Tata Chemicals Ltd

GLOBAL BUSINESS ENVIRONMENT

In the Financial Year (FY) 2010-11, the global economy continued on its path ofrecovery from the recession of 2008. However, this recovery has taken a two track approachwith developed economies grappling longer with the wounds of the financial crisis whiledeveloping countries have recovered much faster. During the year, commodity prices havespiraled upwards to pre crises levels reflecting a combination of strong demand growth,supply shocks and excess liquidity being pumped by developed economies like US. Oil priceshave also risen considerably. Metal and food prices are also following a similar trend.

After a sharp decline in 2009, the US economy has grown by 2.8% in 2010. Unemploymentcontinues to remain a concern in the market. The EU economy has also registered a growthof 1.8% in 2010. However, concerns remains over the sovereign risk of some EU economieswhich continue to remain under the pressure of heavy debt. According to IMF estimates, theworld economy grew by 5% during 2010 and fears of a double dip recession are not playingout.

Developing economies, particularly India and China showed considerable strength inresurfacing from the global slump. In FY 2010-11, India is expected to grow at 8.6% as perthe latest estimates. Inflation of commodity and food prices has been a key concern. TheReserve Bank of India (RBI) has increased repo rate and reverse repo rates multiple timesduring the year and are currently at 7.25% and 6.25% respectively.

Outlook for the Global Economy in FY 2011-12

The IMF believes that the world economy will grow by 4.5% during the year 2011. Thiswould be largely on account of the growth of the developing economies which are expectedto grow by 6.5% while the developed world will grow 2.5%. Earlier fears of a double-diprecession have not materialized. The worry that an initial recovery driven by the fiscalstimulus would eventually fizzle, has not occurred. The fiscal stimulus has turned tofiscal consolidation, but private demand has, for the most part, taken the baton.

By contrast the crisis left no lasting wounds in emerging market economies. Theirinitial fiscal and financial positions were typically stronger and the adverse effects ofthe crisis were more muted. High underlying growth and low interest rates are makingfiscal adjustment much easier. Exports have largely recovered, and whatever shortfall inexternal demand they experienced has typically been made up through increases in domesticdemand.

The outlook for economic growth in India is at 9% for FY 2011-12 as per the recenteconomic survey tabled in the Parliament. High crude prices, inflation and monsoon remainas the key risks.

TATA CHEMICALS’ BUSINESS UNITS AND GROWTH STRATEGY

Tata Chemicals Limited (TCL) is a global company with interests in chemicals, cropnutrition and consumer products and serves a diverse set of customers across fivecontinents. Established in 1939 at Mithapur, the Company today has the world’s secondlargest capacity in soda ash and is a pioneer and market leader in the Indian brandediodized salt segment. TCL is one of India’s leading producers of nitrogenous andphosphatic fertilisers in the private sector and markets a range of crop nutritionofferings under Tata Paras brand.

TCL has its manufacturing facilities across four continents. With manufacturingfacilities in India, UK, Kenya and USA, TCL is the world’s most geographicallydiversified soda ash company with almost two-thirds of capacity comprising natural sodaash giving it global competitive advantage. TCL is also the fourth largest manufacturer ofsodium bicarbonate in the world. TCL’s nitrogenous fertiliser plant at Babrala is thecountry’s most energy efficient fertiliser unit. Phosphatic fertilisers aremanufactured at Haldia.

The industrial chemicals business continued to focus on building its global marketshare. Demand and prices have shown an upward trend in FY 2010-11 and the overallsentiment remains positive. Focus continues to remain on improving the efficiency of theglobal operations. Tata Chemicals Europe Limited (TCEL) (formerly known as Brunner Mond)completed the acquisition of British Salt for GBP 93 million (Rs. 650 Crores) to securebrine resources. In view of the tepid long term potential, the decision was taken tomothball the STPP facility at Haldia.

Within the crop nutrition and agri-business, Babrala continues to hold the position ofthe most energy efficient Urea plant in the country. TCL has announced an investment ofUSD 290 Million (Rs. 1293 Crores ) to acquire a 25.1% stake as a strategic investor in the1.3 MTPA stream 1 of a Greenfield port-based ammonia-urea fertiliser manufacturing complexin the Republic of Gabon. This plant is envisaged to be one of the lowest cost ureamanufacturing facilities globally. Strategically located near Gabon’s main seaport,it also enables efficient and cost effective material handling and proximity to targetmarkets i.e. Africa, North America, Latin America and India. In due course of time, TCLalso intends to invest in the second stream at Gabon with significantly higher stake thanfirst stream.

This year also witnessed the implementation of Nutrient Based Subsidy (NBS) onfertilisers (except Urea). The Company ran trials of the India’s first customizedfertiliser unit at Babrala during the year. The unit will produce crop and soil specificfertilisers which will be sold under the brand of ‘Tata Paras Farmoola’. Duringthe year, Rallis India Limited (Rallis) completed the acquisition of Metahelix, anagricultural biotechnology company focusing on developing traits and technologies for cropprotection. Metahelix has a strong R&D presence in seeds and will add to Rallis’product portfolio.

