Diamond Power Infrastructure Ltd

Promoted by Technocrats possessing Quality domain expertise:

The Company has been promoted by Mr. S. N. Bhatnagar, Chairman, Mr. Amit Bhatnagar,Managing Director and Mr. Sumit Bhatnagar, Joint Managing Director. Mr. S. N. Bhatnagar isMechanical Engineer from BIT Pilani and having more than 51 years of experience in cablesand conductor business.

Mr. Amit Bhatnagar is B. E. in Industrial Engineering (Gold Medalist), MBA in Finance& MDP with a Gold Medal from the Asian Institute of Management, Manila and having over17 years of experience in marketing of electrical products.

Mr. Sumit Bhatnagar is B. E. in Electronics and Telecommunication and MBA inInternational Finance from Swinburne University, Melbourne, Australia with chancellorsmedal and scholarship for obtaining highest grades in his course and having over 11 yearsof experience in system implementation like ISO 9002, developing in house internal auditsystem and putting in place the MIS for decision making and control.

Under the flagship of Mr. S. N. Bhatnagar, Chairman, DPIL pioneered introduction ofAlloy aluminum Conductors and captive manufacturing of rods in India.

Ideally located in Gujarat in the vicinity of major power industry:

DPIL is ideally located at Vadodara in Gujarat with large power manufacturing unitsenabling a good source of skilled manpower and materials. DPIL has marketing offices atall major cities in India and strong strong dealership network all around the country andat present have stores/warehouses in 16 cities. DPIL is well geared up to address nationalmarkets and exports with proximity to key markets and Ports.

Backward integration and saving cost:

DPIL has been able to reduce cost substantially with the backward integration indifferent but related areas of power sector i.e. Cables & Conductors, Transformers andEPC (Engineering Procurement & Construction) Power Infrastructure Projects andTransmission Towers Projects.

DPIL has undertaken major expansions in Cables & Conductors, Transformers and EPC(Engineering Procurement & Construction) Power Infrastructure Projects andTransmission Towers Projects. Backward integration helped DPIL in becoming fullyintegrated player in the Power sector field and with this would be excellent synergies inhaving at least 80% of the inputs which go into T & D Business.

Complete Product Mix with Value added products:

Strategically DPIL is focusing on High margin/high value products like Aerial Bunchcables (ABC), Fire Resistant Cables and Control and Instrumentation Cables. InTransformers division, DPIL is focusing on 132-220 KVA power transformers and dry andresin cast transformers. This will enrich product-mix and improve profitability. The ExtraHigh Voltage Cables shall be clearly the highest value added product.

Leader in Transmission & Distribution Sector:

DPIL is leader in power sector with rapid growth in all segments like Cables &Conductors, Transformers and EPC Projects and proposed Transmission Towers Project. DPILhas been able to manufacture 80% of the T & D project requirement in-house. With thisDPIL has an absolute edge over the other EPC Players, who outsource 60% to 75% of theproject work and having more cost.

One of the top five power cable manufacturers in the Country:

DPIL has emerged as one of the top five manufacturers of power cables in India and theonly company manufacturing Extra High Voltage Cables over 132 KVAs. DPIL has commenced itsHT Cables Production upto 132 KVA with a capacity of 2800 kms and HT cables line of 2500km line. Expansion of LT cables manufacturing over 25000 km has also been completed. It isalso putting up plant to manufacture Extra High Voltage Plant 132 KVAs to 400 KVAs with aninstalled capacity of 2000 KMs pa. DPIL is the only company manufacturing Extra HighVoltage Cables over 132 KVAs. DPIL has also started producing high margin high value addedLT cables such as Aerial Bunch Cables and fire resistant, Control and InstrumentationCables.

Balanced mix of customers both government and non-government:

Power sector industry get majority of orders from the Government owned Corporations/Boards like State Electricity Boards but the DPIL has been an exception with more than 70%of orders are flowing from Private Companies and the ratio is likely to further improve inthe next couple of years as the Company is expecting large order from Larson & Turbo,ABB Ltd., Tata Power, Siemens Ltd., Suzlons, Areva T & D India Ltd., Baroda ExtrusionLtd., Swaziland Electricity Board and Shyama Power India Ltd. The Company is consortiumpartner for L&T and ABB for theirturnkey solutions.

Concerns: Industry Overview

"Power sector- A USD450bn opportunity!"

We continue to remain positive on opportunity in the power sector, in this report wefocus on T&D sector; as we expect a capex of USD200-250bn to be spent in the T&Dsector over the next 7-9years. Every rupee spent in generation would be followed by anequivalent spending in the T&D sector. Over the last few years we have witnessedconsiderable investment in the generation space; however T&D sector has been alaggard. Our analysis of proposed/ongoing infrastructure projects indicates that thestrong order inflow momentum would continue for the next 4-6 years. While challenges arein plenty in terms of foreign competition, excess capacity, delay in project execution etcwe feel strong tail winds would drive growth.

Key driving forces are

Sharp increase in power consumption: Power consumption to grow at CAGR of 8 overFY10-17e propelled by the country's accelerating economic growth. India is all set tochange gears to ensure GDP growth in excess of 7% over the next 3-5years. With risingmiddle class, sprouting of TIER II and TIER III cities, electrification of Indianvillages,fast pace growth in manufacturing space coupled with pent up demand released fromload shedding the consumption growth assumption seems reasonable.

Supply to increase many fold: Power capacity addition to increase many fold from 4GWper year to 20GW per year to meet the growing demand and address the acute shortageproblem in India.

Reduction of T&D losses a must: T&D sector would be the back bone to drive thiskind of investment with focus on reduction in T&D losses as SEB's continue to bleed.Several Discom's continue to report losses in excess of 30%. The reforms are unlikely ifthe T&D sector issues are not addressed and resolved. Accordingly we anticipateT&D sector to likely see increased action as the reforms continue to lag.

Policy changes and innovative handling methods: We expect increased privatization onthe Distribution space, deregulation of the coal sector, with a short-term focus oncaptive mine development and import capacity, focus on reducing T&D losses and revisepower trading norms.

Sharp pickup in project execution over the next 7-8 years to propel growth

India is finally waking up to its poor physical infrastructure with several legislativeaspects yet to be addressed (especially in roads and power). Our bottom-up assessment ofprojects under implementation and in the pipeline indicates

US$450bn of investments in power generation and T&D space over FY10-17. Superiorrisk-reward models, evolution of appropriate means of financing and a move up the learningcurve of project conceptualization and implementation are encouraging signs. We seeobvious momentum in highways, but the surprise is in power transmission, where asuccessful track record has fostered a virtuous cycle.

Power sector -$450bn opportunity

We expect a capex of USD450bn to be spent in the next 7-9years in the power sector.Every rupee spent in generation would be followed by an equivalent spending in the T&Dsector. Over the last few years we have witnessed considerable investment in thegeneration space; however T&D sector is yet to pickup. Below chart is a break-up ofcapex across the sector.

Generation to drive T&D capex

While the government proposes to add 1.56GW over the next 7 years; we expect India toadd 1GW over the next 7-9 years. This is also equivalent to 63% of India's currentcapacity. With this kind of capacity addition we can expect a surge in T&D activities.

High voltage transformers requirement to grow multifold over the next 5-7years; whilethere is excess capacity in 230/220 kv we expect a large portion of the capacity to getconsumed

Demand Yet a long time to be fulfilled

We expect demand to grow at CAGR of 7.8% over FY09-17 driven by a) Increased usage onelectricity due to change in lifestyle as we see big uptick from growing middle classsegment b) Boost in residential demand c) Increased manufacturing activity d) Connectingmost of the Indian villages to the grid and e) Unrealized demand due to suppressed loadshedding

Supply concerns looms large for the sector

The below chart indicates that power shortage is likely to contiue as we are likely toface shortage to delay in commissioning of capacity due to a) Issues relaed to landacquisition b) lower PLF due to non availability of fuel c) Financing issue d) Delay inprocuring required environmental clerances e) shortage of equipment supplier f) nonavailability of skilled labour. Also the logistc issue in importing coal coupled with agrowing demand. The gap is likely to narrow post FY13

Financials at a Glance:

Revenue:

Net revenues for the year 2009-10 at Rs. 8601.32 Millions, grew at about 23.25% fromRs.6979.04 Millions in 2008-09. The significant growth in revenues was result ofadditional capacity coming online during the year.

The net revenues of the Conductor business reduced from to Rs. 3431.98 Millions in2009-10 from Rs. 3539.72 Millions in 2008-09, showing an decrease of 3.04%. Sale of PowerConductor increased to 35,300 MT in 2009-10 against 23,800 MT in previous year.

The net revenues of the Cables business Increased to Rs. 2031.53 Millions in 2009-10from Rs. 817.59 Millions in 2008-09, showing an Increase of 148.47%. during the currentfiscal the company has added additional 25000 Kms in its Low Tension Cables.

The net revenues of the EPC business Increased to Rs. 3291.48 Millions in 2009-10 fromRs.180 Millions in 2008-09, showing an Increase of 82.86%.The Increase in the Revenue ismainly because of Assam Electricity Board Order and Gujarat Electricity Board Project.

The net revenues of the Transformer business Increased to Rs.1365.11 Millions in2009-10 from Rs.979.04 Millions in 2008-09, showing an Increase of 39.43%.The Increase inthe Revenue is mainly In the globally challenging year of 2009-10, where markets acrossall sectors and across the world were under pressure, the Company has done outstandinglywell in the year.

Overall the Company has delivered strong revenue growth during the year. The Companyexpects that going forward the markets for its products remain quite strong and with itsongoing second phase of expansion projects expected to be completed by first half of2009-10, it would be able to deliver strong revenue growth supported by expanded capacity.

Profitability

The earnings before interest, depreciation and amortization (EBITDA) for the year2009-10 at Rs. 1195.02 Millions , grew at about 30.36% from Rs.913.86 Millions in 2008-09.The growth in EBITDA has primarily been driven by a healthy increase in volumes for allbusiness segments. In terms of percentage, the EBITDA at 13.02% during the year was Higherby 11.99% reported in the previous year. This Increase was mainly due to increase in keyinput costs such as furnace oil and other expenses during the year. In addition to above,execution of certain low margin orders in its Power Transmission Business during the yearalso affected profitability of the Company.

The Company has taken effective steps to bring the costs under control and improve theprofitability, the impact of which will be visible in the from the next year onwards.

The interest cost of the company increased from Rs. 2217.18Millions in 2008-09 to Rs.2418.61 in 2009-10., the interest costs were higher at Rs. 201.43 Millions , mainly due tohigher borrowings and high rate of interest during major part of the year.

Net operating profit available to shareholders for the year Increased to Rs. 554.98Millions in the year 2009-10 from Rs. 539.85 million in 2008-09,

Dividend

In continuation of the progressive dividend policy, the Board of directors haverecommended an equity dividend of 15%,i.e. Rs. 1.50 per share of Rs.10 each. This willlead to an outflow of Rs. 650.78 Millions (including corporate dividend tax) during theyear.

Gross Block and Capital work-in-Progress

The Company has expanded its facilities to meet the increase in the demand in powerindustries. During the year, we have witnessed an growth in Gross Block from Rs 862.66Millions to Rs 1356.15 Million.

The capital work-in-progress stood at Rs. 1065.64 at the end of 2009-10 against Rs.902.28 Million at the end of 2008-09. This is on account of the on-going expansionprojects at the High Tension cables ,and Low Tension Cables and Extra High Voltage Cablesand Transmission Tower the project cost of entire Expansion stands to Rs 2740 Million.

Debt, Cash and Bank balance

The debt of the Company Increased to Rs. 3118.50 Million as on 31st March, 2010 fromRs. 2312.86 Million as on 31st March,2009 on account of internal accruals and judiciousIncrease in net current assets. The total debt mainly consisted of short term workingcapital bank debts, and Long term Debts.

Total Cash and Bank balance as at the end of the year was Rs. 241.14 Million againstRs. 155.38 Million as at the end of 2008-09

As at the end of the year the Debt-Equity ratio of the Company improved significantlyto 1.00 against 1.07 as at 31st March, 2009.

Working Capital

During the year, there was significant improvement in the working capital cycle of theCompany Very strong focus and control on receivables, inventory, other loans and advancesand improved payment terms from the suppliers drove this reduction. These actions coupledwith softening of commodity prices resulted in reduction of fund involvement in inventoryand receivables. The Company would continue to balance the business growth with theefficient working capital management.

Return on Capital Employed

With the increase in the profitability and Increase in the capital employed, the Returnon Capital Employed decrease to 13.83% in 2009-10 from 17.31 % in 2008-09. The reductionin capital employed is due to reduction in Unsecured Loan. The turnover to capitalemployed ratio also reduced from 1.54 in 2008-09 to 1.38 in 2009-10. This was on accountof under utilization use of capacities across all segments resulting in increasedprofitability and low capital employed.

Share Capital and Networth

During the year 2009-10, there was no significant movement in share capital other thanissue of Bonus Shares in ratio of 3: 1. The networth of the Company stands at Rs. 3134.09Millions as at 31^st March, 2010.

Risk Management

The Company's businesses are subject to several risks and uncertainties that are nodifferent from any other company, in general and its competitors in particular. These area result of the business environment in which we operate in and certain factors over whichwe have little or no control. Our risk management framework acts as an effective tool inmitigating the various risks which our businesses are exposed to in the course of theiroperations as well as in their strategic actions. At Diamond, we adopt a consistentapproach to risk management, aligning strategy, processes, people and technology for thepurpose of evaluating and managing the uncertainties we face in creating shareholdervalue.

Internal Controls Review

The Company has strong internal controls and review mechanism. A detailed audit processand audit plan by external agencies cover the key risks identified through the riskmanagement program, wherein existence and effectiveness of the control measures indicatedagainst the risks are verified. The review of the process and findings is done by thesenior management on a monthly basis and is an integral part of the performance managementof the organisation.

Economic and Political Risks

The manufacturing facilities of the Company are based in India and the bulk of ourrevenue is derived from the customers in India. The Company is fairly exposed to thedomestic political and economic risks. Performance and growth is also dependent upon thehealth and stability of the overall Indian economy and political centre stage. The delayin any government spending on power sectors may affect or delay the spending by governmentutilities, that are major customers for the Company. The presence of the Company in PowerSector provides some insulation by the division of the risks. It has also been increasingits customer base to non-government utilities within India and overseas with particularfocus on emerging countries. This reduces the risk of dependence on one particulargeography or customers

Market and Competition Risks

The Company operates in a highly competitive environment. The demand for the Company'sproducts and solutions depend upon various domestic and global factors and mostimportantly the customer's plans and ability to incur capital expenditure. As the Companyis also expanding its capacity, it needs the access to new markets and new set ofcustomers. This requires a continuous process of seeking approvals from renowned newcustomers. This is a time and resource consuming process. Any delay or failure in thisposes risks for the Company. In the existing market and with existing customers also, newcompetitors may come in and put pressure on volume and pricing of the Company's productsand solutions. To mitigate the above risks, the Company continuously maintains a very goodrelationship with the customers and endeavours to keep introducing enhanced features inthe products or services to improve value proposition to the Customer. The Company alsocontinuously keeps working on getting approvals from new and renowned customers toincrease its market share commensurate with its increased capacity.

