Rico Auto Industries Ltd

To the Shareholders,

Your Directors have pleasure in presenting the 28^th Annual Report of yourCompany, together with the Audited Accounts for the year ended 31^st March,2011.

FINANCIAL RESULTS

(Rs. in Crores)

Your Company has recorded a turnover of Rs.1096.19 crores in the year under report asagainst Rs.837.03 crores in the previous year. Your Company has earned a Profit after Tax(PAT) of Rs.26.51 crores which includes amount of Rs.10.61 crores and Rs.9.29 crores beingthe profit on transfer of leasehold rights/interests of the Company in the immovableproperties at Ambernath, Mumbai and Bommasandra, Bangalore respectively over the previousyear’s PAT of Rs.6.07 crores.

OUTLOOK FOR CURRENT YEAR

The Unaudited Financial Results for the quarter ended 30^th June, 2011,already announced, show a turnover of Rs.286.95 crores for the first quarter of thecurrent year against a turnover of Rs.248.93 crores of the corresponding quarter of theprevious year, an increase in turnover by 15.27 per cent. Your Directors are taking stepsto improve the turnover and margin during the remaining part of the year despite therecessionary trends in the economy.

RESERVES

The reserves of your Company after proposed appropriations shall stand at Rs.306.12crores (including premium of Rs.10.61 crores received on conversion of warrants intoequity shares) as against Rs.272.15 crores (including premium of Rs.5.40 crores receivedon conversion of warrants into equity shares) in the previous year.

EXPORT

The export turnover of your Company during the period under review was Rs.202.30 croresas against Rs.147.84 crores in the previous year. The export turnover includes sale towholly owned subsidiaries amounting to Rs.146.86 crores as against Rs.114.14 crores in theprevious year. Our wholly owned subsidiaries in United Kingdom and United States ofAmerica provide last mile sales and customer support.

During the quarter ended 30^th June, 2011 of current year export turnover wasRs.41.67 crores as against Rs.55.00 crores in the corresponding quarter of the previousyear. Further details as regards efforts of your Company on this front have been dealtwith in the Management Discussion and Analysis section of this report.

DIVIDEND

Your Directors have recommended a Dividend @20 per cent i.e. Re.0.20 per Equity Shareof Re.1/- each for the financial year 2010-11, amounting to Rs.3.15 crores includingdividend tax of Rs.0.44 crore on the enhanced Equity Share Capital of Rs.13.53 crores asagainst a dividend of 15 per cent i.e. Re.0.15 per Equity Share of Re.1/- each aggregatingto Rs.2.25 crores including dividend tax of Rs.0.32 crore in the previous year on theEquity Share Capital of Rs.12.89 crores.

SHARE CAPITAL

The Company has made preferential allotment of 97,00,000 warrants convertible in one ormore tranches within 18 months from the date of allotment date i.e. 11^th July,2009 into equal number of Equity Shares of Rupee One each at a premium of Rs.16.50 pershare to the Promoter Group Company. An upfront payment has been received @Rs.4.40 perwarrant aggregating to Rs.4.27 crores and balance amount will be received at the time ofconversion of the warrants. During the financial year under report remaining 64,30,000warrants out of the aforesaid 97,00,000 warrants, have been converted by way of second andfinal tranche into 64,30,000 Equity Shares of Re.1/- each at a premium of Rs.16.50 pershare after receipt of balance amount aggregating to Rs.8.42 crores. The amount collectedhas been utilized for the purpose it was raised. The Paid-up Equity Share Capital hasincreased to Rs.13.53 crores from Rs.12.89 crores after this allotment.

FINANCE

Your Company has been affirmed "A2+" and "LA-" Ratings for Line ofCredit (Basel-II) for its Short Term and Long Term Bank Facilities respectively by ICRALimited. Your Company uses long/short term facilities from the Banks on most favourableterms.

NEW PLANTS AND FACILITIES

Your Company is undertaking continuous endeavours for expansion of its domestic andoverseas customers by implementing new facilities to enhance capacity and alsogeographically de-risk our operations. Your Company has started work for its:

A. Sanand Plant

This plant has commenced commercial production in the last quarter of financial yearunder report and caters to the needs of current requirements of Tata Motors Limited forits Nano Car Plant at Sanand, Ahmedabad in the state of Gujarat. Strategically located,this plant will provide a very good launch pad to supply components to the customers likeFord India, Maruti Suzuki and Peugeot who are firming up plans to set up theirmanufacturing facilities in the region.

B. Chennai Plant

The civil work to establish a Plant to manufacture Auto Components is in progress atOragadam, Chennai on the land allotted by SIPCOT Industrial Growth Centre in the state ofTamil Nadu to cater to the customers in South India and export.

C. Haridwar Plant

This Plant is in full operation and has commenced supplies of components to HeroMotoCorp Limited’s plant located in the region. Your Company is exploring thepossibilities to further enhance capacity to cater to the growing demand for its products.

D. Bawal Plant

The Company had set up a plant in HSIIDC, Phase II, Bawal (Haryana) during the yearunder report to produce High Pressure Die Casting and Gravity Die Casting and fullymachined components for its expanding customer base. It has already started commercialproduction in the current year and will witness growth in its revenues. Further, there isplan to set up High Tonnage High Pressure Die Casting and machining facility for AutoComponents which will achieve start of production in the next financial year. The civilconstruction activity has already commenced.

E. Bhiwadi Plant

Site development work is in progress for setting up an Auto Components ManufacturingPlant at Industrial Area, Pathredi, Bhiwadi, Distt. Alwar (Rajasthan).

SUBSIDIARY COMPANIES

Your Company has Unlisted Wholly Owned Subsidiaries:

A. Rico Auto Industries Inc. USA

This Company is engaged in the business of trading of Auto Components in the NorthAmerican and Brazil Markets.

The Company earned a total revenue of Rs.99.94 crores during the financial year ended31^st March, 2011 as against Rs.100.16 crores in the previous year, a marginaldecrease of 0.21 per cent. The Company earned a net profit of Rs.1.08 crores as againstRs.0.20 crore in the previous year thus experiencing expanding margins. This Company hasnot declared any dividend for the financial year ended 31^st March, 2011.

This Subsidiary has achieved a turnover of Rs.23.27 crores for the first quarter ended30^th June, 2011 as against Rs.22.87 crores in the corresponding quarter of theprevious year, an increase of 1.75 per cent. During the financial year and period underreview your Company has not made any additional investment in this Subsidiary.

The Subsidiary is expecting significant growth during the remaining part of the currentfinancial year.

B. Rico Auto Industries (UK) Limited, U.K.

This Company is engaged in the business of trading of Auto Components for the EuropeanMarkets.

The Company earned a total revenue of Rs.50.10 crores during the financial year ended31^st March, 2011 as against Rs.31.54 crores in the previous year. The Companyearned a net profit of Rs.1.27 crores as against Rs.0.52 crore in the previous year. ThisCompany has not declared any dividend for the financial year ended 31^st March,2011.

This Subsidiary has achieved a turnover of Rs.10.42 crores for the first quarter ended30^th June, 2011 as against Rs.13.08 crores in the corresponding quarter of theprevious year. During the financial year and period under review your Company has not madeany additional investment in this Subsidiary.

The Subsidiary is expecting significant growth during the remaining part of the currentfinancial year.

C. Rasa Autocom Limited

During the year under review, this Company has not started any manufacturingactivities. The Company has earned an interest income of Rs.0.46 lac on the fixed depositwith Banks and incurred expenses of Rs.5.23 lacs towards administrative and otheroperating expenses. The Company sustained a net loss of Rs.4.97 lacs during the year underreport. A loan of Rs.19.47 crores has been given to this Company as on 30^thJune, 2011. The Company has commenced manufacturing of auto components and recorded aturnover of Rs.1.17 crores during the first quarter of financial year 2011-12.

D. Uttarakhand Automotives Limited

During the year under review, this Company has not started any manufacturingactivities. The Company has incurred expenses of Rs.2.05 crores towards administrative andother operating expenses. The Company sustained a net loss of Rs.2.05 crores during theyear under report. A loan of Rs.15.91 crores has been given to this Company as on 30^thJune, 2011 towards the cost of land.

E. RAA Autocom Limited

During the year under review, this Company has not started any manufacturingactivities. The Company has incurred expenses of Rs.0.59 crore towards administrative andother operating expenses. The Company suffered a net loss of Rs.0.59 crore during the yearunder report. A loan of Rs.5.92 crores has been given to this Company as on 30^thJune, 2011.

F. AAN Engineering Industries Limited

Your Company took over Rupak Automotive Industries Limited by acquiring its entirepaid-up equity capital of Rs.5.00 lacs on 8^th April, 2011 as a consequence itbecame our wholly owned subsidiary Company. It was renamed as AAN Engineering IndustriesLimited. This Company has taken new initiatives to set up a State of the art unit formanufacturing for the Aerospace, Defence, Railways and Security Equipments at Gurgaon, inthe premises taken on lease from us.

A. Rico Jinfei Wheels Limited

The Company earned a total revenue of Rs.42.40 crores during the financial year ended31^st March, 2011 as against Rs.8.65 crores in the previous year. This Companyhas incurred a loss of Rs.5.53 crores in the financial year ended 31^st March,2011 as against PAT of Rs.0.05 crore in the previous year.

Your Company has invested Rs.9.25 crores in the Equity Share Capital and given a loanof Rs.42.36 crores as on 30^th June, 2011.

B. KRP Auto Industries Limited

During the year under review, the Company has acquired the Leasehold Rights in theIndustrial Plot measuring about 89937 sq. mtrs. situated at Plot No. 283,Bommasandra-Jigani Link Road Industrial Area, Bangalore from our Company and has allotted4,70,930 Equity shares of Rs.100/- each at a premium of Rs.330/- to the Company, towardsthe agreed consideration of Rs.20.25 crores. After the allotment of these shares, ourCompany holds 99.95 per cent in the paid-up equity share capital in this Joint VentureCompany. The Joint Venture Company has taken initiatives to set up the industrial projectin the above said industrial plot for the manufacture of auto components. It is expectedthat the manufacturing activities will start in the third quarter of the current fiscal.

During the period under review, the Company has earned an income of Rs.0.89 lac fromtrading activities. The Company has incurred a net loss of Rs.4.27 lacs during thefinancial year 2010-11.

A. FCC Rico Limited

FCC Rico recorded a turnover of Rs.702.93 crores for the financial year ended 31^stMarch, 2011 as against Rs.512.17 crores in the previous year, a growth of 37 per cent. TheBoard of this Company has recommended a dividend of 75 per cent for the year ended 31^stMarch, 2011. Your Company expects to receive an amount of Rs.2.96 crores by way ofdividend on its investment.

B. Continental Rico Hydraulic Brakes India Private Limited

Continental Rico recorded a turnover of Rs.11.78 crores in the financial year ended 31^stMarch, 2011 as against Rs.13.24 crores in the previous year. Your Company has so farinvested Rs.55.00 crores in the Equity Share Capital as on 30^th June, 2011.

C. Magna Rico Powertrain Private Limited

Magna Rico recorded a turnover of Rs.15.42 crores in the financial year ended 31^stMarch, 2011 as against Rs.1.74 crores in the previous year. Your Company has so farinvested Rs.16.12 crores in the Equity Share Capital as on 30^th June, 2011.

FINANCIAL STATEMENTS

Pursuant to the Listing Agreements, the appended Audited Consolidated FinancialStatements of the Subsidiaries and the Joint Venture Companies, in accordance withAccounting

Standards issued by the Institute of Chartered Accountants of India form a part of theAnnual Report.

In terms of Circular issued by the Ministry of Corporate Affairs, general exemption hasbeen granted from the provisions of Section 212 of the Companies Act, 1956 to Companies inrelation to attaching accounts and other documents pertaining to its subsidiaries subjectto fulfillment of the conditions mentioned in the circular. The Board of Directors have,vide their resolution passed on 21^st May, 2011, consented not to attach theaccounts and other documents pertaining to Company’s Subsidiaries. The Company willmake available these documents upon request by any member of the Company interested inobtaining the same. However, as directed by the Central Government, the financial data ofthe subsidiaries have been disclosed elsewhere forming part of the Annual Report.

FIXED DEPOSITS

During the year the Company has not accepted deposits from the public under section 58Aof the Companies Act, 1956.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (MDA)

Pursuant to Clause 49 of the Listing Agreement, MDA which forms part of this Report isannexed.

CORPORATE GOVERNANCE

A separate report on Corporate Governance alongwith General Shareholders information asprescribed under the Listing Agreement is annexed as a part of this Report, alongwith theAuditors’ Certificate thereon.

DIRECTORS’ RESPONSIBILITY STATEMENT

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

i) in the preparation of the annual accounts for the financial year ended 31^stMarch, 2011 the applicable accounting standards have been followed and there are nomaterial departures;

ii) appropriate accounting policies have been selected and applied consistently andhave made judgements and estimates that are reasonable and prudent so as to give a trueand fair view of the state of affairs of the Company as at 31^st March, 2011 andof the profit for the year 1^st April, 2010 to 31^st March, 2011;

iii) proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and preventing and detecting fraud and otherirregularities; and

iv) the annual accounts for the financial year ended 31^st March, 2011 havebeen prepared on a going concern basis.

AUDIT COMMITTEE

Your Company has an Audit Committee to meet the requirement of the Companies Act, 1956as well as of Listing Agreement with the Stock Exchanges. The details of the AuditCommittee are given under the Corporate Governance Report.

LISTING OF EQUITY SHARES

The Equity Shares of your Company are presently listed on Bombay Stock Exchange Limited& The National Stock Exchange of India Limited. The Annual Listing Fees have been paidfor the financial year 2011-12.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Articles ofAssociation of your Company, Shri Kanwal Monga and Shri Amarjit Chopra, Directors willretire by rotation at the forthcoming Annual General Meeting and being eligible, offerthemselves for re-appointment.

Brief resume relating to Directors who are being re-appointed are given in the Noticeof the Annual General Meeting.

AUDITORS

M/s. Gupta Vigg & Co. (Firm Registration No. 001393N), Chartered Accountants,Statutory Auditors of the Company hold office till the conclusion of the forthcomingAnnual General Meeting and being eligible offer themselves for re-appointment. They havegiven a certificate under section 224(1B) of the Companies Act, 1956 to the effect thattheir re-appointment as Auditors of the Company, if made, would be in accordance with thesaid section. The Board recommends their re-appointment.

The observations in the Auditors’ Report are dealt within the notes to accounts atappropriate places and being self-explanatory, need no further comments.

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

As required by the provisions of Section 217(1)(e) of the Companies Act, 1956 read withthe Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988,the relevant information is given in the annexure forming part of this report.

TRANSFER OF UNPAID/UNCLAIMED AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND (IEPF)

Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, the declareddividends, which remained unpaid/ unclaimed for a period of 7 years have been transferredby the Company to the IEPF established by the Central Government pursuant to Section 205Cof the said Act.

PERSONNEL

In terms of the provisions of Section 217(2A) of the Companies Act, 1956, read with theCompanies (Particulars of Employees) Rules, 1975 as amended, the names and otherparticulars of the employees are set out in the Annexure to the Directors’ Report.However, as per the provisions of Section 219(1)(b)(iv) of the said Act, the Annual Reportexcluding the aforesaid information is being sent to all the Members of the Company andothers entitled thereto. Member who is interested in obtaining such particulars may writeto the Company Secretary at the Corporate Office of the Company. The said information isalso available for inspection at the Corporate Office and Registered Office during workinghours upto the date of the Annual General Meeting.

During the year under report the Industrial relations with personnel remained cordial,at all Plants. Your Directors wish to place on record their appreciation of the sincereand unstinted support provided to the Company by its employees at all levels.

ACKNOWLEDGEMENTS

The Board wishes to place on record its sincere appreciation for the continuedassistance and support extended to the Company by Financial Institutions, Banks andvarious departments of Central and State Governments. Your Directors acknowledge withgratitude the encouragement and support extended by our valued customers.

ANNEXURE TO DIRECTORS’ REPORT

INFORMATION UNDER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES(DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 AND FORMINGPART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31^ST MARCH, 2011.

a) Energy Conservation measures taken:

Energy Conservation is an ongoing process with us taken as a challenge. The variousmeasures taken by your Company are:

i) using natural gas as a fuel for aluminum melting in die casting division in place offurnace oil.

ii) Installation of UPS for further identified critical load application.

iii) Reduce energy consumption through:

— Improvement in efficiency of process fans/motors by installing VFD (VariableFrequency Drives).

— Introduction of Energy Efficient Pumps.

— Energy Efficient dryers with Air Compressors.

— Recycling of ETP/STP treated water for use in process.

— Continuous addition of Roof Top Turbo Ventilators in Shop Floor.

b) Additional Investment and Proposals for reduction of consumption of energy:

i) Installation of cost efficient power plant based on Natural Gas fuel.

ii) More and more power purchase through open access to reduce costs.

iii) Replacement of LPG/Diesel by Natural Gas in core shop, hot water generator, paintshop and various pre-heating process.

iv) Use of solar energy for office and street lighting.

c) Impact of the above Measure:

With the implementation of the various energy conservation measures, the energy cost isexpected to be reduced and consequently will result in cost saving.

d) Total Energy Consumption and Energy Consumption per unit of production:

Being not applicable to auto components sector, the Form A is not furnished.

B. TECHNOLOGY ABSORPTION

e) Efforts made in technology absorption as per Form B:

The details in this regard are set out in Form B attached hereto.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

f) Activities relating to exports, initiatives taken to increase exports, developmentof new export markets for products and services and export plans are mentioned below:

i) Activities relating to exports: Year 2010-11 saw a significant growth trend for allquarters in export to North America, Europe and Asia. Export sales increased fromRs.147.84 crores to Rs.202.30 crores registering a 36.7% growth. New programmes withcustomers were launched during this period while the programmes which were launched in theprevious years saw a ramp up in volumes. The ramp up was relatively significant and themarket demand overcame the recessionary trends experienced in 2008 and 2009. In the firstquarter of the current financial year, the global markets have shown stability and growth.The Company has already achieved Rs.41.67 crores of export turnover during the firstquarter of the financial year 2011-12.

ii) Initiatives taken to increase exports: In past few years we have added new productsand customers in our portfolio across the globe. Most of our customers have shown theirkeen intent to engage with Rico as their preferred supplier and work as a long termstrategic partner. This intent is based on the demonstrated ability to supply superiorquality critical and complex parts at most competitive prices and manage an extendedsupply chain to deliver just in time. Currently RICO is focusing on three pronged strategy(a) New parts with existing customers in new geographies; (b) Increase in share ofbusiness wherever there is a scope; and (c) Target new customers and products.

iii) Development of new export markets, products and services: We feel that there hasbeen recovery in the automotive industry since the recessionary period of 2008 and 2009.Due to the continuous cost and capacity pressure in the North American and Europeanmarkets, there will be new opportunities that will emerge. The teams are working diligenttowards exploring new business opportunities with customers in all major territories.

Your Company is also exploring the opportunities to make inroads in the non automotivebusiness segments.

iv) Export plans: The export market is showing signs of revival and your Company isconfident that it will be able to maintain double digit growth of its sales to its exportcustomers. This will also be on the back of new product launches planned for the currentyear.

g) Total foreign exchange used and earned:

(Rs. in Crores)

FORM – B

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO ABSORPTION

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

a) Exploring the Aerospace, Defence and Railway sectors for new development: R&Dteam took the initiative in exploring the new market by attending different exhibition andattending seminars. New business opportunities have been found and the team is exploringto develop those sectors further.

b) Automated Guided Vehicle (AGV): The same has been successfully tested on the actualshop floor (HPDC) to transport the aluminium fettling runner-risers to melting furnace.This project has been conceptualized to reduce the non-value added activities on the shopfloor.

c) Automatic Transmission & Auto starter: Team gathered the data of Indian market(customer & manufacturer) and presented to management.

d) Patent: A patent has been filed for new core design for center housing.

e) Pyrometer: The team has worked with a German Company to select a suitable pyrometerto measure the stream temperature of the molten iron. This will help in optimizing thetemperature and also reduce in rejection by tighter process control.

f) Magnesium Casting: An effort has been taken to understand the Magnesium castingprocess. Discussions with different companies are under progress.

2. Benefits derived as a result of R&D:

a) Tremendous improvement in confidence amongst team members.

b) Confidence built-up amongst R&D personnel for the multiple usages of the testingequipments.

c) Team working and cross-functional activities improved.

d) Team members are being exposed to different types of projects.

3. Future plan of action:

a) To make the AGV functional and implement in all RICO establishments.

b) To complete the incomplete projects in hand.

c) To take part in other future projects.

4. Expenditure on R&D:

B. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

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

— Vibration durability test techniques have been learnt and absorbed.

2. Benefits derived as a result of the above efforts, e.g. product improvement, costreduction, product development, import substitution etc.

— Prediction of probable failure during cyclic use of products and consequentimprovement in their design.

3. In case of imported technology (imported during the last 5 years reckoned from thebeginning of the financial year), following information may be furnished:

Technology Imported:

i) The Company has signed a licensing and technological agreement with Teksid Aluminiumof Italy to develop Aluminium Engine Blocks and Heads to be produced with High and LowPressure Die Cast, gravity and lost foam process.

ii) The Company has signed a Technical Assistance Agreement with HONSEL AG of Germanyto develop and manufacture Aluminium Cylinder Blocks for Diesel Engines solely relating tothe 2-Cylinder blocks for "Tata Nano Diesel".