Ambuja Cements Ltd

Dear Members,

We are pleased to present Annual Report of the Company for the year 2009.

Indian economy shows resilience

The year 2009 began amid great uncertainty with regard to the likely impact of theglobal financial crisis, which had finally erupted in the second half of 2008. Governmentsaround the world acted quickly and decisively, and in a coordinated manner, which helpedprevent the situation slipping into a full scale depression. Nevertheless, recession on aglobal scale was inevitable and the only questions were, and still are to some extent, howdeep the recession would be and how long it would last. And, in particular, to what extentwould the Indian economy be affected?

The various stimulus measures which were introduced by the government and Reserve Bankof India towards the end of 2008 played an important role in maintaining liquidity in thefinancial system, limiting the spill over impact on the real economy, and underpinning awidespread confidence that the Indian economy was well placed to weather the storm andemerge from the downturn in a strong position.

That resilience has been demonstrated during 2009, as India was one among the handfulof countries not to experience outright recession, and indeed has managed to maintain GDPgrowth at 6.7% for the year 2008-09. Emerging markets in general, and India in particular,are leading the way on the road to recovery, with strong growth rates based on robusteconomic fundamentals. Despite inflationary pressures gradually building, a steadymonetary policy course has been maintained, with a focus on supporting growth recovery.

The federal parliamentary elections in India in May resulted in a renewed mandate forthe incumbent government, which is now in a favourable position to carry out much neededeconomic reforms, and provide the impetus for a major thrust in infrastructuredevelopment. Encouraging signs already began to appear in 2009, for example the initiativeto dramatically increase road and highway construction, to 20 kms per day from the present2.5 kms per day.

Conditions remain favourable for cement industry

It was expected that the general economic slowdown would have a corresponding impact onconstruction and the cement industry. However, although some large real estate projects inmetro areas were impacted by the liquidity crunch, this was generally compensated by anumber of other factors:

• Increased infrastructure spending as part of the stimulus measures

• Across the board excise duty cuts to stimulate demand

• Solid demand for housing in rural and semi-urban areas

• Low cost housing initiatives

• Pre-election spending

Consequently, cement demand growth remained buoyant and in double digits throughoutmost of calendar year 2009, and total industry dispatches increased by 10.5%, from 177million tonnes to 195 million tonnes.

Export markets in contrast declined sharply, as demand in the Gulf region contracted atthe same time as new capacities came on stream in Saudi Arabia and the Emirates.

Despite the cancellation or postponement of some expansion projects, Indian cementcapacity additions during 2009 nevertheless totalled approximately 40 million tonnes.However, the increase in effective supply was much less, owing to delays in commissioningand ramp-up of various units. The buoyant demand meant that most of the new supply couldbe effectively absorbed, resulting in only a minor surplus for the year as a whole, andindeed some shortages in the first half.

Capacity utilisation levels consequently remained at around 85% on an average, andpricing pressure, which had been a concern at the start of the year, did not materialisein the first 9 months. Rather, shortages in certain markets led to increased realisationsduring this period, which largely corrected in the last quarter when demand growth dipped,particularly in the South region.

Against the backdrop of continuing strong demand, Ambuja has endeavoured to maintainits market position despite significant internal constraints in terms of clinkeravailability, by purchasing clinker from third parties as well as maximising the blendingratio without compromising product quality.

2. HIGHLIGHTS OF 2009

• Cement production and sales volumes increased by 6% and 6.5% respectively, toreach 18.83 million tonnes and 18.79 million tonnes.

• Average sales realisation increased by 7%, to Rs. 3,760 per tonne.

• Net sales were 14% higher, at Rs.7,077 crores.

• EBITDA was 8% higher, at Rs.1,972 crores.

• Consolidated net profit excluding exceptional items increased 12%, to Rs.1,217crores.

• The clinkerisation expansion projects at Bhatapara and Rauri were commissionedin December 2009 and January 2010 respectively. While Bhatapara plant has come closer tothe stabilisation by the date of this report, the Rauri plant is busy attainingstabilisation.

3. FINANCIAL RESULTS 2009

As a result of the consistently strong growth in demand for cement, the Company'soperating results improved as compared to 2008, despite the fact that availability ofclinker was a major limiting factor during the year.

FINANCIAL RESULTS

4. DIVIDEND

The Company has paid an interim dividend of 60% (Rs. 1.20 per share) during the year.The directors are pleased to recommend a final dividend of 60% (Rs. 1.20 per share). Thusthe aggregate dividend for the year 2009 works out to 120% (Rs. 2.40 per share) as against110% (Rs. 2.20 per share) in 2008, and the total payout will be Rs. 428 crores, includingdividend distribution tax of Rs. 62 crores. This represents a payout ratio of 35%.

5. MARKET DEVELOPMENTS

Despite the significant capacity additions in the industry, the Company kept pace withthe double digit demand growth, and maintained its strong position of approximately 18%market share in its main markets, and around 10% on an all India basis. Sales volumesincreased by 6.5%, to 18.8 million tonnes in 2009 as against 17.6 million tonnes in 2008.

The Company has built a large network of over 6,000 dealers and 20,000 retailers across18 states in India. Its reach and penetration helps the Company to manage the last miledelivery across our relevant markets, and gives us a strong positioning in the boomingrural markets.

Along with strong brand equity, Ambuja has evolved a unique model of channelmanagement, based on values of trust and relationships. The strong bond between the dealernetwork and the Company has helped Ambuja to withstand severe competition for more thantwo decades. With the added support of Holcim's rich experience of operating in 70countries, Ambuja has now added sophisticated IT tools and global channel management toolsto its traditional Indian model, thus adding to our capabilities to face stiff competitionendemic to large capacity additions.

Holcim's global experience has also helped Ambuja in fine tuning its product qualitymanagement, by introducing best practices from other countries. It has helped in enhancingthe overall marketing mix, clearly targeted at the retail market in semi urban and ruralsectors, and the large buyers in the metros and mega cities.

Our network of port, bulk terminals, and bulk cement ships, on the west coast hassupported a sustainable strong market position in Mumbai and Surat. In 2009, another bulkterminal in Kochi has been added to the network to establish a footprint in Kerala.

