MRF Ltd

Your Directors have pleasure in presenting to you the Fifty First Annual Report and theAudited Statement of Accounts for the year ended 30th September, 2011.

Working of the Company Financial Results

During the year under review, the Company achieved the following financial results:

* Includes an exceptional item of Rs 404.23 crore which represents reversal of excessdepreciation of earlier years, due to change in method of depreciation from Written DownValue (WDV) to Straight Line Method (SLM).

Your Company’s turnover this year has for the first time crossed the Rs 10,000crore mark, to settle at Rs 10,637.03 crore, which is a landmark achievement. Thisreflects a sales growth of 32%. Across the board, there were positive increases, with a12% increase in volumes in all segments. During the year, the continued increase in theprice of natural rubber and other key raw materials, has impacted the performance of theCompany. The price of natural rubber reached its peak in April 2011. Similarly prices ofother raw materials like synthetic rubber, carbon black etc. have increased substantiallyfrom February 2011. The increase has adversely impacted the margins during the year.Despite the above, your Company could manage and maintain its profit levels with betteroperating efficiencies and cost cutting measures which the Company has undertaken over aperiod of time.

Two interim dividends of Rs 3 each per share (30% each) for the year ended 30thSeptember, 2011 were declared by the Board of Directors on 28-07-2011 and on 20-10-2011.The Board of Directors is now pleased to recommend a final dividendof Rs 19 per share(190%) on the paid-up equity share capital of the Company, for consideration and approvalof the shareholders at the Annual General Meeting. With this, the total dividend for theentire year works out to Rs 25 per share (250%). The total amount of dividends aggregatesto Rs 10.60 crore.

The Directors recommend that after making provision for taxation, debenture redemptionreserve and proposed dividend, an amount of Rs 589.15 crore be transferred toGeneral Reserve. With this, the Company’s Reserves and Surplus stands at Rs 2293.53crore.

Industrial Relations

Overall, the industrial relations in all our manufacturing units have been harmoniousand cordial, except in Thiruvottiyur and Kottayam factories for a short duration. Bothproduction and productivity were maintained at the desired satisfactory levels throughoutthe year in all the units.

The Management Discussion and Analysis which is attached with this report gives anoverview of the developments in human resources/ industrial relations during the year.

Exports

The Company’s exports stood at Rs 823.30 crore for the year ended 30th September,2011 as against Rs 669.27 crore for the previous year.

The Company sailed through another challenging year successfully, posting a revenuegrowth of 23% over the previous year. The year gone by, showed a continued volatility inraw material prices and increased input costs which definitely affected profits MRF’sstrong distributor network and brand presence in key markets and segments have contributedto growing volumes by 7% and revenues by 31% in the heavy commercial vehicle segment.

Prospects for the Current Year

While the demand outlook for tyres appears favourable with a 8 to10% annual growthforecast, the pressure on margins will continue unless the cost issues are addressed. Mosttyre companies are planning capacity expansions especially in the truck radial segment andthis development will fuel competition in this segment and the tyre industry in general.Also, the Government should study the inverted duty issue and take corrective action byproviding a level playing field for the tyre industry.

The rising raw material costs such as that of natural rubber, oil and oil derivativeswhich are used in the manufacture of tyres, interest costs and rising imports of tyres,will be the areas of concern for all tyre companies. Since the tyre industry is highlycompetitive and price sensitive, it is unable to pass on completely the increase in rawmaterial costs to its customers. The above increases are bound to adversely impact themargins of the Company. However, in the past two months, the prices have shown a decliningtrend.

Your Company hopes to record satisfactory results on account of MRF’s high brandpreference and trust reposed by customers in MRF products.

Directors’ Responsibility Statement

In compliance with the provisions of Section 217 (2AA) of the Companies

Act, 1956, your Directors confirm that:

(i) in the preparation of the annual accounts, the applicable accounting standards havebeen followed and that there are no material departures;

(ii) they have, in selection of the accounting policies, consulted the statutoryauditors and applied them consistently making judgements and estimates that are reasonableand prudent so as to give a true and fair view of the state of affairs of the Company atthe end of the financial year and of the profit of the Company for that

(iii) proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis.