Product Obsolescence Risks

The Company carries the risk of product obsolescence as a new technically improvedvariant of the Product could put the Company's prospects at risks. It has a strong focuson continuous innovation processes and hence has been introducing technologically improvedproducts in the market.

The R&D team constantly interacts with customers for improved product feedback andresearch institutions for understanding the latest technology. This helps the R&D teamdesign products and solutions to suit end-user needs. The Company strives to introducefuture proof products and solutions to supersede stringent global standards andspecifications.

Commodity Risks

Aluminum is major raw material for our Power business. The realisation of our productsfor this business is largely priced with reference to LME prices of Aluminum. LME pricesare influenced by the global demand and supply and could vary significantly. These pricevariations, if not managed adequately, could affect the profitability of the Company. Itmanages these price variation risks in Aluminum and Copper by fully passing on the changesin price to the customers or hedging the risk on LME or primary suppliers. The negativeprice variations in other raw materials, which are priced with reference to other globalcommodities may also adversely affect the Company's performance. With its strong focus oncost control, improvement in efficiency or alternative raw material, it endeavors toreduce adverse impacts.

Liquidity Risks

The Company requires funds for the ongoing operations, growth and expansion projects.It has sufficient committed lines of credit from various banks in India to fund theoperations as well as expansion projects. The Company has a strong continued focus andreview mechanism for cash flow management and control on borrowings from the banks. Thisensures that while liquidity is maintained for the company, it does not borrow abovegenerally accepted financials norms and is able to meet the obligations to the banks andvendors without any default. For organic growth plans, the primary source is internalaccruals of cash. Currently, the Company does have long term debt at the end of the year.

Interest Risk

The Company is exposed to the interest rate risks on domestic borrowings. It evaluatesthe various sources of short term funding and uses a judicious mix of rupee borrowing.

Foreign Currency Risk

Since the company major turnover is coming from the Domestic Market the company has lowexposure to the foreign currency .the Subsidiary company (i.e Diamond Power TransformerLtd) has a export turnover since it export to South Africa.

But in future, once the current expansion gets over the company is planning to undergothe Export Project than company has plan to design and frame the Foreign currency riskpolicy to overcome from these foreign currency risk.

Legal and Regulatory Risks

The Company's manufacturing facilities are based in India and the legal, fiscal andother regulatory regimes of the country play an important role in its performance. Changesin government policies such as changes in import tariffs in India and reduction orcurtailment of income tax benefits available to some of our operations in India can poserisks to the Company. It also has a customer base in various countries and changes in thelegal, fiscal or regulatory regimes can also affect the competitiveness of our product inand affect the Company's performance. There are some legal cases against the Company atvarious stages related to customs duty, excise duty, taxation, commercial or legaldisputes. Any adverse result in such cases may the profitability of the Company. Some ofthe above risks are beyond the control of the Company. The Company continues to activelyreview and monitor these risks which may have a bearing on our business.

Human Resources

The success of Diamond Power Infrastructure Ltd. as a 'complete transmission solutionspartner' can largely be attributed to its ability to recruit and retain highly quailed andmotivated people in all areas of the Company. Its people friendly, structured andtransparent policies allow its employees a great deal of freedom to apply talent, skills,knowledge and business excellence. Diamond also emphasizes on smart working, collaborationand team work on everything that it applies itself to. John F Kennedy once said that thehuman mind is a fundamental resource for any kind of work that needs to be achieved. AtDiamond Power Infrastructure Ltd, this statement is constantly upheld through its peoplefriendly Human Resource (HR) policies. The company's HR vision is "to build a globalorganization having best in class capabilities and a high performance culture that peopleare proud to associate with."

Diamond has a consolidated pool of employees with more than 100 employees holdingprofessional degrees. During the course of this year, it also recruited about employeesacross various divisions.

Translating its HR vision into policies, Diamond believes in providing growth fromwithin. Keeping this in mind, the Company's Internal Job Postings Programme, plays apivotal role in resourcing within the organization. Through this program, Diamondencourages its employees to drive career needs with the support of managers and theorganization itself. This program gives better visibility to all employees about variousopportunities within the business and the Group.

The Company believes in offering employees careers and not just jobs, where one candiscover and evolve at a normal as at an well as accelerated pace. Towards this, Diamond'sendeavor is to highlight and present opportunities for further learning and development.Diamond fully supports any individual who would like to drive learning and development andthe organization helps facilitate the development at any given stage. This kind of sharinghas become very signicant considering the fact that many of the Company's seniormanagement members today are home-grown and have taken on diverse assignments globallybefore taking on their current leadership assignments. Job rotations and exposure todifferent parts of the business are an important part of the company's HR philosophy. Thisaids in the process of leadership development by ensuring that all employees obtain awell-rounded understanding of all the businesses. The management firmly believes that ifthe employees have to grow and take on higher responsibilities within the organization, itis imperative for them to be exposed to different areas and functions within theorganization.

Every employee is given a rotation within or outside his or her original job toincrease mental flexibility. The employee is also expected to make an effort via thiscross functional exposure to prepare him or herself for further responsibilities. Multiskills are considered necessary tools by which one can grow within the Company. TheCompany strongly believes that extraordinary performance must get acknowledged andrewarded to enhance further commitment and motivation. It has been Diamond's endeavor tobuild a high performance culture, strengthen the direct linkage between performance andrecognition and recognize special performance, unique behaviors and role models. Therecognitions are a combination of monetary and non-monetary awards and family members ofthe employee are also included in celebrating their success.

Diamond Power Infrastructure Ltd. believes in a holistic approach towards being acaring organization. All its programmes are formal or informal, are designed to boostemployee self-esteem, pride and versatility and help him or her grow into a well roundedprofessional across all divisions.

Information Technology

Diamond Power is a Domestic manufacturer of Conductor, Cables and Transformer for thepower industries. In our quest for business excellence, we try to build transparencywithin our systems and therein enhance value for our stakeholders. Implementation of ahigh level of automation in our business processes, through the use of informationtechnology, has been an 'across the board' key focus area.

Our products are manufactured in a semi batch process, wherein the quality parametersof a subsequent product batch can be adjudged by the quality of the previous batch. Hence,it is extremely critical to have real time information available on each sub-process,which can be possible only with a robust IT platform in place.

Today, distance or location is no longer a constraint and our executive management canassess the health of the business wherever they are or whenever they wish to. Moreover,from a customer support perspective, it is very important to have end-to-end material andprocess traceability for the entire manufacturing value chain. For Diamond Power, IT isalso critical for the creation of a competitive advantage and the optimization of allbusiness processes which enable growth and improve existing relationships with customers.

For an conglomerate like Diamond Power Infrastructure Ltd, Information Technology (IT)is the backbone of every process. With this solid foundation, it has been able tointegrate all its business processes and bring its far out locations under a singleplatform. As a result of this integration, the Company has been able to show remarkablegrowth and improved relations with customers and its own people alike

We at Diamond Power Use the Navision Software a product of Microsoft for the InternalUsage and for Internally understanding of the report related to Business which helps totake the important decision.

Our IT systems have enabled our workforce to be 'always connected' to the internet andin-house IT platforms through the provision of computers, internet data cards, etc. toensure business continuity. This has also helped us within the Company to keep abreast ofinformation and best practices related to markets, products, technology and competition.

Our core management team that comprises of functional heads from operations, finance,marketing, IT, human resources and purchase, meets at least once a month to evaluate theevolving needs of our business. As a policy, our corporate decisions are not unilateral,but a result of healthy debate and unbiased evaluation of initiatives to improveproductivity and efficiencies. We have focused on our core competencies to ensure that weare amongst the lowest cost producers of all our products. This has been done by verticalintegration and intelligent manufacturing. All our products have a core linkage from thevery basic natural resource i.e. we manufacture aluminum conductors from basic aluminum.,Cables from Alumiuim ,Copper, PVC and XLPE and various other compound.