Vardhman Polytex Ltd

Dear Shareowners,

The Directors of your Company have great pleasure in presenting their 30th AnnualReport on the affairs of the Company together with the Audited Accounts of the Company forthe year ended 31st March, 2010.

1. FINANCIAL RESULTS:

2. BUSINESS PERFORMANCE:

Your Directors are pleased to report performance of the business operations as follows:

• SALES REVENUE:

During the year under review, the turnover of the Company is Rs.52769.35 lac as againstRs.42830.78 lac in 2008-09 registering an increase of 23.20%. The FOB value of exports hasincreased to Rs.15070.89 lac from 10269.95 lac showing a growth of 46.75%.

• PROFITABILITY:

The Profit before depreciation, interest, exceptional items & tax is Rs. 6686.20lac as compared to Rs. 2616.01 lac in the previous year. After providing for depreciationof Rs. 2830.50 lac (Previous Year Rs. 2842.13 lac), Exceptional Item of Rs. 3574.14 lac(Previous Year Rs. (2647.76) lac) and provision for taxation of Rs. (830.67) lac (PreviousYear Rs (17.72) lac), there is a net profit of Rs. (2238.82) lac as compared to Rs.(772.15) lac in the previous year.

(a) INDUSTRY STRUCTURE, DEVELOPMENT & FUTURE OUTLOOK

The Fiscal Year 2009-10 was a challenging year for the Indian Economy. In the firstquarter, the economy came out of the Global downturn of FY'09. Further, the GDP growthrate rose from 6.1 percent in first quarter of 2009-10 to 7.2 percent in the secondquarter which itself showed the signs of recovery of the Indian Economy. Further in theFinancial year under review, the Indian Textile Industry was struggling with low recoveryin demand of clothing in the international market. The demand contraction and low consumerspending in the USA, the EC and Japan has decisively impacted the demand for importedtextiles and clothing. Thus, during the first nine months of 2009-10, cotton yarn exportsaggregated 309 million kgs valued at US $ 844 million which are 13% lower than thecorresponding period of 2008-09.

The allocation of Rs. 2400 crore for Technology Up-gradation Funds Scheme (TUFS) in theUnion Budget 2010-11 as against Rs. 3140 crore in the Fiscal Year 2009-10 would notsuffice to clear the backlog of the TUFS disbursements. Further, the extension of interestsubvention of 2% available for export credit upto 31st March, 2011 is only for few sectorsand not to textile industry as a whole.

Conventional textile's profit margin is shrinking due to the rising raw material,labour, power and operating costs. The Indian Textile Industry should improve efficienciesto sustain profitabilities and also look for more value added products that give betterprofit margins with less operational costs. Amongst various options, opportunity fordiversification lies in Technical Textiles as demand for them is increasing in India. Itis projected that the technical textiles growth in India will be around 15 percent.

(b) INTERNAL CONTROL SYSTEMS & ADEQUACY:

The Company has adequate system of internal control. There is system of continuousInternal Audit which aims at ensuring effectiveness and efficiency of systems andoperations. The internal audit is conducted by independent internal Audit Dept. and thereport is reviewed by the Audit Committee of the Board consisting of independentDirectors. Further, the Company has also taken steps to develop a mechanism to assess andminimize the risks by having a Risk Management Committee.

(c) HUMAN RESOURCE MANAGEMENT :

We at Oswal Group, give utmost importance to Human Resource. We consider "HumanResource as Human Capital". We believe in development of Human Resource. HumanResource department is flexible & believes in customization. Career Planning &Growth is on the top of our agenda, hence we customize career paths and retention plansaccording to the unique needs of the organization & individuals. We strongly believeon Performance Management System & always explore and tap high potential at Grouplevel to meet the new challenges & competition. Our main tool is Training &Development of talent at various levels.

(d) MANAGEMENT PERCEPTION OF RISKS & CONCERNS :

The Cotton production in India during the year 2009-10 showed a marginal increase inthe production of 292 lac bales from 290 lac bales of 2008-09. However, the consumption ofcotton is likely to rise by 8.3% in future in view of the expected increase in demand oftextiles and clothing in the international market and India is expected to have largershare in the International Textile Industry. Therefore, availability of the cotton wouldbe an area of concern for the textile mills in India. Hence, they will have to strategizecotton purchase proactively.

Moreover, the Textile Industry, particularly the conventional textile sector, requiresvigorous efforts to adopt more aggressive marketing strategies, new products developmentand exploring the new markets. Apart from this, the industry needs to adopt energyefficient, environmentally sustainable practices and ensure compliance with internationaleco standards, if it has to compete and sustain itself in the global market, as issuesrelating to climate change and carbon emissions gather the growing attention of theconsumers.

a) Fixed Assets:

The gross fixed assets as at 31st March, 2010 were Rs. 43743.98 lac as against Rs.44283.41 lac in the previous year. The Capital work-in-progress as on 31st March, 2010 wasRs. 669.92 lac.

b) Working Capital:

The net current assets as on 31st March, 2010 were Rs. 14279.21 lac as compared to Rs.23617.10 lac in the previous year. Inventory level was Rs.7940.17 lac as against Rs.8184.89 lac in the previous year. Debtors outstanding for more than six months were Rs.854.05 lac as compared to Rs. 886.92 lac in the previous year.

