HSIL Ltd

Dear Shareholders,

Your Directors are pleased to present the 50th Annual Report and Audited FinancialStatements of your Company for the year ended March 31, 2010.

Financial results

(Rs. in lacs)

ANALYSIS OF PERFORMANCE

Following a moderate slowdown, the Indian economy bounced back in 2009 -10. TheGovernment’s fiscal stimulus accelerated the economic recovery and put to restconcerns related to economic stability. In this backdrop, HSIL continued with its robustperformance, reporting a significant rise across all operating and performance parameters.In 2009-10, HSIL achieved a 26.70% increase in gross revenue, 37.25% increase in EBITDA,48.64% increase in cash profit and 30.57% increase in the post-tax profit. The operatingmargins and net profit margins strengthened to 19.63% and 6.65%, respectively. Thefollowing reasons were the major contributors to this commendable performance:

• Application of differentiated strategy in positioning the Company’sproducts

• Continuous modification in the product offering, based on the consumerpreference and demand

• Increased focus on the value-added product segment

• Rationalisation of energy consumption and other major operational costs

• Undertaking process innovation for better capacity utilisation

• Enhanced production in the Container Glass Division with fully operationalactivities in the new glass unit at Bhongir

The Company continued to focus on ensuring a strong balance sheet together with aconsistently growing Profit and Loss account. The debt equity was maintained at acomfortable 1.25 with a strong interest cover of 3.86. The reserves (excluding BusinessReconstruction Reserve) stood at Rs 37,907 lacs and the total net worth of the Companyincreased to Rs. 39,008 lacs.

BUSINESS DIVISION REVIEW

Building product division

Performance in 2009-10

The divisional revenues increased 17.14%, mainly on account of higher realisations fromthe premium products segment.

Major initiatives

• Acquired business undertaking of Havells India Ltd. manufacturing and marketingchrome plated brass bathroom fittings to strengthen the product portfolio and develop anew market leadership in this segment

• Organised numerous architects and plumbers meet, covering over 2,500 architects;organized plumber meets reaching out to 10,000 plumbers, to strengthen the post-saleservice offering

• Introduced several water-saving green products like four-litre flushing closetsand waterless urinals

• Strengthened distribution channel to deepen market reach

• Enhanced production efficiencies through improved in-process innovations

Performance in 2009-10

The divisional revenues increased 42.66%, on account of additional sale generated withthe fully operational new unit at Bhongir, as well as diversification to premium productsto service the varying customer demands.

Major initiatives

• Stabilised operations at the new unit

• Optimised fuel consumption and enhanced productivity through improvement in theoperational speed of the machines

• Strengthened quality checks

• Introduced Narrow Neck Press and Blow technology in collaboration with WeigandGlass of Germany, a leading player in glass manufacturing

• Secured and strengthened raw material supplier base

ACQUISITION OF FAUCET BUSINESS OF HAVELLS INDIA LIMITED

On March 16, 2010, the Company signed a Business Transfer Agreement with the intent toacquire the chrome plated brass bathroom fittings business division of Havells India Ltd.,under the brand ‘Crabtree’. The plant is situated at Bhiwadi, Rajasthan. Thelegal and physical possession of this undertaking was transferred to Company w.e.f. May 1,2010.

The acquisition is aligned with our business intent of expanding our activity andmarket share in the chrome plated bathroom fittings industry segment in India. We plan tobecome the number two player in the segment.

SCHEME OF ARRANGEMENT

A Scheme of arrangement under Section 391-394 of The Companies Act, 1956 (‘thescheme") between the Company and its equity shareholders was approved by theshareholders at the court convened meeting held on November 7, 2009 and sanctioned byHon’ble High Court in Calcutta on March 26, 2010.

Under the scheme certain immovable properties in the form of Land and Buildings havebeen reinstated at their respective fair values as valued by a recognised valuer w.e.f.April 1, 2009, the appointed date for the scheme. The amount of such revaluation being Rs.23,500 lacs has been transferred to separate reserve account titled as BusinessReconstruction Reserve.

The scheme enables the Company to utilise the Business Reconstruction Reserve forwriting off certain expenses as specified therein. The scheme has been given effect to inthe accounts for the year ended March 31, 2010.

DIVIDEND

Your Directors recommend for the consideration of the members, at the Annual GeneralMeeting, payment of dividend of Rs. 2.00 per share on equity shares of face value of Rs. 2each for the year ended

March 31, 2010, the total outgo including tax thereon will be Rs.1,287 lacs.

APPROPRIATIONS

It is proposed to transfer Rs. 600 lacs to the General

Reserve while Rs.15,003 lacs is proposed to be retainedintheProfit and Loss account

MANAGEMENT FOCUS

HSIL is a leading player in both Building Products and Container Glass industrycatering to the customers growing demand. It endeavors to maintain a long-term associationwith the customers by satisfying their evolving needs.