On the consumer products front, our branded salt portfolio continues to dominate themarket share. Tata Salt and I-Shakti achieved a market share of 62%. The I-Shakti brandpackaged salt which was launched in 2007-08 is now the second largest national packagedsalt brand in the country.

‘I-Shakti’ brand was extended to branded pulses which were launched inMaharashtra, Tamil Nadu and Delhi. Sourcing of these pulses is being carried out through aunique model where in TCL organises finance as well as Package of Practice (POP) for thefarmers and offers to buy back their produce in transparent manner. While the farmer getsthe advantage of higher productivity and market access, TCL is able to reach the materialto consumers cost effectively by reducing intermediaries. In due course of time this modelwill be extended to other select crops leveraging the relationship with farmers andconsumers.

The Tata Swach water purifier has been received exceptionally well by the market andsales of the variants and bulbs have been extremely encouraging. The business is focusingon increasing capacity to meet growing demand.

INORGANIC CHEMICALS SEGMENT

TCL’s Chemicals Business consists of both the Industrial Chemicals and ConsumerProducts businesses.

Industrial Chemicals

The Industrial Chemicals business manufactures and sells soda ash (Na2CO3), sodiumbicarbonate (NaHCO3), salt (NaCl) and other industrial chemicals such as cement, calciumchloride and Bromine. Of these, soda ash and sodium bicarbonate are products in which theCompany is a global player. Additionally, operations in India produce Bromine, gypsum andcement, and in the UK, the Company manufactures salt and calcium chloride.

Soda Ash

TCL, with a capacity of over 5 million MT, is the second largest soda ash manufacturerin the world. About two-thirds of this capacity is based on natural soda ash. This uniquefeature helps TCL to have a low energy intensity and low environmental footprint.TCL’s natural soda ash (derived from trona) operations are located at Lake Magadi inKenya and at the Green River Basin of Wyoming in the USA where the world’s largestdeposits of trona occur. Synthetic soda ash and sodium bicarbonate are manufactured atNorthwich, UK and Mithapur, India. This process uses brine (salt water) and limestone askey raw materials.

With manufacturing located on the four continents of North America, Europe, Africa andAsia, TCL has the ability to optimally serve customers across the globe. Additionally,distributed sourcing of raw materials increases the reliability of supplies and mitigatesthe risks associated with potential regional disruptions that can adversely impact theglobal supply chain.

In 2010, global soda ash demand grew back to near pre-crisis levels due to stronggrowth in the developing economies. The emerging economies, in particular those economieswith large population such as Brazil, Russia, India and China, have been the primarygrowth driver for soda ash over the past decade. With rapidly increasing GDP andurbanization, these economies have experienced an increased per capita consumption ofproducts using soda ash including flat glass (automobiles, housing), container glass(beverages), detergents, baked goods, clean water, and sodium based chemicals. Conversely,the demand will take longer to recover in the large developed economies, such as the EUand the USA, due to anemic GDP growth as well as the maturity of such products in theseeconomies. Overall, though, world demand is forecasted to grow 4-5% through 2015.

Global soda ash production capacity increased approximately 3% to 63 million MT withthe growth almost entirely occurring in China. Operating rates have recovered from 70%experienced during 2009, but are still well below the 85% realized before the financialcrisis. However, the over-capacity is region specific. China and Europe have more capacitythan demand while the producers in US, Kenya and India are operating at high rates. Thenatural soda ash producers are taking advantage of their low cost positions to maximizetheir exports while the Indian producers are enjoying high demand growth in their domesticmarket.

Global soda ash prices began to increase in 2010, and continued into 2011 reflectingboth increased input costs across the world as well as tight soda ash supply in someregions. Energy prices in particular have dramatically increased from the low’s of2009, raising the costs of both natural and synthetic soda ash producers, and we expectthat energy and other input costs are likely to continue increasing, more so for thesynthetic producers due to their higher energy intensity relative to the natural soda ashproducers. Consequently, soda ash prices will likely to increase in the short term in linewith energy and other input costs even in the face of excess capacity as the marginal costproducers in China and Europe seek to pass on their cost increases.

With the Indian economy continuing to remain buoyant, Indian soda ash demand grewapproximately 5% due to increased consumption of flat glass, container glass anddetergents. Our domestic soda ash sales volumes increased by 6%, leading to an increase inmarket share. Increase in volumes helped us to partially mitigate the impact of theincrease in input costs. TCL’s strong relationship with customers and its relentlessfocus on increasing its already high service levels has provided TCL the opportunity toconsolidate its market position in 2010. Additionally, the safeguard duties on Chineseimports were effective in reducing dumping activities. While prices remained underpressure, higher domestic sales volumes helped maintain profit levels. With the completionof the debottlenecking of the Mithapur plant, TCL is positioned to enjoy further demandgrowth.