LIQUIDITY & CAPITAL RESOURCES

4 PREFERENTIAL ISSUE:

During the year under review, your Company has issued 25,00,000 No's ConvertibleWarrants to the Financial Investors and 6,60,000 No's Convertible Warrants to a FinancialInvestor belonging to the Promoter Group on preferential basis pursuant to SEBKIssue ofCapital & Disclosure Requirements) Regulations, 2009. Out of 25,00,000 ConvertibleWarrants, 20,03,000 Warrants have been converted into Equity Shares of Rs. 10/- each at apremium of Rs. 29.53 per Share. The proceeds from these preferential issues have been usedfor the purpose of meeting the long term working capital requirements of the Company.

5. COMPANY PETITION:

A petition has been filed by M/s Maschinen Umwelttechnik Transportanlagen GesellschaftmbH, Austria (a shareholder in Oswal F.M. Hammerle Textiles Ltd.) against the Company u/s397, 398 402 & 403 of the Companies Act, 1956 in the Hon'ble Company Law Board (CLB),Principal Bench, New Delhi. The said petition is pending for the mentioning in the Hon'bleCLB.

6 DIRECTORS:

Mr. Ajay Chaudhry, Director of the Company, is retiring by rotation at the ensuingAnnual General Meeting and being eligible, offers himself for re-appointment. Further, theBoard of Directors has appointed Mr. Adish Oswal as Director (Group Corporate Affairs& Business Development) of the Company during the year 200910.

7. SUBSIDIARY COMPANIES:

The Company is having three Subsidiaries namely Oswal F.M. Hammerle Textiles Ltd., F.M.Hammerle Verwaltungs GmbH, Austria and Oswal Retail (P) Ltd. As per Section 212 of theCompanies Act, 1956, a statement showing the interest of the holding Company in theseSubsidiaries is annexed with this Annual Report.

8. LISTING OF SECURITIES:

The securities of the Company are listed on National Stock Exchange of India Ltd. andBombay Stock Exchange Ltd. Further, Foreign Currency Convertible Bonds (FCCBs) of theCompany are listed at Singapore Exchange Securities Trading Ltd.

9. REGISTRAR AND SHARE TRANSFER AGENT:

M/s Alankit Assignments Limited, 2E/21, Alankit House, Jhandewalan Extension, NewDelhi-110 055 is the Registrar and Share Transfer Agent of the Company.

10. DIVIDEND:

In view of the current financial results, the Board of Directors of your Company hasnot recommended any dividend for the year 2009-10.

11. CORPORATE GOVERNANCE:

The Company has in place a comprehensive system of Corporate Governance. A separatereport on Corporate Governance forms part of the Annual Report of the Company. The Companyhas implemented the amended Clause 49 of the Listing Agreement. A certificate from theAuditors of the Company regarding compliance of the conditions of Corporate Governance asstipulated under Clause 49 of the Agreement is annexed to the report on CorporateGovernance.

12. AUDITORS:

M/s S.S. Kothari Mehta & Co, Chartered Accountants, New Delhi, Auditors of theCompany, retire at the conclusion of the forthcoming Annual General Meeting and beingeligible, offer themselves for re-appointment.

13. AUDITORS' REPORT:

The Auditors' Report on the Accounts of the Company for the year under review isself-explanatory and requires no comments.

14. COST AUDITORS:

The Board of Directors have re-appointed M/s Ramanath Iyer & Co., Cost Accountants,New Delhi as Cost Auditors of the Company under Section 233-B of the Companies Act, 1956subject to the approval of the Central Government for the year 20102011. The CostAuditors' Report will be forwarded to the Central Government as required under law.

15. STATEMENT OF PARTICULARS OF EMPLOYEES:

A Statement of Particulars of employees pursuant to the provisions of Section 217(2A)of the Companies Act, 1956 is enclosed and forms part of this report

16. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO:

Energy Conservation continues to be an area of major emphasis in your Company Effortsare made to optimize the energy cost while carrying out the manufacturing operationsParticulars with respect to conservation of energy and other areas as per Section 217(1)(e)of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in theReport of Board of Directors ) Rules, 1988, are annexed hereto and form part of thisreport

17. DIRECTORS' RESPONSIBILITY STATEMENT:

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

I in the preparation of the annual accounts, the applicable accounting standards havebeen followed,

II appropriate accounting policies have been selected and applied consistently, andhave made judgments 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 of the profitof the Company for the year ended on 31st March, 2010,

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 tor preventing and detecting fraud and otherirregularities,

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

18. ACKNOWLEDGEMENT:

Your Directors are pleased to place on record their sincere gratitude to theGovernment, Financial Institutions, Bankers and Business Constituents for their continuedand valuable co-operation and support to the Company They also take this opportunity torecord their appreciation of the valuable contribution made by the employees in thesuccessful operations of the Company during the year

FOR AND ON BEHALF OF THE BOARD

AGGREGATE WAS NOT LESS THAN RS. 24, 00, 000/- PER ANNUM.

