Aditya Birla Nuvo Ltd

Indian economy: Slowing investments and high inflation affecting growth

The financial year 2011-12 proved to be a challenging year for the economies across theglobe.

Among the developed economies, the US witnessed a rating downgrade and Euro zone faceddebt crisis while Japan was adversely impacted by earthquake and tsunami. Among theemerging economies, GDP growth in China and India came under pressure of tight monetarymeasures to combat stubbornly high inflation.

Indian economy, per se, witnessed many highs and lows during the year.

Its GDP growth rate fell year on year to 6.1% during the third quarter of 2011-12 -touching its lowest level in past two years. Compared to 8.5% growth attained in 2010-11,GDP growth is expected to decline to 6.9% during 2011-12.

Indian Rupee weakened against US dollar to its historically low level of 54.

Benchmark interest rates touched the peak of past ten years, affecting industry growth.Industrial growth averaged 2.8% during the year vis-a-vis 8.2% growth posted last year.

After hiking key policy rates thirteen times in the past two years, the Reserve Bank ofIndia ("RBI") has cut the cash reserve ratio by 125 basis points and repo rateby 50 basis points in past five months.

Still interest rates are at high level and RBI will watch for inflationary trend beforeannouncing further rate cuts to boost the growth.

WPI-based inflation remained stubborn at 6.9% in March 2012.

A large fiscal deficit, arising from high social sector spending and a spike in crudeoil prices, has only added to the woes of Indian economy.

Going forward, though inflation and interest rates are anticipated to ease from currentlevels, slowing investments and declining capital formation may have a greater bearing onthe prospective growth of Indian Economy.

Aditya Birla Nuvo: Reflecting strength of its conglomerate model

Amidst this challenging macro-economic environment, Aditya Birla Nuvo("ABNL") has outperformed the industry across most of its businesses and postedstrong earnings. While some of the businesses were affected due to sector specificchallenges, other businesses supported overall earnings. This reflects the strength of itsconglomerate model. The business-wise key highlights and achievements are detailed below.

> Financial Services: Aditya Birla Financial Services ("ABFS") is alarge non-bank player in India. With funds under management of USD 17.5 billion andrevenue size of USD 1.3 billion, it ranks among top 5 fund managers in India, excludingbanks and LIC.

• Birla Sun Life Insurance and Birla Sun Life Asset Management improved theirrankings and gained market share.

• Aditya Birla Finance, the NBFC arm, almost doubled its book size and diversifiedits portfolio.

• Aditya Birla Private Equity launched its second fund.

• The Broking business garnered its all time high retail market share in commodityas well as equity broking segment.

• With a strong emergence of profitability, Birla Sun Life Insurance declared itsmaiden dividend.

> Telecom : With 1.4 billion minutes of usage per day, Idea Cellular ranks amongthe top 10 cellular operators in the world. Idea is third largest in India with a revenuemarket share1 of 14.4%. It serves a large 112.7 million subscribers' base. Idea Cellular :

• Has been the biggest revenue market share gainer in the past two years.

• Idea ranks 1st or 2nd in eight service areas in terms of revenue market share.

• Accounted for 20.6% of industry's incremental mobile revenue during the calendaryear 2011.

• Enjoys the highest active subscribers' ratio in the Industry and leads as aMobile Number Portability provider.

• Isa USD 6.5 billion ( Rs. 32,700 Crore) company by market cap and USD 4 billion(~ Rs. 19,500 Crore) company by revenue size.

> Fashion & Lifestyle : Madura Fashion & Lifestyle is the largestpremium branded apparel player in India.

• Madura reached Rs. 2,250 Crore (USD 450 million) revenue mark.

• Its revenue almost doubled during the last two years - growing at a CAGR of 34%.

• It sells two branded apparels every three seconds through 1,129 exclusive brandoutlets ("EBOs") spanning across 1.6 million square feet besides more than 1,400departmental stores and multi brand outlets.

> Acquisition of controlling stake in Future Group's 'Pantaloons Format' Business :

To fortify the Company's position in the Fashion & Lifestyle sector, the Board ofAditya Birla Nuvo has approved the proposed acquisition of a controlling stake in FutureGroup's 'Pantaloons Format Business' post its demerger from Pantaloon Retail (India) Ltd("PRIL"), subject to the requisite approvals.

The key strategic benefits of the transaction :

• Extending footprints into the fast growing value fashion segment:

. Value segment is the largest contributor to the Indian apparel market size witharound 40% share

. Pantaloons Format is a popular and growing platform having strong presence across 31Indian cities.

• Addressing to a larger segment of market

. Post this acquisition, ABNL's operating market size will expand. It will havemultiple brands and store formats to offer a complete range of casuals, formals, ethnicwear, party wear and sports wear for Men, Women and Kids.

Structure of the transaction :

• PRIL will issue Rs. 800 Crore Optionally Fully Convertible Debentures("OFCDs") to ABNL or its subsidiary.

• PRIL will demerge its Pantaloons Format business (resulting entity) throughcourt scheme of arrangement.

• PRIL will transfer the net assets of this Format, its apportioned debt of Rs.800 Crore and OFCDs of Rs. 800 Crore to the resulting entity.

• ABNL's stake in the resulting entity, post demerger will be about 45% triggeringan open offer.

• Enterprise Value of Pantaloons Format business comes to ~ Rs. 2,600 Crore.

• ABNL will make an open offer to the shareholders of the resulting entity.

• ABNL's holding in the resulting entity post open offer shall be a minimum of50.01%.

• The resulting entity will become a listed subsidiary of ABNL.

• The proposed transaction is likely to be completed within 8 to 10 months,subject to the finalisation of the Scheme of Arrangement, due diligence, statutory andother requisite approvals.

> IT-ITeS : Aditya Birla Minacs is among the top 10 Indian BPO companies. AdityaBirla Minacs:

• Achieved Rs. 2,075 Crore (USD 415 million) revenue mark.

• Sold total contract value of USD 730 million and won 16 new clients.

• Has global delivery capacities serving more than 100 clients including severalFortune 500 clients through 36 centres and more than 19,700 employees.

> Manufacturing : Having a combined revenue of USD 1.25 billion, manufacturingbusinesses yielded an ROACE of 20% during 2011-12.

• Dumping from China adversely affected the capacity utilisation and profitabilityof Hi-tech Carbon, the second largest carbon black manufacturer in India and Aditya BirlaInsulators, the largest manufacturer of insulators in India.

• Combined EBITDA was maintained year on year led by the strong earnings growth inthe other manufacturing businesses.

• Indo Gulf Fertilisers, the 8th largest urea manufacturer in India, crossed Rs.2,100 Crore revenue mark. It achieved its highest ever urea production and sales.

• Jaya Shree textiles, the largest manufacturer of linen yarn and fabric in India,achieved its highest ever earnings. Its revenue crossed Rs. 1,000 Crore mark.

• Indian Rayon, the second largest manufacturer of viscose filament yarn in India,became the largest exporter of VFY from India for the 7th year in a row.

Strong earnings growth

Aditya Birla Nuvo has delivered a strong growth in the consolidated earnings.

Most of its businesses are competitively well placed and are contributing to theearnings growth.

• Revenue rose by 20% to Rs. 21,840 Crore (~USD 4.5 billion)

• EBITDA surged by 21% to Rs. 3,259 Crore (USD 652 million)

• Net Profit grew by 8% to Rs. 890 Crore (USD 178 million)

Consolidated revenue of ABNL rose year on year by 20% to Rs. 21,840 Crore supportedby top-line growth across the businesses.

• Revenue of the Life Insurance business grew by 3% to Rs. 5,691 Crore. Due toregulatory changes, high interest rates and uncertain equity markets, growth of ULIPsremained affected. However, growth in the non-ULIP segment, group business and renewalpremium supported overall increase in revenue.

• Revenue growth in other financial services was driven by the NBFC business whichhas almost doubled its book size in past one year.

• In the Telecom business, revenue soared by 26% to Rs. 19,489 Crore (ABNL's share: Rs. 4,933 Crore) led by a strong 25% growth in total minutes on network.

• Fashion & Lifestyle business posted a robust 24% revenue growth. Theleadership position of its brands, expansion of retail space, growth in wholesale channeland growth in like to like store sales contributed.

Note1: A provision of Rs. 104 Crore has been made during 2011-12 towards entry taxliability (largely related to previous years, earlier recognised as contingent liability)w.r.t. Renukoot (U.P) plant of the Carbon Black business; the matter is sub-judice. In2010-11, Aditya Birla Money and Aditya Birla Money Mart, subsidiaries of ABNL, had borne aone-time exception loss of Rs. 104 Crore

• In the IT-ITeS business, revenue grew by 23% driven by growth in existingaccounts, conversion of order book and favourable currency movement.

• In the manufacturing businesses, combined revenue surged by 33% largely drivenby commencement of trading of imported fertilisers. Besides this, increase in realisationin the Agri, Carbon Black, Rayon and Textiles businesses to partly pass on the rise inproduction costs also contributed.

Consolidated EBITDA soared by 21% to Rs. 3,259 Crore. The Financial Services,Telecom and Fashion & Lifestyle businesses posted robust 21%, 32% and 46% growth inEBITDA respectively. Operating EBITDA of the IT-ITeS business grew by 16%. Earnings of theCarbon Black and Insulators businesses were impacted adversely due to dumping from China.However, manufacturing businesses maintained EBITDA year on year, led by strong earningsgrowth in the Textiles, Agri and VFY businesses.

Consolidated depreciation grew by 16% to Rs. 1,092 Crore largely in the Telecombusiness on account of 2G and 3G network expansion coupled with the amortisation of 3Gspectrum fee.

Consolidated EBIT rose by 24% from Rs. 1,745 Crore to Rs. 2,167 Crore.

The Financial Services, Telecom and Fashion & Lifestyle businesses were the majorcontributors to the growth in the bottom-line.

• Driven by the growing in-force book, expense management and product mix, LifeInsurance business posted strong growth in profitability.

• In the Asset Management business, earnings remained under pressure across theindustry due to reduction in AUM size and change in asset mix.

• Aided by the expansion of its book size, NBFC business achieved sound earningsgrowth.

• Segment EBIT of the Telecom business jumped by 51% to Rs. 2,111 Crore (ABNLsshare: Rs. 534 Crore). Robust growth in minutes on network and increasing share of valuedadded services contributed.

• In the Fashion & Lifestyle business, segment EBIT almost doubled to Rs. 125Crore led by strong sales growth across the channels and brands.

• Excluding non-recurring items such as site closure costs, forex gain andemployment incentive arrears, segment EBIT of the IT-ITeS business grew by 16%.

• Profitability of the Carbon Black and the Insulators businesses was strained byincrease in cheaper imports from China and rise in production costs. Other manufacturingbusinesses performed well. In the Agribusiness, increase in trading revenue contributedalong with pricing gain due to favourable forex movement. In the Textiles and Rayonbusinesses, improved realisation augmented earnings.

Finance costs related to NBFC business increased in line with the growth in its booksize. Other finance costs increased primarily due to higher interest costs relating tofront loaded 3G investments in the Telecom business and increase in borrowings in thestandalone balance sheet. In the Telecom business, interest expenses of Rs. 409 Crore(ABNLs share : Rs. 104 Crore) on funds borrowed for payment of 3G spectrum fee has beencapitalised during the previous year.

Earnings before tax (after exceptional items as explained in the footnote ofconsolidated profit & loss account) grew by 12% to Rs. 1,226 Crore. Provision fortaxation increased primarily in the Telecom business. With a strong rise in profitabilityof Life Insurance business, minority interest increased from Rs. 86 Crore to Rs. 120Crore.

ABNLs consolidated net profit grew by 8% from Rs. 822 Crore to Rs. 890 Crore.

At the consolidated level, total debt increased from Rs. 7,763 Crore to Rs. 9,328 Crorelargely due to rise in borrowings at the standalone level as well as in the books of IdeaCellular1. Standalone gross debt increased from Rs. 3,287 Crore to Rs. 4,457 Crore.Standalone net debt increased from Rs. 3,142 Crore to Rs. 3,750 Crore largely on accountof higher working capital requirements due to rise in raw material prices in the CarbonBlack business and slower recovery of outstanding subsidy in the Agri business. In theIT-ITeS subsidiary, debt has increased mainly due to currency translation; at constantcurrency basis debt has reduced. NBFC borrowings grew in line with growth in its lendingbook.

Deferred tax liabilities have increased primarily in the Telecom business.

Net fixed assets have increased largely on account of capital expenditure in theManufacturing, Fashion & Lifestyle and Telecom businesses.

Goodwill has increased mainly due to currency translation effect in the IT- ITeSbusiness and acquisition of balance shareholding in the ITeS subsidiary.

Long term investments increased mainly due to sponsor commitment of Rs. 29 Croretowards Aditya Birla Private Equity Funds.

Net working capital at Rs. 4,704 Crore is higher due to increased working capitalrequirements in the Carbon Black and Agri businesses, as explained earlier and on accountof growth in lending book of NBFC business.

Aditya Birla Nuvo, as a conglomerate, is progressing well on the growth path to tapsector opportunities. To meet its growth capital requirements, the Company has issued 16.5million warrants in May 2012 to Promoters / Promoter Group on a preferential basis afterbeing approved by the shareholders at the EoGM held on 25th April 2012.

Of the total equity infusion of Rs. 1,500 Crore, a sum of Rs. 375 Crore has beenreceived as 25% application money in May 2012. Post the conversion of these warrants, paidup capital of the Company will increase from Rs. 113.5 Crore to Rs. 130 Crore andpromoters' holding will increase from current 51.05% to 57.25%.

This equity infusion will not only strengthen the financial position of the Company butalso provide cushion for capturing the next level of growth.

The business-wise performance and outlook follows.

Financial Services (Aditya Birla Financial Services)

India has one of the highest household savings rate in the world, even though it hascome off its peak due to high inflation. Household savings in India as a percentage of GDPwas around 33% during 2011-12 compared to 22% a decade ago. It is expected to be furtherrising. A recent study of Global Financial Literacy points out that though the country hasone of the highest savings rate among its global peers, the households may not be aware ofmany options to invest in. A large proportion of financial savings is being deployed inbank deposits, which offers a huge potential market size for non bank financial servicesand products. Moreover, growing share of working population, burgeoning middle classsegment and rising per capita income levels indicate strong long term growth potential ofthe Indian financial services sector.

Besides being equipped with a nation-wide distribution network, a large customer base,a talented human resource pool, proven track record of product innovation, customercentric approach and superior investment performance, Aditya Birla Financial Services("ABFS") has a strong parent brand. This will enable Aditya BirlaFinancial Services to capitalise on the long term growth opportunities offered by theIndian financial services sector.

Currently, the Indian financial services sector is witnessing growth challenges due toregulatory changes and unfavourable investment climate. The financial year 2011-12 sawshrinkage across most of the fee and agency based businesses. Only lending business hasgrown. In such a market, Aditya Birla Financial Services has strengthened its marketpositioning across the business verticals.

Aditya Birla Financial Services is today a large non bank player. Having funds undermanagement of about Rs. 86,750 Crore (USD 17.5 billion), ABFS ranks among top 5 fundmanagers in India excluding banks and Life Insurance Corporation of India("LIC"). It has a strong presence across seven business verticals viz., LifeInsurance, Asset Management, NBFC, Private Equity, Broking, Wealth Management and GeneralInsurance Advisory. Anchored by ~17,000 employees and trusted by ~5.5 million customers,ABFS has a nation-wide reach through over 1,775 branches and about 200,000 agents /channel partners.

Note1: Aditya Birla Money Ltd. and Aditya Birla Money Mart Ltd., subsidiaries of ABNL,had borne one time exceptional loss of Rs. 104 Crore in 2010-11

Aditya Birla Financial Services has launched an online money management platform -Aditya Birla Money MyUniverse. This unique brand agnostic platform enables customers toaggregate their various financial relationships in a highly secure environment andprovides customised and completely automated advice on money management, based on thefinancial position and risk profile of the customer. The platform also enables users forexpense tracking, setting budgets, getting alerts, investment transactions, tax filing andregistering for bill payment.

Aditya Birla Money MyUniverse was voted "Product of the year, 2012" forinnovation in financial services, in a survey of over 30,000 people conducted by Nielsen.

While ABFS registered a moderate growth in revenue, it posted a strong growth in theprofitability. The combined revenue of ABFS grew year on year from Rs. 6,313 Crore to Rs.6,550 Crore (about USD 1.3 billion). Its earnings before tax surged by 27% from Rs. 472Crore to Rs. 600 Crore. Net profit at Rs. 539 Crore registered a strong growth overprevious year.

ABFS is the largest contributor to ABNL's consolidated earnings before tax - Itcontributed 45% during 2011-12.

Industry Overview

The Indian Life insurance industry ranks among top 10 life insurance markets in theworld and among the top 5 in Asia. It currently comprises 23 private life insurers and onepublic sector life insurer - LIC. The Indian Life Insurance industry covers a large partof Indian population through the distribution network of more than 11,500 branches andover 2.6 million advisors, in addition to the bancassurance and other third partydistribution channels. The industry garnered new business premium2 of Rs. 67,770 Crore(about USD 13.6 billion) during 2011-12. LIC contributed to 65% of industry's new businesswhile private life insurers contributed remaining 35% [Source: IRDA,www.irda.gov.in.] Top7 out of 23 private players contributed to about 71% of the private sector's new business.The top 7 private life insurers and LIC combined together accounted for 90% of industry'snew business.

Following the issue of new ULIP (Unit Linked Insurance Plan) guidelines by InsuranceRegulatory and Development Authority ("IRDA") in September 2010, new businesspremium growth remained affected in 2011-12 too. During

Note2: Weighted new business premium = 100% of regular first year premium + 10% ofsingle premium the first half year, de-growth was prominent since new guidelines came intoeffect from nearly mid of the previous year. During the second half year, private playersregistered almost flat growth. While rationalisation of distributors' compensation was amajor factor impacting growth, regulatory uncertainty around new product launches,ambiguity on the pension products, weak equity markets and high interest rates were someof the other variables that impacted new business performance.

Performance Review

Birla Sun Life Insurance ("BSLI") completed 12 years of its journey towardsserving the protection, health, retirement, children's future and wealth management needsof varied customer segments. During 2011-12, BSLI reported lowest de-growth among top 7private life insurers and improved its private sector market share from 7% to 7.8%. Itmoved one step up to rank 5th among the private life insurers [Source:IRDA,www.irda.gov.in] BSLI continues to follow a successful multi-channel distributionstrategy with over 650 branches, about 139,000 agents, 5 bank partners and about 200 thirdparty distributors.

In 2011-12, new business premium income of BSLI at Rs. 1,926 Crore de-grew year on yearby 7% due to the ULIP segment. Non-ULIP sales gained traction and contributed to 46% ofBSLI's individual new business vis-a-vis 25% in the previous year. BSLI has successfullytransitioned its sales force from selling predominantly ULIPs to now having a balancedproduct mix. BSLI's performance in the Group segment was also strong driven by improvementin the product lines. This has helped BSLI to achieve 2nd rank amongst private insurers inthe group segment.

Renewal premium rose by 10% to Rs. 3,959 Crore. The total premium income grew by 4% toRs. 5,885 Crore. The conservation ratio at 76% and the 13th month persistency at 82%signify customer stickiness and are among the best in the industry.

AUM grew by 7% to Rs. 21,110 Crore (about USD 4.2 billion). BSLI continued to deliversuperior investment returns to its policyholders.

During the year, operating expenses to premium ratio improved from 21.2% to 20.6% andcommission ratio reduced from 6.7% to 5.5%.

Driven by rising profit from in-force business, declining expense ratios and changes inproduct mix and structures, earnings before tax of BSLI surged by 51% from Rs. 304 Croreto Rs. 461 Crore.

No capital infusion has been required since past two years.

With the strong emergence of profitability, BSLI declared its maiden dividend amountingto Rs. 98.5 Crore @ 5% of its paid-up capital. Aditya Birla Nuvo received Rs. 73 Crore forits 74% shareholding.

During the year under review, the Company filed several new products with the regulatorto focus on under-penetrated segments and to broad-base its product mix.

Indian Life Insurance Industry : Growth in New business1

Note1: Weighted new business premium = 100% of regular first year premium + 10% ofsingle premium (Source: IRDA, www.irda.gov.in)

The agency channel continues to be the largest distribution channel for BSLIcontributing to 71% of its individual new business sales during the year. Thebancassurance channel contributed 14% and Corporate Agents and Brokers accounted for 15%.In 2011-12, BSLI ranked amongst the top 3 private life insurers in terms of new businesssales from agency channel and has consistently been in the top quartile in terms of frontline sales staff productivity.

Outlook

The last two years have been challenging for the Indian life insurance industry interms of new business growth. However, its long term growth prospects undoubtedly remainstrong considering that India is still a fairly underpenetrated life insurance market. Theinsurance density or insurance premium per capita in India at USD 55.5 is one of thelowest in the world (Source: Swiss Re Sigma, 2011). Also looking at the brighter side ofrecent regulatory changes, these have not only made ULIPs more cost competitive for thecustomers but also pushed life insurers towards improving their operating efficiencies andenhancing customer service standards - which will be positive for the industry in the longrun. In the short to medium term, stability in the regulatory environment, improvement inthe investment climate and evolution of the distribution channels will be key growthdrivers.

For BSLI, the action areas will be strengthening the product portfolio, enhancing theoperating competitiveness and distribution efficiencies, leveraging the bancassurancechannel and improving the customer retention and service standards. A widely trusted brandname, superior investment performance, experienced team and a proven track record inproduct innovation will support BSLI in effective execution of these actions to furtherstrengthen its market positioning.

Industry Overview

The Indian mutual fund industry comprises 44 asset management companies. Top 5 assetmanagement companies contribute to 54% of industry's average AUM (AAUM)1. After continuousgrowth for the past few years, the Indian mutual fund industry has witnessed decline inits AUM during last two years. After declining by 8% in the previous year, the AAUM1 ofthe industry de-grew by 5% from about Rs. 700,800 Crore (USD 140 billion) in 2010-11 toaround Rs. 664,800 Crore (USD 133 billion). [Source : Association of Mutual Funds in India("AMFI"), www.amfiindia.com].

Industry's equity AAUM1 de-grew by 3% to about Rs. 201,800 Crore (USD 40 billion) onaccount of equity market action. Share of equity AAUM in industry's total AAUM remainedflat at 30%. Nonequity assets witnessed 6% de-growth during the year largely due tooutflow of banks' investments in debt and liquid funds following the direction given byRBI to limit investments in mutual fund schemes up to 10% of net worth as on 31st March ofthe previous year.

Birla Sun Life Asset Management Company ("BSAMC") completed 17 years ofits journey towards offering wealth creation solutions to its customers. During the year,BSAMC outperformed the industry and increased its market share to 9.2% in terms ofdomestic AAUM1. BSAMC reported 2nd lowest de-growth in domestic AAUM1 among the top 5players (Source: AMFI).

With a total AAUM of Rs. 64,460 Crore (~USD 13 billion), BSAMC improved its ranking byone notch to become the 4th largest asset management company in India.

It continued to focus on alternate assets. Out of total commitments received under thereal estate onshore fund launched in the previous year, about 25% has been deployed. BSAMChad set up offices in Singapore and Dubai to reach out to international customers.

Due to reduction in the AUM size and change in asset mix, earnings remained underpressure across the industry. Revenue of BSAMC de-grew from Rs. 366 Crore to Rs. 315 Croreand earnings before tax from Rs. 126 Crore to Rs. 89 Crore.

BSAMC is serving its large investor base through a strong distribution network of 103branches and Note1: Average AUM for the fourth quarter ended 31st March of the respectiveyear. about 34,900 financial advisors. About 82% of its AUM is rated under the 4 and 5Star categories. As an acknowledgement of its investment performance, following awards andrecognitions were conferred on BSAMC at various forums:

• "The Best Debt Fund House of the year 2011" by CNBC TV18 - CRISIL, UTVBloomberg and Outlook Money

• "Best Mutual Fund House of the Year -Runner up" by Outlook Money

• "Golden Peacock Award, 2011" for innovative 'Mobile InvestmentManager' which brings the convenience of transacting and managing investments to themobile platform.

Outlook

Growth of the Indian mutual fund industry was affected during the last two years.Nevertheless, the long term outlook for the mutual fund industry remains attractive backedby lower mutual fund penetration, growing incomes and savings level. Mutual fund AUM as apercentage of Indian GDP has grown from ~6% in 2005-06 to more than ~13% in 2011-12. Yetit is very low compared to 50%-90% in the developed countries. Furthermore, the increasingfocus of asset management companies on the alternate assets and efforts for increasingretail participation through Systematic Investment Plans ("SIPs") etc. will alsocontribute to the growth.

With a target of profitable growth in AUM size, BSAMC will focus on enhancingdistribution capacity and productivity across the channels, improving customer engagementand costs rationalisation. Having a strong brand, experienced management and proven trackrecord of investment performance, it is well positioned as a leading player in the Indianmutual fund industry.

Note1: Average AUM for the fourth quarter ended 31st March of the respective year.

Note2: Equity AAUM (Domestic + Offshore) + PMS + Real Estate Onshore Fund.

Aditya Birla Finance ("ABFL") is categorised as systematically importantnon-deposit taking NBFC. There are more than 300 systematically important non-deposittaking NBFCs in India. ABFL is one of the leading players in the Loan against Securities("LAS") and corporate bill discounting segments.

While Indian financial services sector faced growth challenge in the fee and agencybased business verticals in past two years, lending business has grown. However, rise incost of borrowings led to contraction of net interest margin ("NIM") across theNBFCs. As a monetary measure to tame inflation, RBI increased the key policy ratesthirteen times between March 2010 and November 2011 which forced banks to raise thelending rates. Though in past five months, RBI has cut cash reserve ratio by 125 bps andrepo rate by 50 bps, lending rates still remain at high level.

Performance Review

During 2011-12, lending book size of ABFL grew significantly across all the lines ofbusiness. Total closing book almost doubled year on year to ~ Rs. 3,425 Crore. The CapitalMarket portfolio (Promoter funding, LAS, broker funding, IPO financing, ESOP financingetc.) expanded by 22% to ~ Rs. 1,625 Crore. Corporate Finance portfolio (Vendor financing,corporate bill discounting, structured finance, term loans etc.) doubled to more than Rs.850 Crore. ABFL forayed into

Infrastructure Financing and Mortgage Funding (loan against property and lease rentaldiscounting) and closed the year with a book of over Rs. 650 Crore and Rs. 65 Crorerespectively.

Despite the uncertain equity markets and slowing down corporate lending activities,ABFL was not only able to achieve a healthy growth in existing segments, but it has alsobuilt a strong infrastructure financing book.

Revenue of ABFL surged by 78% to Rs. 348 Crore in line with the growth in its lendingbook size. Earnings before tax rose by 51% to Rs. 84 Crore. Net interest margin was loweryear on year due to rise in cost of borrowings.

ABFL received a capital infusion of Rs. 75 Crore during the year to support expansionof its lending book. Its net worth stands increased from Rs. 497 Crore to Rs. 628 Crore.Its balance sheet has an optimum leverage of around 5 times of net worth.

The business is growing at a good pace and will require capital for future growth.

The short term borrowings program of ABFL was enhanced from Rs. 2,500 Crore to Rs.3,000 Crore and has been assigned 'A1+' rating by ICRA -the highest credit quality ratingassigned by ICRA to short term debt instruments. Its long-term borrowing limit of Rs.1,000 Crore has been assigned 'AA' rating by ICRA. Besides these, a Rs. 250 Croresub-ordinate debt program (Tier II NCDs of 10 years and above) has been assigned 'AA'rating by ICRA as well as CARE.

Outlook

The outlook for the NBFC sector remains positive backed by the lower credit penetrationand huge capital formation requirement of the country.

However, in the short term, the sector may found the macro-economic environmentchallenging for growing quality book on account of overall bearish sentiments, volatilestock markets and high interest rates.

ABFL aims at scaling up its book size cautiously while managing risks optimally.Leveraging Aditya Birla Group's large ecosystem for SME funding will be a key focus area.Extension of portfolio with entry in new arrays of products, strong parent brand and anexperienced team having seen more than two decades of business cycles will aid ABFL inreaching towards its goal.

Private Equity (Aditya Birla Private Equity) Industry Overview

Growth momentum of Private Equity ("PE") investments in India built during2010 continued in the calendar year 2011 too. During 2011, total investments by the PEfirms in India rose by 24% to reach USD 10 billion (including Venture Capital investmentsand excluding PE investments in Real Estate) compared to USD 8 billion in the previouscalendar year. The number of PE deals increased from 362 deals in 2010 to over 441 dealsin 2011. This takes total investments by PE firms in India to about USD 47 billion acrossmore than 2,000 transactions over the past five years (Source: Venture intelligence).

Performance Review

After the successful launch of its first fund at a size of Rs. 881 Crore (including 20%sponsor's commitment) in March 2010, Aditya Birla Private Equity ("ABPE")launched its second fund called Sunrise Fund.

Sunrise fund closed for subscription in March 2012 at a size of Rs. 299 Crore(including 10% sponsor's commitment) taking total funds under management to Rs. 1,179Crore.

The first fund has already deployed about 50% of its total corpus in followingcompanies:

a) Anupam Industries - a leading manufacturer of industrial and construction cranes,

b) Bombay Stock Exchange - the oldest stock exchange in Asia,

c) Credit Analysis & Research Ltd. - a leading credit rating agency,

d) GEI Industrial systems and its subsidiary - a leader in air-cooled heat exchangersand condensers for more than 40 years

e) Alphion India Pvt. Ltd. - Gigabit passive optical networking systems maker for nextgeneration broadband and mobile backhaul

f) Trimax IT infrastructure and Services Ltd. -Systems Integration, IT InfrastructureManagement Services

Sunrise Fund has made one investment till date in SMS Paryavaran Ltd. which is intodesign and construction of Water and Waste-Water Treatment systems.

Both the funds have strong pipeline of deals to deploy the balance of the fund corpus.

Aditya Birla Capital Advisors Private Limited ("ABCAP") provides theinvestment management and advisory services to ABPE Trust, a venture capital fundregistered with SEBI. During 2011-12, ABCAP posted revenue of Rs. 21 Crore and net profitof Rs. 4 Crore vis-a-vis Rs. 18 Crore and Rs. 4 Crore respectively in the previous year.

Outlook

In the past six months, PE investments have slowed down due to economic uncertainty andweak capital markets. However, according to Venture Intelligence, the large uninvestedcapital lying with PE funds and the increasingly attractive valuations of Indian companies- including the listed ones - signals to a turnaround in the coming future.

Backed by its strong investment management team and salient parentage brand, AdityaBirla Private Equity is well positioned to tap the opportunity offered by the privateequity space.

Broking (Aditya Birla Money Limited) Industry Overview

The Indian retail broking industry is highly fragmented with the top ten playerscontributing to less than 20% of equity broking market size. The number of demat accountsin the country shows the depth of equity penetration. Currently there are about 20 milliondemat accounts in India, which grew at a CAGR of 14% during the past five years. Howeverin 2011-12, industry has seen the lowest demat account additions in past five years.

During 2011-12, Sensex - the benchmark index of BSE - de-grew by 10% and S&P CNXNifty -the benchmark index of NSE - declined by 9%. The total cash equity volumes of BSEand NSE put together de-grew by 26% to USD 695 billion; however Futures and Options("F&O") volumes grew by 7% to USD 6.3 trillion. F&O segment accountedfor 90% of the combined equity volumes at NSE and BSE vis-a-vis 86% in 2010-11. Due toincreasing contribution of lower margin F&O segment in total pie, earnings of retailbrokerage houses have been impacted. This trend indicates increasing speculativeactivities rather than retail participation. Retail participation in cash equity segmentreduced to 51% compared to 56% in the previous year. The combined commodities volumes atMCX and NCDEX rose by 55% to USD 3.5 trillion. [Source: Bombay Stock Exchange Ltd.("BSE"), National Stock Exchange of India Ltd. ("NSE"), MultiCommodity Exchange of India Ltd. ("MCX"), National Commodity & DerivativesExchange Ltd. ("NCDEX")].

Performance Review

Aditya Birla Money ("ABML") witnessed growth in commodity volumes while cashmarket volumes were affected across the Industry. Cash market volumes of ABML de-grew by19% while commodity volumes rose by 145%. F&O volumes of ABML grew by 6% despitefalling retail volumes in derivatives. F&O volumes accounted for 81% of total equityvolumes of ABML. During the fourth quarter, its market share in the retail cash equitysegment, retail F&O segment and commodity segment increased year on year from 0.9% to1.4%, from 0.5% to 0.9% and from 0.28% to 0.46% respectively.

During 2011-12, ABML's revenue de-grew by 23% from Rs. 114 Crore to Rs. 88 Crore. ABMLhas increased its market share across the categories but the revenue growth was impactedowing to sluggish industry volumes. Its net loss increased from Rs. 8 Crore to Rs. 18Crore.

The number of customers increased to about 292,000. Its points of presence increasedfrom 969 to 985 consisting of 167 branches and 818 franchisees.

ABML has entered into a strategic alliance with Allahabad Bank for providing onlinetrading platform to the bank's customers. This deal has given ABML an access to a largecustomer base of Allahabad Bank.

Outlook

Slow down in the economy had a bearing on the capital markets and particularly theretail participation. However, in the long run, growth opportunity does exist for theIndian equity broking industry - given the lower penetration and rising per capita income.Technology is going to play a major role in enhancing the retail participation.

Aditya Birla Money will continue to focus on the six pillars of this business - Brand,Product, Distribution, Operations, Service and People - to gain market share and augmentits earnings. It will lay emphasis on cost optimisation and expanding its business througha cost-effective business partner - based model.

Industry Overview

While there are a few large wealth management players in India; mutual funddistribution industry is very fragmented. Aditya Birla Money Mart ("ABMM") isthe third largest corporate distributor of mutual funds in India with Assets underAdvisory of more than Rs. 12,500 Crore as on 31st March 2012 [Source: Computer AgeManagement Services ("CAMS")]. ABMM is also a significant player in the wealthmanagement space.

Performance Review

Financial year 2011-12 was a challenging year for the wealth management industry asfixed deposits and other safer investment avenues attracted household financial savingsamidst volatile capital markets. Equity broking volumes, new business sales in the lifeinsurance sector and AUM of the mutual fund industry witnessed slowdown affecting thebusiness of wealth management and distribution players.

Revenue of ABMM de-grew from Rs. 74 Crore to Rs. 60 Crore due to sluggish financialmarkets. ABMM reported a net loss of Rs. 21 Crore vis-a-vis loss of Rs. 19 Crore (beforeone-time exceptional loss) incurred in the previous year.

ABMM has a strong nation-wide distribution presence through 32 branches and about14,000 channel partners.

Outlook

High savings growth in India implies a huge opportunity for financial intermediationservices.

Distribution and wealth management industry will continue to play an important role inthe growth of life insurance, mutual funds and equity broking products and services.

ABMM's thrust will be to provide quality wealth management solutions to its clientthrough product innovation and technology support.

Industry Overview

Gross premium underwritten in the general insurance segment has grown by 23% from USD9.5 billion to USD 11.7 billion (Source: "IRDA"). Aditya Birla Insurance BrokersLtd. ("ABIBL"), erstwhile Birla Insurance Advisory and Broking Services Ltd., isone of the leading general insurance brokers in India.

Performance Review

The premium placement by ABIBL surged by 49% from Rs. 205 Crore to Rs. 304 Croreleading to strong earnings growth. Revenue grew by 52% from Rs. 21 Crore to Rs. 32 Crore.Earnings before tax grew three times from Rs. 3 Crore to Rs. 9 Crore and net profit grewfrom Rs. 2 Crore to Rs. 6 Crore.

Outlook

Lower general insurance penetration in India is likely to boost growth of generalinsurance industry. ABIBL will focus on reaching a larger customer base in a costeffective way to grow the business.

Telecom (Idea Cellular Limited) Industry Overview

Indian wireless sector, the second largest market in the world in terms of subscribers'base has seen sharp reduction in tariffs during 2009-10 and 2010-11. This affected revenuegrowth of the sector while its subscribers' base was growing at a strong pace. To the muchrespite of the sector, reduction in tariffs seen in earlier years got arrested duringfinancial year 2011-12, signifying the unsustainable levels of these tariffs to yield anyreasonable return on the investments.

With a strong net addition of over 107 million subscribers, sector's total subscribers'base has reached to 919 million as on 31st March 2012.

Compared to a 19% growth in subscribers' base, gross revenue of the Indian wirelesssector rose by 15% to ~USD 27 billion during calendar year 2011. Out of total 15 cellularoperators, the top 3 players namely Bharti Airtel, Vodafone and Idea Cellular contributedto about 67% of the Industry's wireless gross revenue. All the major operators launched 3Gservices in India during the later part of the previous financial year.

The industry is currently facing an uncertain regulatory environment following thecancellation of 2G licenses by the Hon'ble Supreme Court in February 2012. In April 2012,the recommendations of the regulator, towards spectrum auctions, pricing and re-farming,have only added to this uncertainty.

Performance Review

With total Minutes on Network of 1.4 billion per day, Idea Cellular ("Idea")ranks among the top 10 cellular operators in the world. In India, Idea is 3rd largest interms of revenue market share1 at 14.4%. Idea is the market leader in four service areasnamely Kerala, Maharashtra, Madhya Pradesh and Uttar Pradesh (West), in terms of revenuemarket share. It ranks 2nd in another four service areas viz., Haryana, Punjab, AndhraPradesh and Gujarat.

Being the fastest growing major cellular operator in India, Idea has been outperformingthe industry across key parameters. This reflects the strength of its brand and quality ofits services.

For instance, Idea has been the biggest revenue market share gainer since past twoyears. Idea has around 93% of its reported subscribers as VLR (active) subscribers, whichis highest in the

Note1: Based on quarterly gross revenue for UAS & Mobile licenses only, as releasedby TRAI

industry. With the net gain of 2.9 million subscribers and the lowest port-out ratio,Idea leads the industry since the launch of Mobile Number Portability ("MNP").One out of every four existing customers in India, who chooses to port out, prefers Idea.

Idea's subscribers' base grew by 26% in past one year from 89.5 million to 112.7million. More importantly, Idea continued to expand its revenue market share garnering amuch larger share of industry's incremental revenue. Idea contributed to 20.6% ofindustry's incremental mobile revenue during calendar year 2011.

Idea's average realisation per minute ("ARPM") during the fourth quarter hasgrown from Rs. 0.406 in 2010-11 to Rs. 0.422 in 2011-12. Increased share of value addedservices contributed to ARPM growth. Idea's minutes on network grew by 25% to reach 453billion during the year - growing significantly faster than the sector. Growth in thesedrivers spurred Idea's earnings.

Note1: Based on quarterly gross revenue for UAS & Mobile licenses only, as releasedby TRAI

Revenue soared by 26% to Rs. 19,489 Crore -growing at twice the industry growth rate.EBITDA grew by 32% to Rs. 5,135 Crore. However, net profit de-grew from Rs. 899 Crore toRs. 723 Crore largely due to higher depreciation/ amortisation costs and interest expenseson account of front loaded 3G investments. Higher deferred tax also strained net profit.

Currently, Idea offers 3G services in 20 service areas (including roaming arrangementswith other operators) covering more than 3,000 towns and 10,000 villages. With this, Ideais all set to exploit the untapped wireless broadband data market and other emergingverticals of revenue like Mobile banking, M-commerce, M-health, M-education etc. In thisdirection, Idea has launched Idea smart phones at attractive price points. Idea alsoprovides Mobile Banking services through 'Idea MyCash' - in an alliance with Axis Bank.

The Hon'ble Supreme Court vide its judgment dated 2nd February 2012 quashed thelicenses granted pursuant to two press releases issued on 10th January 2008 and subsequentallocation of spectrum. The Supreme Court has also directed the TRAI, to make freshrecommendations for grant of license and allocation of spectrum by auction and the CentralGovernment to consider the recommendations of TRAI and take appropriate decision withinnext one month for grant of fresh licenses.

However, on an application from the Government of India, the Hon'ble Supreme Court,vide its order dated 24th April 2012 extended the date of spectrum auction, to beconcluded by Department of Telecommunications ("DoT"), to 31st August 2012 andallowed licenses to carry on the operations till 7th September 2012.

Idea incurred a capital expenditure (including capital advances) of Rs. 4,545 Crore,during the year. For fiscal 2012-13, capex guidance stands at Rs. 3,500 Crore excludingany payment towards spectrum.

With the standalone net debt to EBITDA at 2.48 and net debt to equity at 0.93, Idea hasa strong balance sheet. Idea has been free cash flow positive since past two quarters.With the declining capex requirements for 2G and 3G, free cash flows will furtherstrengthen balance sheet and provide cushion for future growth.

Outlook

The Indian wireless sector continues to offer opportunities, both in voice and data, tothe quality operators in the long run. Though overall tele-density in India has reached76%, the rural tele-density still remains at only 38%. Moreover, launch of 3G servicesprovides a large growth opportunity in the data segment as the broadband penetration inIndia stands at only 1.1%. However, some of the recent regulatory developments are beingviewed negatively by most of the industry players, though the final outcome is yet to bedecided by the Government / DoT.

Going forward, Idea will continue to focus on increasing its revenue market share bycapitalising on brand IDEA besides participating in the evolving wireless broadbandbusiness. Supported by a quality subscribers' base, sound balance sheet and strong brand,Idea is well placed to outperform the sector and emerge even stronger.

Industry Overview

Branded apparel industry has posted healthy growth in the previous two years, driven bysame stores sales growth as well as rapid retail expansion. This growth momentum hasmoderated during 2011-12, particularly in the second half of the year, largely due to thebase effect and subdued demand. Overall consumer spends on discretionary categories, likepremium branded apparels, have been affected by the inflationary pressure coupled withrise in apparel prices. Apparel prices were increased by 15-20% across the industry topartly pass on the rise in cotton prices and levy of excise duty. Most of the playersreported flat to negative same stores sales growth. Amidst this scenario, Madura Fashion& Lifestyle continued to outperform the industry, with its like to like stores salesgrowing in double digits.

Performance Review

Madura Fashion & Lifestyle ("Madura") is the largest premium brandedapparel player in India. Its premium brands - Louis Philippe, Van Heusen, Allen Solly andits mass brand - Peter England, are leaders in respective categories. Madura also retailsinternational brands like Armani Collezioni, Hugo Boss, Versace Collection, Hackett,Adidas, Puma, Samsonite and many more under one roof 'The Collective'. Madura also has astrategic tie up with leading international brand Esprit for distribution of its apparelsin India.

Madura sells two branded apparels every three seconds through its retail as well aswholesale channel, serving varied fashion & lifestyle needs of its customers. Retailchannel comprises of 1,129 EBOs spanning across 1.6 million square feet and contributes to47% of Madura's total revenue. Wholesale channel consists of more than 1,400 Multi BrandOutlets and departmental stores viz., Shoppers Stop, Lifestyle, Central etc.

Madura reached Rs. 2,250 Crore revenue mark. It achieved 24% year on year growth inrevenue supported by a strong 22% growth in branded garments volumes. Retail channel salesrose by 29%. Stores expansion and 10% like to like stores sales growth contributed. Duringthe year, Madura added 234 EBOs on a net basis.

Driven by the strong sales growth across the brands and channels and improved productmix, EBITDA surged by 46% from Rs. 136 Crore to Rs. 198 Crore. Higher discounting and costpressure were compensated by rise in apparel prices. Led by sound profitable growth andimproved working capital management, return on capital employed grew significantly from11% to 21%. Over the past two years, Madura has almost doubled its turnover while managingcapital employed at similar levels. Its net working capital turnover is at 5.2 times.

Outlook

The long term growth outlook of the domestic branded apparel industry remains brightbacked by strong demographics viz., rising disposable income, expansion of aspiring middleclass segment, large young population and increasing inclination towards branded apparels.However, in the short term, consumer spends on premium branded apparels are expected toremain subdued on account of high inflation.

Madura will continue to leverage its brand leadership, expand its retail space andstrengthen channel relationships with a target of outperforming the industry growth.

Industry Overview

During 2011-12, global economic conditions remained challenging, especially in Europe.The IT-ITeS industry did grow and customers did continue to outsource, though at a slowerpace. The business models of customers have started changing from cost savings tostandardisation, global flexibility and better technology. Customers now expect vendorsand outsourcing partners to invest in improving processes whilst passing on continuingcost savings.

Performance Review

With a track record of over 30 years, Aditya Birla Minacs is a leading global deliverysolutions provider that partners with global corporations and provides solutions in theareas of Customer Lifecycle, Marketing, Finance and Accounting, Procurement and ITservices.

Aditya Birla Minacs has been named in the Leaders category in 'Global Outsourcing 100companies, 2012' by International Association of Outsourcing Professionals("IAOP").

Aditya Birla Minacs ranks among the top 10 Indian BPO companies by revenue size (Source: NASSCOM).

Aditya Birla Minacs won 16 new clients during the year. Aditya Birla Minacs sold TotalContract Value ("TCV") of more than USD 730 million vis-a-vis USD 775 millionsold in the previous year. About 40% of the TCV sold in 2011-12 was on account of newbusiness.

However, it has witnessed slower conversion of sales pipeline due to challengingeconomic conditions in the US and Europe.

Revenue grew year on year by 23% to Rs. 2,082 Crore. Growth in the existing accounts,conversion of order book and favourable forex movement contributed to the growth intop-line. The clients located in US contributed 75% of the revenue while Canada, Europeand Asia pacific contributed 15%, 4% and 6% respectively. The revenue mix by the industryverticals (a) Manufacturing (b) TIME (Telecom, Technology Infrastructure, Media andEntertainment), (c) Banking and Financial Services, (d) Insurance and Healthcare and (e)IT Services is 56%, 28%, 11%, 1% and 4% respectively. Revenue contribution from top 5clients reduced from 53% in 2010-11 to 50% in 2011-12.

Operating EBITDA grew by 16% to Rs. 201 Crore. Operating EBITDA margin remained flatabsorbing costs incurred on ramp up for new contracts and opening up of two new sites.Aditya Birla Minacs posted a net profit of Rs. 70 Crore vis-a-vis Rs. 74 Crore attained inthe previous year. During last year, profit was higher to the extent of employmentincentive arrears of Rs. 25 Crore. Moreover, a one-time cost of Rs. 21 Crore was incurredin 2011-12 on closure of one site in North America to achieve cost rationalisation. Thebusiness is generating steady cash profit to fund its capital expenditure and workingcapital requirements.

Aditya Birla Nuvo acquired balance 11.72% holding in the ITeS subsidiary. After themerger of IT and ITeS subsidiaries, ABNL and its subsidiary, holds 99.85% in the mergedentity.

Outlook

While the global economic outlook seems to remain challenging, outsourcing contractsare expected to grow at a steady rate. In fact, mid-sized companies that have been slowadopters of outsourcing are also expected to enter the market due to cost pressure andneed to access technology and best practices. However, with the clients demanding morethan cost benefits out of the outsourcing contracts, sustaining margin would bechallenging for the outsourcing solutions providers.

Aditya Birla Minacs will endeavour to sustain its sales momentum and optimise operatingcosts to enhance its margin.

Manufacturing Businesses

Aditya Birla Nuvo has a strong market positioning across its manufacturing businesses.All the manufacturing businesses of ABNL hold leadership position in their respectivesectors in terms of capacity as well as profitability.

Aditya Birla Nuvo is:

• The second largest manufacturer of Carbon Black in India (Aditya Birla Group isthe largest manufacturer in the world in terms of capacity at 2 million tons per annum)

• The second largest producer and the largest exporter of Viscose Filament Yarn inIndia

• The eighth largest urea manufacturer and among the top two best energy efficienturea plants in India

• The largest Linen Yarn and Linen Fabric manufacturer in India

• India's largest and world's fourth largest manufacturer of Insulators

These businesses have an outstanding track record of consistent generation of strongcash flows and return on capital employed. Cash flows generated by these businesses havehistorically provided cushion to the balance sheet of Aditya Birla Nuvo for funding thegrowth capital requirements of other businesses. At the same time, ABNL continued toinvest in the capacity expansion of these businesses to tap sector growth opportunities.

Combined together, manufacturing businesses registered a 33% growth in revenue during2011-12 to reach USD 1.25 billion. They have posted an EBITDA of Rs. 752 Crore vis-a-visRs. 776 Crore earned in the previous year.

Agri-business (Indo-Gulf Fertilisers) Industry Overview

The financial year 2011-12 has been a mixed year for Indian Agriculture, with anexcellent kharif and an average Rabi. Urea sales volume grew from 28.2 million tons in2010-11 to 29.5 million tons in 2011-12. Urea imports continued to surge and have crossed7 million tons in 2011-12. The industry is eagerly waiting for the new investment policyto enable Brownfield / Greenfield projects to bridge this gap.

The Government policy of nutrient based subsidy ("NBS") for P (phosphorus)and K (potassium) based fertilisers has ensured better availability of these fertilisers.However, keeping urea (nitrogen based fertiliser) out of the preview of NBS has led to lopsided usage of urea and adverse N, P, K ratio. Usage of urea increased as the prices of Pand K fertilisers doubled during the year owing to increase in international prices andweakening of the Indian Rupee. The industry is keenly awaiting the extension of NBS toUrea, to correct this imbalance.

Performance Review

Today, Indo Gulf Fertilisers is positioned as a complete agri solutions provider,offering an entire range of agri inputs (fertilisers, seeds and agrochemicals) andservices to the farmers and catering to their needs right from sowing to harvesting.Indo-Gulf is the 8th largest urea manufacturer in India and among the best plants

in India in terms of energy efficiency and productivity. It achieved its highest everurea production and sales during the year.

Revenue soared by 69% to Rs. 2,107 Crore driven by commencement of trading of importedfertilisers and increase in realisation (subsidy). Rise in feed and fuel (natural gas)prices resulted in higher subsidies. Higher urea sales volume, increased share of neemcoated urea and increase in sales of seeds and agrochemicals also contributed.

EBITDA rose by 20% from Rs. 176 Crore to Rs. 211 Crore. Pricing gain on the importedfertilisers on account of favorable forex movement also contributed. Indo-Gulf isoperating at a strong return on average capital employed ("ROACE") of 26%. It islower year on year owing to increase in working capital largely due to rise in ureaprices, commencement of trading of imported fertilisers and slower recovery of subsidies.

'Birla Shaktiman' has maintained its leadership position in its entire marketingterritory zone -Eastern Uttar Pradesh, Bihar, Jharkhand and West Bengal. Indo-Gulf hasexpanded its product portfolio to cover the full range of N, P, K fertilisers by offering'Birla Shaktiman DAP NPK and SSP'. These products were well received by the farmers andthe channel partners.

Outlook

The recent government policies intend to encourage indigenous production and reducesubsidy burden by decreasing imports. This is a welcome move. However, better clarity onthe pricing and availability of the natural gas is awaited.

Indo-Gulf is working towards de-bottlenecking and revamping of its existing plant forreducing the energy consumption and enhancing the productivity. Indo-Gulf has receivedclearance from the Ministry of Environment and Forests for the brownfield expansion and itnow awaits policy clarity on the allocation and pricing of the natural gas. It is alsoevaluating setting up of a customised fertilisers plant. It also remains focused onscaling the agri-inputs trading segment. Being located in the agriculture heartland of thecountry and having brand leadership, Indo-Gulf is well positioned to capture future growthin this sector.

Carbon Black (Hi-Tech Carbon) Industry Overview

Carbon Black is used in the tyre industry as well as in the non-tyre sector asreinforcing filler in rubber products and in the printing inks and paints industry. CarbonBlack constitutes ~28% of tyre by weight. Tyre production in India grew year on year by 5%during 2011-12. Carbon Black imports increased by more than 50% during the year; affectingthe off-take and capacity utilisation of the domestic carbon black manufacturers. Domesticplayers have approached the Government of India for the levy of appropriate duties oncheaper imports from China. Hi-Tech Carbon, the carbon black business of ABNL and PhillipsCarbon Black Ltd. are the leading carbon black manufacturers in India accounting for 39%and 46% of domestic production during 2011-12.

Performance Review

Domestic sales volume of Hi-Tech Carbon dropped by 3%, mainly due to dumping fromChina. Exports volume grew by 4%. Share of exports in total sales volume increased to 20%.

Revenue increased by 22% to Rs. 1,943 Crore on account of higher realisation. CarbonBlack realisation increased by 25% to Rs. 68,276 per ton to partly pass on rise in rawmaterial (CBFS) costs which tend to move in line with crude oil prices. Energy sales grewfrom Rs. 80 Crore to Rs. 94 Crore with the commencement of power sales from two plants.

EBITDA de-grew from Rs. 257 Crore to Rs. 205 Crore. Higher CBFS prices and lowercapacity utilisation due to drop in sales volumes strained profitability.

Capital employed increased primarily on account of higher CBFS prices which inflatedthe inventories and receivables. Capital Employed is also higher to the extent ofmark-to-market provision of Rs. 88 Crore w.r.t. fully hedged foreign currency workingcapital borrowings. Due to lower profitability and higher capital employed, ROACE de-grewto 13%.

Outlook

The capacity utilisation and profitability of the domestic manufacturers may improve,provided appropriate duty is levied and the level playing field is restored. Long termgrowth outlook remains positive. The domestic tyre production is expected to get a boostfrom the OEM and replacement demand coupled with increase in exports. Tyre exports fromIndia grew by 24% during 2011-12. This will be a prime growth driver for the Indian carbonblack industry.

Being a leading and cost effective player, Hi-Tech carbon will be a key driver for aswell as beneficiary of the sector growth prospects.

Textiles (Jaya Shree Textiles) Industry Overview

The business environment in the domestic textiles industry was buoyant during the firsthalf of the financial year but slowing economic growth across the globe and weak consumersentiments impacted demand in the second half. Rise in coal prices ignited by its shortageand depreciation of Indian rupee inflated costs of production. Prices of Flax Fibreremained on upward trajectory although prices of other competing fibres like Cottontapered off. Wool prices remained volatile.

Performance Review

Jaya Shree Textiles ("JST") is the largest manufacturer of linen yarn andlinen fabric in India with spinning and weaving capacities at 15,640 spindles and 106looms respectively. It is a leading manufacturer of wool tops and worsted yarn in Indiawith a capacity of 7 carding machines and 25,984 spindles respectively.

JST has led the successful journey of linen from a commodity product to a lifestylesymbol. JST retails linen fabric under the well-known brand "Linen ClubFabrics".

JST achieved its highest ever earnings, driven by improved realisation across thesegments and volume growth in the linen segment.

Realisation increased across the segments mainly to pass on rise in input costs. Linenyarn and Linen fabric segments registered 14% and 7% growth in sales volume, respectively.Wool segment witnessed lower exports volume.

Its revenue at Rs. 1,046 Crore posted 35% growth, year on year. EBITDA soared by 42%from Rs. 99 Crore to Rs. 141 Crore.

ROACE enlarged to 82% driven by improved earnings and efficient working capitalmanagement. In fact, JST has doubled its earnings in past two years while managing capitalemployed at one-third level.

Its efforts for increasing awareness for linen in the domestic market and creating awide distribution channel of whole-sellers, multi brand outlets and EBOs are yieldingresults.

With a continued focus on high margin Linen Fabric OTC segment, JST added 17 more EBOsduring the year taking the total count to 57. Share of this segment in total linen fabricsales volume grew year on year from 41% to 51%.

Outlook

Rising per capita income levels and gaining popularity of linen as a style and comfortfabric, paints a bright long term outlook for the linen segment.

JST is evaluating capacity expansion in the linen yarn and fabric segments tocapitalise on the rising demand. It will also continue to focus on high margin linenfabric OTC segment.

Rayon (Indian Rayon) Industry Overview

Indian Rayon manufactures and sells viscose filament yarn ("VFY"), causticsoda and allied chemicals. Domestic consumption of VFY grew by 1% to 56,727 MT in 2011-12.Domestic VFY production increased by 4% to 42,356 MT while imports increased by 10% to22,403 MT. VFY exports grew by 12% to 6,118 MT. Century Textiles & Industries Limitedand Indian Rayon are leading domestic VFY manufacturers having production share of 44% and39% respectively (Source: Association of Man-made fibre industry of India).

Caustic Soda is a versatile alkali. It is mainly used in the manufacturing process ofpulp and paper, alumina, textiles, soaps and detergents, petroleum products, chemicalsetc. Caustic soda prices increased during the year led by demand supply mismatch.

Performance Review

During 2011-12, wood pulp prices came down from the peak level of USD 3000 per ton toUSD 1200 per ton. Led by drop in raw material costs, cheaper imports from China increased.This has affected sales volume of the domestic players. Through a notification issued inMay 2012, anti dumping duty on Chinese imports has been extended by the Government.

Indian Rayon registered growth in VFY sales volume and maintained inventories atoptimum level driven by higher exports, strategic marketing and better product mix. IndianRayon became the largest Indian exporter of VFY for seventh year in a row - contributingto more than 50% of VFY exports from India.

Revenue of Indian Rayon from the VFY segment grew by 21% to Rs. 467 Crore. VFYrealisation increased by 17% while VFY sales volumes grew by 4%. VFY prices were increasedduring the first half of the calendar year 2011 to pass on higher wood pulp prices.Improved product mix also contributed. Revenue from the Chemicals segment grew by 18% toRs. 213 Crore. Caustic soda sales volumes de-grew by 7% while ECU realisation grew by 24%.Total revenue of Indian Rayon grew by 20% to Rs. 680 Crore.

EBITDA grew by 16% from Rs. 110 Crore to Rs. 128 Crore. Higher realisation in both theVFY and Chemicals segments coupled with growth in VFY sales volume contributed. IndianRayon is operating at an ROACE of 19%.

Indian Rayon has commenced expansion of its VFY capacity using Spool Technology fromENKA, Germany. Out of total planned capex of Rs. 270 Crore, a sum of Rs. 76 Crore has beenspent till March 2012. It is targeted to complete by the end of fiscal year 2012-13. Thenew technology will help Indian Rayon to cater to high margin premium segment.

Indian Rayon is also expanding its caustic soda capacity by 45,625 MTPA at a capex ofRs. 155 Crore. It is expected to complete in 2013-14, taking the total capacity to 136,875MTPA.

Outlook

The rising labour and power costs in China, strong Yuan and extension of anti-dumpingduty will lead to rise in landed costs of Chinese imports, which will be favourable forthe domestic VFY manufacturers. Caustic soda demand is expected to improve going forwardwith the expansion plans of customers.

With the planned VFY and caustic soda capacity expansions, Indian Rayon is wellpositioned to tap the growth opportunity in these sectors and augment its earnings.

Insulators (Aditya Birla Insulators) Industry Overview

Growth in the power sector is the key driver for the insulators industry. Investmentsin the power sector have slowed down in India due to liquidity crunch, coal linkage etc.,impacting the Indian insulators industry.

Apart from this, dumping from China has also affected the domestic manufacturers byshrinking their market and putting pressure on price levels. Exports markets have alsowitnessed sluggish demand.

Domestic sales volume of the Indian insulators industry have de-grown year on year by19% during April 2011- February 2012 (Source : IEEMA). Domestic manufacturers haveapproached the Government of India for the levy of safeguard / antidumping duty on cheaperimports from China.

Performance Review

Aditya Birla Insulators, the India's largest and world's fourth largest manufacturer ofinsulators, contained de-growth in its sales volume to 12% and maintained its domesticmarket leadership. It has increased its geographical reach by identifying new set ofcustomers in the exports market.

Its revenue is lower year on year by 10% at Rs. 468 Crore. Sales volume and realisationremained under pressure due to deferment of deliveries by customers and increase incheaper imports from China.

EBITDA de-grew from Rs. 134 Crore to Rs. 67 Crore. Lower capacity utilisation coupledwith rise in the production costs strained profitability. ROACE dropped to 12% owing todecline in earnings.

Outlook

In the near future, investments in the power sector are likely to remain affected owingto liquidity crunch and coal shortages. However, the capacity utilisation and theprofitability of domestic manufacturers may improve to certain extent, provided the dutyis levied on cheaper imports.

Aditya Birla Insulators will continue to focus on yield improvement and costrationalisation to enhance its cost competitiveness besides exploring new geographies inthe exports market.

Financial Review and Analysis - Standalone Financials

The Standalone revenue rose by 31% to Rs. 8,433 Crore fuelled by the robust salesgrowth in the Fashion & Lifestyle business, commencement of trading of importedfertilisers and improved realisation in the Agri, Carbon Black, Rayon and Textilesbusinesses.

The Standalone EBITDA, which grew by 9% from Rs. 960 Crore to Rs. 1,051 Crore, is thehighest ever. This growth is despite an adverse impact on profitability in the CarbonBlack and the Insulators businesses due to dumping from China. The Fashion & Lifestyleand the Textiles businesses were the largest contributors to the earnings growth. Tradingof imported fertilisers in the agribusiness (including pricing gain on favourable forexmovement) and increase in VFY and ECU realisation in the Rayon business also contributed.ABNL has also received dividend of Rs. 73 Crore from its subsidiary, Birla Sun LifeInsurance.

Finance cost rose by 16% to Rs. 313 Crore mainly due to rise in working capitalrequirements. Depreciation grew largely in the Carbon Black and Fashion & Lifestylebusinesses.

Earnings before tax and exceptional Items grew by 8% to Rs. 534 Crore. However,provision for entry tax liability, which is largely related to earlier years, has affectedthe net profit growth.

The Board of Directors of the Company has recommended a final dividend of 60% for2011-12 entailing a total outgo of Rs. 68 Crore.

Net debt increased from Rs. 3,142 Crore to Rs. 3,750 Crore mainly due to increase inworking capital requirements. As a result, leveraging ratios showed upward movement.

With the equity infusion by promoters, balance sheet will get strengthened.

Cash Flow from Operations

Net cash flow from operations stood at Rs. 846 Crore. The Fashion & Lifestylebusiness was the largest contributor to the year on year growth in profitability followedby the Textiles, Agri and Rayon businesses.

Working Capital

Net working capital stands increased by Rs. 455 Crore. Debtors and other tradereceivables increased by Rs. 583 Crore mainly due to slower recovery of outstandingsubsidies in the Agri business coupled with rise in raw material (CBFS) prices in theCarbon Black business which inflated its inventories as well as receivables. Debtors andother trade receivables increased in the Fashion & Lifestyle business too in line withits sales growth. Inventory increased by Rs. 117 Crore primarily in the Carbon Blackbusiness due to rise in CBFS prices. Trade Payables increased by Rs. 282 Crore largely inthe Carbon Black business owing to rise in CBFS prices and in the Textiles business onaccount of better credit terms.

Capital Expenditure

A sum of Rs. 76 Crore was spent during the year towards expansion of VFY capacity usingspool technology from ENKA, Germany. The Fashion & Lifestyle business invested a sumof Rs. 75 Crore for expansion of retail channel through opening up of exclusive brandoutlets and for renovation. The balance capital expenditure was incurred ondebottlenecking, upgradation, modernisation and maintenance of plants across themanufacturing businesses.

Investments

ABNL invested a sum of Rs. 56.50 Crore in its wholly owned subsidiary Aditya BirlaFinancial Services Private Ltd. ("ABFSPL") including towards funding of sponsorcommitment in Aditya Birla Private Equity funds. ABNL acquired 11.72% stake in the ITeSsubsidiary, Aditya Birla Minacs, for Rs. 116 Crore.

Proceeds from / Repayment of borrowings

ABNL raised term loans aggregating to Rs. 485 Crore by way of foreign currencyborrowings towards capital expenditure commitments. ABNL also issued commercial papersworth Rs. 350 Crore. Working capital borrowings aggregating to Rs. 1,116 Crore (net) werealso raised during the year.

Term Loans aggregating to Rs. 389 Crore and Non Convertible Debentures of Rs. 390 Crorewere repaid during the year.

Risk Management

Governance, Risk Management and Compliance processes form an integral part of theCompany's planning and review mechanism. The Company's risk management frameworkestablishes risk management processes at each business, helping in identifying, assessingand mitigating risks that could materially impact the Company's performance in achievingits stated objectives. The components of risk management are different for differentbusinesses and are defined by various factors including the business model, businessstrategy, organisational structure, risk appetite and available dedicated resources.

The Company's structured Risk Management process provides confidence to thestakeholders that the Company's risks are known and well managed. The risk managementframework ensures compliance with the requirements of amended clause 49 of listingagreement.

Since the Company is a diversified conglomerate, the risk events are identified,assessed, mitigated and monitored for each business separately.

The risk management approach comprises three key components:

(1) Risk identification: External and internal risk events which could affect theprofitability, competitiveness, brand value, reputation and / or image of the Company areidentified in the context of the strategy and specific objectives of each individualbusiness.

(2) Risk assessment and mitigation: The

indentified risks are further evaluated by the senior management team of the respectivebusiness to assess the potential severity of their impact and the probability ofoccurrence. Based on the assessment, they develop and deploy mitigation strategies.

(3) Risk monitoring and assurance: The Risk Management Committee ("RMC")is the apex body taking all the decisions regarding risk management activities. Theoverall role of RMC is to review risk management process and implementation andeffectiveness of risk mitigation plans. The committee comprises of three independentdirectors, the managing director, the business heads and the whole time director. Theproceedings of meetings of RMC are discussed at the meetings of the Board of Directorsfrom time to time.

Business Risks

Business risks are classified into Strategic, Operations, Financial and Knowledgerisks, which are further drilled down to market structure, process, systems, legalcompliance, corporate governance and people culture.

Apart from the internal business risks, the Company is exposed to external risks onaccount of interest rate, foreign exchange, commodity pricing and regulatory changes,which are being effectively monitored and mitigated.

Foreign exchange risk

The Company is exposed to fluctuations in exchange rates of various foreign currenciesdue to revenue earned or expenditure incurred in such currencies. Additionally, the debtportfolio of the Company includes a mix of foreign currency loans, which carry risk ofmovements in exchange rates of foreign currencies against Indian Rupee. The Company usesappropriate hedging tools such as forward contracts, currency swap etc. to hedge foreignexchange risk in accordance with its foreign exchange risk management policy.

Interest rate risk

The Company has a mixed basket of fixed and floating rate borrowings. It continuouslymonitors its interest rate exposure to have a proper mix of fixed and floating rateborrowings in order to mitigate interest rate risk. The company also uses interest rateswap in case of foreign currency borrowings having floating interest rates.

Commodity price risk

The Company is exposed to the risk of fluctuation in prices of raw materials as well asfinished goods in all its products. However, the risk is mitigated well considering theinventory levels and normal correlation in the price of raw materials and finished goods.

Environment, Health and Safety ("EHS")

The company is conscious of its strong corporate reputation and the positive role itcan play by focusing on EHS issues. Towards this, the Company has set very exactingstandards in EHS management. The Company recognises the importance of EHS issues in itsoperations and has established comprehensive indicators to track performance in theseareas. The Company values the safety of its employees and constantly raises the bar inensuring a safe work place.

Internal Control System

The Company has adequate internal control systems for business processes across variousprofit and cost centres, with regard to efficiency of operations, financial reporting,compliance with applicable laws and regulations, etc. The internal control system issupplemented by extensive audits conducted by the Corporate

Audit Cell.

Clearly defined roles and responsibilities for all managerial positions have beeninstitutionalised. Regular internal audits and checks ensure that responsibilities areexecuted effectively. The Audit Committee of the Board of Directors actively reviews theadequacy and effectiveness of the internal control systems and suggests improvements.

The Management Information System is the backbone of the Company's control mechanism.All operating parameters are monitored and controlled regularly. Any material change inthe business outlook is reported to the Board of Directors. Material deviations from theannual planning and budgeting, if any, are reported on a quarterly basis to the Board ofDirectors. An effective budgetary control on all capital expenditure ensures that actualspending is in line with the capital budget.

Human Resource Management

The Company had more than 19,750 employees on its rolls as on 31st March, 2012.Including its subsidiaries and joint ventures, the manpower strength is about 65,000employees. This intellectual resource is integral to the Company's ongoing operations andenables it to deliver superior performance year after year. Human Resource processes ofthe Company have been covered in depth in the Director's Report.

To sum up

Aditya Birla Nuvo has delivered strong earnings amidst testing business environment.This is a reflection of the strength of its conglomerate model which allows it todiversify sector specific risks. ABNL, as a premium conglomerate, remains focused to tapopportunities across its businesses, to achieve the next level of growth. A strong balancesheet, an experienced management team, salient brand equity, leadership positions acrossbusinesses and a talented human asset are the key drivers which will support future growthof ABNL and create value for all the stakeholders.

Disclaimer

Certain statements in this "Management's Discussion and Analysis" may not bebased on historical information or facts and may be "forward looking statements"within the meaning of applicable securities laws and regulations, including, but notlimited to, those relating to general business plans and strategy of the Company, itsfuture outlook and growth prospects, future developments in its businesses, itscompetitive and regulatory environment and management's current views and assumptionswhich may not remain constant due to risks and uncertainties. Actual results could differmaterially from those expressed or implied. Important factors that could make a differenceto the Company's operations include global and Indian demand supply conditions, finishedgoods prices, feed stock availability and prices, cyclical demand and pricing in theCompany's principal markets, changes in Government regulations, tax regimes, competitorsactions, economic and political developments within India and the countries within whichthe company conducts business and other factors such as litigation and labournegotiations. The Company assume no responsibility to publicly amend, modify or revise anystatement, on the basis of any subsequent development, information or events, orotherwise. This "Management's Discussion and Analysis" does not constitute aprospectus, offering circular or offering memorandum or an offer to acquire any shares andshould not be considered as a recommendation that any investor should subscribe for orpurchase any of the Company's shares.