New flat and container glass plants are expected to come on-line in India in the comingyears along with expansion of existing operations. With the Indian economy expected tocontinue robust growth, the detergent and chemical sectors are also expected to maintaintheir growth trajectory. Consequently, soda ash demand in India is anticipated to grow 6%through 2015.

Sodium Bicarbonate

Sodium bicarbonate is commonly used as a pharmaceutical ingredient, food additive,animal feed and in air pollution control. TCL is the world’s fourth largest producerof sodium bicarbonate and the market leader in India and UK.

In Europe, our sodium bicarbonate brands, Briskarb and Alkakarb, have wide marketacceptance and an established position. In FY11, sales of bicarb from UK rose by 10%.While overall sales to Europe have decreased with closure of the plant in Netherlands, TCLcontinues to make efforts to maintain its share in the growing market. In India, TCLproduced and sold a record tonnage of sodium bicarbonate in FY11. Domestic sales were 7%higher during the year helping the Company achieve a market share of about 50% in thedomestic market. Sodium bicarbonate demand continues to demonstrate healthy growth acrossall consuming sectors, particularly in food related applications. Over the past year, themarket grew 15% as against 14% in the previous years, and such double digit growth ratesare expected to sustain through the coming years. To meet this growing demand, TCLsuccessfully commissioned its sodium bicarbonate expansion project in 2010 bringing totalcapacity in Mithapur to 100,000 MT per annum. Also in 2010, TCL launched its Sodakarbbranded bicarbonate, its food grade product in the Indian market. Over a period of time,as the domestic market matures and grows, TCL will introduce other brands in its portfolioin India.

Sodium Tripolyphosphate (STPP)

STPP continued to be under severe cost pressure despite the provisional Anti DumpingDuty being levied on Chinese STPP imports. Considering the overall business dynamics, wehave decided to mothball STPP plant at Haldia.

Cement

TCL’s cement plant was setup in 1993 to handle solid wastes generated asby-products of soda ash manufacture. The Company uses technology to separate solideffluents and process them into Ordinary Portland Cement (OPC) and Masonry cement. Masonrycement will enable TCL to convert its fly ash (generated in the power plant) into usefulbinding material. While the upward trend in raw material and energy prices is likely toimpact margins, the business will continue to focus on catering to nearby markets formaximizing realisation.

Salt

The average annual requirement of salt (Human consumption, Industrial use &Exports) in last five years was 167 LT and it is expected to grow by nearly 7% in FY2011-12. The salt supplies are projected to meet the demand in next five years withadequate pipeline stocks. However, the industry is vulnerable to weather disruptions. Theprivate sector plays a dominant role contributing over 88% of the salt production, whilethe public sector contributes about 2%, the cooperative sector contributes about 10%.Indian Domestic demand of Edible Salt is forecasted to grow by 1.34%. With mechanization& yield improvement measures in place, increase in yield (more than 50%) is expectedin coming years.

Consumer products continued to grow in FY 2010-11 leveraging the brand equity and astrong distribution network. While continuing its leadership position in packaged saltmarket, Tata Salt has been awarded ‘Hall of Fame’ award by Economic Times BrandEquity, being amongst the most trusted brands for last 10 years. I-Shakti, which wasrolled out nationally in 2007-08 has now become the second largest packaged salt brandafter Tata Salt. Tata Salt Lite, which was introduced in December 2007, was rolled out ona pan India basis in 2008-09 and is the market leader in premium low-sodium salt segment.All the brands continued to grow and together achieved a market share of over 62% amongthe national salt brands.

To meet the growing demand for ‘Tata Salt’ brand, TCL has undertaken aproject to expand its capacity of vacuum evaporated salt at Mithapur. Steps have also beentaken to set up additional sourcing capabilities for solar refined salt to meet thegrowing demand for I-Shakti.

FERTILISER AND OTHER AGRI INPUTS

TCL is a prominent player in the domestic Agri inputs segment. The Company manufacturesUrea (at Babrala) and Phosphatic Fertilisers (at Haldia) in India. Rallis, a subsidiary ofTCL is a major player in the fast growing crop protection market in India. WithRallis’ acquisition of Metahelix Life Sciences (a research led seeds company), thecompany has expanded its portfolio to seeds during FY10-11.TCL imports MOP, DAP, SpecialtyFertilisers, Organic Materials and other crop inputs which are sold via TCL’swidespread sales and distribution network. The Company also has a joint venture withIMACID, Morocco which produces Phosphoric Acid – a key raw material for phosphaticfertilisers such as DAP and NPK. In addition to our traditional sales channel, we alsooperate retail outlets under the brand of ‘Tata Kisan Sansar’. Rallis has farmerconnect programme known as ‘Rallis Kisan Kutumb’ through which large number offarmers are connected with the company for exploring various opportunities of mutualinterest.

The global demand for food continues to rise on the back of increasing population anddisposable incomes in developing economies. However, unfavorable weather conditions incertain parts of the world negatively impacted agricultural production in FY10-11. Notsurprisingly, the 2010 harvest is forecast to contract, by 2 to 2.5%. These macroconditions coupled with liquidity pumped in by developed economies is leading to a priceincrease in food grains and other agri commodities. This in turn causes an increase infertiliser demand and prices across the board. These conditions are expected to continueover the coming few years.

In India, the rising income levels particularly at rural households are leading to arise in the demand for food grains. In order to ensure food security, the Government istaking various steps to promote balanced use of soil nutrients as well as expand thedemand for fertilisers. In line with the same, the Government announced the introductionof the Nutrient Based Subsidy (NBS) in 2010 for the phosphatic and potassic fertilisers.This policy provides subsidy for basic nutrients (Nitrogen, Phosphorus, Potash andSulphur) in a fertiliser, instead of the product based subsidy which was prevailing. Withthe introduction of NBS, companies are being allowed to increase prices without any formalapprovals from the government. While there was price increase by sellers to the tune of10-15%, consumption of phosphatic and potassic fertilisers grew by around 12% duringFY10-11 as per latest estimates. Having established NBS in phosphatic and potassicfertilisers, the focus of the Government is on extending the same to Urea, which accountsfor more than 50% of the fertiliser consumption. The industry has been strongly advocatingfor the same. As explained above, a moderate retail fertiliser price increase did not haveany impact on the fertiliser demand, however we need to remain cautious of possibleadverse impact of fertiliser consumption in case of sharp increases in retail prices. TheGovernment as well as Industry will have to be watchful of the developments in theinternational markets for fertiliser and fertiliser inputs and take adequate steps toensure that fertiliser consumption does not suffer and food grain production in thecountry is not adversely impacted due to volatility of international commodity prices.

TCL along with its subsidiary Rallis have in due course of time transformed into anintegrated agri input player in the domestic market with a unique and diverse productportfolio ranging from basic and specialty nutrients, pesticides, seeds and farm serviceswhich are offered by a strong and experienced sales and distribution channel. TCL remainsfocused on providing quality agri inputs and solutions to farmers that result in increaseof productivity. TCL also plans to build on this relationship with the farmer by sourcingof specific crops for distribution to households through its consumer productsdistribution network.

Urea

With the likely inclusion of Urea into the NBS and decanalisation of imports for thesame which the Industry has been strongly advocating, the opportunity to import anddistribute Urea may present itself. TCL also expects that the government will allowfortification of urea with micro nutrients along with increasing the limit on selling neemcoated urea from the present 35%. TCL is well poised to introduce fortified Urea as wellas supply higher level of neem coated urea.

With uncertainty over the supply of gas for setting up additional urea capacity withinthe country, TCL is exploring such opportunities overseas. TCL has already acquired a 25.1% stake in a JV which will set up a 1.3 Mn TPA Urea plant in Gabon with the option ofsetting up an additional stream in due course of time. The Babrala expansion project wouldbe reviewed once the gas allocation for the same is in place.

DAP, NPK, SSP

The Department of Agriculture has cleared the policy for double fortification ofcomplex fertilisers. TCL would be well placed to take advantage of such opportunities,backed by the unique R&D facility at Aligarh. TCL is also undertaking debottleneckingof our SSP capacity at Haldia and would be looking at opportunities to add to our DAP/NPKcapacity based on cost effective availability of factors of production.

Rallis

Rallis has a significant presence in the crop protection segment with a wide portfolioof offerings such as pesticides, herbicides and fungicides amongst others. With theacquisition of Metahelix, a research based seeds company with a strong pipeline ofproducts, Rallis has expanded its basket of offerings to the farmer.

Globally the crop protection industry reported a steady growth of 1.1%, reaching marketsize of USD 44 billion. NAFTA, Middle East, Asia and Latin America region has showngrowth, while the market dropped in Europe. India, Russia and China emerged as the fastestgrowing countries. The Indian Crop Protection industry is estimated to have grown by about12-15% during the year. There was an increase in area under cultivation for Bt cotton,sugarcane, pulses and chillies due to good produce prices.

Rallis will continue to strengthen its market position in India through intensifiedbrand building, farmer relationships, alliances and new product introductions whilesimultaneously exploring opportunities in international markets.

Specialty Nutrients

Depletion of micronutrients in the soil is leading to increased consumption ofspecialty fertilisers. TCL is well poised to exploit this opportunity and will continue tofocus on growing markets for such fertilisers simultaneously building relationship forcreating low cost supply chain for the same.

Customised Fertilisers

Customized fertilisers are soil, crop and geography specific formulations that allowmost effective use of nutrients. TCL is the pioneer in introducing customized fertiliserin the country.

