Emami Ltd

Your Directors are pleased to present their report on the business and operations ofthe Company and audited accounts for the year ended March 31, 2011. The ManagementDiscussion and Analysis has also been incorporated in this report.

FMCG industry, 2010

The Rs. 130-bn FMCG sector, the fourth-largest in India, was affected by surging inputcosts in 2010-11. The sector grew 11% year-on-year over the last decade, tripling in fromaround Rs. 47,000 crore in 2000-01 to Rs. 1,30,000 crore in 2010-11 (2.2% of GDP).

The Indian FMCG sector grew 11.4% and 11% in the first and second quarters of 2010-11,compared with the overall 12% in 2009-10, owing to rising input costs (petroleum productsand packaging materials) and food, among others.

Performance highlights

Your Company delivered another year of remarkable performance during a challengingeconomic period. While the economy grew attractively during the year, unprecedentedvolatility in input prices, driven by fluctuations in crude petroleum prices andagricultural crops, needed careful management.

• Standalone revenue for 2010-11 was Rs. 1,221 crore, a growth of 21.3 %, over Rs.1,007 crore in 2009-10

• Despite a sharp increase in input costs by 33.8%, there was an increase of 37.5%in profit after tax to Rs. 227 crore (standalone)

• Consolidated turnover for 2010-11 was Rs. 1,278 crore, registering an increaseof 23.1%, compared with Rs. 1,038 crore in 2009-10

• Consolidated profit after tax for 2010-11 was Rs. 229 crore as against Rs. 170crore in 2009-10, an increase of 34.8%

This performance during an unfavourable industry situation was possible due to strongbusiness accretive initiatives like aggressive marketing, innovative R&D, distinctivenew launches, expansion of the distribution system, cost optimisation and financialmanagement initiatives.

The Company continues to focus on two objectives: Firstly, develop effective andinnovative products based on the natural science of ayurveda using modern laboratorypractices and marketing them aggressively; secondly, keep costs in control, which helpedin the Company’s growing business profitably.

A superior management team, aggressive branding strategies, strong R&D capabilitiesand striving for innovation are expected to reinforce the Company’s industry positiongraduating to the next level of growth

Financial results (standalone)

Dividend

The Board of Directors recommended a dividend of Rs. 3.50 per share (i.e. 350% on theshare capital of the Company) for the financial year ended March 31, 2011 for its members,pending their approval. The dividend, if approved, will be paid to members whose namesappear in the register of members as on August 8, 2011; with respect to the shares held indematerialisation form, which will be paid to the members whose names are furnished byNSDL and CDSL as beneficial owners as on that date. The total dividend for the yearamounts to Rs. 6,175 lacs, including the dividend distribution tax .The dividend payoutratio works out to 27.1%

Economy, 2010

The Indian economy rebounded from the global financial crisis, chiefly owing to strongdomestic demand with a growth in excess of 8% year-on-year in real terms.

Merchandise exports (15% of GDP) returned to pre-financial crisis levels. Industrialexpansion and high food prices, resulting from the combined effects of the weak 2009monsoon and an inefficient food distribution system, drove inflation to a peak of 11% inthe first half of the year, but gradually eased to single digit following a series ofcentral bank interest rate hikes.

Driven by a nominal annual growth rate of 13%, India's economy is set to increasefour-fold by 2020, with gross domestic product (GDP) surging to over USD4 trillion (aboutRs. 205 lac crore) and per capita income rising to USD 3,213 from USD1,017. Annualincremental savings are also expected to increase four-fold to Rs. 72 lac crore [Source:Edelweiss Capital].

Inflation: High inflation is likely to persist in 2011-12.

Fiscal deficit: India’s public debt was placed at over 76% of GDP, exceedingexpectations. Fiscal deficit was Rs. 3.69 trillion ($81.9 billion), equivalent to 4.7% ofIndia’s GDP

(Source: Reuters). The Union Budget emphasised the government’s commitment tofiscal consolidation by budgeting a lower fiscal deficit (4.6% of GDP in 2011-12 comparedwith 5.1% in 2010-11). The revenue deficit-to-GDP ratio is estimated to remain unchangedat 3.4% in 2011-12. Current account deficit is expected to increase, supported by adepreciation of the Indian Rupee, owing to high inflation and interest rates.

FMCG industry outlook

India’s FMCG segment is expected to grow at least 12% annually to Rs. 4,00,000crore by 2020 and could rise to as high as 17% should GDP growth accelerate, leading to anoverall industry size of Rs. 6,20,000 crore by 2020. The skin care segment is expected toreport a compounded annual growth rate of nearly 13% through 2012, reaching USD365 million[Source: Bloomberg].