All India

Demand analysis for all India is given below:

Domestic cement demand grew at 10% CAGR in the last 5 years. In 2009, the domesticdemand growth was 10.5%. However, exports reduced by 7% as international prices droppedsubstantially, due to global recession and new capacity additions in the middle-east,hitherto a large export market for Indian cement manufacturers. Pakistan also emerged as amajor exporter in the region.

Northern Region

Demand analysis for the North Region is given below:

* (excluding Uttar Pradesh)

Cement market growth in North is showing 9% CAGR over the last 5 years. The demand in2009 grew by 10.5%, due to increased investment in infrastructure. We continue to holdsubstantial market share in Punjab, Himachal Pradesh and Jammu & Kashmir. At the sametime, we have increased sales in Uttaranchal and Rajasthan. However, due to clinkercapacity limitations, the Company's market share was slightly reduced.

Eastern Region

Demand analysis for the East Region is given below:

* Above figures are exclusive of North East except Assam & Bihar.

Cement demand has grown at 10% CAGR over the last 5 years. The industry has grown by17.5% in 2009 on YoY basis. Our people performed well, to clock 23.1% increase in sales,and we were able to marginally increase market share in spite of clinker capacityconstraints. The Farakka grinding plant performed at full capacity. We could also expandour footprints in Jharkhand, Orissa and Bihar.

West / South Region

Demand analysis for the West / South Region is given below:

Cement demand has grown at 8% CAGR over the last 5 years. The industry has grown by7.1% compared to last year. These regions faced two setbacks during 2009, in the form ofdrop in exports, and the sharp price correction in the southern markets in the finalquarter. Both these factors created tremendous pressure in the domestic market. Despitethis, we sold 7 million tonnes and retained close to 20% market share. In Mumbai, India'slargest and most prestigious market, the Company further increased its market share, to26%.

Volumes

Total cement production increased by 6% compared to 2008, from 17.8 to 18.8 milliontonnes, despite the fact that clinker production was marginally lower at 11.4 milliontonnes (11.5 million tonnes in 2008). This could be achieved only by purchasingsignificant quantities of clinker from third parties, and in total 1.7 million tonnes werepurchased, compared to 0.7 million tonnes in 2008. Plants were running flat out for mostof the year, trying to keep up with the demand, and utilisation levels on average remainedabove 85% during the year.

Major Costs

Although EBITDA increased in absolute terms in 2009, the EBITDA margin reducedslightly, from 29.3% to 27.9%. Two main factors had a significant impact on productioncosts in 2009:

• Clinker purchases were 1 million tonnes higher than the previous year, as aresult of building market positions in the East and North in preparation for the newcapacities, as well as to sustain production at the Maratha unit during major maintenancework on the kiln. For the year as a whole this had a negative impact on EBITDA margin ofapproximately 400 basis points.

• The year began with a large inventory of imported coal, which had been procuredin 2008 at what turned out to be peak prices of more than Rs. 9,000 per tonne (landedcost), and this had a significant negative impact on the EBITDA margin during the firsthalf of 2009, as those inventories were consumed. Otherwise, global commodity prices,including oil and coal, were relatively stable during 2009 compared to the previous year,therefore once the coal inventory overhang was absorbed, the Company's variable inputcosts reduced significantly in the second half, compared to the first half year. However,the quality of domestic coal continued to be a challenge and the average fuel consumptionrate increased from 744 kcal to 755 kcal per kg of clinker. Many initiatives are underwayat all the plants, aimed at sustainable reducing thermal energy consumption rates.

Efforts to optimise the fuel mix, and reduce the dependence on coal for both kilns andcaptive power plants, have been intensified, and usage of alternatives such as petcoke,lignite, biomass, and co-processing of industrial waste materials, increased during 2009.Financial benefits currently remain modest, however, the development of the AlternativeFuels and Raw Materials (AFR) business represents an important investment for the future.

Power consumption in 2009 has by and large remained at the same level as that of 2008.

Total freight and forwarding costs increased by8%inabsoluteterms,andfreightoncementincreased by 6% per tonne sold, mainly as a result ofthe continued shift from exports to domestic sales, and longer average lead distances. Thecosts of diesel and packing materials remained stable during the year and only slightlyincreased compared to 2008.

7. EXPANSION PROJECTS

During 2009 a new bulk cement terminal started operation at Kochi, providing access tonew markets in the South, and two new captive power units, each with 15 MW capacity, werecommissioned at Bhatapara (Chhattisgarh) and Maratha (Maharashtra).

Significant progress has been made during 2009 on the two major expansion projectswhich will enable the Company to secure its market position through the next businesscycle.

Production trials at the 2.2 million tonnes clinker production line at Bhatapara(Chhattisgarh) began in mid December 2009, and the plant is expected to be fullystabilised during the first quarter of 2010, along with a 33 MW captive power unit.

The new clinker production line at Rauri (HP), also with 2.2 million tonnes capacity,has commenced production trials during January 2010 and is expected to get fullystabilised during the first quarter of 2010. The associated cement grinding facilities atDadri (UP) and Nalagarh (HP), each with 1.5 million tonnes capacity, will also becommissioned during this quarter.

The total cost of these two projects will be approximately Rs. 2,700 crores.

Apart from the above two major projects, an additional 30 MW captive power unit atAmbujanagar (Gujarat) is currently undergoing production trials and will be commissionedduring the first quarter 2010, taking total captive power capacity to more than 400 MW. Inaddition, three new ships for western coastal transportation are under construction, ofwhich two are expected to be brought into service in 2010. Further investments to improverail connectivity at several locations are also in progress, for increased efficiency oflogistics operations.

Additional cement grinding capacity is also under construction, at the Bhatapara andMaratha units, and will be completed during 2010. By the end of the year, the Company'stotal installed cement capacity will be increased from 22 million tonnes to approximately27 million tonnes.

All the expansion projects have been financed through internal accruals.

Economy heading for strong growth recovery

As green shoots tentatively start to appear across the globe, the Indian economy, whichin any case suffered less during the financial crisis, is well positioned to quickly getback to a sustainable high growth trajectory. The inherent advantages of strong domesticconsumption, favourable demographics, relatively low export dependence, politicalstability, and a well regulated financial sector, mean that there is less vulnerability toany negative impact from the rolling back of emergency stimulus measures which is likelyduring 2010. The government nevertheless still has to deliver on reforms, in order tofurther stimulate free markets and facilitate private investment, particularly ininfrastructure.

