B & A Ltd

1. State of Indian Economy

Indian Economy is expected to grow at the rate of 8.6% in GDP in the FY 2010-11 asagainst 8% growth rate in GDP in the FY

2009- 10. There is a high expectation from the agricultural sector. As per IIPestimates, industrial growth slowed down to the level of 2.5% in Dec 2010. The inflationcontinues to remain on the higher side on account of the rising prices of food articles.Agricultural growth rate is expected to touch 3.8% in FY

2010- 11. Overall, this has been a median year without any significant slowdown orrobust growth in the Indian Economy.

1.1 Tea Industry

The Tea Industry occupies a place of considerable importance in the Indian Economy,producing a fourth of the world's tea output and employing around 1.26 million people attea plantations and 2 million people indirectly. India is one of the largest consumer intea globally and domestic consumption accounts for 85% of the country's tea output. Teaproduction in India increased by 1.9% in FY 10 over FY 09.

Indian Tea Industry after witnessing a decade of long recessionary pressure hasrecovered and production is expected to touch 1050 million kg in FY 2010-11 .The followingfactors contributed to the turn around in tea industry-

• Global tea demand outpacing supply.

• Global tea consumption growth at a steady rate of 3.3 percent.

• Demand supply gap to result in higher price escalation.

• Prices firm due to favourable demand momentum.

1.2 Industry Structure and Development, Opportunities and Threats

Your Company currently performs in one business segment, manufacture and sale of blacktea. India, being the world's largest producer of black tea; production for the FY 10touched 991 million kgs which accounts for 41% of global black tea production. India isalso the largest consumer of black tea with an estimated growth rate of 3.5% per annum inconsumption pattern. Globally, India, Kenya and Sri Lanka are the main producers of blacktea. Black tea production has grown by 1% CAGR from FY 06 to FY 09. Dry climaticconditions and paucity of monsoon in these countries has resulted decline in theproduction of black tea; further consumption growth rate over 2% globally has led tosupply crunch of black tea. With no expected capacity addition, it could be expected thatdemand and supply gap will further widen in the coming years leading to further priceescalations.

However, tea plantations being vulnerable to climatic pressure and requires humidweather and high rainfall for steady production, adverse weather conditions will affectthe expected growth rate. Tea industry being largely labour intensive, employee cost isthe major input cost for any tea unit and any appreciable rise in the labour cost willaffect margins.

2. Product wise operational performance

The Saleable production of Tea for the current year was 50,42,897 Kgs, as against48,33,837 Kgs, for the previous financial year ended 31st March 2010. Sales stood to50,27,967 Kgs, of tea this year as against 48,00,026 Kgs, for the previous year.

Tea - Your company operates through seven high yield tea estates in Upper Assam.Due to non addition of capacity, the production of the company has more or less remainedstagnant for the last five years and has ranged from 42 lacs kgs to 50 lacs kgs. TheDirectors are exploring avenues to increase the production capacity primarily throughnegotiated acquisitions in the domestic market. Further company's policy to undertakeroutine re-plantation has resulted in higher productivity.

New business initiative- Recently, the Directors have taken a diversification planto foray into leisure tourism which is gaining popularity in the north east sector.Accordingly, the company is developing an 18 hole championship golf course with golfcottages and resorts in Jorhat, Assam to host national and international golf tournamentsas well as to accommodate golf and leisure tourists. Your directors feel that thisinitiative will draw synergy from existing operations, sales force and resources of thegroup. These facilities may be leased out to other group company(s) which are inhospitality business for operational convenience. Your Directors feel that this new groupinitiative will attract quality golfers and golf tourists from India and abroad once thesefacilities become operational.

Subsidiary Company- B & A Packaging India Ltd, the subsidiary company, isengaged in the production of high quality paper sacks in its manufacturing outfit locatedat Balasore, Orissa.The saleable production for the FY 11 (15 months) was 97 lacs papersacks whereas sales stood at 98 lacs paper sacks. The company registered a turnover of Rs.30 cr. and achieved a pre tax profit of Rs. 2.23 cr. in the 15 months period ended 31stMarch 2011.

4.1 Business risks

• Dependant on nature- Tea Industry is largely dependant on nature. Teacultivation requires wet and humid weather with high rainfall for better production. Withchanging climatic conditions across the Globe such dependency posses a serious risk.

• Labour intensive- Tea industry is highly labour intensive and is subject tostringent labour laws in India. Comparatively, high labour cost, high social commitmentcosts, as well as high infrastructure costs and increasing input costs are major concernto tea companies.

• Research & Development- Research and Development in new techniques toimprove output per hectare by competitors could impact the margins of B& A Ltd.

4.2 Operational & Financial risks

Your company has established a risk management strategy that comprise reasonable use ofinsurance products, derivative and non-derivative financial instruments primarily tomanage its exposure to financial risks resulting from natural calamities and adversefluctuations in interest rates on borrowings.

5. Internal Control System and their adequacy

Internal Control system continues to be prime focus area for the company. Currently allthe operations of the company are carried out in conformity with the defined process. Thecompany also has policy of periodic internal audits and reviews of all business activitiesviz. purchase, stores, marketing, personnel, production, maintenance, finance, accountsand IT systems, through independent audit firm of repute. The reports of audit finding andaction taken are tabled at each Audit Committee meeting. Further, the company hasimplemented Enterprise Resource Plan (ERP) to consolidate all its operation as well asstrengthen its Internal Control System.

6.1 Capital Structure

The total shareholders funds as at March 31, 2011 aggregated Rs. 43.36 cr. of whichequity capital was Rs. 3.1 cr. comprising of 31,00,000 equity shares of Rs. 10 each.

6.2 Dividend

The Board of Directors have recommended an equity dividend of 15% i.e. Rs. 1.50 pershare of Rs. 10 each. The Dividend outflow will aggregate to Rs. 46.50 lacs (excludingdividend tax).

6.3 Revenue and Profits

During the year under review, the company's net revenue aggregated Rs. 76.63 cr.

compared to Rs. 68.74 cr. in the previous financial year. Profit before tax andprovisions stood to Rs. 7.72 cr. compared to similar profit of Rs. 7.34 cr. in theprevious financial year.

7. Human Resources

The Company acknowledges the efforts of the employees who make the difference. Hence,every employee is encouraged to optimize his/her full potential by availing ofopportunities that exist across multiple functions, disciplines as well as geographies.Over a period of time, we have built and nurtured a dedicated and excellent workforce.Being a human capital entity, we need unique skill sets. We therefore offer our employeesan excellent platform to learn, grow and excel in myriad fields of expertise. Theefficiency of our human capital therefore, is consistent and reinforces our competitiveedge.

8. Cautionary Statement

Statements in the Management Discussion and Analysis describing the company'sobjectives, projections, estimates, and expectations may be 'forward looking statements'within the meaning of applicable securities law and regulations. Actual results coulddiffer materially from those expressed or implied. Important factors that could make adifference to the company's operations include economic conditions affecting demand/supplyand price conditions in the domestic and overseas markets in which the company operates,changes in the government regulations, tax laws, certain presumptions on which estimatesare based and other incidental factors.