Subsidiaries

Pursuant to the provisions of Section 212(8) of the Companies Act, 1956, the Ministryof Corporate Affairs, Government of India, vide its General Circular No. 2 /2011 dated08-02-2011, has granted a general exemption subject to certain conditions to holdingcompanies from complying with the provisions of Section 212 of the Companies Act, 1956,which requires the attaching of the balance sheet, profit & loss account etc., of thesubsidiaries. In view of the above, the annual reports of the subsidiary companies havenot been annexed in this Annual Report. The statement pursuant to Section 212 of theCompanies Act, 1956 containing details of Company’s subsidiaries is attached.

In accordance with the Accounting Standard AS-21 issued by the Institute of CharteredAccountants of India, Consolidated Financial statements presented by your Company includethe financial information of all its subsidiaries. The annual accounts of the subsidiarycompanies along with the report of the directors and auditors thereon and all relateddetailed information will be made available to shareholders of the Company on request andwill also be kept open for inspection at the registered office of the Company

Speciality Coatings Division

During the year under review, the Directors, considering the Company’s long-termvision for its core business, decided to hive off the Speciality Coatings division of theCompany to MRF Corp Limited, which is a 100% subsidiary of MRF Limited w.e.f. 01-04-2011.The Directors expect rapid growth in the business of the division with added focus as aseparate company. Upto 31-03-2011, the division reported a turnover of Rs 38.67 crore.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

The details as required under the Companies [Disclosure of Particulars in the Report ofBoard of Directors] Rules, 1988 are given as an annexure to the Directors’ Report.

Board

Mr N Kumar, Mr Ranjit I Jesudasen and Mr Ashok Jacob retire by rotation at the AnnualGeneral Meeting and are eligible for re-election.

Corporate Governance

In accordance with Clause 49 of the listing agreement with the stock exchanges, aseparate report on corporate governance along with the Auditors’ certificateconfirming compliance, is attached to this report. The Chairman & Managing Directorhas confirmed and declared that all the members of the Board and the senior managementhave affirmed compliance with the code of conduct.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with Companies(Particulars of Employees) Rules, 1975 forms an integral part of the Directors’Report. However, in terms of the provisions of Section 219[1][b] of the Companies Act,1956, the report and accounts are being sent to shareholders of the Company excluding thestatement of particulars of employees under Section 217[2A] of the Companies Act, 1956.Any shareholder interested in obtaining a copy of such statement may write to the CompanySecretary at the registered office of the Company and will be provided with a copy of thesame.

Deposits

9 deposits aggregating Rs 19.40 lakhs remain unclaimed as at the close of the yearended 30th September, 2011.

Awards received during the year

During the year, MRF won the All India Rubber Industries Association’s

(AIRIA) award for "Highest Export Awards (Auto Tyre Sector)" category and"Top Export Award" from Chemicals & Allied Products Export Promotion Council(CAPEXIL) for 2010-11.

Auditors

Messrs Sastri & Shah and M.M. Nissim and Co., who are our Auditors, retire at theensuing Annual General Meeting and are eligible for reappointment. The Company hasreceived certificates from both the auditors to the effect that their appointments will bewithin the limits prescribed under Section 224[1B] of the Companies Act, 1956.

Cost Audit

Cost Audit for the year ended 30th September, 2011 will be conducted by the costauditor Mr C Govindan Kutty, B.Com., ACA., AICWA., ACS., Chennai and the report will besubmitted to the Government.

Appreciation

Your Directors place on record their appreciation of the invaluable contribution madeby our employees which made it possible for the Company to achieve these results. Theywould also like to take this opportunity to thank the customers, dealers, suppliers,bankers, financial institutions, business associates and our valued shareholders for theircontinuous support and encouragement.

ANNEXURE TO THE DIRECTORS’ REPORT

Particulars required under the Companies (Disclosure of Particulars in the Report ofBoard of Directors) Rules, 1988.