Infrastructure and housing are key drivers

Infrastructure development and rising housing construction, as a result of recovery inthe urban real estate sector as well as expansion of affordable housing provision, will bekey drivers in accelerating growth. This augurs well for the cement industry, and cementconsumption growth is expected to be in the range of 9% to 9.5% for the next couple ofyears, with further upside potential if infrastructure spending really takes off in a bigway.

There will still be significant cement capacity additions during 2010, totalling 40 to50 million tonnes (installed capacity), therefore temporary pricing pressures are almostinevitable in certain markets. However, as long as the economy maintains high growth anddemand remains buoyant, it should be possible for the new capacity to be absorbed withoutmajor disruption.

Ambuja Cement, with its own new capacity in place, intends to fully participate in theanticipated industry growth and maintain its strong market position, through continuousimprovement in the construction solutions offered to our customers.

Energy Costs

Coal will continue to be one of the primary inputs for the cement production process,and securing reliable supplies of indigenous coal of consistent quality remains a key areaof concern. Allotment of coal blocks for captive mining is a step in the right direction,but it will still be some years before projects come to fruition, and on an industry widebasis they only account for a relatively small part of the requirements.

Therefore we have to work continuously on improving indigenous supplies, as the degreeof volatility in international prices seen in 2008 could always return. At the same time,efforts are being intensified to develop alternative sources of fuel as well as renewableresources for power generation, in order to gradually reduce dependence on coal.

Logistics Infrastructure

While road and rail infrastructure development is important for stimulating the demandfor cement, it is also critical in terms of enabling ever increasing volumes of cement tobe delivered to relevant markets cost effectively, as well as for bringing fuel and othermaterial inputs to the production facilities. Shortages of rail wagons in particular haveincreasingly imposed logistical constraints, and increased investment is required fromboth, public and private sectors in order to adequately expand rail infrastructure andensure the continuous smooth flow of goods and materials. We are actively working toimprove the rail connectivity.

Competitive Environment

The pace of new capacity addition by the industry has not been as fast as previouslyanticipated, therefore pricing pressures, although still expected to occur, are likely tohave a more limited impact and be of shorter duration. However, if demand growth were toslow again, for example because of any loss of impetus in implementing infrastructureprogrammes, then oversupply could potentially become a more significant issue.

Taxation

Taxation remains a perennial issue for the cement industry. Although some welcomerelief in the form of reduced excise duties was introduced as part of the overall stimuluspackage at the end of 2008, it is widely predicted that these measures will be at leastpartially rolled back during 2010, and this would most likely have an impact on cementrealisations. A complete rationalisation and simplification of the tax regime would bebeneficial for both consumers and producers, as Indian cement continues to be the mosthighly taxed across the globe.

Performance Orientation

Integrated HR systems, from fresh talent acquisition to performance management andindividual development, are aimed at creating and building a quality talent pipeline.Adequate emphasis has been made on development of cross-functional skills early in career,and has been meticulously incorporated in the induction plan.

Learning the inter-disciplinary approach to organisational issues, and learning tomanage people, are the focus areas of management development. Special in-house customiseddevelopment programmes, targeted at different management levels, are systematicallydelivered by a well balanced combination of internal and external faculty.

A structured approach to people management is being established based on an extensivejobs study. This facilitates organisation structure clarification, and establishment of aframework for individual development, career pathing, succession planning, and rewardmanagement.

One of the core strengths of the Company is the strong bonding Ambujaiteshave always had with the Company. Changes both within and outside the Company bring to thefore the changing aspirations of the people. To preserve this core strength, employeeengagement levels are being monitored, and where necessary actions taken to reinforcepeople bonding with the Company.

Consolidating People Power

The People Power project, launched at the Ambujanagar plant in 2008, wasaimed at ensuring healthy people and healthy plants, on a sustainable basis.The key focus areas for achieving this were organisation transformation, and institutionof an Academy and a Development cell.

The Academy and the Development cell together serve as a local Centre of Expertise forensuring healthy plants and continuous process improvements. As a result of these efforts,the Mean Time Between Failures (MTBF) has significantly improved, in kilns by 23%, in theraw mills by 59%, and in the cement mills by 33% in the year 2009.

Under the process of organisation transformation, leadership positions have beencreated at lower organisation levels. People development is further enriched through theuse of Performance Dialogue, which aids continuous development of technical, functionaland leadership skills. The People Power, structure is aimed at providing aholistic approach to individual development, career pathing, and succession planningactivities.

11. SUSTAINABLE DEVELOPMENT

The Company published its second Corporate Sustainability Development Report in October2009. We have a deep rooted philosophy of conducting operations in a manner consistentwith established principles of sustainability, and the report explains many of theinitiatives that have been taken in order to improve our environmental, economic andsocial performance, and increase engagement with all our stakeholders.

Staying at the forefront

From its inception, Ambuja Cement has always been the first to adopt environmentalsafeguards and improvement initiatives at all its units and facilities. Eco-efficientoperations, eco-friendly mining practices, restoration of mined areas, recycling ofsewage, zero discharge of waste water and emissions well below prescribed norms are just afew of these measures. Almost all our units have Environment Management System (ISO 14001)certification. This year our existing units at Sankrail and Surat, and one of our newestfacilities at Roorkee (Uttarakhand), have been certified for the Integrated ManagementSystem (IMS) (i.e. ISO 9001, ISO 14001 & OHSAS 18001).

In order to keep upgrading our environment management, we are installing ContinuousEmission Monitoring Systems (CEMS) and Continuous Ambient Air Quality Monitoring Systems(CAAMS) at all facilities to monitor all vital pollution parameters.

Eliminating waste

In 2009, the Company expanded the initiative for co-processing various industrialwastes in cement kilns. These wastes include TDI tar, shredded tyres, glycerine foot,groundnut husk, agro waste, and FO sludge.

Millions of tonnes of fly ash are produced by coal based power plants in India, posinga major environmental challenge. Our Pozzolana Cement manufacturing process consumes largequantities of fly ash (4.6 million tonnes in 2009) thus helping to dispose this waste.

We have shifted to using air cooling systems at all our captive power plants forcondenser cooling, thereby eliminating water consumption.