Concerns, 2011

The year 2010 was mixed for the Indian FMCG sector. It witnessed steady growth despiteraw material inflation, affecting profitability. Prices of commodities like palm oil andother agricultural commodities rose sharply. Even as realisations are expected to remainrange-bound, raw material costs will remain a concern, potentially reducing margins.

SCOT analysis

Raw material management

The previous year witnessed a significant increase in input costs, largely owing toever-increasing crude oil prices, surging inflation, bad commodity markets and increase inminimum wages.

Rise in price of key inputs

At Emami, principal raw material comprises petroleum-based LLP. Its price increasedowing to a price rise in crude oil from USD85 per barrel in April 2010 to USD105 perbarrel in March 2011. Besides, there was a growing price pressure in commodity items likementhol, camphor and metals (gold and silver, among others). The cost of gold rose sharplyfrom 16,390/10 gm to Rs. 20,700/10 gm and silver rose sharply from Rs. 27,600/kg to Rs.51,600/kg in 2010-11. As a result, the cost of goods sold increased by 4.2% of sales.

Cost management

As opposed to an ad hoc and arbitrary response to raw material cost movements, theCompany institutionalised its cost management. The result was a deep scrutiny of existingcost influences, leading to proactive alterations and

Head of departments

1. Mr. Sushil Kothari 2. Mr. Gourab Roy Choudhury 3. Mr. Chirag Seth 4. Mrs. MamtaKalra Juneja 5. Mr. A.K. Joshi 6. Mr. Anup Rungta 7. Mr. S.N. Paul 8. Mr. Dilip Poddar 9.Mr. Rajesh Sharma 10. Mr. Vimal Pandey 11. Mr. Sanjay Madan 12. Mr. B.B. Guha 13. Mr.Pradeep Kumar 14. Mr. Debasish Pal 15. Mr. Dhrubajyoti Purkayastha 16. Mr. Nigel Saldanha17. Mr. L.N. Prasad 18. Mr. Vikram Saxena 19. Mr. R.K. Gupta 20. Mr. Manoj Agarwaladaptations in raw material sizes and specifications. This was reflected in the prudentuse of input substitutes without affecting product yield or quality.

For instance, the Company graduated to the use of alternative plastic grades used inpackaging, which are easily available and reasonably priced. It switched from a singleblow mould to multi-cavity moulding, resulting in improved productivity with higher bottleproduction changeover flexibility.

Purchasing policy

As a deliberate strategy, the Company procured its raw material from vendors innon-excisable areas – Guwahati (Assam), Baddi (Himachal Pradesh) – atcost-effective prices. It also imported inputs like micro crystalline wax, methylsalicylates, soap noodles, lumino peptide and ozokerite wax.

Vendor relationships

The Company adopted stringent policies for selecting vendors, based on plant proximity,appropriate quality certifications, financial stability and product quality, among others.

Operations

In a business marked by competitive margins, there was an increasing need to leverageoperational efficiency and circumvent rising costs.

Highlights, 2010-11

• Acquired infrastructure in Egypt to establish a manufacturing facility

• Commenced operations for setting up a manufacturing facility in Bangladesh

• Revamped the BT Road factory to comply with WHO GMP

• Dedicated units at Dongri and BT Road for exports

Initiatives, 2010-11

• Imported spout machines from Spain to design new packages for BoroplusAntiseptic Cream and Fair and Handsome

• Rationalised GSM of laminates and boards to compensate for increased rawmaterial costs

• Introduced automation in Boroplus lotion, balm and Malai Kesar

• Used multi-cavity moulds (IBM - Injection blow mould and EBM - Extrusion BlowMould) which helps increase output and simultaneously reduce cost per unit

• Started using the unique bi-colour cube technology, the first to do so in India;this technology enabled Emami to change Zandu Balm and Mentho Plus packaging to counterspurious products. Currently, both products are available in bi-colour packaging, reducingduplication to a great extent.

• Trained the floor staff in WHO GMP, WCM (World Class Manufacturing) and TPM(Total Plant Management) practices

• Started the trial project for contract manufacture of menthol, switching frombuying the product directly from the market, consequently reducing costs

• Initiated cost-effective purchases through the e-auction route. Ernst &Young (E&Y) thoroughly scrutinised and reviewed the portal’s purchase system.