TCL has so far got 4 grades registered/approved for specific applications. The samewill be introduced in the market in due course of time post commissioning of itscustomised fertiliser plant at Babrala.

Trading

With the increase in domestic fertiliser demand and limited factors of production inIndia, consumption of fertilisers based on imports will continue to increase. While TCLwill continue to import and distribute fertiliser on ongoing basis, TCL will explore longterm tie ups for distribution to increase its share.

Tata Kisan Sansar and Rallis Kisan Kutumb

Both Tata Kisan Sansar and Rallis Kisan Kutumb will continue to focus on relationshipbuilding with farmers where in quality agri inputs and services will be offered to thefarmers and select output will be sourced from them for distributing through our consumerdistribution network.

Biofuels

With the crude oil prices ruling ~ US$ 120 per barrel, Biofuels are expected to be costeffective and growing by 18-20% during 2011. TCL, through its subsidiary is investing insetting up a trial bio ethanol plant in Mozambique backed by sugarcane cultivation at theland acquired for this purpose. TCL is also investing in setting up R&D facilities forsecond generation biofuels in Nanded in collaboration with government agencies.

Water Purifier

The Indian household water purifier market has three product segments – Nonelectric Storage water purifier, Ultra violet (UV) and Reverse osmosis (RO). The markethas witnessed tremendous growth over the last few years, especially among the non-electricstorage water purifier segment. The last year has seen the entry of a large number ofindustry players into the storage water purifier category with a flurry of new launches.

Water purifier is an under-penetrated category in India with approximately 2% of ruraland approximately 10% of urban households as users. This points to a large untapped marketpotential and would ensure that high growth rates can be sustained over a longer period oftime. This is attracting newer players leading to category expansion and higherpenetration level across price points. TCL will continue to focus on offering low costpurification solutions to the masses.

Tata Swach water purifier, which was unveiled in December 2009 is now available in 12states across the country. The product has been well received and attained leadershipposition in most of the markets where it is present. The business is increasing productioncapacity to meet growing demand in existing and new markets.

Pulses

I-Shakti brand was extended to pulses sourced through network built by utilizingcompetencies of TCL’s fertiliser and agri inputs business. As of now I-Shakti brandof pulses are available in Maharashtra, Tamil Nadu and Delhi. TCL intend rolling out thesame to other states during the current year.

1. Net Sales/Income from Operations:

(Rs. in crores)

Net sales increased by 16% during FY 11 over FY 10 mainly due to substantial increasein volumes of trading business viz., imported DAP / MOP and consumer products and higherrealisation in inorganic chemicals.

2. Other Income:

(Rs. in crores)

The decrease in other income is attributable to profit on sale of trade investments inquoted equity shares in FY 10.

3. Raw Material consumed:

(Rs. in crores)

Raw material consumption showed increase of 6% during FY 11 over FY 10 mainly due tohigher prices of Phosphoric Acid, Ammonia and Sulphur. In addition , there is higherconsumption of limestone and coke during FY 11.

4. Cost of Traded Goods purchased:

(Rs. in crores)

The cost of traded goods purchased has increased by 86% mainly on account ofsubstantially higher volumes traded products in fertiliser business (mainly DAP and MOP).

5. Power and Fuel:

(Rs. in crores)

The increase in power and fuel cost during FY 11 over FY 10 is mainly on account ofsignificant increase in prices and volumes of coal and APM Gas.

6. Freight and forwarding charges:

(Rs. in crores)

The increase in freight and forwarding charges during the FY 11 over FY 10 is due toincrease in sales volumes.

7. Other Expenses:

(Rs. in crores)

Other expenses have gone up mainly due to increase in hedging cost and professionalfees during the year FY 11 compared to FY 10.

8. Investments:

(Rs. in crores)

Increase in Trade investments is due to subscription of rights shares in TataIndustries Ltd during FY 11. Current investments are nil during FY 11 on account of saleof Mutual Fund investments.

9. Inventories:

(Rs. in crores)

The inventories as on 31st March, 2011 was higher than the level of 31st March, 2010 byRs. 85 crore primarily due to increase in the stock of raw materials at Haldia works andalso increase in work-in-process.

10. Sundry Debtors:

(Rs. in crores)

The debtors as on 31st March, 2011 was higher by Rs. 150 crores than level of 31stMarch, 2010. The increase is in line with the increase in turnover.

11. Loans and Advances:

(Rs. in crores)

The loans and advances increased by Rs. 156 crores during FY 11 mainly due to increasein advance taxes, and insurance claims receivables.

12. Cash Flow and Net Debt:

Net Cash flow from operating activities: The net cash from operating activities isRs. 428 crores during FY 11 as compared to Rs. 843 crores during FY 10. The cash operatingprofit before working capital changes and direct taxes during FY 11 was Rs. 896 crores ascompared to Rs. 954 crores during FY 10. The change in working capital, during thefinancial year, was mainly due to increase in inventory, debtors and loans & advances.