Tackling climate change

The Company is engaged in important policy issues like climate change. With measureslike waste utilisation as alternative fuel, energy conservation, non-conventional powersources, and use of fly ash in cement production, we have already been able emissions toachieve substantial reductions in CO² from our operations. In 2009 we emittedper tonne of cementitious approximately 660 kg CO² product.

Ambuja Cement is one of the few companies in India to report greenhouse gas (GHG)emissions and take voluntary reduction initiatives, by participating in the CarbonDisclosure Project (CDP) being executed by WWF and CII in India. CDP holds the largestdatabase of primary corporate climate change information in the world.

Ambuja is also one of 200 companies in the country who have participated in the GreenRating Project (GRP) of the Centre for Science and Environment (CSE) supported by theMinistry of Environment and Forests (MoEF)and United Nations Development Programme(UNDP),to rate the energy and water efficiency of major industries, including cement.

Engaging Stakeholders

Ambuja Cement has a long history as a pioneer and a leader in the field of CSR. We havealways viewed the communities and villages that border our plants as significantstakeholders in our business. Over the years we've learned that addressing their concernsgoes a long way in ensuring sustainable growth.

The Ambuja Cement Foundation (ACF) was established to be our implementation arm forcommunity development. ACF forges partnerships with development agencies and departmentswithin the government and other organisations and leverages resources for wider outreach.

Through ACF, we scientifically assess the needs of these communities, set goals anddesign interventions to respond to them. ACF’s integrated rural development projectsaddress critical issues like water resources, livelihood, health and education standards.By partnering with communities, we aim to transform lives from mere survival toprosperity.

In 2009 we started assessing the social impact of future projects sites to ensure theycreate a positive impact on society. A reputed external consulting agency, undertook thisassessment for our project site in Marwar Mundwa. In accordance with the recommendationsmade by their study, a well-planned programme has been put into place for rehabilitationof the project affected people. This group of people is now being viewed as an importantstakeholder group for whom special programmes are being planned to ensure their futurelivelihood. Our Company is committed to follow this process for all future projects.

Protecting scarce resources

Water is vital for the survival of neighbouring communities. In light of diminishingwater sources, the Company has put into place numerous programmes to conserve, harvest andjudiciously utilise water. We are harvesting rain water to supplement drinking watersupplies and have renovated traditional water reservoirs like wells and ponds. In placeswith very poor water quality, community water purifying and de-fluoridation units havebeen installed. Through the construction of check dams, deepening of ponds andconstruction of dykes we are ensuring a supply of water for irrigation and household use.Micro-irrigation systems like drip and sprinkler irrigation systems are enabling farmersto judiciously use water. With the continued focus on harvesting as well as conservingwater, the overall quantity of water available to the people has increased and noticeablechange has been seen in its quality. A direct impact of this has been the increase inagricultural produce due to better availability of water and improvement in the healthstatus of the community.

Investing in Agriculture

A majority of ACL’s manufacturing units are located in rural areas. The ACF isfocused on enabling people economically to prosper through agriculture. To this endseveral programmes are being implemented by ACF including the provision of quality seeds,access to agricultural technology, farmer training, mixed and multiple cropping, organicfarming and allied activities such as animal husbandry and the construction of fisheries.

A significant development in the area of agro based livelihoods during this year wasthe expansion of the Krishi Vigyan Kendra (KVK) or Agro Science Centre in 2009 at Kodinar.KVK offers multiple services to the farming community for improving the overall state ofagriculture. It has extended its reach to 77 villages of Junagadh district.

Another noteworthy intervention in agriculture has been Systematic Rice Intensification(SRI). Begun on an experimental basis with a few rice cultivators in West Bengal, theproject has taken off well with cultivators experiencing a marked increase in the yield ofpaddy. The project is currently running in our West Bengal and Chhattisgarh units. Theresults from SRI cultivation show over a two-fold increase in productivity overtraditional rice cultivation.

The Seed Production Programme in Rajasthan was also expanded. ACF has partnered withthe Government to produce and supply certified quality seeds to farmers throughco-operatives. With the favour it has found within the government and the positiveeconomic impact it has on farmers, there are plans to extend the programme.

Investing in people

Rural families tend to rely mainly on income from agriculture. That’s why ACF isfocusing on skill training to enable them to augment their incomes by engaging inalternate livelihoods. It has established six Skill and Entrepreneurship

Development Institutes (SEDIs), one each in Chandrapur, Darlaghat, Jaitaran, Panvel,Farakka and Anandpur Sahib. These institutes offer short term training on employableskills in different areas easily adaptable by unskilled people. More than 3000 people havealready undergone training and about 70% of those trained have found employment.

Another effort towards alternate livelihood opportunities by ACF along with theCompany’s technical support team was the mason training camps at Dahod, Gujarat. Thecamps were organised on the invitation of the Tribal Development Department of theGovernment of Gujarat. The project has been able to successfully turn unskilled tribalsinto skilled masons, with placement rates around 65% and significant increase in income ofthese tribals. The Government of Gujarat has extended this partnership for a two yearperiod.

Ambuja Manovikas Kendra saw considerable expansion during 2009, and now has more than70 children enrolled in the school. An Early Intervention Centre was started to providetherapy and inputs for children under five. It offers physiotherapy, speech andoccupational therapies, and starting at an early age ensures appropriate support can begiven according to the individual development needs.

Meeting basic needs

ACF began its Village Health Functionary programme some years ago, which trainedvillage women to provide preventive healthcare and referral services to the community.Three new locations were covered under the programme in 2009. Our work on health inRoorkee was recognised by the government, when it declared ACF the Mother NGO for theHaridwar district. The government has also handed us the responsibility of bringing downinfant and material mortality rates, and strengthening the Village Health and SanitationCommittees.

With the support of the government and other NGOs, ACF constructed 129 houses toprovide shelter to the Gaggar Villagers in Bhatinda. The project was co-ordinated by ACFuntill the handing over of the homes.

Measuring success

Over the last two years, we have used a unique tool called the Social EngagementScorecard (SES) to gauge the effectiveness of our intervention with the community. Thistool is administered through an inclusive process which allows community members to reviewand evaluate our work and help ascertain any future course of action. This year wecompleted administering the SES at all our sites. In every location, we found ourengagement was in line with the needs of the area and the aspirations of the people. Thescores for all locations were in the range of 75% to 100%.

ACF also registered for an accreditation process with the Credibility Alliance, aconsortium of voluntary organisations committed to enhancing accountability andtransparency in the voluntary sector through good governance. ACF received the DesirableNorms Certification in March 2009. This certification recognises that ACF follows thenorms of good governance, transparency and accountability set by the consortium.

Visible Safety Leadership

Visible safety leadership is one of the critical aspects of an effective OH & Sprogramme. A training programme tailored and developed by Holcim has been initiated acrossthe Company to ensure that visible safety leadership is practised at all levels. We havealso continued implementation of 3 Fatality Prevention Elements (part of the Holcim OH& S Pyramid), viz. (i) working at height, (ii) isolation and lock-out procedures, and(iii) working in hot areas. The number of critical incidents related to these areas showsignificant improvement. The journey of implementing the complete Holcim OH & SPyramid in a phased manner is ongoing, with a special focus on third party contractors.These measures have helped the Company to reduce the Lost Time Injury Frequency Rate(LTIFR) to 1.75, a reduction of 45% compared to 2008, and compares favourably with Holcimglobal benchmarks.

Increased OH & S awareness is being achieved through development and implementationof specialised training programmes, related to Fatality

Prevention Elements and Holcim OH & S pyramid blocks, for all management levels. Weare committed to continue our implementation of a world class OH & S managementsystem, in pursuit of our vision of zero harm.

12. EMPLOYEE STOCK OPTION SCHEME

With a view to remaining a preferred employer, the Company has granted Stock Options tothe Managing Director, Whole-time Directors and employees, for the tenth year insuccession. The particulars required to be disclosed pursuant to Clause 12 of SEBI(Employees Stock Option Scheme) Guidelines, 1999, are given in subsequent paragraphs.

Salient Features:

During the year 2009, the Company granted 74,99,600 stock options on 19th June, 2009(each option carrying entitlement for one share of the face value of Rs. 2/- each) at anexercise price of Rs. 96.00 per share. The exercise price was determined by averaging thedaily closing price of the equity shares of the Company during 7 days on the NationalStock Exchange, immediately preceding the grant. The market price of the shares on thedate of grant was Rs. 89.35 per share. These stock options shall vest on expiry of oneyear from the date of grant and can be exercised during a period of four years from thedate of vesting.

Valuation and Accounting:

The Company has adopted intrinsic value method for the valuation and accounting of thestock options as per SEBI guidelines. Since the market price per share on the previous dayof the date of grant was less than the exercise price, no employee compensation cost hasbeen accounted for the year ended 31st December, 2009. The fair value of the options asper the Black Scholes model comes to Rs. 26.38 per option. Had the Companyvalued and accounted the options as per the Black Scholes model, the netprofit for the year would have been lower by Rs. 15.08 crores and the diluted earning pershare (of the face value of Rs. 2 each) would have been Rs. 7.89 instead of Rs. 7.99 pershare.

The Black Scholes model captures all the variables with their respectiveappropriateness which influences the fair value of stock options. The significantassumptions to estimate the fair value of options as per Black Scholes modelare:

(i) Risk-free interest rate - 5.98%.

(ii) Expected life of the option - 3 years.

(iii) Expected volatility - 44.51%.

(iv) Expected dividend yield - 2.17%.

Grants beyond threshold:

No employee or Director has been granted options in excess of 1% of the issued equityshare capital of the Company. None of the Directors have been granted options of more than5% of the total options granted during the year.

Disclosure on grants to Senior Management Employees:

The options granted to the Managing Director, Whole-time Directors and other seniormanagement personnel are as follows:

Other employees i.e. other than stated above have been granted 67,40,100 options inaggregate. Some important indicators are:

b) Cumulative disclosure

The particulars with regard to the stock options as on 31st December, 2009 as requiredto be disclosed under the SEBI's guidelines are as follows:

Cumulative position as on 31st December, 2009

* options related to equity shares of the face value of Rs. 10/-.

** options related to equity shares of the face value of Rs. 2/-.

The information disclosed in respect of item No. (m) is for grants made after June 30,2003.

13. CORPORATE GOVERNANCE

The Company has complied with the Corporate Governance as stipulated under the listingagreement with the stock exchanges. A separate section on corporate governance, along witha certificate from the auditors confirming the compliance is annexed and forms part of theAnnual Report.

Suresh Neotia

Mr. Suresh Neotia stepped down on 24th September, 2009 after more than two decades asChairman. As a founder promoter of the Company, who joined the Board in 1985, he played akey role in the phenomenal growth and success of the Company.

Apart from his extraordinary entrepreneurial acumen, Mr. Neotia is a great visionary.His affectionate care for the well-being of the employees and their families, his beliefin human values and business ethics and his deep concern for the environment and thecommunity around our plants, are some of the principles upon which the Company standstoday. They have enabled the Company to build a successful and sustainable business model.

Mr. Neotia’s contribution through the Ambuja Cement Foundation, the Company’sCSR arm, in the fields of environment, water management, women empowerment, HIVeradication and development of communities is immeasurable.

In 2008, he was bestowed with the prestigious ‘Padma Bhushan’ award for hisoutstanding contribution to the industry and philanthropic social initiatives.

In appreciation of his farsighted vision, wisdom and guidance, which have beeninvaluable to the Company’s growth, Mr. Neotia has been conferred the status ofChairman Emeritus by the Board.

N. P. Ghuwalewala

Mr. N. P. Ghuwalewala joined the Company in August 1999. Upon acquisition of AmbujaCement Rajasthan Limited (ACRL) (earlier known as DLF Cement Ltd.) in the year 2000, hewas made the Managing Director of that company. Subsequently, ACRL was merged with theCompany in 2004 when Mr. Ghuwalewala was appointed on the Board of Directors as Whole-timeDirector. He ceased to be the Whole-time Director upon expiry of his term on 28th June,2009.

Amongst many achievements during his tenure, turnaround of ACRL from a sick company toa profitable one was significant. At the time of his retirement he was heading thebusiness operations of West and South regions and was also in charge of the Company‘sOH&S and Alternative Fuel and Raw materials initiatives.

The Board placed on record its appreciation for the valuable services rendered by Mr.Ghuwalewala.

B. L. Taparia

Mr. B. L. Taparia joined the Board as a Whole-time Director in 1999 and ceased from theDirectorship upon expiry of his contract on 30th April, 2009. In order to comply with therequirements of clause 49 of the listing agreement relating to Composition of the Board ofDirectors, the contract of Mr. Taparia, as Whole-time Director was not renewed. However,he has continued with the Company with additional responsibilities of some of the keycorporate functions and is re-designated as Company Secretary and Head – CorporateServices.

The Board placed on record its appreciation for the valuable services rendered by Mr.B. L. Taparia as Whole-time Director.

Appointment

Mr. Onne van der Weijde, joined the Board as Non-executive Director in January 2009. Inview of Mr. A. L. Kapur's superannuation as Managing Director becoming due in April 2010,the Board appointed Mr. Onne as a Whole-time Director, designated as the ChiefExecutive Officer (CEO) - Designate for the period 17th February, 2010 till 30thApril, 2010, and as the Managing Director from 1st May, 2010 till 16thFebruary, 2015. As per the provisions of the Companies Act, his appointment is subject tothe approval of the members and the Central Government.

Mr. Onne has more than 15 years of experience in cement industry, including 5 years inIndian cement industry, of which around 2 years as the CFO of ACC Ltd. Further detailsabout Mr. Onne are given in the Corporate Governance Report as well as in the Notice ofthe ensuing Annual General Meeting being sent to the shareholders along with the AnnualReport.

Retirement by rotation

In accordance with the provisions of Article 147 of the Articles of Association of theCompany, (i) Mr. Nasser Munjee, (ii) Mr. Rajendra Chitale, (iii) Mr. Shailesh Haribhakti,Directors of the Company will retire by rotation at the ensuing Annual General Meeting ofthe Company and being eligible, offer themselves for re-appointment. The Board recommendstheir re-appointment.

Further details about Directors are given in the Corporate Governance Report as well asin the Notice of the ensuing Annual General Meeting being sent to the shareholders alongwith the Annual Report.

15. DIRECTORS' RESPONSIBILITY

Pursuant to Section 217 (2AA) of the Companies Act, 1956 as amended, the Directorsconfirm that:

i) In the preparation of the annual accounts, the applicable accounting standards havebeen followed along with proper explanations relating to material departures.

ii) Appropriate accounting policies have been selected and applied consistently, andjudgments and estimates made are reasonable and prudent, so as to give a true and fairview of the state of affairs of the Company as on 31st December, 2009, and of the profitand cash flow of the Company for the period ended 31st December, 2009.

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 for preventing and detecting fraud and otherirregularities.

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

16. INTERNAL CONTROL SYSTEM

The Company has implemented robust and comprehensive internal controls to supportsmooth and efficient business operations and effective statutory compliance. The Companyhas established the internal control system by standardising and documenting policies andprocedures for all the major processes, and associated key controls, for crediblereporting of the financial and operating results. Tasks and responsibilities have beenassigned to the designated personnel to correctly and timely perform the controls.

The formalised systems of control ensure effective compliance of Clause 49 of theListing Agreement, and article 728 (a) of the Swiss Code of Obligations, applicable to theHolcim Group from 2008.

The Company's Internal Audit department independently tests the design and operatingeffectiveness of the internal control system across the Company. This provides anobjective assurance to the Board and Audit Committee regarding the adequacy andeffectiveness of the internal control system.

The scope and authority of the Internal Audit are well defined in the Internal AuditCharter, approved by the Audit Committee. Internal Audit plays a key role by providing anassurance to the Board of Directors, and value adding consultancy service to the businessoperations.

17. AUDITORS

M/s. S. R. Batliboi & Associates, auditors of the Company, will retire at theensuing Annual General Meeting and are eligible for re-appointment. M/s. S. R. Batliboi& Associates have confirmed that their re-appointment, if made, shall be within thelimits of Section 224 (1B) of the Companies Act, 1956.

The Board recommends their re-appointment as Auditors and to fix their remuneration.

M/s. P. M. Nanabhoy & Co., Cost Accountants, have been appointed Cost Auditors ofthe Company for the year 2010.

18. TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND

The Company has transferred a sum of Rs. 0.27 crore during the financial year 2009 tothe Investor Education and Protection Fund established by the Central Government, incompliance with Section 205C of the Companies Act, 1956. The said amount representsunclaimed dividend which has been lying with the Company for a period of 7 years fromtheir respective due dates of payment.

19. ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE

Information on conservation of energy, technology absorption, foreign exchange earningsand outgo, is required to be given pursuant to Section 217 (1) (e) of the Companies Act,1956 read with the Companies (Disclosure of Particulars in the Report of the Board ofDirectors) Rules, 1988 is annexed hereto marked Annexure - I, and forms part of thisreport.

20. PARTICULARS OF EMPLOYEES

Information required to be given pursuant to the provisions of Section 217 (2A) of theCompanies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 is annexedhereto marked Annexure - II, and forms part of this report.

21. SUBSIDIARY COMPANIES

As required u/s 212 of the Companies Act, 1956, the audited statements of accounts,along with the report of Board of Directors, relating to the Company's subsidiaries, viz.Kakinada Cements Limited, MGT Cements Private Limited and Chemical Limes Mundwa PrivateLimited, and respective Auditors Report thereon for the year ended 31st December, 2009,are annexed to this report.

22. CONSOLIDATED FINANCIAL STATEMENTS

As stipulated by Clause 32 of the listing agreement with the stock exchanges, theconsolidated financial statements have been prepared by the Company in accordance with theapplicable accounting standards issued by The Institute of Chartered Accountants of India.The audited consolidated financial statements together with Auditors' Report form part ofthe Annual Report.

The consolidated net profit of the Company, its subsidiaries and associates amounted toRs.1,217 crores for the corporate financial year ended on 31st December, 2009 as comparedto Rs.1,218 crores for the company on a standalone basis.

23. EQUAL OPPORTUNITY EMPLOYER

The Company has always provided a congenial atmosphere for work to all sections of thesociety. It has provided equal opportunities of employment to all without regard to theircaste, religion, colour, marital status and sex.

24. AWARDS AND RECOGNITION

(a) Our mines continued to be adjudged among the best mines in their respective regionsby the Director General of Mines on various parameters such as mine working, maintenance,innovations, health & safety, training, environmental protection etc.

(b) Ambujanagar unit won the national award on Best Environmental Excellence inPlant Operation from NCBM.

(c) Ambujanagar unit won Certificate of Appreciation from Gujarat Safety Council forAccident Free Million Man Hour Worked.

(d) Bhatapara unit won the 1st prize at 11th FL SMIDTH ENERGY AWARDS for EnergyConservation in cement industry.

(e) Our Ambuja Public School at Rabriyawas won Gobar Times Green SchoolsProgramme Award from Centre for Science and Environment.

(f) The Company recently won 2009 IMC Ramkrishna Bajaj National QualityPerformance Excellence Trophy in the Manufacturing Category.

25. CAUTIONARY STATEMENT

Statements in the Directors' Report and the Management Discussion & Analysisdescribing the Company's objectives, expectations or predictions may be forward-lookingwithin the meaning of applicable securities laws and regulations. Actual results maydiffer materially from those expressed in the statement. Important factors that couldinfluence the Company's operations include global & domestic demand and supplyconditions affecting selling prices, new capacity additions, availability of criticalmaterials and its cost, changes in government policies and tax laws, economic developmentof the country and such other factors which are material to the business operations of theCompany.

26. ACKNOWLEDGEMENTS

Your Directors take this opportunity to express their deep sense of gratitude to thebanks, Central and state governments and their departments and the local authorities fortheir continued guidance and support.

We would also like to place on record our sincere appreciation for the totalcommitment, dedication and hard work put in by every member of the Ambuja family.

To them goes the credit for the Company's achievements.

And to you our shareholders, we are deeply grateful for the confidence and faith thatyou have always reposed in us.

For and on behalf of the Board

N. S. Sekhsaria

Chairman

Mumbai

17th February, 2010

ANNEXURE - I

DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGO AS REQUIRED UNDER COMPANIES (DISCLOSURE OFPARTICULARS IN REPORT OF BOARD OF DIRECTORS) RULES, 1988.

(a) Energy Conservation measures taken:

(1) Optimisation of Process & Equipments:

(i) Optimisation of operation bag filters by installation of variable speed drive fans,purging air control by differential pressure, modification of ducting etc. (Ambujanagar,Maratha, Bhatinda).

(ii) Preheater fan inlet duct modification to reduce pressure drop (Darlaghat).

(iii) Installation of fuzzy control to optimise Cement Mill operation (Rabriyawas).

(iv) Capacity enhancement of coal tippler to reduce idle operation of auxiliaries(Rabriyawas).

(v) Reduction in raw mill pressure drop across cyclone by reducing dip tube height(Rabriyawas)

(vi) Using of positive displacement blower in place of compressor for fly ash unloading(Bhatinda).

(2) Installation of speed control devices:

(i) Installation of speed control devices like VVF (Variable Frequency) drive in fans& compressors (Maratha, Bhatapara, Ambujanagar, Bhatinda, Sankrail).

(ii) Installation of Grid Rotor Resistance in place of Liquid Resistance control inpreheater fan & raw mill fan (Rabriyawas).

(3) Energy efficient plant & township lighting:

(i) Replacement of incandescent lamps with CFL lamps (Bhatapara, Sankrail).

(ii) Optimisation of operating voltage of lighting transformers (Maratha, Surat).

(4) Installation of energy efficient new equipments:

(i) Installation of bucket elevator in place of pneumatic conveyor-aero pole(Bhatapara).

(ii) Replacement of mechanical conveyor (screw conveyor) with pneumatic conveyors-airslide (Surat).

(iii) Installation of storage & feeding system for liquid alternative fuel toconserve the traditional fuel in kiln system (Ambujanagar).

(iv) Installation of air cooled condenser fans in thermal power plant (Ambujanagar).

(5) Reduction in idle running of equipments:

(i) Curtailing of idle time of water pumps in monsoon & winter season (Maratha).

(ii) Reduce idle time by interlocking of equipments with PLC (Ambujanagar).

(6) Solar power utilization:

Installation of solar water heating system in guest house and colony etc. (Bhatapara,Bhatinda).

(1) Optimisation of process & equipments:-

(i) Modification of preheater fan casing & ducting (Darlaghat).

(ii) Optimisation of operation of bag filter fans, bag filters & compressed airsystem (Ambujanagar, Maratha, Rabriyawas, Bathinda, Surat).

(iii) Using of positive displacement blower air for fly ash unloading (Farakka).

(iv) Upgradation of packers with 8 spout packers (Rabriyawas).

(2) Installation of speed control devices:

(i) Installation of SPRS (Slip Power Recovery System) in major process fans(Bhatapara).

(ii) Variable frequency drives in cooler fans & bag filter fans (Rabriyawas,Bhatinda).

(iii) Installation of LT capacitor to improve power factor (Rabriyawas).

(iv) Installation of grid rotor resitance (GRR) in place of liquid resistance controlin fans (Darlaghat, Rabriyawas).

(3) Energy conservation measures for plant & township lighting:

(i) Replacement of incandescent lamps with CFL lamps (Maratha).

(ii) Use of light emitting diode (LED) (Sankrail).

(iii) Optimisation of operating voltage lighting transformers at various locations.

(4) Installation of energy efficient equipments:

(i) Installation of liquid & semisolid AFR (alternative fuel & raw material)storage & feeding system (Ambujanagar).

(ii) Installation of load manager (Farakka).

(iii) Installation of energy monitoring system (Farakka).

(5) Solar Power Utilization:

Installation of solar water heating system in guest house, colony at various locations(Bhatapara, Sankrail).

(c) Impact of the measures at (a) and (b) above for reduction of energy consumption andconsequent impact on the cost of production of goods:

Measures referred to in (a) will result in saving of Rs.12.28 crores per annum.Measures referred to in (b) is expected to result in saving of Rs.13.71 crores per annum.

(d) Total energy consumption and energy consumption per unit of production:

Information given in the prescribed Form-A annexed.

B) TECHNOLOGY ABSORPTION

Efforts made in technology absorption are given in prescribed Form-B annexed.

(a) Activities relating to exports; initiatives taken to increase exports; developmentof new export markets for products & services; and export plans:

In view of good growth in domestic demand and fall in international demand and prices,the Company has reduced its exports to 7.46 lacs tonnes of cement as against 8.32 lacstonnes in the previous year. In terms of value, the exports during this year amounted toRs.170.72 crores (FOB) as against Rs. 232.09 crores (FOB) in the previous year.

(b) Total foreign exchange used and earned:

* Excluding repayment of borrowings Rs. Nil; Previous year Rs.117.09 crores

** Excluding receipt on sale of investment in foreign subsidiary Rs. Nil; Previous yearRs. 0.42 crore

(See Rule 2)

Form for Disclosure of Particulars with respect to Conservation of Energy

B. CONSUMPTION PER UNIT OF PRODUCTION

* Includes 1.51 Crores kwh consumed for Capital Work-in-progress for project work.

** Minimum demand charges paid to Gujarat Urja Vikas Nigam Limited for AmbujanagarPlant of Rs. NIL have been included in above cost (previous year Rs. 0.56 Crore).

*** Does not include Electricity consumed in residential colony which is 0.58 kwh /tonne of cement (previous year 0.57 kwh / Tonne of cement). Previous years data does notinclude miscellaneous power consumption of 2.07 kwh/Tonne of cement, if included figurewould have been 88.4 kwh/Tonne of cement.

# Includes 750.62 lacs units of TG-power sold (previous year 400.86 lacs units)

The above data excludes power generated from power plant under trial run at Bhatapara,with details as below: Net Units Generated (kwh) Lacs 13.82, Net Units / T. of Fuel 268,Oil / Gas Cost Rs. / Unit 6.78.

(See Rule 2)

Form for disclosure of particulars with respect to Absorption

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

(a) Utilization of alternative fuel & raw materials in clinker & cementmanufacturing (Ambujanagar).

(b) Established full fledged AFR laboratory to ascertain suitability of the waste andmonitoring the quality of waste material received in the plant (Ambujanagar).

(c) Utilization of grinding aid in cement manufacturing to improve quality andproductivity (Bathinda).

(d) Particle size distribution study to improve quality of cement (Sankarail).

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

(a) Conservation of resources, pollution reduction and cost reduction.

(b) Promote usage of alternative fuels like industrial wastes to reduce manufacturingcost and use of traditional fuels.

(c) Productivity enhancement, & improved product quality.

3. Future plan of action:

(a) Evaluation of fly ash from different sources with respect to their mineralogicalcomposition and reactivity to enhance its usage in PPC (Ambujanagar).

(b) Setting up Microscopy laboratory to study clinker granulometery to optimize kilnoperation (Darlaghat).

4. Expenditure on R & D:

1. Efforts, in brief, made towards Technology Absorption, Adaption and Innovation:

a) Installation of refractory bricks at kiln outlet to achieve better life (Darlaghat).

b) Installation of online kiln shell scanner for improvement in monitoring of kiln,refractory management and tyre slip (Darlaghat, Ambujanagar, Rabriyawas).

c) Conversion of electro static precipitator into hybrid ESP to reduce cement millstack emission (Bhatapara).

d) Installation of wireless remote control system (range-50 km) to monitor/access thefly ash loading unit from Maratha plant.

e) Installation of improved fine coal feeding system (Coriolis make) for very accuratecontrol of kiln operation (Rabriyawas, Ambujanagar).

f) Installation of DALOG System for raw mill & coal mill gear box to improve gearbox health monitoring (Ambujanagar, Rabriyawas).

g) Installation of continuous emission monitoring system (CEMS) for online monitoringof kiln stack emission (Ambujanagar).

h) Installation of upgraded X-ray analyzer to determine all elements (Ambujanagar).

i) Installation of mechanical kiln monitoring (MKM) system for online monitoring kilntyre stress (Rabriyawas).

j) Installation of fuzzy control for cement mills to improve operation & grindingefficiency (Rabriyawas). k) Enhancement in powder factor (T/Kg of explosive) by using newtechniques (Rabriyawas).

l) In-house development of fuzzy logic foroptimisation of cement mill no. 4 (Maratha).m) Coal fired hot air box made to improve production rate by removal of excessive moisturefrom clinker (Farakka).

2. Benefits derived as a result of the above efforts in the year 2009:

a) Improved operational efficiencies, equipment reliability, productivity and quality.

b) Reduction in manufacturing cost and protection of environment.

3. Information regarding Technology Imported during last 5 years:

a) Installation of high momentum Duoflex burner for kiln.

b) Replacement of conventional glass bags with membrane bags for process optimization& energy conservation.

c) Installation of DALOG system for raw mill & coal mill gear box healthmonitoring.

d) Installation of online balancer for preheater fan.

e) Kiln feed actuator of Beck Make (Germany) in Ambuja plant for stable kiln operation.

ANNEXURE - II

PARTICULARS OF EMPLOYEES AS PER SECTION 217 (2A) OF THE COMPANIES ACT, 1956 READ WITHTHE COMPANIES (PARTICULARS OF EMPLOYEES) RULES,1975 AND FORMING PART OF THE DIRECTORS'REPORT FOR THE CORPORATE FINANCIAL YEAR ENDED 31st DECEMBER, 2009

B) EMPLOYED FOR A PART OF THE FINANCIAL YEAR AND IN RECEIPT OF REMUNERATION AGGREGATINGRS. 2,00,000/-OR MORE PER MONTH

1) Remuneration includes Salary, Commission, contribution to Provident and other Fundsand Perquisites (including medical, leave travel and leave encashment on payment basis andmonetary value of taxable Perquisites), etc.

2) All the abovesaid appointments are non-contractual except marked * and areterminable by notice on either side.

3) None of the employee is related to any Director of the Company except Mr. Kapur A.A. and Mr. Kapur A.L. who are related to each other.

4) The persons (marked #) work on contractual basis with Shipping Department of theCompany. They render services as and when required by the Company and such instances aremore than one during the year. Therefore in their case there are multiple dates ofcommencement of employment and end of the term.

5) a) $ Remuneration to Mr. Taparia B.L. includes payment to him as Whole-time Director& Co. Secretary upto 30.04.2009 on contractual basis. He ceased to be Whole-timeDirector w.e.f. 01.05.2009.

b) $ Remuneration to Mr. Ghuwalewala N.P includes payment to him as Whole-time Directorupto 27.06.2009 on contractual basis. He ceased to be Whole-time Director w.e.f.28.06.2009.