Kanchan International Ltd

To,

The Members,

KANCHAN INTERNATIONAL LIMITED

Your Directors have pleasure in presenting the 15^th Annual Report together with the Audited statement of Accounts of the Company for the year ended 31^st March 2009.

FINANCIAL RESULTS

The Financial performance of your Company for the year under review is summarized below:

Amount in Rs.

REVIEW OF OPERATIONS

During the year, sales turnover is increased to Rs. 34,66,43,206/- as compared to Rs. 28,52,35,422/- during the preceding year. The Company has incurred loss before tax of Rs. 37,14,107/- as compared to the loss before tax of Rs. 6,72,83,638/- during the preceding year. Profit after tax for the current year is Rs. 3,59,466/- During the earlier years, the Company had incurred losses which are carried forward to the current year, which impacted the balance carried to Balance sheet which shows the loss of Rs. 5,36,46,084/-

The Company has now adopted innovative strategies to increase the turnover and profitability of the Company. Accordingly, the Company has taken vigorous measures with respect to Debtors management, Stock management, introduced ERP operating system as an internal control measure. Due to these measures, infusion of funds by the Management and the the support extended by bankers, the Company could earn marginal profits during the year.

The Company is continuing its efforts to improve its productivity and curtail costs. Plant at Baddi continues to be eligible for tax holidays pursuant to section 80 IB of the Income Tax Act, 1956 and exemption from Excise tax.

The operation of the Company is carried in a single segment i.e. manufacturing and marketing of home appliance products.

DIVIDEND

In view of carry forward of the losses, the Company could not recommend any dividend for the financial year ended 2008-09.

FUTURE OUTLOOK

As regards macro variables, interest rates are stable and are going to be steady in the near future, which is adding to the strength of the Indian Economy.

The growth in demand for home appliances continues to rise in tandem with the increase income and living standards of the people in rural and urban areas of India. It is being noticed by your management that the demand for home appliances like Pressure Cookers, Mixers, Gas Stoves has been on encouragingly uptrend in India in the present year, which is going to be likewise in the coming years also.

In the light of the said scenario, your directors have already initiated suitable steps therefore; and the relevant details are as follows:

Now, we are expecting to make monthly sales of about Rs. 500 Lacs from manufacturing activity and Rs. 100 lacs from sourcing business.

Furthermore, as regards domestic market, we were earlier marketing our products in two states i.e, Andhra and Karnataka only, which has now been expanded to other states like Tamilnadu, Kerala in the South; and Gujarat , Rajasthan and Maharashtra in the West.

On exports front, we used to market our products hitherto in one country i.e, Sri Lanka, which was expanded to few other countries, namely, Nigeria, Kenya, Middle East Countries. Thus, your directors hope that the Company would be able to make monthly sales of at least Rs. 600 Lacs in both domestic and overseas markets.

RECLASSIFICATION OF SHARE CAPITAL

During the year under review, the Company in its Extra ordinary General Meeting originally scheduled to be held on 28th March 2009 which was adjourned and subsequently held on 30^th March 2009, has reclassified its Authorised Share Capital of Rs.5,00,00,000/-(Rupees Five Crores Only) consisting of 50,00,000 (Fifty Lacs) Equity Shares into 36,50,000 (Thirty Six Lacs Fifty Thousand) Equity Shares of Rs. 10/- each and 13,50,000 (Thirteen Lacs Fifty Thousand) 6% Cumulative Redeemable Preference Shares of Rs. 10/- each.

The Company took the approval of members, in their meeting held on 30th March 2009, for issuing 13,50,000 6% Cumulative Redeemable Preference Shares on preferential basis, out of which, on 12th June 2009 the Company allotted 8,55,000 6% Cumulative Redeemable Preference Shares of Rs. 10/- each at par on preferential basis to Kanchan Kitchenaid Private Limited.

The Company also took the approval of members, in their meeting held on 30th March 2009, to offer, issue and allot in one or more lot(s) upto 4,00,000 (Four Lacs) Equity Shares of Rs.10/- each, on preferential basis, at par. The Company is waiting for the In- Principal Approval from the Stock Exchange for allotting the same on preferential basis.

CHANGE IN THE REGISTERED OFFICE

During the year under review, the Company has changed its registered office within the city limits for operational convenience. The registered office has changed from "Shah Arcade, G-2, Rani Sati Marg, Malad (E), Mumbai 400097" to "25, YudhistirCo-Op. Housing Society, Ground Floor, N LComplex, Anand Nagar, Dahisar(East), Mumbai-400068"

SUBSIDIARY ACCOUNTS

The accounts of the Subsidiary of the Company viz., Kanchan International Middle East F.Z.E for the year ended 31st March 2009 along with the statement Required under section 212(1) (e) of the Indian Companies Act, 1956 are annexed.

The Government of Ajman (UAE) has not prescribed any reporting formats for preparation of financial statements and audit of the same under their law. However, the Company has drawn accounts of Kanchan International Middle East RZ.E (subsidiary) as per the provisions of the Indian Companies Act, 1956 and the applicable Indian Accounting Standards. The same is annexed with the holding company's accounts.

The parent company intends to develop distribution and service channel through the wholly owned subsidiary to boost exports of its products to the Middle East countries. Hence, the Company has incorporated a wholly owned subsidiary at trade free zone of Ajman (UAE), which provides hassle free world class logistic and infrastructure facilities. The subsidiary is helping parent company in distribution of its products in Middle East and making products available to market at minimum lead time by warehousing the same at Ajman.

Kanchan International Middle East RZ.E has achieved a modest sale of Rs 1,85,98,973 (previous year Rs. 2,36,95,746/-)

Opportunities

• Strong Brand.

• Wide distribution network

• Global coverage

• Established leadership position in home appliance segment.

• The implementation of VAT should help to remove the disadvantage due to activities of unorganized sector.

Threats

• Cheap imports from China and Far East

• Uncertain Market

• A large number of players in the unorganized sector enjoy price advantage either due to tax concessions or SSI status.

RISK & CONCERNS

As you are aware, there has been global economic slowdown, which adversely affected every country including Indian Industries. The home appliances industry is no exception to this negative phenomenon. Consequently, there has been a lower pay scale among the salaried class in our country too, which would certainly affect home appliances industry.

On the other hand, there has been rise in the global prices of raw materials especially Aluminum and Copper, which are being extensively used by your company. Hence, the said uncontrollable factor is likely to increase the cost of production of many products manufactured by the Company.

Hence, in order to insulate ourselves from the said negative impact, the management of the Company has been vigorously expanding its exports where the profit margins are high. For instance, the Company expanded its existing dealer network in Sri Lanka, resulting in higher sales. Furthermore, the Company has recently introduced its products in Nigeria, Kenya and Middle East Countries, which were hitherto unexplored territories.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

We have always believed that transparency, systems and controls are important factors in the success and growth of any organization. The Company has appointed qualified professional for carrying out the internal audit and internal control/systems on periodic basis, close monitoring thereof and to strengthen and modify the same from time to time to meet the changing requirement of the Company. The deviation from the norms are first informed to the concerned operating person for corrective actions and in case of need, these are brought to the notice of the concerned head of the unit or the department, as the case may be. The Management is constantly look into the areas where there is a possibility of saving in cost and submits their suggestions to the concerned operating departments. All major findings and suggestions are complied and reported to the Audit Committee of the Directors on a quarterly basis or earlier if so required. It operates at all the Plants at Daman and other business locations but centrally controlled from the corporate office at Mumbai. We believe that we have a sound internal control system in our Company.

MATERIAL DEVELOPMENT ON HUMAN RESOURCES / INDUSTRIAL RELATIONS

The biggest strength of the Company has always been its people. Only with their participation we have managed to achieve a healthy work culture, transparency in working, fair business practice and a passion for efficiency. The Company follows a unique, homegrown philosophy of allowing people to set their own targets and give them the freedom to achieve them: 'I can'. This philosophy has spread across all our employees and has been a constant source of motivation for our people. Further, to enhance their skills and enrich their experience, the Company provides continuous training. This includes workshops, courses, seminars and visit to the Company's plants. Of late, we have also started in-house conferences for various disciplines. Employees from all our offices are invited to participate. It is a useful forum for sharing experiences, ideas, innovations and developmental work undertaken in their respective work places. From the beginning, we have followed a progressive policy of taking keen interest in the well-being and progress of our people. All of this, we believe, has nurtured a strong sense of belonging among our people.

DIRECTORS

The Board of a Company provides leadership and strategic guidance, objective judgment independent of management to the Company and exercise control over the Company, while remaining at all times accountable to the shareholders. To make the Board more effective and broad, the Company has inducted professionals on the Board of Directors.

Mr. Ashok Khimavat, Director of the Company is liable to retire by rotation and being eligible, offer himself for re-appointment. Your Directors recommends his appointment.

During the year under review, Mr. Shailesh Parekh was appointed as additional director of the Company and shall hold the office till the conclusion of the ensuing Annual General Meeting. Being eligible he has offered himself for reappointment. Your Directors recommends his appointment.

