired entire stake in "Pink Jewellery Private Limited" (PJPL) throughBrightest Circle Jewellery Limited, a wholly owned subsidiary of the Company.

(d) During the year, the Company has incorporated a wholly owned subsidiary (WOS) Inthe name of "Gitanjali Resources" in Belgium with a view to explore and expandits businesses in Europe.

The main object of this WOS is to focus on the business of the Company in EuropeanRegion and conduct core diamond and jewellery business in that continent.

RECENT DEVELOPMENTS

(a) The Company has incorporated a wholly owned subsidiary in the name of LeadingItalian Jewels SRL (LIJ) in Italy with the view to expand its business in Italy andadjoining region. The main activity of LIJ is trading in precious stones, diamondsjewellery, pearls etc.

(b) The Company has sold its entire 51% stake in Shubalavanyaa Jewel Crafts PrivateLimited, a Subsidiary of the Company to Gitanjali Brands Limited, a wholly ownedSubsidiary of the Company. Consequent to the said transfer Shubalavanyaa Jewel CraftsPrivate Limited has become a Subsidiary of Gitanjali Brands Limited.

(c) The Company has acquired assets of DIT Group S.p.A (DIT) Italy alongwith the trustconstituted as operating vehicle i.e ‘BLU S.r.l’ a Company governed by Italianlaw with headquarters in Milan. DIT engages in Jewellery manufacturing and sale business.

(d) The Company decided to explore the potential merger of subsidiaries, demerger andother forms of restructuring, or acquisition, or spin-off with the ultimate object ofenhancing and unlocking shareholder value. Accordingly, Pink Jewellery Private Limited andAlliance Jewelleries Private Limited, stepdown Subsidiaries were amalgamated withBrightest Circle Jewellery Limited, wholly owned Subsidiary as per Honorable Bombay HighCourt Order dated April 15,2011. Further, Hoop Retail Ventures Private Limited, TrinityExpositions Private Limited and Lucera Retail Venture Private Limited, step downsubsidiaries were amalgamated with Gitanjali Lifestyle Limited, wholly owned subsidiary asper Honorable Bombay High Court Order dated May 06, 2011

(e) The Company has incorporated wholly owned subsidiary in the name of Aston LuxuryGroup Ltd. in Hong Kong.

(f) The Company has incorporated GGL Diamond LLC in United States of America throughits wholly owned subsidiary Gitanjali USA Inc.

DISCLOSURE PURSUANT TO CLAUSE 5A OF LISTING AGREEMENT

Pursuant to insertion of clause 5A in listing Agreement as per SEBI notification no.SEBI/CFD/DIL/LA/1/2009/24/04 dated 24^th April, 2009 the details in respect ofthe shares lying in the Gitanjali Gems Limited – Unclaimed Shares Demat SuspenseAccount till 31^st March, 2011 is as under.

All the corporate benefits in terms of securities, accruing to on these unclaimedshares shall be credited to such account. Voting rights on these shares shall remainfrozen till the rightful owner of such shares claims the shares.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Management Discussion and Analysis Report of financial condition and results ofoperations of the Company for the year under review as required under Clause 49 of theListing Agreement with the Stock Exchanges, is given as a separate statement forming partof this Annual Report.

OUTLOOK FOR 2011312

The Jewellery business will continue its growth path through various initiatives,including launching of new collections, setting up large format stores, increasing shareof studded jewellery and achieving design leadership.

Overall, the year 2011-12 will be a year where the Company would drive for strong andprofitable growth in all its Indian consumer businesses, retain focus on elimination ofwasteful costs, and skillfully navigate the international businesses which will continueto pose challenges due to sluggish demand in some of the geographies.

AWARDS AND RECOGNITION

The Company has been awarded the Outstanding CSR in the Gems & Jewellery sector atthe first CSR TLC held on 19^th February, 2011, from the hands of Shri SalmanKhurshid, Honorable Union Cabinet Minister for Water Resources, and for Minority Affairs.The Company has received this prestigious award as recognition for its efforts in thefield of community health and welfare.

The Company has been awarded the 5th INDY’s award for Excellence in CorporateSocial Responsibility Practice. The award recognised the Company for systematicallyplanning and carrying out social activities within the organisation. The jury wasextremely impressed with the involvement of the employees and the array of activitiesbeing carried out like blood donation camp, eye check up camp, first aid training,cleanliness drive etc.

It was a proud moment for the Company as ‘Saksham’ one of the projects underthe Company’s CSR initiative ‘Sambhav’, was acknowledged and awarded theprestigious NCPEDP- Shell Helen Keller Award, 2010 under Category C meant for Companies/Organisations/Institutions who through their policies and practices demonstrate theirbelief in equal rights and gainful employment for people with disabilities. The award, wasgiven at a simple ceremony at India International Centre Auditorium, Max Mueller Marg on 2^ndDecember, 2010 on the eve of World Disability Day. Hon’ble Home Minister and chiefguest for the evening, Shri P. Chidambaram presented the award to the Company. The Sakshaminitiative of the Company is focused on empowerment of People with Disabilities(PWD’s) through a six month training programme and creating conditions for theirrehabilitation and integration into society. Nearly 250 such people are employed at theCompany’s factory located at Rajiv Gems Park at Hyderabad and the Company plans tosignificantly increase this number in the coming year.

CORPORATE GOVERNANCE

The Company is committed to maintain the highest standards of Corporate Governance andadhere to the Corporate Governance requirements as set out by SEBI. The Company has alsoimplemented several best corporate governance practices as prevalent globally. The Reporton Corporate Governance as stipulated under Clause 49 of the Listing Agreement forms partof the Annual Report. The requisite Certificate from the Auditors of the Companyconfirming compliance with the conditions of Corporate Governance as stipulated under theaforesaid Clause 49, is attached to this Report.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Company has devoted time, attention and resources to long cherished dream that theCompany have held – that of giving back to the society at large. The Company’sCSR initiative under the name Sambhav has brought together the different social programsthat the Company has been associated with over the years. These are programs in the fieldsof education, health, providing employment to PWDs. The Company will be integrating all ofthem and in own different initiatives like Saksham, Saakshar, Sujyot and Sneh. The focuswill be both on strengthening the existing programs as well as developing new ones too.The Company is now aiming to take this CSR initiative to new heights and are in theprocess of channelising all the strengths and efforts to form a strong CSR team within theCompany to encourage and promote a wide range of social welfare activities internally orin partnering with other NGOs and government bodies. The detailed Corporate SustainabilityReport is also available on the Company’s website www.gitanjaligroup.com

INDUSTRIAL RELATIONS

Employee relations continued to be cordial during the year. The Company continued itsthrust on Human Resource Development. The Board wishes to place on record its sincereappreciation to all the employees in the Company for their sustained efforts and immensecontribution to the high level of performance and growth of the business during the year.

PARTICULARS OF EMPLOYEES

The Board of Directors wishes to express its appreciation to all employees for theiroutstanding contribution to the operations of the Company during the year. During the yearunder review there were no employees drawing remuneration covered under the Sub-Section(2A) of Section 217 of the Companies Act, 1956 read with the Companies (Particulars ofEmployees) Rules, 1975 as amended. Hence no particulars in this regard are furnished inthe report.

A. CONSERVATION OF ENERGY

The Disclosure of particulars with respect to conservation of energy pursuant toSection 217 (1)(e) of the Companies Act, 1956 read with the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules, 1988 are not applicable to theCompany. However, the Company makes its best efforts for conservation of energy.

B. TECHNOLOGY ABSORPTION, ADAPTATIONS & INNOVATION

The Company has not carried out any specific research and development activities. TheCompany uses indigenous technology for its operations. Accordingly, the informationrelated to technology absorption, adaptation and innovation is reported to be NIL.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

(Rs. in millions)

ACKNOWLEDGEMENT

We thank our customers, vendors, investors and bankers for their continued supportduring the year. We place on record our appreciation of the contribution made by theemployees at all levels. Our consistent growth was made possible by their hard work,solidarity, co-operation, and support. We thank the Governments of various countries wherewe have operations. We also thank the Government of India, Ministry of Commerce &Industry, Ministry of Corporate Affairs, Ministry of Finance, Department of Economicaffairs, Customs & Excise Departments, Income Tax Department, Reserve Bank of India,Stock Exchanges, NSDL, CDSL, various bankers, State Governments and other GovernmentAgencies for their support, and look forward

Persons constituting group coming within the definition of "group" for thepurpose of Regulation 3(1)(e)(i) of the Securitities and Exchange Board of India(Substantial Acquisition of Shares and Takeovers) Regulations, 1997, include thefollowing:

A

B

C