KGN Enterprises Ltd

INDUSTRIAL SCENARIO FOR CASTOR OIL

The year 2011-12 was a remarkable year for castor seed because the commodity was grownon high acreage, and production, as well as exports, was also at their peak. India coveredaround 12 lakhs hectares area under castor seeds in the 2011-12 season, compared with thenormal area of 7.76 lakhs hectares and production of 23 lakhs tonnes in 2011-12 season,according to the data from ministry of agriculture is expected.(Source: Indian economy)

Castor seed futures declined drastically by around 37 per cent during October 2011 toMay 2012 on account of record high production that resulted in huge supplies in 2011-12.However, lower sowing of castor seeds, coupled with firm export demand of its derivative,castor oil, led prices to bounce back from their lows of Rs 2,825 per quintal levels totouch a recent high of Rs 4,627 per quintal (near-month contract). Although, the commoditysaw some correction during the first week of August, upside remained intact and, thus,prices are again trading higher. (Source: Castor oil Report)

Due to surplus production and very low domestic consumption, the nation is in aposition to export almost 80-85 per cent of its production in the form of castor oil.Castor oil exports touched an all time high of 4.04 lakhs tonnes in the FY 2011-12 season,up 18 per cent against the previous year. According to the Solvent Extractors' Associationof India, castor oil exports were up 17.5 per cent during the first three months of the FY2012-13 with June witnessing a 47 per cent jump in exports to 67,000 tonnes, compared withthe same period a year ago.

CURRENT BUSINESS REVIEW

KGN Enterprises Limited is listed on Bombay Stock Exchange, Ahmedabad Stock Exchange,and Vadodara Stock Exchange. The Company is an agro- based industry catering to increasingdemand of castor oil & its derivatives in international market. Presently the companyis exporting its products to US, Italy, Thailand and Netherland. The plant has installedcapacity of crushing 600 tons of castor seeds per day. It has an ultra modern Pharma Plantof 200 tpd, Refinery of 300 tpd and a Solvent Extraction Plant of 250 tpd capacity.

The company has established a state of art integrated castor seed processing plant withcrushing capacity of 1,20,000 tons per annum to cater to the increasing demand of castoroil and its derivatives in the International market.

The plant is spread over 75524 Sq. Meters of land with construction of 10445 sq mt. Ithas spacious building premises having all the required latest technology based plant &machinery for seed crushing, solvent extraction, refinery and other utility services.

STRATEGIC INITIATIVE

• KGN Bio- Tech Limited, one of its wholly owned Subsidiaries is in process ofgetting merged with its Holding Company.

• KGN Oil & Gas Private Limited, Wholly owned Subsidiaries has been awardedone block ie, CB-ONN-2010/3 under New Exploration Licence Policy by Ministry of Petroleumand Natural Gas at Cambay, Gujarat. The block covers the area of 534 square kilometer forwhich the Production Sharing Contract was signed.

CAMBAY BASIN

The Cambay Basin is located in Gujarat State, on the western margin of India. The basinlies predominantly onshore, with only the southwestern corner offshore in the Gulf ofCambay. The Cambay basin is rich petroleum province, with active exploration history. Thebasin is a narrow elongated, intra-cratonic rift basin of late Cretaceous age and containsdifferent sub-basins with varying sediment fills.

The Cambay basin is a north-south trending graben with an average width of 50 km, 450km long and a maximum depth of about 7 km. The maximum depth of the basin may exceed 11 kmif one includes the Deccan Trap lava flows. The basin has more than 40 years of activehydrocarbon exploration history. The total area of the basin is about 53,500 sq. kmincluding 6,880 sq. km in the shallow waters (Gulf of Cambay). The basin is roughlylimited by latitudes 21 00' and 25 00' N and longitudes 71 30' and 73 30' E.

RESULTS OF OPERATIONS:

Highlights of the performance of the Company are as under:

• Net Profit before Tax increased by 1.33% to Rs. 155.42 Lacs.

• Net Profit after Tax decreased by 3.89% to Rs. 122.42 Lacs.

FUTURE OUTLOOK

a With the view of expanding production to cater toincreasing industrial demand for the castor oil and Castor Oil Derivatives, The Companyhas enough reserves to do the same in a very short time span.

a The Company proposes to export its products to China,Turkey, Iran, Germany and other European countries.

a Company has set up new derivatives plants like Hydrogenerated castor oil, 12 Hydroxy stearic acid, Ricinoleate Acid, Methyl Ricinoleate,Hydrogenated Methyl Ricino and Undecylenic Acid to meet the increasing demand for theproducts in the industry. It has a vision to increase the capacity of the plants.

a To increase Capacity of the current plants installed tocater to increased demand of the castor oil and castor oil derivates.

a KGN Enterprises envisage starting sebacic acid plant atBaroda with the installed capacity of 20000 MT/ Year. With the proposed products to bemanufactured are Sebacic acid, C 10 Diamine, Distilled Sebacic acid, Nylon -5, Nylon-10,Nylon-11, and Nylon 12.

a There are ample opportunities for expanding businessactivities in the field of castor oil and its derivatives.

OPPURTUNITIES THREATS RISKS AND CONCERNS

The global economy is in trouble due to worldwide recession. But because ofprecautionary measures taken by India, the impact of recession is not as great as on manyother countries. In-house Research and Development Department of the Company enables theCompany to improve the quality of existing range of products, cost reduction, developmentof new products and exports, introduction of new products, improvement in manufacturingprocess, product cost and export promotion.

The products are being used by Cosmetics, Perfumeries, Plastics and Rubbers,Lubrication, Textile Chemicals, Paper, Paints, Inks and Adhesives, Pharmaceuticals, Foodand Electrical, Electronics and Telecommunication etc. So, potential for growth isvirtually boundless. Castor Seeds continue to be a volatile raw material in terms of itsprice. Being an agricultural product, it depends on the rainfall and weather conditionprevailing in the area of castor growing States in the country, though it is a sturdycrop.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis describing theCompany's objectives, projections, estimates, expectations or predictions may be forwardlooking statements within the meaning of applicable laws or regulations. These statementsare based on certain assumptions and reasonable expectation of future events. Actualresults could, however differ materially from those expressed or implied. Importantfactors that could make a difference to the Company's Operations include global anddomestic demand - supply condition, finished goods prices, raw materials cost &availability, changes in Government regulations and tax structure, economic developmentswithin India and the countries with which the Company should and need not be heldresponsible, if, which is not unlikely, the future turns out to be something quitedifferent. Subject to this management disclaimer, this discussion and analysis should bepursued.