Brief resume of the Directors proposed to be appointed/re-appointed, nature of their expertise in specific functional areas, names of the companies in which they hold directorships and the membership / chairmanships of Committees of the Board and their shareholding in the Company, as stipulated under Clause 49 of the Listing Agreement entered into with the Stock Exchanges, are set out in the Annexure to the Notice forming part of the Annual Report.

DIRECTORS RESPONSIBILITY STATEMENT:

In Compliance to the requirements of Section 217 (2AA) of the Companies Act 1956, your Directors confirm that:

a) The Company has followed the applicable accounting standards in the preparation of the Annual Accounts and there had been no material departure.

b) The Directors had selected the accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2009 and of the profit or loss of the Company for the year ended on that date.

c) The Directors have taken proper and sufficient care for maintenance of adequate 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 and other irregularities.

d) The Directors have prepared the Annual Accounts on a going concern basis.

AUDITORS

M/s Shankar & Kishor, Chartered Accountants, retire as Auditors of the Company at the conclusion of the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept the office of the Auditors, if reappointed. The retiring Auditors have furnished a Certificate of their eligibility for re-appointment under section 224(1-B) of the Companies Act, 1956. Your Directors recommend appointing M/s Shankar & Kishor, Chartered Accountants as Statutory Auditors of the Company from the conclusion of this Annual General Meeting till the conclusion of next Annual General Meeting.

AUDITOR'S REPORT:

With respect to observations by Auditors in their report, directors have dealt as below:

1. With reference to the Auditor's observation that the Company does not have an internal audit system, the Management has to say that the Company has appointed qualified professional for carrying out the internal audit and internal control/systems on periodic basis, close monitoring thereof and to strengthen and modify the same from time to time to meet the changing requirement of the Company. Also to strengthen the internal audit and internal control system, the Company has decided to introduce ERP operating system, which will be introduced very soon. Introduction of ERP will benefit the Company by improvement in the operations of the Company by way of better control on costs, dissemination of accurate information across the organization and access of information to the top management anytime anywhere irrespective of the location.

2. With reference to the Auditor's observation that the Company is not regular in depositing statutory dues, the Management has to say that due to acute financial difficulties faced by the Company, the said amount could not be paid in time. However, the Company has started clearing the dues and the process will be completed shortly.

COMPANY SECRETARY

The Company was required to appoint Whole-time Company Secretary as per the provisions of section 383A of the Companies Act, 1956. Accordingly Mr. V. Subramanian, a member of the Institute of Company Secretaries of India, who had the requisite qualification, was appointed as the Company Secretary. He resigned w.e.f. 9th May 2009. However, the Company is looking for a suitable candidate for the post of Company Secretary.

CORPORATE GOVERNANCE

Your Company has complied with the mandatory provisions of Corporate Governance as prescribed in the Listing Agreement with the Stock Exchanges. The Company has obtained a certificate from the Auditors of the Company regarding compliane of conditions of Corporate Governance. The same is annexed to this Report.

FIXED DEPOSITS

The Company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as on the date of the Balance Sheet

INSURANCE

All the assets of the Company wherever necessary and to the extent required have been insured.

BUYBACK

During the financial year under review, the Company has not offered to buy back any of its outstanding shares. The Company has not accepted any deposit within the purview of section 58A of the Companies Act, 1956 during the year under review.

CONSERVATION OF ENERGY & TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

The particulars pursuant to requirements under section 217 (1) (e) of the Companies Act, 1956 are as under:

a) The Company's operation involve low energy consumption, hence there is hardly any measure required to be taken for conservation of energy.

b) There was no technology absorption during the year.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The Company is engaged in activities relating to exports and taking measures for increasing exports, developing new export market for our products and formulating export plans.

Total foreign exchange earning is Rs.761.24 lacs (Previous year Rs. 629.16 lacs) and expenditure is Rs. 4.89 lacs (Previous year Rs. 25.42 lacs)

PARTICULARS OF EMPLOYEES:

None of the employees of the Company were drawing remuneration in excess of the limits prescribed u/s 217 (2A) of the Companies Act, 1956, read with the Companies (particulars of employees) Rules, 1975, as amended. Therefore the statement for the same is not attached.

CONSOLIDATED FINANCIAL STATEMENTS:

In accordance with the Accounting Standard (AS) 21 on Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India, the audited Consolidated Financial Statements are annexed forming the part of Annual Report.

ACKNOWEDGEMENT

Your Directors would like to express their grateful appreciation for the assistance and Co-operation received from the financial institutions, Banks, Government Authorities, customers, vendors and members during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the committed services of the executives, staff and workers of the Company.

For and on behalf of the Board