Net Cash flow from investing activities: The net cash outflow from investingactivities amounted to Rs. 248 crores in FY 11 as against an outflow of Rs. 48 crores inFY 10. The outflow broadly represents capex of Rs. 323 crores and investment insubsidiaries of Rs. 170 crores partly offset by inflow of Rs. 172 crores on account ofsale of investments.

Net Cash flow from financing activities: The net cash outflow from financingactivities was Rs. 93 crores during FY 11 as compared to outflow of Rs. 706 crores duringFY 10. There is a inflow of Rs. 363 crores which is mainly on account of issue of sharesto Tata Sons Ltd.

Net Debt:

(Rs. in crores)

Net debt as on 31st March, 2011 is Rs. 2177 crores as compared to Rs. 2148 crores as on31st March, 2010. During the current fiscal year, the total debt increased by Rs. 30crores as compared to the balances as on 31st March, 2010 mainly due to availment ofbuyers’ credit partly offset by repayment of Senior Notes.

1. Net Sales/Income from Operations:

(Rs. in crores)

Comments:

Sales (net of duties) increased by 16% during FY 11 primarily due to:

a. Inorganic Chemicals: higher volumes across the continents (due to global economicrecovery) and higher realisation (India & Africa) offset by lower realisation (Europeand US) and appreciating INR (average rate) compared to GBP & USD as compared to theprevious year. British Salt Limited, which became the subsidiary during the Q-IV, 10-11,contributed Rs. 78 crores towards increase in net sales.

b. Fertilisers: higher realisation (at Haldia due to change in subsidy regime & atIMACID) partly offset by lower volumes (Urea, NPK and Phos acid). Also during FY 11, thereis a substantial increase in trading volumes viz. imported DAP and MOP compared toprevious year.

c. Rallis India Limited, which became a subsidiary of the company in November, 2009,has contributed Rs. 751 crores towards increase in net sales during the current year.

2. Raw Material consumed:

(Rs. in crores)

Comments:

Raw material consumed increased by 20% as compared to the previous year due to:

a. Inorganic Chemicals: increase in prices of Raw materials across continents (mainlylimestone, anthracite coal, coke) and poor plant efficiencies (Europe, Africa and India)marginally offset by lower production volumes (mainly in Europe) and appreciating INR(average rate) compared to GBP & USD.

b. Fertilisers: increase in the prices of raw materials (mainly phosphoric acid,sulphur, natural gas) partly offset by reduced production volumes in case of urea andcomplex fertilisers.

c. Rallis India Limited, which became a subsidiary of the Company in November 2009, hascontributed Rs. 394 crores towards increase in raw material consumption during the currentyear.

3. Cost of Traded Goods purchased:

(Rs. in crores)

Comments:

The cost of traded goods purchased has increased by 99% mainly on account ofsubstantially higher volumes traded products in fertiliser business (mainly DAP and MOP).

Rallis India Limited, which became a subsidiary of the Company in November 2009, hascontributed Rs. 74 crores towards increase in cost of traded goods purchased during thecurrent year.

4. Payments to and provisions for employees:

(Rs. in crores)

Comments:

The Staff costs increased by 10% mainly due to revised wages in India and US offset byappreciating INR (average rate) compared to GBP & USD and marginal reduction inmanpower in Europe. British Salt Limited, which became the subsidiary during Q-IV, FY10-11, contributed Rs. 10 crores towards increase in staff costs.

Rallis India Limited, which became a subsidiary of the Company in November 2009, hascontributed Rs. 42 crores towards increase in staff costs during the current year.

5. Power and Fuel:

(Rs. in crores)

Comments:

Power and Fuel charges have increased by 13% compared to the previous year due to:

a. Inorganic Chemicals: increase in input costs mixed with poor plant efficiencies(mainly India, Europe and Africa) offset by lower input cost (US) and appreciating INR(average rate) compared to GBP & USD. British Salt Limited, which became thesubsidiary during QIV, FY 10-11, contributed Rs. 15 crores towards increase in powercosts. (key materials used – Coal, Coke, HFO, NG).

b. Fertilisers: higher input costs (NG) partly offset by reduction due to change in mixi.e. increase in usage of natural gas compared to RLNG and naphtha & decrease inproduction volumes.

c. Rallis India Limited, which became a subsidiary of the Company in November 2009, hascontributed Rs. 22 crores towards increase in fuel costs during the current year.

6. Other Manufacturing Expenses:

(Rs. in crores)

Other Manufacturing expenses represent the following:

(Rs. in crores)

(*) - Others include insurance charges, lease rent, professional fees, hedging cost,travelling expense, loss on sale of assets sold or discarded (net), provision for doubtfuldebts and advances , provision for diminution in value of current investments, directorsfees/commission, expenditure transferred to capital account and other expenses.

The other manufacturing expenses during the FY 11 have increased by 2% compared to FY10 due to:

a. higher packing expenses due to higher volumes, sales promotion expenses (launch ofnew products), rates and taxes (on account of higher volumes), distributors commissions(due to higher customer discounts in case of Agri business), freight and forwardingexpenses (due to higher volumes), hedging cost and professional fees offset by reductionin stores and spares consumed (due to lower expense in Africa) rent, other administrativeexpenses and appreciating INR (average rate) compared to GBP & USD .

b. Movement in Inventory change (WIP and finished goods) in the current year wasprimarily on account of reduced stock levels (in case of Indian operations and overseassubsidiaries) in the PY and stock build up in the current year (mainly in India, Europeand US).

Rallis India Limited, which became a subsidiary of the Company in November 2009, hascontributed Rs. 79 crores to increase in other operating expenditure during the currentyear.

7. Borrowing Costs:

(Rs. in crores)

Comments: The reduction in borrowing costs is mainly due to:

- part repayment of term loan (pertaining to Tata Chemicals North America Inc. USA);

- replacement of high cost USPP debt with Bank of America loan;

- appreciation of INR (average rate) compared to GBP & USD;

- partly offset by interest on borrowings on account of British salt acquisition in thelast quarter.

8. Exceptional Items:

• VRS at Mithapur – Rs. 27 crores (302 temporary workmen opt for VRS).

• During the year the production at the Company’s Fertiliser Plant at Babralawas temporarily disrupted upto August 31, 2010 due to fault in Synthesis Converter in theammonia plant. For the year, TCL has accounted for LOP Rs. 36.09 crores. And Rs. 10.5crores towards material damage. The final claim as indicated by the surveyor could bearound Rs. 60 crores. In April 2011, TCL received ‘On Account’ payment of Rs. 20crores.

• STPP Mothball at Haldia – Rs. 10 crores.

• Recognition of Actuarial Gains / losses in Reserves w.e.f. April 01, 2009. Hadthe practice of recognising the actuarial gains and losses of pension plans of theoverseas subsidiaries in the Profit and Loss Account been followed, the consolidated netprofit before tax and net profit after tax and minority interest for the year would havebeen higher/(lower) by amounts as per table below:

(Rs. in crores)

Tata Chemicals Innovation Centre

The Tata Chemicals Innovation Centre (TC-IC) is located in Pune and has in its fold, 40scientists with an exciting spectrum of expertise including nanotechnology and materialsscience, biotechnology, inorganic chemistry and molecular biology along with catalysis andbioengineering. To support the R&D activities and ensure adequate traction withcustomers and the market, the Innovation Centre has dedicated Business Development andIntellectual Property Rights teams. Some of the projects on which TC-IC is currentlyworking include water purification, nutraceuticals, nano materials, agri solutions,surface coatings and alternate energy/next generation biofuels.

As part of focus on Innovation in Tata Chemicals, a world class research center withpilot plant facilities for scale-up has been designed and construction has begun inPirangut, Pune. This will enable expansion of the Innovation Centre to bring in additionalcritical expertise in applications development, process engineering etc.

Tata Chemicals Centre for Agri-Solutions and Technology

In order to provide appropriate advice to farmers on farming practices in general andcrop nutrition practices and solutions in particular, a development centre viz. Centre forAgri Solutions & Technology (CAT) has been set up in Aligarh (U.P.). This Centre isstaffed with experienced scientists who are working in various areas. During FY 2010-11,CAT, Aligarh was recognized as a DSIR approved laboratory and is involved in research anddevelopmental work related to crop nutritional aspects. The CAT team has developedcustomized fertiliser (CF) basal grades for wheat, rice, maize, potato and sugarcane foroperational regions around Babrala and sweet sorghum for growing regions in Maharashtrastate. Crop specific CF (foliar) grades were developed on R&D based field trials andwere quite effective on cost-benefit basis. The work on customised fertilisers hasresulted in the erection of a steam granulation plant in Babrala. Geo-referenced soilsamples from 21 districts around Babrala are being tested at the Plant Nutrition Lab ofCAT for chemical characteristics, for delineating soil fertility zones in the operationalterritory around Babrala region. CAT works closely with the R&D team in Pune inevaluating exciting opportunities in the application of nanotechnology and biotechnologyto plant nutrition. This collaboration is supported by grants from the Department ofBiotechnology.

HUMAN RESOURCES

As on March 31, 2011 TCL had 4,645 employees, 3,166 in India and 1,479 overseas. Thelong term strategic plan for HR is aligned to the Business Strategy. In line with thestrategy, the Company has made some changes in the organization structure and will befurther rolling out appropriate changes in the coming years to address emergingchallenges. TCL has already commenced the processes of standardizing HR systems andprocesses across geographies as a part of integration process with a view to improveoperational efficiencies. At TCL, the focus of learning and development is to buildfunctional capabilities of employees so that they are fully equipped to meet theexpectations of different stakeholders of the Company. A slew of leadership developmentinitiatives are being rolled out for our executives as a part of the capability program.