A. CONSERVATION OF ENERGY

a) The major energy conservation measures implemented during the year include improvedreplacement of damaged insulations for steam lines and hot water systems, utilizing flashsteam to heat RO make up water to de-areator and hot water systems, revamping condensaterecovery system, periodical checking of steam trap, optimisation of process pumps andblowers. Usage of VFD for loads with variable demands, usage of energy efficient lights,optimisation of temperature controllers for heaters and chillers and optimized idlerunning of motors.

b) Additional investments are being proposed for the power factor improvement in allplants, installation of coal fired boilers, providing VFDs for dust collectors, pumps etc,regular energy audit by internal and external agency.

c) The programs initiated for conservation of energy has resulted in the reduction ofelectrical energy and furnace oil consumption per metric ton of production over theprevious financial year.

I. POWER AND FUEL CONSUMPTION

II. CONSUMPTION PER UNIT OF PRODUCTION

* Coal is converted to equivalent FO Ltrs

B. TECHNOLOGY ABSORPTION

FORM "B"

RESEARCH & DEVELOPMENT (R & D)

1. Specific Areas in which R & D was carried out by the Company

a) Development of high performance tyres for radial and bias segment

b) Development of new designs and patterns

c) Development of new formulations to meet specific customer requirement

d) Evaluation and development of new sources for various raw materials

e) Development of new process technique for fuel and energy conservation

f) Modification of existing machinery and development of new equipments

2. Benefits derived as a result of the above R &

The R & D activities are co-ordinated in our separate, independent, fully equippedR & D Center, in the R & D laboratories at all manufacturing units, the R & Dlaboratory for natural rubber at Kottayam and the shop floor of all our manufacturingoperations.

New products are developed to meet the high performance requirements of the originalequipment automobile manufacturers and replacement market both in radial and bias segment.New patterns and designs are developed to offer certain special properties and forimproving aesthetics. New formulations are developed to meet the stringent requirement ofthe passenger car OE manufacturers. New sources of raw materials from countries such asChina, Vietnam are evaluated and approved for cost optimization and to meet shortages.

New process techniques are introduced, for energy savings, productivity increase and toachieve stringent tolerances.

Development of new machineries and modification of existing machineries arecontinuously done to reduce downtime, improve quality and increase productivity.

New products are developed for the following applications:

(a) Domestic and Export market

(b) Original Equipment Manufacturers and replacement market

(c) Farm service and Off The Road

(d) Defence sector

(e) Tyres for Rallies and Races

(f) Aircraft tyres

(g) Inner tubes

(h) Retread market

(i) Belting industry

3. Future plan of action

Continuous R&D efforts are being taken to develop high performance truck radialtyres in view of the anticipated radialisation in this segment.

With the development of good highways, efforts are taken to improve durability and highspeed characteristics in all segments of tyres.

Dedicated high performance passenger car radial tyres are being developed to meet thespecific marketing requirements in the replacement market.

All efforts are taken to meet the stringent requirements such as rolling resistance,traction, tyre noise and higher speed characteristics of multinational car companies.

Priorities are also being given to meet growing high performance requirements in areassuch as Off the road segment, farm sector, sports utility vehicle, race and rally tyres,PCTR and conveyor belts.

Efforts are also taken in the development of aircraft tyres to meet Defencerequirement.

New compounds are developed with environmental friendly raw materials to meetincreasing domestic and global pollution requirements.

In view of shortage and volatility in prices of raw materials, efforts are taken toevaluate and develop new sources from non traditional areas.

1. Efforts in brief made towards technology absorption, adaptation andinnovation:

a) Evaluation of New Materials

New raw materials are evaluated and regularized to offer specific special properties.

b) New Product Development

New products are continuously developed to meet specific customer requirement with theintroduction of new compounds and designs.

c) New Process Development

New processes are developed to offer fuel and energy savings and also to improveconsistency.

d) Development of Equipment and Machinery

New equipments and machineries are continuously developed to:

- improve consistency

- reduce wastage

- achieve narrow tolerance requirements

- improve productivity and energy saving

a) Product Improvement

Product performance improved with the introduction of new raw materials and designs.

b) Cost Reduction

Changes made in the process and usage of new materials have resulted in energy savingand cost reduction.

c) Product Development

R & D efforts taken in meeting the new customer requirement have helped indeveloping new high performance products and to improve the performance of the existingproduct.

d) Import Substitution

Modification of machineries and development of alternate domestic sources for the rawmaterials have helped in import substitution.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO: