Grasim Industries Ltd

Dear Shareholders,

Your Directors have pleasure in presenting the 63^rd Annual Report andAudited Accounts of the Company for the year ended 31st March, 2010.

The two major strategic steps taken by your Company during the year are the Demerger ofCement business into a separate subsidiary and the sale of Sponge Iron business.

DEMERGER OF CEMENT BUSINESS

As you are aware, your Company had embarked on a restructuring exercise under which theCement Business has been demerged into Samruddhi Cement Limited (Samruddhi), a subsidiaryof your Company, pursuant to a Scheme of Arrangement under Sections 391 to 394 of theCompanies Act, 1956 w.e.f 1^st October, 2009, being the Appointed Date fixed forthis purpose. In consideration, Samruddhi shall issue 1 (one) equity share of the facevalue of Rs. 5/- credited as fully paid up, to you for every equity share you hold in theCompany as on 28^th May, 2010, being the Record Date fixed for this purpose.This would be in addition to the shares held by you in the Company as of the Record Date.Consequently, the shareholding of your Company in Samruddhi will get diluted to about 65%.The demerger allows you, the shareholders of the Company, to participate directly in afocussed entity engaged in the cement business, in a manner such that the Company’sparentage and control continues. The Scheme has become effective on 18^th May,2010, having received the regulatory approvals, interalia, the sanction of theHon’ble High Court of Madhya Pradesh, Indore and Hon’ble High Court of Gujarat,Ahmedabad.

SALE OF SPONGE IRON BUSINESS

With a view to have increased focus on its core businesses, your Company sold off itsSponge Iron Business. The sale was completed on 22^nd May, 2009.

MERGER OF SAMRUDDHI CEMENT LIMITED WITH ULTRATECH CEMENT LIMITED

The Board of Directors of UltraTech Cement Limited (UltraTech) and Samruddhi, yourCompany’s subsidiaries, have decided to amalgamate Samruddhi with UltraTech under aScheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956, subject tonecessary approvals w.e.f. 1^st July, 2010, being the Appointed Date fixed forthe purpose. In terms of the Scheme, the shareholders of Samruddhi will receive 4 (four)equity shares of UltraTech of the face value of Rs.10 each, credited as fully paid up, forevery 7 (seven) equity shares of Samruddhi of the face value of Rs.5 each held on therecord date to be fixed for the purpose.The Scheme is pending for sanction before theHon’ble High Courts of Bombay and Gujarat.

These initiatives which will yield rich dividends in the long run and lay a strongfoundation for the future growth of your Company, have been elaborated in theChairman’s letter to you.

FINANCIAL PERFORMANCE

Your Company has reported improved results on the back of superior performance fromboth of its core businesses, viz., Cement and Viscose Staple Fibre. While the Cementbusiness has performed well, supported by higher output from the new capacities includingcaptive power plants, the VSF business recovered from the extreme downturn of the lastyear and showed an impressive performance.

The business-wise performance, review, outlook and strategy have been spelt out indepth in the Management Discussion and Analysis section, which forms part of this AnnualReport.

# The re-stated figures are before giving effect to the demerger of the Cement businessof your Company to Samruddhi Cement Limited (a subsidiary) ("Samruddhi") witheffect from 1st October, 2009 for better comparison with the previous year.

At the consolidated level, on account of the demerger of the Cement Business, whilethere is no change in the Revenue and Operating Profit of the Company, Net Profit afterminority share stands at Rs.3,096 crores. Net Profit after minority share has beenimpacted due to the differential tax rate and minority share (35%) of Samruddhi,representing shares to be issued to Grasim’s shareholders in terms of the demergerscheme.

DIVIDEND

Your Board has recommended a dividend of Rs.30 per share, subject to your approval. Thetotal outflow on account of the dividend (inclusive of the Corporate Tax on Dividend)would be Rs.309 crores.

Additionally, the Board of Directors of Samruddhi, has proposed a dividend of Rs.1.75per share for the six-month period ended 31^st March, 2010. Each Grasimshareholder will be receiving one equity share of Rs. 5 in Samruddhi for every one shareheld in Grasim on the record date (28^th May, 2010), in line with the demergerscheme.

EMPLOYEE STOCK OPTION SCHEME (ESOS)

During the year, 52,956 Options were vested in the eligible employees of the Company.

The details of Employee Stock Options granted pursuant to the Employee Stock OptionScheme - 2006 (ESOS - 2006), as also the disclosures in compliance with Clause 12 of theSecurities and Exchange Board of India (Employee Stock Option Scheme and Employee StockPurchase Scheme) Guidelines, 1999, are set out in the Annexure ‘A’ to thisReport.

DEBENTURES AND TERM LOANS

Your Company has raised long term loans (Non-Convertible Debentures) aggregating Rs.200Crores to meet the requirements of capital expenditure and other approved purposes. Termloans aggregating Rs.312 Crores were repaid during the year.

AWARDS & ACCOLADES

Your Company has earned several honours. Some of the significant accolades receivedinclude:

• Asian CSR Award 2009 in Health category : Pulp & Fibre Units at Nagda,Kharach and Harihar

• Best Fuel Efficient Boiler Award (2^nd Prize) from Department ofFactories and Boilers, Government of Karnataka : Grasilene Division, Harihar

• National Safety Award – CSA for Outstanding Performance in IndustrialSafety as Winner for 2007, based on Accident Free Year : Chemical Division, Nagda

• National Safety Award – PAC for Outstanding Performance in IndustrialSafety as Winner for 2007, based on Accident Free Year : Chemical Division, Nagda

• National Safety Award – MC 1 for Outstanding Performance in IndustrialSafety as Runner up for 2007, based on Accident free Year : Chemical Division, Nagda

• National Award for Excellence in Water Management from CII : Chemical Division,Nagda

RESEARCH AND DEVELOPMENT

In an increasingly competitive business environment, your Company recognizes theimportance of Research & Development (R&D) to maintain its leadership position. Tofurther its competitive edge through product innovations and quality upgradation as partof its customer-centric endeavors, your Company pursues a focused R&D strategy. ItsR&D efforts also aim at ensuring cost optimization and environment protection.

The plan to set up a state of the art Wood and Pulp Research Centre at Harihar,Karnataka had been earlier shared with you. The Research Centre with a Pilot plant isexpected to become operational by July, 2010. While the full fledged facility is in theprocess of being set up, the Research Centre has already taken up several studies in thearea of Pulping. This will help in further improving the quality and resolve certainprocess related issues, etc. Birla Research Institute (BRI), is engaged in developing aprocess for producing a novel non woven product based on solvent spinning process. Theyare also working on developing a process for manufacturing high end textile applications.One of the innovative products developed for non woven application has been approved byleading customers. However, further fine tuning of process is underway forcommercialization. The Textile Research & Application Development Centre (TRADC) hasbeen able to provide several customers, solutions to intrinsic technology related problemsin wet processing, spunlace non-woven system, OE spinning and Vortex spinning system.These have helped our customers immensely in their operations. TRADC has been constantlydeveloping various new blends with viscose to produce superior quality fabrics. It iscurrently working with leading institutes to produce extra soft knitted fabrics usingviscose fibres of various generations.

HUMAN RESOURCES

Your Company continuously strives to foster a culture of high performance. YourManagement has infused a lot of rigor and intensity in its people development processesand in honing skill sets. Its HR processes are absolutely aligned to organizational goals.

The implementation of People Soft HRMS (Human Resource Management System), the variablepay plan and job bands have been institutionalized.

Ongoing learning, refreshing HR systems in line with global benchmarks, aligningrewards and recognition with performance, have enabled your Company sustain its reputationof a meritocratic organization.

The Group’s Corporate Human Resources function has played and continues to play anintegral role in your Company’s Talent Management Processes.

CORPORATE GOVERNANCE

Your Company fully adheres to the standards set out by the Securities and ExchangeBoard of India for Corporate Governance practices and has implemented all of itsstipulations. As required by Clause 49 of the Listing Agreement of Stock Exchanges, adetailed report on Corporate Governance forms part of this Annual Report. TheCompany’s Statutory Auditor’s Certificate dated 20^th May, 2010 interms of Clause 49 of the Listing Agreement is annexed to and forms part of theDirectors’ Report.

DIRECTORS’ RESPONSIBILITY STATEMENT

As stipulated in Section 217(2AA) of the Companies Act, 1956, your Directors subscribeto the "Directors’ Responsibility Statement" and confirm that:-

i) in the preparation of the annual accounts, the applicable accounting standards havebeen followed along with proper explanation relating to material departures;

ii) the Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit or loss of the Company for that period;

iii) the Directors have taken proper and sufficient care of 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; andiv) the Directors have prepared the annual accounts on a going concern basis.

SUBSIDIARY COMPANIES

UltraTech Cement Limited, your Company’s key subsidiary, clocked a gross turnoverof Rs.7,729 crores, representing a 8% growth, driven chiefly by higher sales volumes.Profit before interest, depreciation and tax rose by 16% at Rs.2,094 crores. Profit aftertax at Rs.1,093 crores was up by 12%, after providing for interest of Rs.118 crores,depreciation of Rs.388 crores and tax of Rs.495 crores. Cash profit was higher by 7% atRs.1,589 crores.

During the year under review, your Company has transferred w.e.f. 1^stOctober, 2009, the Company’s Cement business, as a going concern, to its separatesubsidiary, Samruddhi Cement Limited. In its first accounting period commencing from 4^thSeptember, 2009 and ending on 31^st March 2010, Samruddhi Cement Limited hasposted a net profit of Rs. 618 crores.

Your Company had applied to the Government of India, Ministry of Corporate Affairs, NewDelhi for seeking exemption u/s 212 (8) of the Companies Act, 1956 from attaching a copyof the Balance Sheet, Profit and Loss Account, Directors’ Report, Auditors’Report, etc. of the subsidiary companies to the Annual Report of the Company. In terms ofexemption approval dated 14^th May, 2010 granted by the Central Government, thecopy of Balance Sheet, Profit and Loss Account, Directors’ Report, Auditors’Report, etc. of the subsidiary companies are not required to be attached with the AnnualReport of the Company. However, the related information of the Annual Accounts of thesubsidiary companies will be made available to the investors of the Company and of thesubsidiary companies, who seek such information at any point of time and would also beposted on the Company’s website. The Annual Accounts of the subsidiary companies willalso be kept for inspection by any investor at the Registered Office of the Company andthat of the subsidiary companies concerned. As per the terms of exemption approval grantedby the Central Government, a gist of the financial performance of the Subsidiary Companiesis given in this Annual Report.

CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements have been prepared by your Company in accordancewith the applicable Accounting Standards (AS-21, AS-23 and AS-27) issued by the Instituteof Chartered Accountants of India. Together with the Auditors’ Report, these formpart of the Annual Report.

PARTICULARS AS PER SECTION 217 OF THE COMPANIES ACT, 1956

Information on Conservation of Energy, Technology Absorption and Foreign ExchangeEarnings and Outgo, stipulated under Section 217(1)(e) of the Companies Act, 1956 is setout in a separate statement, attached to this report (Annexure ‘B’) and formspart of it.

In accordance with the provisions of Section 217(2A) read with the Companies(Particulars of Employees) Rules, 1975, the names and other particulars of employees areto be set out in the Directors’ report, as an addendum thereto. However, in tandemwith the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report andAccounts as set out therein, are being sent to all members of the Company excluding theaforesaid information about the employees. Any member, who is interested in obtainingthese particulars about employees, may write to the Company Secretary at the RegisteredOffice of the Company.

DIRECTORS

Mr. Shailendra K. Jain was re-appointed as the Whole Time Director of the Company up to31^st March, 2010. He has ceased to be the Whole Time Director of the Company,effective 1^st April, 2010. The Board at its meeting held on 3^rdOctober, 2009, has coopted him as an Additional Director w.e.f. 1^st April,2010. He shall be holding office until the ensuing Annual General Meeting. The Company hasreceived a Notice from a member under Section 257 of the Companies Act, 1956, proposinghis appointment as a Director of the Company.

Mr. Adesh Gupta was appointed as the CFO of the Company w.e.f. 1^st May,2009. The Board has subsequently appointed him as Whole Time Director of the Companyw.e.f. 3^rd October, 2009 for a period of 5 years.

Mr. K.K. Maheshwari was appointed as a Whole-Time Director of the Company w.e.f. 20^thMay, 2010 for a period of 5 years.

Mr. B.V. Bhargava and Mr. Kumar Mangalam Birla retire from office by rotation and beingeligible, offer themselves for re-appointment. Mr. S.G. Subrahmanyan will also be retiringby rotation at the ensuing Annual General Meeting and is eligible for re-appointment.However, he has informed the Board that in view of his advanced age of 84 years, he doesnot wish to seek re-appointment. The Board has proposed to fill up the vacany caused bythe retirement of Mr. Subrahmanyan by appointment of Dr. Thomas Connelly as a Director atthe ensuing Annual General Meeting. The Company has received a Notice from a member underSection 257 of the Companies Act, 1956, proposing his appointment as a Director of theCompany. The Board placed on record its sincere appreciation of the valuable servicesrendered by Mr. Subrahmanyan during his tenure as a member of the Board.

A brief resume of the Directors being appointed / re-appointed, is incorporated in theCorporate Governance Section, which forms part of this Annual Report.

AUDITORS

The Board, on the recommendation of the Audit Committee, has proposed that M/s. G.P.Kapadia & Co., Chartered Accountants, Mumbai and M/s. Deloitte Haskins & Sells,Chartered Accountants, Mumbai, be appointed as the Joint Statutory Auditors of theCompany, to hold office from the conclusion of the ensuing Annual General Meeting till theconclusion of the next Annual General Meeting of the Company. M/s. G.P. Kapadia & Co.,Chartered Accountants, Mumbai and M/s. Deloitte Haskins & Sells, CharteredAccountants, Mumbai, have forwarded their certificates to the Company, stating that theirappointment, if made, will be within the limit specified in that behalf in Sub-section(1B) of Section 224 of the Companies Act, 1956.

The Board, on the recommendation of the Audit Committee, has also proposed that M/s.Vidyarthi & Sons, Chartered Accountants, Gwalior, be reappointed as the BranchAuditors of Vikram Woollens, a Division of your Company.

Resolutions seeking your approval on these items are included in the Notice of theensuing Annual General Meeting.

The observations made in the Auditors’ Report are self-explanatory, and therefore,do not call for any further comments under Section 217(3) of the Companies Act, 1956.

COST AUDITORS

In pursuance of Section 233-B of the Companies Act, 1956, your Directors have appointedM/s R. Nanabhoy & Co., Mumbai and M/s R.J. Goel & Co., Delhi, as the Cost Auditorsto conduct the Cost Audit of Pulp & Fibre, Caustic Soda, Sulphuric Acid and CottonTextile for the year 2010-11, subject to the approval of the Central Government.

APPRECIATION

Your Directors wish to place on record their appreciation of the dedication andcommitment of your Company’s employees to the growth of your Company.

Yours Directors express their gratitude to the Central and State Governments, banks,financial institutions, shareholders and business associates for their ongoingco-operation and support.

For and on behalf of the Board

ANNEXURE ‘A’ TO THE DIRECTORS’ REPORT

ANNEXURE ‘B’ TO THE DIRECTORS’ REPORT

Information under Section 217(1) (e) of the Companies Act, 1956 read with CompaniesAct, 1956 read with Companies (Disclosure of Particulars in the Report of Board ofDirectors) Rule, 1988 and forming part of the Directors’ Report for the year ending31st March, 2010

a) Energy Conservation measures taken

The Company is continuously engaged in the process of energy conservation throughimproved operational and maintenance practices. Following measures have been taken bydifferent units of the company:

i) Viscose Staple Fibre Units

– Adoption of Acid Absorption Crystallizers in place of steam based Crystallizers.

– Replacement of obsolete Condenser Pump.

– Installation of Variable Frequency Drives.

– Replacement of old, ineffiecient and damaged motors in Main Plant.

– Optimisation of number of Disintegrators in Ripening Room.

– Installation of HP Ejector for flash deareator.

ii) Pulp Units

– Installed Compablock Heat exchanger to heat CIO2 solution with Hypo back water.

– Replacement of Blow heat recovery plate heat exchanger with WideGap plate heatexchanger.

– Installed energy efficient desuperheating and chlorine back water pump.

iii) Cement Units

– Use of grinding aids for increasing blended cement production and fly ashabsorption in blended cement.

– Process Optimization in Raw Mill, Coal Mill and Cement Mills.

– Installation of Variable Frequency Drives.

– Replacement of ESP Fan impeller by high efficiency fan.

– Modification in Pre-heater cyclones, immersion tube and guide vanes for Kiln.

– Modification for inlet shell and mixing chamber of Kiln.

iv) Chemical Units

– Installation of Electrolyzer to reduce cell power consumption.

– Remembraning of Membrane Cell Elements.

– Installation of energy efficient power transformer.

– Replacement of auxiliary transformer with energy efficient transformer.

– Reshuffling of Capacitor Banks for improving power factor.

– Installation of Variable Frequency Drives.

v) Textile Units

– Replacement of insulation and cladding of steam and condense lines

– Installed high efficiency pump in Boiler

– Reuse of Vacuum pump circulating water in Seiger autoclave machine

– Optimisation in Humidification plant and chiller

i) Viscose Staple Fibre Units

– Adoption of triple effect steam ejectors at MSFE and anhydrous evaporators.

– Adoption of De-super heater system in Anhydrous evaporator in Auxiliary PC 1 andPC2.

– Replacement of condenser pump running for centrifugal compressor by energyefficient pump.

– Replacement of existing 600 KVA buck boost Furnace Transformer with 360 KVATransformer.

– Adoption of gravity flow of Slurry from Pulper to Homogeniser in place ofpumping.

ii) Pulp Units

– Installation of Delta Star Converter for agitators and chemical mixers.

– Replacement of vacuum filter circulation pump with higher efficiency pump andold motors with IP 55 protection motors.

iii) Cement Units

– Installation of waste heat recovery systems in pre heater and cooler.

– Cooler modification for recovery of cooler heat losses.

– Use of Solar Lighting System with LED lights.

– Improve efficiency of process fans.

– Installation of additional Air Heater Module for waste heat recovery at Kiln.

– Modification in Pre-heater cyclones and installation of higher efficiency fan atDryer and Decoloriser at Kiln.

iv) Chemical Units

– Addition of electrolyzer to reduce cell power consumption.

– Installation of new chlorine compressor.

– Remembraning of Membrane Cell Elements.

– Replacement of Generation I Electrolyzers with Generation V Electrolyzers.

– Installation of Energy Efficient Light Fittings. v) Textile Unit

– Automation of High Temperature High Pressure machines for under dying.

– Flash steam recovery system for chiller..

c) Impact of Measures at (a) and (b) above for reduction of energy consumption andconsequent impact on the cost of production of goods:

– The above measures have resulted/ will result in reduction in fuel & powerconsumption, increase in productivity and reduction in energy cost.

d) Total Energy Consumption and Energy Consumption per Unit of Production:

As per Form "A" attached.

B. TECHNOLOGY ABSORPTION

Efforts made in Technology Absorption in Form "B".

Viscose Staple Fibre Units

– Development of 100% regenerated cellulose fabric in knit & woven which isdimensionally stable and have very good strength.

– Standardization of construction and process parameters to achieve DP rating 3.5for Modal/Cotton blend fabric specially for shirts.

– Process optimization for weight reduction process for poly/viscose blend fabricto get extra soft handle.

Cement Units

– Development of variants of wall care putty.

Viscose Staple Fibre Units

– To establish Pulp Research Institute at Harihar

– To develop various new blends / recipes with viscose for superior qualityfabrics

Cement Units

– Development of new variants of value added products

3 Expenditure on R & D

4 Technology Absorption, Adoption and Innovation

The Company continuously strives to adopt latest technology for improving productivity,product quality and reducing consumption of scarce raw material, energy and other inputs.

Information regarding technology imported during the last five years:

– Installation of Loop Duct and TCS System through M/s Taiheiyo EngineeringCorporation, Japan for both kiln lines.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

The Company is exporting Viscose Staple Fibre, Chemicals, Cement, Textiles and Plantand Machinery and has taken successful initiatives for increasing exports.

(a) Activities related to Exports

Exports on F.O.B. basis during the year were Rs. 728.26 Crores

(b) Total Foreign Exchange used and earned

Foreign Exchange used Rs. 11.57 Crores

Foreign Exchange earned Rs. 740.18 Crores

FORM ‘A’

Total Energy Consumption and Energy Consumption per unit of Production

(A) POWER & FUEL CONSUMPTION

(B) CONSUMPTION PER UNIT OF PRODUCTION :

Note : Form ‘A’ is not applicable to Sponge Iron Division