The management’s focus is on building the business model to serve customers 24x7,with the intent to grow in the expanding domestic / international market. The aim is notonly to serve the customers but to maintain a life-long connect.

Your Company seeks to achieve sustainable growth by providing value-added services toits customers, dealer network, sub dealers and institutional partners.

In order to achieve this, the internal impetus is on increasing productionefficiencies, people productivity, process controls and innovative practices. Themanagement also seeks to invest in good governance and fiscal discipline in accordancewith the best practices relevant globally.

DIRECTORS

Mr. Binay Kumar, Mr. S.B. Budhiraja and Mr. Vishal Marwaha, are liable to retire byrotation and being eligible, have offered themselves for re-appointment.

SHARE CAPITAL

During 2009-10, the Company has increased its Authorised Capital from Rs.150,000,000/-(Rupees fifteen crore) to Rs. 200,000,000/- (Rupees twenty crore) divided into 100,000,000(Ten crore) Equity Shares of Rs. 2/- each.

CORPORATE GOVERNANCE

Your Company complies with all mandatory requirements as stipulated under Clause 49 ofthe Listing Agreement with the Stock Exchanges. The Corporate Governance Report and acertificate from the Company’s statutory auditors, regarding compliance of theconditions of Corporate Governance, are attached with the Report and form an integral partthereof.

Further, the Management Discussion and Analysis report is appended to and forms a partof the Annual Report.

WHOLLY OWNED SUBSIDIARIES

As per the requirement under Section 212 of the Companies Act, 1956, the Annual Reportof the Company’s subsidiaries for the year ended March 31, 2010, is attached to theCompany’s Balance Sheet.

Also, the statement as required under Section 212 (3) is annexed to this Report.

FIXED DEPOSIT

Your Company did not invite or accept any fixed deposit pursuant to provisions ofSection 58A of the Companies Act, 1956, during the year.

STATUTORY DISCLOSURES

Particulars of employees as required under Section 217(2A) of the Companies Act, 1956,read with Companies (Particulars of Employees) Rules, 1975, are annexed to this Report.

AWARDS AND RECOGNITION

The Company was recognised through following awards:

• ‘Business Superbrand India’

• Reader Digest ‘Trusted Brands Platinum Award’

• Golden Peacock National Quality Award

• 4Ps India's ‘100 most Valuable Brands’

• The Bizz Award 2010

• 2010 IMM Award for Excellence

• Capxeil Award and IES Excellence Award 2010

DIRECTORS’ RESPONSIBILITY STATEMENT PURSUANT TO SECTION 217 (2AA) OF THE COMPANIESACT, 1956

Your Directors hereby confirm that in the preparation of annual accounts, theapplicable accounting standards and provisions of Court approved scheme were followedalong with proper explanation relating to material departures if any.

Your Directors selected such accounting policies and applied them consistently and madejudgments and estimates that were reasonable and prudent so as to give a true and fairview of the state of affairs of your Company at the end of the financial year and of theprofit of your Company for that period.

Your Directors took proper and sufficient care for maintaining adequate accountingrecords in accordance with the provisions of this Act for safeguarding the assets of yourCompany and for preventing and detecting fraud and other irregularities.

Your Directors prepared the annual accounts on a going concern basis.

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

Information required under Section 217(1) (e) of the Companies Act, 1956, read with theCompanies (Disclosure of Particulars in Report of the Board of Directors) Rules, 1988, isannexed to this Report.

AUDITORS

The Auditors M/s Walker, Chandiok & Co., Chartered Accountants will hold officeuntil conclusion of the ensuing Annual General meeting and are recommended forreappointment. Auditors have confirmed that their re-appointment, if made, shall be withinthe limits laid down under Section 224 (1B) of the Companies Act, 1956.

The notes to the accounts referred to in the Auditor’s Report, areself-explanatory and therefore, do not require any further comments under Section 217 (3)of the Companies Act, 1956.

INTERNAL AUDIT

The Company has an adequate system of internal control to ensure compliance withpolicies and procedures. Internal audit of all the units/divisions of the Company isregularly carried out to review the internal control systems. The internal auditorsevaluate the adequacy of internal controls and independence of the audit is ensured bytheir direct reporting to the Audit Committee of the Board.

APPRECIATION

Your Directors wish to place on record their sincere appreciation for the support andcooperation extended by all dealers, financial institutions, banks, customers, employees,all the stakeholders of your Company, Government of India and State Governments and lookforward to their continued support in the years ahead.

(a) Energy Conservation Measures Taken:

• Optimisation of LPG vaporiser by adjusting pressure and temperature

• Reduction of Lehr height from 400 mm to 260 mm to contain heat energy loss

• Modification of process equipments to operate at 4 bar air pressure in place of7 bar

• Replacement of old pumps with new, energy efficient pumps

• Reduction of heat tracing line temperature set point from 80^oC to 70^oCin fuel tank through process modifications

• Provision of auto drain valves for moisture separators to arrest air leakages

• Implementation of Thermography recommendations to arrest heat losses andunexpected failures in electrical distribution system

• Installation of capacitor banks to improve power factor resulting in thereduction of energy cost

• Installing transformer for reduction of voltage from 250 V to 230 V and ensuringconstant supply

• Replacing 400 W MV lamps with 250 W MV for electricity conservation

• Optimisation of compressed air discharge pressure for IS Machine Blowing leadingto reduction in air pressure by 4 PSI

• Usage of low pressure compressed air for combustion instead of high pressure air

• Segregation of mould cooling air for blank side and mould side and optimisingblower pressure to reduce power consumption

Installation of transparent roofing sheets to allow natural light in production areas

• Usage of high quality raw materials with controlled grain size and moisture tosave energy and enhance furnace output

• Installation of Turbo Ventilators in the plant for heat extraction, replacingelectrical exhaust fans

Maximisation of waste heat utilisation from kilns

• Shutting down of high fuel consuming Kiln

(b) Additional investment and proposals for reduction of consumption of energy :

• Modification of verti flow blower pipeline and main conveyor cooling for bettercontrol and energy conservation for IS Machines

• Increasing loading density in Kilns to reduce LPG consumption per tonne

• Modernisation of old casting shop of Bahadurgarh plant with AHUs and phasing outof old boiler

• Ducting to be placed in the Bibinagar facility to use waste heat

(c) Impact of the above measures at reduction of energy and consequent impact on costof production:

• Bhadurgarh plant: Energy reduction of 10% approximately

• Bibinagar plant: Energy reduction of 9.2% approximately

• Glass plants: Saving of Rs. 114 lacs in energy cost.

(d) Total energy consumption and energy consumption per unit of production as per FormA (applicable to Container glass division) was as under:

Form ‘A’

1. Specific areas in which R&D carried out by the Company:

• Glass business entered into a Technical Support Agreement on long term basiswith M/s. Neue Glaswerke GroBreitenbach GmbH & Co. KG, Germany (Weigand Glass), one ofthe leading and the most efficient Container Glass Manufacturers in the world. Thetechnical support will include the entire process from raw material selection to finalinspection of the product

• Research for more cost-effective raw material alternatives and direct sourcingto substitute the depleting raw materials currently used

• Container glass division will train its engineers with latest manufacturingtechniques. This initiative will result in a sustainable advantage by reducing containerweights, improving operating speed and quality

• Development of antibacterial coatings / glaze on Sanitaryware

2. Future plan of action:

• Development of new technologies for reducing overall weight of bottles

• Development of an alternative to Nano Coatings on Sanitaryware

Expenditure on R & D

(Rs. in lacs)

3. Foreign exchange earnings and outgo

Activities and initiatives

A number of new products were developed and exported. The export team was strengthenedfor better direct market penetration overseas, especially for Southeast Asia and otherdeveloped countries. Better strategies were formulated for more aggressive development ofinternational opportunities.

(Rs. in lacs)

STATEMENT REGARDING SUBSIDIARY COMPANIES PURSUANT TO SECTION 212 (3) OF THE COMPANIESACT, 1956

* This denotes member’s contribution in Euros.

INFORMATION AS PER SECTION 217(2A) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES(PARTICULARS OF EMPLOYEES) RULES, 1975 AND FORMING PART OF THE DIRECTORS’ REPORT FORTHE FINANCIAL YEAR ENDED MARCH 31, 2010.

NOTES:

1. Employees named above are/were wholetime employees of the Company as per theCompany’s terms and conditions.

2. Mr. Rajendra K Somany, Chairman and Managing Director and Mr. Sandip Somany, JointManaging Director are related to each other. None of the other employees are related toany of the Directors of the Company.

3. Mr. Rajendra K Somany, Chairman and Managing Director and Mr. Sandip Somany, JointManaging Director are promoters of the company and except them no other employee holds 2%or more of the equity share capital of the Company.

4. Remuneration received includes Gross Salary, Bonus, Commission, performanceincentive, ex-gratia, actual expenditure for provision of rent free accommodation orbenefits or amenities, house rent allowance, medical expenses, leave travel assistance,other allowances, reimbursement of gas, water and electricity expenses. Company’scontribution to provident fund, employee pension scheme, gratuity fund and provision ofcar valued as perquisites in accordance with rules under the Income Tax Act, 1961.