GRP Ltd

1. Industry Structure and Development

Major production of reclaim rubber continues to be from end of life waste tyres andtubes. End of life tyres and rubber products have received world wide attention, for theirdisposal has a negative impact on the environment and is a major concern to society.Recycling is recovery of resources. This prevents waste of essential resources andmaintains environmental balance. It has a green impact on the planet and helps incombating global warming.

Today reclaim rubber has become the basic ingredient of rubber formulations for themost of rubber products. While virgin rubber and oil exhibit a volatile pricing, reclaimrubber offers the much needed price stability in compounding. Other factors which aresignificant in increasing the demand for reclaim rubber are, higher GDP growth, increasingroad development, replacement of aging four wheelers, graduating from two wheelers to fourwheeler, growing concept of second vehicle in urban areas.

Reclaim rubber is a preferred raw material for both tyre & non tyre industry. Nontyre sector includes conveyer belt, automotive profile, hoses, mats & flooring,roofing applications, hot melt adhesives, civil engineering.

According to International Rubber Study Group, the rubber consumption in ASIA isexpected to grow from 15 million MT in year 2010 to 20 million MT in year 2015 and inIndia, from 1.40 million MT in year 2010 to 2 million MT in year 2015.

2. Opportunities and Threats

Indian economy has emerged from the slowdown caused by the global crisis withremarkable rapidity and renewed energy. Supported by a favourable economic scenario, theautomotive segment registered strong recovery across all areas. This has given rise todemand for tyres and consequentially created growth opportunities for your Company. Withexpansion plans announced by major tyre companies, your Company also started two newprojects to enhance its delivery capabilities to match customer growth plans and to getcloser to customers through value-added products delivered with speed and build a reliablesupplier base. Your Company enjoys the advantage of a diversified product range, wellestablished customer base and aggressive support services built up over a long period.With continuous emphasis on cost management and customer satisfaction, through its wideproduct mix, your Company is well prepared to exploit the opportunities both in thedomestic and global markets.

The escalation of crude oil prices and demanding international quality standards hasposed major threats to the Company. Few very sensitive factors like input cost volatility,interest cost pressure, etc., to some extent, affect Company's profitability.

Your Company is geared to meet the challenges and is working to mitigate the risksposed by these threats. The Company is leveraging its purchasing power to manage the inputcost better. By efficiently utilising its resources in production of high yieldingproducts, the Company effectively exercises cost control. With the help of external and inhouse rubber technologists, your company continuously conduct research and tests to ensureconsistent good quality products. Also, with constant monitoring of product parameters andtesting in fully equipped laboratories, the Company maintains quality of its products andensures customer satisfaction.

3. Segment wise or Product wise performance.

In accordance with the Accounting Standard - 17 notified by the Companies (AccountingStandards) Rules, 2006, the Company has classified its business into two reportablebusiness segments based on nature of business.

a) Reclaim Rubber :

This segment comprises of recycled rubber sheets for tyre and non-tyre rubber goodsindustries. The Company is the market leader in reclaim rubber. In this year of all roundeconomic growth, the Company has achieved credible financial results. Our sales continuedto develop very positively. The Company focused on deeper customer relationships andimproved its value proposition to customers.

The total sales under this segment of Rs.18,525.74 lakhs for the year comprises ofRs.5,780.46 lakhs (31.20%) from domestic and Rs.12,745.28 lakhs (68.80%) from exportsales.

b) Windmill :

The Company had invested in Windmill at Kuchhadi in Gujarat in previous year. For thepower units generated by Windmill, the Company gets credit in its electricity bill of itsPanoli plant in Gujarat,

4. Outlook

Reclaim rubber is recognized as the third source of rubber after Natural &Synthetic rubber. For sustainable growth challenges being faced by tyre companies likeenvironmental regulations like European and US countries and economical growth (costoptimization), the use of Reclaim Rubber becomes imperative. The usage of reclaim rubberis increasing due to inherent process benefits and the price effectiveness. CurrentlyIndia is among the largest manufacturers of reclaim rubber. In India, reclaim rubberconstitutes 8% of all rubbers consumed. With a large number of rubber productsmanufacturing shifting to India, reclaim rubber will remain an important contributor tothe industry.

The Company is currently the largest manufacturer of reclaim rubber in India and amongthe largest globally. The company's annual production has steadily increased from 2400 MTto 45000 MT. The company retains the leadership position for reclaim rubber in India aswell as across the world. It has a presence in more than 45 countries by way of exportmarket. With new plants under way, the Company will be able to meet the global demand ofreclaim rubber for tyre & non tyre industry.

Due to its efforts, both in technology of manufacturing and market developmentglobally, the Company remains the leading supplier to leading tyre companies worldwide.