(B) PERSONS EMPLOYED FOR A PART OF THE FINANCIAL YEAR 2009-2010, WHO WERE IN RECEIPT OFREMUNERATION FOR ANY PART OF THE YEAR, AT A RATE WHICH IN THE AGGREGATE WAS NOT LESS THANRS. 2, 00, 000/- PER MONTH

NOTES:

1 Remuneration includes Salary, Commission, House Rent Allowance, Bonus, Contributionto Provident Fund, Leave Travel Concession, Medical Assistance, and other allowances paidin cash and taxable value of non-cash perquisites

2 The employment of Mr Ashok Oswal is contractual, being Chairman & ManagingDirector of the Company appointed for a period of 1 year

1. CONSERVATION OF ENERGY:

The Company has over the previous years taken several steps to conserve energy,wherever possible. Further efforts are made to optimize the energy cost while carrying outthe manufacturing operation by formulating Energy Conservation Cell which continuouslyconduct study, verification, monitor the consumption & utilization of energy includingidentification of the areas of energy conservation.

ENERGY CONSERVATION MEASURES TAKEN & IMPACT:

ADDITIONAL INVESTMENTS & PROPOSALS :

FORM-A:

B CONSUMPTION PER UNIT OF PRODUCTION

II PARTICULARS AS PER FORM -B: A RESEARCH AND DEVELOPMENT (R&D): FOCUS &EFFORTS IN R & D:

• Focus on the value addition and observing the recent market demand anddeveloping the value added yarns such as Slub/Fancy yam, Core-spun Lycra yam and Organicyam.

• Focus on Customer satisfaction through in-depth analysis of Customers'requirements and implementing the required corrective and preventive action promptly.

• Co-ordinating with cotton purchase team for effective & timely furnishing ofthe test results & other related data to enable better procurement of raw material.

• Monitoring & quality control through process development studies,statistical quality control activities including online & offline testing, analysisthrough T test & F test.

• Effective quality tracking system for identification & attending of rougespindles/drums in Preparatory, Ring Frame & post spinning stage.

• Improving the RFT, bulk to bulk and lab to bulk shade reproducibility andreducing dyeing cycle time

• The R&D efforts in the Company are focused on productivity improvement andbetter control on process parameters, quality improvement and higher efficiency throughanalysis of the test reports generated by latest testing equipments like Cone Expert,AFIS, UT 4 SX, UTJ 4, Classimat Quantum, Auto Sorter 4 etc.

BENEFITS DERIVED AS A RESULT OF R&D:

i) Better productivity & quality achieved through online monitoring & analysisby 'Cone expert' instrument.

ii) Better improvement in Splice quality & splice strength of auto-coners throughregular monitoring & checking.

iii) RFT improved from 70% to 80% on smaller machine

iv) Consistency in yarn quality & better productivity

v) Flexibility in product range & Better Profitability

vi) Improvement in manufacturing process and development.

vii) Reduction in manufacturing cost

FUTURE COURSE OF ACTION:

• Equipment to facilitate the testing & knitting parameters to be standardized

• A separate cell- PDC has been set up by the Company with the sole objective ofcarrying out studies in various factors, which have a bearing on the product parameter,work practices and work loads, waste reduction etc.

EXPENDITURE ON R&D:

B TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION:

During the year 2009-10, various imported & indigenous technologies were installedin the Unit. All those technologies are fully absorbed & their details are givenbelow.

(a) Amsler Lycra attachment

(b) Caipo -Slub attachment

The Technology Up-gradation shall help in the following ways:

• Technical parameters are digitally controlled with the highest level accuracy.

• Change over is very user friendly

• Better material handling & lesser wastage of the input material

• Individual spindle is equipped with stop motion that ensures quality onconsistent basis.

• Caipo Slub attachment is user-friendly & change over time is less.

• Designing of slub is very flexible.

• Running cost is comparatively less.

Activities relating to exports, initiatives taken to increase exports, development ofnew export markets and export plans:

The Company has continued focus on increasing exports both in house exports as well asmerchant exports. The Company has taken various initiatives to increase exports byoffering different products viz. Cotton and acrylic yarn, dyed and blended yarn. Duringthe year, Organic yarns were added as new products. During the year, the Company hasexplored the new markets of exports in East Europe, Russia, Hong-kong and Vietnam. TheCompany has also participated in various fairs and exhibitions to explore new markets andexpand its customer base.

Total Foreign Exchange used and earned: