MTZ Polyfilms Ltd

To,

The Members

Your Directors present the Twenty Fourth Annual Report with the Audited Accounts forthe year ended 31st March, 2010.

FINANCIAL RESULTS

DIVIDEND

Due to the loss incurred during the year and the Company’s substantial debtrepayment obligations, the Directors are unable to recommend payment of dividend.

FINANCIAL PERFORMANCE AND OPERATIONS – PET FILM

For the year ended 31st March, 2010, the Company achieved a gross turnover of Rs.10126.64 lacs, an increase of 9% over the prior year. Net of excise duty, which was leviedat a lower rate during the year under report, turnover increased by 12% in 2009-10. Thisincrease is principally due to the 21% increase in plant throughout to 11,658 MT duringthe year and a substantial decline in job-working which was accretive to turnover.Partially offsetting the above gains was a 12% reduction in the average selling price ofPET Film during the year.

Despite the aforementioned increase in sales volumes and a tight control on productioncosts, the Company posted an operating loss for the year of Rs. 230.35 lacs as against anoperating profit of Rs. 68.70 lacs in the previous year. This is almost entirely onaccount of the lower differential that existed during the year between PET Film and itsraw material, Polyester Chips. The reduced differential was caused by a number of factors.Firstly, the selling prices of PET Film were lower during the year due to less buoyantdemand growth from certain user segments in the domestic market together with incrementalsupply from newly commissioned competing production capacity towards the end of the year.Secondly, raw material costs were higher and more volatile during the year. Lastly, due todiffering end market dynamics, PET Film prices could not match up to those of PolyesterChips on several occasions and differentials got squeezed as as result.

Commensurate with the higher operating loss, the Company’s net loss after interestand depreciation increased to Rs. 1952.89 lacs from Rs. 1871.63 lacs in the earlier year.Notwithstanding this financial result, which is largely due to market forces beyond thecontrol of the Company, management is encouraged with the progress made on the capacityutilization front, particularly after October 2009. This was made possible by theintroduction of new suppliers for Polyester Chips with favorable payment terms anddiversification of the customer base to include smaller customers with lower orderquantities, thereby enabling a faster turnaround of working capital.

The domestic market for PET Film continued to grow but not at the rate witnessed beforethe 2008 economic crisis. The Indian flexible packaging sector, by far the largest endmarket for PET Film, remained in a growth phase, aided by the increase in demand forpackaged food and personal care products. Nonetheless, in order to avoid possible stocklosses due to heightened volatility in PET Film pricing, which in turn was caused by rawmaterial price fluctuations, purchases by end users remained cautious and need based. Thishad a curtailing effect on overall offtake. The Company, because of the paucity ofworking capital, remained aligned with non-credit availing customers within the Indianmarket for PET Film. Hence, the global market situation for PET Film during the year underreview was not of direct consequence to it. It is, however, pertinent to note that US andEuropean demand for PET packaging films was in a recovery mode, particularly during thesecond half of the year. At the present time, since a fully tied-up financialrestructuring plan is yet to be approved by the Company’s bankers and securedcreditors, business is being conducted on a holding-on basis. This has resulted in thevast majority of management’s time being focused on ensuring continuity in plantoperations and medium to long term improvement projects remaining on hold.

FUTURE OUTLOOK – PET FILM

India is expected to remain a large and growing market for flexible packaging with theprimary growth drivers being the country’s low per capita consumption of flexiblepackaging, expansion of the food processing and agri-business sector, thrust onorganized retail initiatives, rise in disposable income of the consuming population whichis facilitating lifestyle changes and growing user preference towards small-serve packs.This augurs well for domestic PET Film consumption which is projected to rise at around15% annually going forward.

Further, with the cost of producing PET Film having increased in developed countries,producers in these regions are increasingly shifting their production to higher endapplications such as Films for flat panel display screens and photovoltaic solar cellsystems. As a result, export opportunities for commodity PET Film producers based in lowercost countries like India have grown of late and are likely to remain in the forseeablefuture. It is therefore possible that exports could absorb a sizable part of theadditional output from new capacities that have been created or are in the process ofbeing created in India. Another positive development for the Indian PET Film industrycould be the possible easing of trade barriers imposed by developed countries on importsof PET Film from India if a situation of constrained availability of the product arises inthese countries due to inadequate local production.

In view of the above and barring unforeseen circumstances, the business outlook for theIndian PET Film industry appears to be healthy. However, for the Company to derive benefitfrom this, an early understanding needs to be arrived at with its lenders and securedcreditors such that modifications addressing its historical debt and future financialflexibility can be incorporated in the earlier sanctioned Rehabilitation Scheme.Discussions in this regard have been ongoing with all concerned agencies but these are yetto culminate in an approved restructuring plan being tabled before BIFR.

RISKS AND CONCERNS – PET FILM

In the perception of the management, the principal risk factors affecting the Companyare as follows:

• The cyclical nature of the PET Film sector and the volatility in earnings thatcan arise therefrom.

• Entry of new manufacturers both domestically and internationally and thedestabilizing effect on the market/selling prices that can be caused as a result.

• The loss of key customers in the Indian and export market and the resultantadverse effect on sales volumes.

• Substitution of PET Film in certain applications by competing substrates such asBOPP Film, paper and aluminium foil.

• The imposition of further anti-dumping and anti-subsidy duties byimportant export destinations such as USA and the EU on imports of PET Film from India.

• Reduction in customs duty on import of PET Film into India and the decline inselling prices that can occur on account of this.

• Foreign exchange and interest rate fluctuations and their negative impact onfinancial results.

• The Company’s financial strength to withstand downturns in the PET Filmsector.

• The Company’s ability to implement a revised financial and operationalrestructuring plan to reduce its leverage, improve its cost structure and de-bottleneckcapacity.

• The Company being able to continue funding its working capital/liquidity needsand, as being experienced currently, the negative impact on capacity utilization in theevent of shortfalls in working capital availability.

• The ability to source the required volume of raw materials and other inputs anddisruptions that can occur in the supply chain if the Company is unable to meet itsobligations to suppliers.

• Significant materials and the Company’s ability to pass these through tothe market.

PROJECT STATUS POLYESTER CHIPS

The Polyester Chips project remains deferred on account of the lack of resourcesrequired to implement it.

FORWARD-LOOKING STATEMENTS

Any forward-looking statements contained in the Directors’ Report represent yourCompany’s expectations based on present information and assumptions. These statementsare subject to various uncertainties and actual results could differ materially from thosewhich are expected or projected.

INTERNAL CONTROL SYSTEMS

The Company has a system of internal controls to ensure that all assets are protectedagainst loss from unauthorized use or disposition and that all transactions areauthorized, recorded and reported correctly. A program of management reviews supplementsthe process of internal controls. The Company also has an Audit Committee thatinteracts with its Auditors in dealing with matters within its terms of reference.

CORPORATE GOVERNANCE

The Company has endeavored to comply with the provisions of Corporate Governance asprescribed under the Listing Agreement with the Bombay Stock Exchange. A separate Reporton Corporate Governance along with the Auditors’ Certificate on its compliance by theCompany is included as a part of the Annual Report.

DIRECTORS’ RESPONSIBILITY STATEMENT

As required under Section 217 (2AA) of the Companies Act, 1956, the Board confirmsthat:

(i) In the preparation of the Annual Accounts, the applicable accounting standards havebeen followed.

(ii) The Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at 31st March, 2010 and the Profit andLoss Account for the year ended on that date.

(iii) The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities.

(iv) The Accounts have been prepared on a going concern basis.

INSURANCE

The Fixed Assets and Current Assets of the Company have been adequately insured.

FIXED DEPOSITS

The Company has not accepted any Fixed Deposits from the Public and/or Shareholdersduring the year under review.

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

Information pertaining to conservation of energy, technology absorption and foreignexchange earnings and outgo as required by Section 217 (1) (e) of the CompaniesAct, 1956 read with Rule 2 of the Companies. (Disclosure of Particulars in the Report ofthe Board of Directors) Rules, 1988 is given in Annexure “A” to this Report.

AUDITORS

M/s. R. K. Chapawat and Company, Chartered Accountants, Statutory Auditors ofthe Company, retire at the forthcoming Annual General Meeting and being eligible,offer themselves for re-appointment.

PERSONNEL

The Company had 140 employees as at 31st March, 2010. Industrial relations weresatisfactory during the year.

Information in accordance with Section 217 (2A) of the Companies Act, 1956, read withthe Companies (Particulars of Employees) Rules, 1975 forms part of this Report.However, as per the provisions of Section 219 (1) (b) (iv) of the Companies Act,1956, the Report and Accounts are being sent to Shareholders of the Company excluding theaforesaid information. Any Shareholder seeking such particulars may write to the Companyat its Registered Office.

ANNEXURE “A” TO THE DIRECTORS’ REPORT

Information as per Section 217 (1) (e) read with the Companies (Disclosure ofParticulars in the Report of the Board of Directors) Rules, 1988 and forming part of theDirectors’ Report.

I. CONSERVATION OF ENERGY

(a) Energy conservation measures taken:

i. Revamping of TDO chain to facilitate its smooth running, thereby reducing theelectrical load required to operate the said Chain. ii. Replacement of complete CuttingHead Assembly of Erema Recycling Plant for the purpose of improving its cutting efficiencyand bringing down the overall energy required to reach the desired output. iii.Continuation of measures taken in earlier years.

(b) Impact of above measures for reduction of energy consumption and consequent impacton cost of production: Savings in energy costs and usage, thereby resulting in lower costof production.

FORM “A”

Form for Disclosure of Particulars with respect to Conservation of Energy

RESEARCH AND DEVELOPMENT

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

(a) Upgradation of outdated electronic systems in various sections of the plant.

(b) Evaluation and ordering of electrostatic band pinning system.

(c) Revamping of cooling tower.

2. Benefits derived as a result of the above efforts:

(a) Greater process control.

(b) Higher productivity due to reduction in downtime.

(c) Improved efficiency in process water cooling.

3. Future plan of action:

(a) Increase in line speed from 350 meters/min. to 400 meters/min.

4. Expenditure on R&D:

III. FOREIGN EXCHANGE EARNINGS AND OUTGO