5. Risk management

Risk management is linked to the Company's overall short and medium term objectives.The Company segregates its risks into functional categories such as:

i) Marketing : Main challenges are quality consistency, new competitions and logistics.The Company constantly monitors product parameters and tests all products in fullyequipped laboratories to ensure high level of quality of its products. Customer servicing,diversified product range, and meeting customers' volume and quality demands give an edgeto the company to be successful in a competitive environment. The Company has taken stepslike co-ordination with foreign logistic agencies for export and sophisticated packagingmethods which keeps quality of the goods intact till the delivery point. During F Y2010-11, the Company has complied with the REACH norms which are laid down by the EuropeanUnion and made compulsory for export of goods to European countries.

ii) Purchase : Purchase normally finds unorganised suppliers market as a threat , as itcould encourage high price volatility of raw materials. However, over the years yourCompany has developed valuable relationships with wide range of suppliers and has adopteddiversified product mix so that raw material supply does not get affected and pricing alsonot affect margin drastically.

iii) Operations : Machine break down, safety, health and environment protection couldpose main risks. The Company has in house machine design and assembly capabilities andengineering expertise which helps in mitigating major production loss due to machinerybreak downs. The Company has taken appropriate measures to address the challenge ofremaining compliant with environment protection regulations.

iv) Finance : Making funds available for operations and projects at reasonable cost isa challenge, which Company's operational efficiency and growth faces successfully.Considering Company's substantial exports, foreign currency rate fluctuations could affectrealisation value of the products. However, the Company, through packing credit in foreigncurrency and foreign currency funded loans, controls the interest cost and maintainsprofitability level.

v) Human Resources : Being a growth oriented company, it is always a challenge to haveskilled employees at all levels. The Company endeavours to attract, develop and retaintalented individuals by ensuring skill based trainings and structured employee engagementinitiatives.

Your Company has taken insurance cover for all known risks and continuously reviews itsadequacy and identifies new requirements with the help of external agency. During currentyear, your Company has taken two new policies namely,

1) Comprehensive Public Liability Policy : This policy broadly covers the legalliability of the Company towards damages to third party in respect of accidental death orbodily injury or disease, damage to property, due to any reason including pollution.

2) Directors and Officers Liability Policy : This policy provides cover against legalliability of the directors and officers to pay damages or costs awarded against them andcosts or expenses incurred by the directors and officers with the written consent of theinsurer in respect of investigation, defence, or settlement of any claim made upon them intheir capacity as directors and officers of the Company.

6. Internal control system and their adequacy

The Company has implemented a comprehensive system of internal controls to supportsmooth and efficient business operations and effective statutory compliance bystandardizing and documenting policies and procedures for all major processes andassociated controls, for credible reporting of financial and operating results and theseare regularly reviewed by both internal and external agencies for its efficiency andeffectiveness. Management information and reporting system for key operational activitiesform part of overall control mechanism.

The Company has hired the services of independent firms of professionals to function asinternal auditors and provide reports on various activities covering observations andpertinent comments on adequacy of internal controls and their recommendations. Findings ofinternal audit reports and effectiveness of internal control measures is reviewed by topmanagement and audit committee of the Board.

7. Discussion on financial performance with respect to operational performance

During the financial year 2010-11, the Company achieved a revenue growth of 34% andproduction growth of 10% over the previous year. The increase in profit after tax is 28%.The Company has registered a substantial growth in sales. Of the total sales revenue ofreclaim rubber of the Company for the year, 69% is contributed by exports. During the yearunder review, all the plants had smooth operations and the capacity utilisation wasfurther improved as compared to previous year.

CRISIL, a noted credit rating agency has assigned your Company, 'A-/Stable' rating forterm loan borrowings and 'P2+' rating for working capital borrowing facility. Both theseratings indicate good financial health of your Company.

8. Corporate Social Responsibility

As responsible corporate citizens, we have always endeavoured to make contributiontowards betterment of society in and around the areas of our operation. Our CSRinitiatives are aimed at helping our surrounding communities become self-reliant.

The Company continues to be involved in development of Navidivi village of BharuchDistrict in Gujarat. The Company has contributed to the activities like drawing andstitching classes for children and women, Computer training for the needy persons,distribution of books to underprivileged children and increasing health awareness amongvillage women by organising workshops. The Company is also participating in StandardChartered Marathon in Mumbai, since last two years and contributing towards Nanhi KaliFoundation, an NGO for promoting welfare of underprivileged girls.

9. Human resources and industrial relations

Your Company continued its efforts to face a challenging business environment bybuilding the capability of its Human Resources through various initiatives in developmentand training of employees at all levels. The employees are the engine that drives theCompany forward. People always have been and shall continue to be central to the Company'sgrowth story.

During the year, your Company has continued several successful training programmes andinitiated new programmes to enhance employee motivation, satisfaction and growth. One ofthe major such programme initiated by the Company is new Performance Measurement System,with the help of the external agency. This system will enable the Company to mapindividual, divisional and organisational performance by setting suitable goals. Thissystem also will help in mapping competency and ensuring clarity of role to employees atall levels. This, in turn, will ensure job satisfaction for all employees and pride inbeing associated with the growth of the Company.

Cautionary Statement

Statement in the Management Discussion and Analysis describing the company'sobjectives, projections, estimates and expectation may be forward looking within themeaning of applicable laws and regulations. Actual results might differ materially fromthose either expressed or implied.