• Conducted various audits at every quarter – technical and SHE (Safety,Health & Environment), among others

Road ahead

• Expand the Pantnagar unit for the manufacture of Boroplus Antiseptic Cream,Himani Fast Relief, Navratan Oil and Mentho Plus Balm

• Revamp the two Zandu units in Vapi and Masat in line with WHO GMP certification

• Establish a new plant for manufacturing Boroplus cream at BT Road, Kolkata

• Establish a new R&D facility and a packaging unit at BT Road, Kolkata

• Change the packaging of Zandu products

Logistics

In a business where products are manufactured at different locations and consumers liveall across the country, it is imperative to ensure the availability of the right productat the right place at the right time at an optimal cost. Hence, efficient planning andcost play an effective role in the execution of finished goods and logistics planning,leading to a potent business strategy.

The year 2010-11 was challenging as the Company encountered a severe pricing pressure.Between March and July 2010, fuel rates spiralled 14%. During the year, we also noticedincrease in the cost of consumables like lubricants, spares and tyres by about 20%. Tolltaxes also increased. The Company, however, managed it efficiently.

Highlights, 2010-11

• Improved risk management initiatives in logistics, leading to a substantialreduction in transit losses

• Commissioned two warehouses (Bhagalpur in East Bihar and Hubli in NorthKarnataka)

• Reduced the number of transportation vendors to leverage economies of scaleIntegrated S&OP process for

• Zandu products with the existing Emami distribution channel Sustained S&OPmeets, which improved forecasting and stock availability as per demand

• The Company moved about 90% of its products by road

• The Company possessed 33 pan- India warehouses with a cumulative space of 3 lacsq. ft The Company turned its inventory 12 times during the year under review

• The Company leveraged the use of centralised IT in planning.

Initiatives

• To mitigate transit losses, the Company strengthened its contractual terms andconditions with transportation service providers, quarterly review mechanism introduced tomonitor transporter SLA

• By using the right vehicle for the right product - voluminous products in largecontainers and dense/heavy products in open trucks - the Company reduced logistics cost.

• By mapping lead times precisely from our diverse manufacturing points to variousdepots, we ensured timely delivery. We encouraged vendors to participate in reverseauctions, leading to superior value for all.

Road ahead

Establish own warehouses in Indore (25,000 sq. ft), Kolkata (35,000 sq. ft), Ambala(1,00,000 sq. ft), Hyderabad (30,000 sq. ft) and Patna (20,000 sq. ft) for the followingbenefits: Rental saving, use of warehouses customised as per needs, smooth productmovement, energy savings through the green warehousing concept (low energy turbo-ventilators instead of energy- guzzling exhaust fans, maximising sky lighting and waterharvesting)

• Widen the hub-and-spoke distribution (in addition to one in South India) toWest, North (with one warehouse each in Ambala and Delhi) and East India with thefollowing benefits: Quicker response to demand upturns in the hinterland.

• Implement Optisuite (an add-on to SAP) to track statutory documentation utilisedin transportation

• Automate supply chain planning process

Sales and distribution

In the FMCG industry, it is imperative to reach products to locations enjoying consumerpresence and demand, enhancing sale prospects.

Highlights, 2010-11

• Witnessed an increase in consolidated revenue to Rs. 1,278 crores from Rs. 1,038crores in 2009-10

• Registered a 20.2% growth in the domestic sector and an overall growth of 23.1%

• Added 100 super stockists, catering to 3,000 sub-stockists in remote locationswith populations below 50,000

• Increased direct retail outlets by 25,000 to 4,50,000

• Initiated two new depots (Bhagalpur and Hubli) to cater to emerging needs inBihar and North Karnataka

Initiatives

• Integrated the distribution network of Zandu balm in North, East and West Indiawith Emami

• Segregated sales in two leading states – UP and Andhra Pradesh –across the urban and rural population, leveraging their brand and enhancing accountabilityand transparency

• Identified 84 districts across eight states, covering 3,000 villages for directnetwork in rural India

• Embarked on a project called ‘Swadesh’, where Emami through its fieldstaff covered rural markets directly through a dedicated organisation structure for ruraloperation

• Implemented standard distributor billing software, covering 235 key distributors(constituting 50-55% of the entire sales) to track, measure and maintain transparency insecondary sales

Road ahead

• Focus on the rural business and cover eight more states for direct networking

• Increase manpower for modern trade and rural business at the direct and indirectsales levels

• Cover 84 districts under ‘Project Swadesh’ by November, 2011

• Reorganise the sales team, decentralise the organisational structure towardsregional heads, accelerate decision-making and add organisational value

• Add 100,000-odd outlets into direct coverage in urban and rural India

Information technology

Emami’s business runs on SAP ECC 5.0, which manages and connects variousorganisational arms like material handling, production planning, sales / distribution,finance and quality checks, among others.

Highlights, 2010-11

• Commenced two key projects – SAP Human Capital Management (SAP HCM) andForm Tracking module -SAP Human Capital Management (SAP HCM): This four-module software(personnel administration, organisation management, employee information system and leave,travel and payroll management) will rationalise structures, decentralise payroll,eliminate paperwork, enhance transparency and strengthen workflow efficiency. The sameportal will serve as an intranet for information sharing. The Company expects to integrateleave application with the time-punching system and SAP payroll. Deloitte partnered theCompany in this project implementation.

• Form tracking module: This software facilitates the management and tracking ofvarious taxation forms issued by authorities for purchase/receipt of materials as well astransportation permits. The Company implemented a non-SAP (but SAP-certified) software,helping locate all forms across all units, eliminating the risk of misplacement.

• Installed a pilot project – desktop virtulisation solution – in thetraining room, saving costs by a fourth and will be progressively implemented

• Implemented SAP material requirement planning across all factories, improvingraw material and packaging material procurement

Road ahead

• Implement business intelligence and analytic applications

• Undertake IT projects in Bangladesh, Dubai and Egypt subsidiaries

• Implement Phase-II of HCM (performance management, training and development)

• Implement Information security at the physical, network and application levelsWAN link migration - complete

change of existing VPN connectivity at all Emami locations by phasing out VSATs,implement advanced technology communication products (VSAT to MPLS), ensuring improvedservices, uptime and efficiency.

Research and development

The Company competes in an industry characterised by rapid technological advances.Hence, the Company’s ability to compete successfully is heavily dependent upon itsability to ensure a continual and timely flow of competitive products and technologies tothe market place. The Company continues to develop new products and technologies andenhance existing products that expand the range of its product offerings and intellectualproperty through licensing and third-party business and technology acquisitions.

Mission - healthcare

With a mission of contributing to healthy and beautiful skin, hair and lifestyles,extensive research and groundbreaking innovation is one of the keys to Emami’ssuccess in the health and personal care industry. In the Consumer Products Division, weare committed to meet the unmet needs of consumers and develop forward-looking productsthat are tailored to meet consumer need gaps and offer excellent quality.

Research and innovation centre

Emami’s Research & Innovation centre is a science-driven, consumer-centric andbusiness aligned power house, comprising structurally-sound, intellectually-strong andwith a wealth of creative talent, all supporting Emami’s leadership in personal care,health & wellness and ayurveda.

Our products are the result of understanding consumers’ unmet needs, through apathbreaking technology. We combine generations of practical experience with a continuousflow of new knowledge. For decades, we worked in partnership with universities, startupsand suppliers. These relationships are now richer and more productive than ever. Theconstant innovation stream we deliver is founded in our past and created in the present tostrengthen Emami’s future.

The Centre was reorganised to align itself with Emami’s dynamic business strategy.The Group now encompasses a Competitive Intelligence cell, which monitors theeffectiveness of current operations, competitors’ perceptions, competitorcapabilities, and medium to long-term market prospects. The same is done under thestrategic, tactical and counter intelligence sub-sections.

The Centre is also keenly focused on strengthening its presence in global markets andhence is taking active part in tapping the consumer habits, attitudes and newer insightsfor product development. With regulations getting tougher all over the world for productswhich offer cosmetic and functional benefit, Emami Research & Innovation Centre isreinforcing the teams responsible for defending the scientific validity of our brands withboth international and local authorities. The Regulatory team supports the innovationprocess, helping brands get access to markets for which they are responsible, whileguaranteeing that they will conform with operating regulations.

Infrastructure

A state-of-the-art, high-end multi-storey Research & Innovation Centre, spanningmore than 30,000 sq. ft, was created in Kolkata. The Centre encompasses product innovationdevelopment, product processing science, competitive intelligence cell, analyticaldevelopment, perfumery science, quality assurance and packaging and development.

Future technology directions

The Research & Innovation team comprises more than 55 scientists, withmulti-dimensional backgrounds and industry experience. These are geared towards thedevelopment of high-end, targeted products that deliver higher performance, tapping thelatest technologies around the world while appealing to the global consumer.

The strong in-house innovation team also formed collaborative projects with moderntechnology centres, enabling co-development of novel products in the home and personalcare category.

Emami Research & Innovation Group strengthened its capability through innovationpartnerships at each stage of the product development process –from early stagecollaborations with start up and biotech companies to late stage partnerships with its keysuppliers.

Above all, Emami brings to consumers, products that are of the highest quality andsafety and is non-negotiable. R&D is also critical in ensuring regulatory complianceof all Emami International products. This enables Emami to launch new products quickly andefficiently, in countries all over the world, by integrating regulatory affairs in itsR&D activities, from start to finish. The Research & Innovation team alsodeveloped in-house strengths in focusing on basic science areas including ayurvedicscience.

Road ahead

We believe Emami’s future will be exceptional, fashioned on our ability to deliverinnovative growth in our businesses and value to all stakeholders. The shared values wegenerate will reach beyond our consumers and shareholders, benefitting our partners,clients, suppliers and raw material manufacturers.

We are constantly at the cutting-edge of science and technology; deploying this in ourproducts, packages and services. Hence, we undertake an ever-increasing number of clinicaltrials, proving scientifically that our innovations fulfil promises.

Quality management

In a business where personal care and healthcare is imperative, Emami investsextensively to meet international quality standards. The following are the pointscomprising quality policy:

SOPs are defined.

• Measurement procedures are defined.

• All critical quality parameters are aligned in a unified system and documentedfor reference.

• Quality is defined at different levels like before-process, in- process andafter-process quality checks.

• After a product is launched, a stability study is conducted on control samplescontinuously across the product’s lifespan.

• The smallest quality complaints are taken seriously and addressed immediately.

Recognitions

Majority of the units are cGMP and ISO 9000-certified.

• Units abide by highest safety and environmental protection standards.

Overseas business

The global FMCG industry entered into a consolidation mode during 2010-11. Companieseither increased their focus on certain market segments or consolidated their businessportfolios. As a result, there were a number of mergers and acquisitions in the industry.Developing nations, especially Africa, emerged as regions with potential. Consequently,the Company doubled sales in Africa and the SAARC region.

Emami exports cosmetics, toiletries and ayurvedic products to over 65 countries acrossthe globe, with a large presence in Africa, SAARC, the Middle East and the CIS.

Highlights

Exports constituted about 13.6% of the Company’s total revenue, up from 13.1%during 2009-10

• Exports grew 27.6% from Rs. 137 crore in 2009-10 to Rs. 174 crore in 2010-11

• Africa and SAARC were the key growth markets for international business

• Completed the acquisition of Pharmaderm in Egypt in December, 2010, through astep-down subsidiary in Dubai

• Commenced the construction of a manufacturing facility in Bangladesh in March,2011.

Challenges

Along with the opportunities in the industry, there were also challenges. The majorchallenges were competition from larger FMCG companies, the threat of spurious products insome of the international markets and a political upheaval in North Africa.

Despite these challenges, Emami retained or increased its market share in mostcountries through aggressive advertising and branding activities. The Company’sinitiatives against spurious products continued through legal recourse, innovativepackaging and consumer awareness, among others. Owing to the political unrest in NorthAfrica, the Company decided to tread cautiously and wait until matters improved.

Modernisation/expansion/ new projects

Emami Bangladesh Ltd, a wholly-owned subsidiary company, took initiatives for settingup manufacturing facilities at Dhaka, Bangladesh.

Emami Overseas FZE, a step-down, wholly-owned subsidiary of Emami International FZE,was incorporated in 2010-11. Emami Overseas FZE acquired 90.6% equity share capital ofPharma Derm SAE Co, Egypt. Consequently, the said company is now a subsidiary of theCompany. Pharma Derm SAE Co has manufacturing infrastructure in Borg Al Arab, which isproposed to be utilised for setting up a manufacturing unit.

Outlook

With increasing disposable incomes in developing countries, there is greater awarenessand demand for grooming and wellness products, helping the industry grow at a good pace.

To capitalise on this opportunity and fuel the Company’s ambitious plans, itintends to acquire companies and brands which will increase its product portfolio, as wellas its market presence. Besides, the Company plans to launch a new range of products, aswell as strengthen the sales force and brand team to promote the Company, the brand andthe products effectively.

Human resources

In a business where it is imperative to introduce products with differentiated featuresand position them differently to attain market leadership, there is an ongoing need toattract and retain competent human resources and develop their capabilities, therebyenabling them to meet business challenges for sustained growth

• The Company focused on training across all management and worker levels.

• The Company organised employee engagement events like family picnics, sit anddraw competition for employee wards, sports and cultural activities, among others.

• The Company established processes to strengthen HR delivery and services for thebenefit of internal customers.

• The Company strengthened the HR team by restructuring (number and capability)and capability development.

• The Company formed a training committee comprising external members and seniormanagement.

• The Company created a training calendar with a focus on functional andbehavioural training.

• The Company conducted training in the areas dealing with time management,personal effectiveness, managerial effectiveness, effective execution and problem-solvingworkshops to name a few.

• The Company dovetailed recruitment with a nine-month comprehensive andcustomised management programme for graduates, leading to on-the-job absorption onsuccessful completion of their training.

• The Company identified high-potential employees with the objective ofaccelerating their development and creating the next rung of leaders.

Road ahead

• The Company intends to add SAP HR modules to strengthen the HR processes acrossrecruitment, training, performance management, among others.

• The Company intends to focus on training around cost- effectiveness, leadershipand business growth, among others to carry forward the momentum gained.

• The Company intends to strengthen the performance management process further,which will create a high performance orientation.

Corporate social responsibility

Your Company is a responsible corporate citizen, supporting activities related to thewelfare of its employees and society.

The Emami Group is involved in corporate social responsibility through Emami Foundationand other charitable organisations. The Company’s CSR approach comprises medicalservices, education, community development, women empowerment and poverty alleviation,among others. An organising committee evolved CSR guidelines, evaluated and monitoredactivities and planned macro-level CSR initiatives. Under this Organising Committee,sub-committees were created for enhanced attention to medical services, education anddisaster relief, among others.

At Emami, CSR extends beyond statutory obligations to sustainable socio-economicdevelopment. Ethical corporate behaviour forms the basis of our CSR initiative. Hunger,diseases and ignorance are still the burning issues of modern times, despite growth inscience; government budgetary resources are inadequate to mitigate suffering. Thecorporate world cannot afford to remain a mere onlooker when people are afflicted withhunger and malnutrition, diseases and physical infirmity, illiteracy and ignorance.

Emami has a long tradition in conducting philanthropic activities, supported by aprofessional outlook. An exercise is underway to integrate all such activities of EmamiLimited Group companies and Emami Foundation across the healthcare, education, communitydevelopment, women empowerment, livelihood creation and environment management segments.

Education

Recognising the vital role that education plays in ushering socio-economic change,Emami’s CSR activities comprise innovative programmes. Apart from providing financialsupport to various educational and academic institutions, Emami Foundation supports poormeritorious students through scholarships, exercise books and computers, among others.Stipends are provided to poor and physically-challenged students; coaching is offered tostudents at the primary education level. Emami Foundation and units also provide funds forschool renovation and maintenance.

Health

Financially supported by Emami, Magan Shankar Foundation conducts eye camps, ayurvedicand homeopathic clinics, allopathic and dental camps at various locations (Aradhanadham atHaripal and in Kolkata). Magan Shankar

Foundation organises eye, ear and hernia operations and medical treatment camps. EmamiFoundation conducts free/subsidised camps for the reversal of heart disease under thesupervision of the renowned heart specialist Dr. Bimal Chajjer. Donations are made tovarious healthcare organisations. Blood donation camps are organised by various Emamiproduction units.

Women empowerment

Emami Limited partnered with an NGO to sponsor 40 underprivileged girls from variousparts of rural West Bengal. The fellowship programme enables them to rise to theirpotential through higher education and personalised guidance.

For the past many years, a fund has been set for rendering financial assistance for themarriage of the underprivileged section of the society. During the year under review, theCompany supported marriages of 22 underprivileged girls. Besides, the Company helped ininitial set up of their homes and provided funds for meeting household expenses for thefirst month.

Environment

Emami uses environment-friendly technologies and processes. Recycling, re-use ofby-products are stressed; emissions are controlled. Research and development into cow dungand cow urine as well as the maintenance of goshalas were adopted.

Listing

The equity shares of your Company are listed on the National Stock Exchange, the BombayStock Exchange and the Calcutta Stock Exchange. The listing fees for the financial year2011-12 were paid.

Share capital

Consequent to the approval of shareholders on 13th July 2010, face value of equityshares of the Company was changed from Rs. 2 per share to Rs. 1 per share and new shareswere credited/issued accordingly.

Subsidiary companies

As on March 31, 2011, the Company includes following subsidiary companies.

1. Emami UK Ltd

2. Emami Bangladesh Ltd

3. Emami International FZE

4. Emami Overseas FZE

5. Pharma Derm S A E Co, Egypt

A statement pursuant to Section 212 of the Companies Act 1956, relating to subsidiarycompanies, is attached to the accounts.

In terms of general exemption granted by Ministry of Corporate Affairs, the BalanceSheet, Profit & Loss Account of the subsidiary companies are not attached with theBalance Sheet of the Company.

The following information in aggregate for each subsidiary is also being enclosed (a)Capital (b) Reserves (c) Total assets (d) Total liabilities (e) Details of Investment(except in the case of investment in subsidiaries) (f) Turnover (g) Profit before taxation(h) Provision for taxation (i) Profit after taxation and (j) Proposed dividend.

In compliance with the Accounting Standard 21 of the consolidated financial statements,notified in Companies (Accounting Standards) Rules 2006, your Company has prepared itsconsolidated financial statements, which forms part of this Annual report.

The accounts of the subsidiary companies will be available to any member seeking suchinformation at any point of time. These accounts will be available at the website of theCompany viz. www.emamiltd.in and kept open for inspection at the registered office of theCompany.

Directors

Shri R.S. Goenka, Shri K.N. Memani, Shri A.V. Agarwal and Shri H.V. Agarwal, Directorsof the Company, retire by rotation and being eligible, offer themselves for reappointment.

During the year the Board of Directors have reappointed Shri S.K. Goenka, ManagingDirector, Shri Mohan Goenka, Shri A.V. Agarwal, Shri H.V. Agarwal, Executive Directors ofthe Company, for a period of five years after completion of their present term subject tothe approval of members of the Company.

A brief resume of the Directors proposed to be appointed/reappointed as required underClause 49 of the Listing Agreement, is provided in the Notice of the Annual GeneralMeeting forming part of the Annual Report.

Internal control systems and their adequacy

The Company has in place adequate systems of internal controls commensurate with itssize, requirements and the nature of operations. These systems were designed, keeping inview the nature of activities carried out at each location and the various businessoperations. The Company’s in-house internal audit department carries out internalaudit at all manufacturing locations, head offices and sales depots situated across thecountry through its internal team and reputed internal audit firms. Their objective is toassess the existence and operation of financial and operating controls set up by theCompany and also to ensure compliance of applicable statutes and corporate policies. Asummary of all audit reports containing significant findings by the audit departmentsalong with the follow-up actions thereafter, is placed before the Audit Committee forreview. The Audit Committee reviews the comprehensiveness and effectiveness of the reportand provides valuable suggestions and keeps the Board of Directors informed of its majorobservations from time to time.

The Company appointed Ernst & Young, an eminent consultancy firm for capacitybuilding of the Company’s Internal Audit Department.

Risk management

The following is an analysis of the Company’s key business risks and mitigationplans:

Industry risk

An industry slowdown could affect business sustainability.

Mitigation

• The FMCG industry is expected to grow at least 12% annually to Rs. 400,000 croreby 2020.

• India's per capita income is projected to grow significantly from USD1,017 toUSD3,213 in 2020.

• Rural consumers spend about USD9 billion per annum on FMCG and productcategories; they account for more than half the sales in some large FMCG categories.

• The rural FMCG market growth at 18% exceeded that of urban markets at 12%. Whilethe rural market comprise only 34% of the total FMCG market, given the current growth, itsshare is expected to increase to 45-50% by 2020.

Raw material risk

Soaring raw material costs could result in product inflation; raw materialnon-availability could affect operations

Mitigation

The Company procures raw materials (menthol, micro crystal wax, hard paraffin, stearicacid and methyl salicylate) through imports and forward contracts, booking them in advanceproactively and ensuring timely availability.

• The Company procured raw materials from local vendors and vendors innon-excisable areas – Guwahati (Assam),

• Baddi (Himachal Pradesh)– at cost-effective prices.

• The Company implemented value engineering projects for cost control

Climatic risk

Inadequate monsoons could affect rural incomes.

Mitigation

• India's south-west monsoon is likely to be normal in 2011 as per meteorologicalforecasts.

• India’s per capita rural income increased significantly from the 2001levels to reach Rs. 16,327 in 2009-10 and is poised to rise in the coming years owing tovarious income- generating initiatives undertaken by the government.

Launch failure risk

Any delay in launching new products could affect earnings

Mitigation

The Company invests heavily in R&D, introduces new products in a timely way andmarkets products aggressively, leading to a strong marketplace presence.

The Company conceives and tests products with the plan of a prospective launch.

Quality risk

Declining product quality could affect Emami’s brand and profitability

Mitigation

• The Company implemented Total Production Maintenance (TPM) across all itsproduction units.

• The Company’s units received ISO 9001, ISO 14001 and WHO GMPcertifications.

• The Company established protocols to standardise herb quality and procurement.

• Emami’s R&D team, Himani Ayurvedic Science Foundation and ZanduFoundation for healthcare work to deliver innovative and effective products.

Brand risk

Growing competition could affect market share.

Mitigation

• The Company enjoys a pan-India presence and brand recall owing to effective andinnovative products, ayurvedic positioning and a value-for-money proposition.

• The Company invested extensively in advertisements and celebrity productendorsements to enhance brand recall

• The Company created contemporary commercials and innovative packaging to attractconsumer attention.

• The Company’s units are located in tax-exempted zones (accounting for over80% per cent of turnover).

Counterfeit risk

Product imitation could dent profitability.

Mitigation

• The Company switched from a single blow mould to multi- cavity moulding,improving product quality.

• The Company invested extensively in imported moulding technology (dual colourmoulding) from an Italian company to counter duplication; it extended this technology toZandu Balm and Mentho Plus Balm.

Shareholder returns

The Company continues to work toward two objectives:

Firstly, to develop effective and innovative products, based on the natural science ofayurveda using modern laboratory practices and market them aggressively; secondly, to growthe business aggressively while keeping costs under control.

Directors’ responsibilities

Pursuant to the requirement under section 217(2AA) of the Companies Act 1956 withrespect to Directors’ responsibility statement, the Directors confirm that:

i) In the preparation of the annual accounts for the year ended March 31, 2011, theapplicable accounting standards have been followed along with proper explanation relatingto material departures;

ii) The Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at March 31, 2011 and of the profit ofthe Company for that year ended on that date;

iii) The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

iv) The annual accounts were prepared on a ‘going concern’ basis.

Further, there has been no change in the accounting policy in the preparation of annualaccounts for the year under review.

Audit & accounts

The Company’s Auditors M/s. S. K. Agrawal & Co, Chartered

Accountants, who retire at the ensuing Annual General

Meeting are eligible for reappointment. They have confirmed their eligibility underSec. 224 of the Companies Act, 1956 for reappointment as auditors of the Company.

M/S V.K. Jain & Co, Cost Accountants have been appointed as Cost Auditors for thefinancial year 2011-12 subject to approval of Central Government.

Auditors’ report

The observations made in the Auditors’ report are self-explanatory and noqualification is reported by them, hence do not call for any further comments.

Corporate governance

As per Clause 49 of the Listing Agreement with the Stock Exchanges, a separate sectionon Corporate Governance practices followed by the Company, together with a certificatefrom the Company’s Auditors confirming compliance, is set out in the Annexure formingpart of this report.

Consolidated financial statements

The Consolidated Financial Statements prepared in accordance with Accounting StandardAS21 – Consolidated Financial Statements of the Group form part of this report. Thenet worth of the Group as on March 31st, 2011 is Rs. 690 crore as against Rs. 625 crore,as at the end of the previous year.

Energy, technology & foreign exchange

The particulars of conservation of energy, technology absorption and foreign exchangeearnings and outgo in accordance with the provisions of Sec 217(1)(e) of the CompaniesAct, 1956, read with the Companies (Disclosure of Particulars in the Report of the Boardof Directors) Rules, 1988, is annexed and forms a part of this annual report.

Personnel

Information in accordance with the provisions of Section 217(2A) of the Companies Act,1956, read with the Companies (Particulars of Employees) Rules 1975 as amended, names andother particulars of the employees are set out in the Annexure to the Directors Report.Although in accordance with the provisions of Section 219(1)(b)(iv) of the CompaniesAct,1956, such information has been excluded from the Report and Accounts sent to theMembers, any member desirous of obtaining this information may write to the CompanySecretary at the Registered Office of the Company.

Group for inter se transfer of shares

Pursuant to intimation from the Promoters, the names of the persons and entitiescomprising "group" is annexed to the Directors’ Report for the purpose ofSEBI (substantial acquisition of shares and takeovers) Regulations 1997.

Acknowledgement

Your Directors would like to acknowledge and place on record their sincere appreciationof all stakeholders –shareholders, banks, dealers, vendors and other businesspartners for the excellent support received from them during the year. Your Directorsrecognise and appreciate the efforts and hard work of all the employees of the Company andtheir continued contribution to its progress.

Cautionary statement

Statements in the Directors’ Report and the Management Discussion and Analysisdescribing the Company’s objectives, expectations or forecasts 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 and domestic demand and supplyconditions affecting selling prices of finished goods, input availability and prices,changes in government regulations, tax laws, economic developments within the country andother factors such as litigation and industrial relations