Safety, Health and Environment (SHE)

Improving work place safety continued to be top priority in all operations and thetotal recordable injury frequency rates are maintained and match world class levels. Theyear had no fatal incident and the focus on eliminating hazards at all sites continues.Health monitoring of Company employees, commensurate with the work environment havecontinued and there have been no significant observations relating to deficiencies inworkplace health and hygiene conditions. The SHE performance is being reviewed at allreview forums. All sites in India are certified to OHSAS 18001, ISO 14001 and BSC 5 StarSafety Rating. The Babrala operation is certified to Responsible Care RC 14001. TheBabrala and Haldia operations are certified to BSC 5 Star Environmental Sustainabilityrating. Tata Chemicals have become member of AIChE-Center for Chemical Process Safety(CCPS).

Mithapur plant has continued the DuPont Safety Way engagement to develop world classpractices. The Company received recognitions from National Safety Council of India,International Fertiliser Association, Fertiliser Association of India, Indian ChemicalCouncil, Gujarat Mines Safety for its effort on SHE. The Process Safety Managementpractices based on OSHA-USA and AIChE-CCPS guidelines are being introduced with thirdparty expert audits done at high risk chemicals handling systems at all sites.

The Company has complied with environmental consent conditions at all its locations.The Company continues to monitor "Green Manufacturing Index" on targets onenergy and water consumption, waste recycle and use of renewable energy.

The Company continues to be a "Responsible Care" Logo holding company grantedby Indian Chemical Council. All operations outside India follow the local safetyregulatory requirements and the work of integrating the measuring and reporting the SHEperformance on common metrics and practices is taken up. The Brunner Mond UK operationsare certified to OHSAS 18001.

Tata Chemicals launched this year the Wellness program to engage employees ondimensions like physical health, financial health and emotional health and was the themeof the annual employee engagement event called Oorja.

Energy Conservation, Climate Change and Clean Development Mechanisms

TCL is engaged in fostering Sustainability and introducing Climate Change strategiesinto its operations. The Corporate Technology and Sustainability Group is buildingnetworks within the Company and outside to work on sustainable manufacturing practices andrespond to the emerging expectations on Climate Change issues. TCL is signatory to UNGlobal Compact and the Global Reporting Initiative (GRI), Responsible Care, CII-Mission onSustainable Growth-Code for Ecologically Sustainable Businesses and the Global CorporateRoundtable on Climate Change at Earth Institute, Columbia University. During the year, itcontinued to hold the prestigious Responsible Care Logo granted by Indian ChemicalCouncil. TCL Babrala received in the year the CII-ITC Sustainability Prize and Mithapurgot the recommendation. Tata Chemicals Sustainability Report for the India operationsassured to GRI G3 Protocol is posted on the website. Tata Chemicals conducted thestakeholder engagement process for developing sustainability strategy with facilitation bySustainAbility, UK.

Manufacturing operations are working on "Green Manufacturing Index" to reduceenergy consumption, minimize water consumption, reduce pollution load by adopting theconcept of Reduce, Recycle & Reuse and has set targets in each aspect.

TCL is actively pursuing the Clean Development Mechanism (CDM) Process of UnitedNations Framework Convention on Climate Change (UNFCCC) to derive benefits from energyreduction and alternate fuel projects at its various plant locations and several projectshave been identified across Mithapur, Babrala and Haldia with potential revenues for theprotocol period up to 2012. Four projects are already registered and accruing benefitsthrough sale of carbon credits. TCL is also evaluating the possibility of availing carboncredits for specialty fertilisers, bio-fuels, water purifier and new products fromInnovation Center. TCL networks with several international agencies and Carbon Exchangesand interacts with Tata Corus Green Trade for aggregating the projects over a period oftime to realize the best value. TCL is a member of the Steering Committee and WorkingGroup of Climate Change formed for the Tata Group’s Response to Climate Change andthe CII Forum on National Action Plan for Climate Change.

The sustainability perspective in different regions globally is being managed as perregional mandates like the EU ETS in Europe and US EPA legislative actions in US andstrategic plans are being worked out. Tata Chemicals Europe Limited has proposed to builda new Sustainable Energy Plant on the site of the disused power station at the plant sitein Lostock. This will reduce reliance on expensive, high carbon fossil fuels by building ahighly efficient sustainable energy plant that will produce around a third the heat energyneeds from sustainable fuel - a non-hazardous, solid fuel made from pre-treated waste andsome plant-derived material, known as biomass. This would reduce GHG emissions, bypreventing methane release from landfills and reducing the need to burn fossil fuels.

TCL has been included in the prestigious Standard and Poor’s Environment, Socialand Corporate Governing 50 India Index. The S & P ESG India Index provides investorswith an exposure to a liquid and tradable index of 50 of the best performing stocks in theIndian Market as measured by environmental, social and governance parameters. TataChemicals is ranked 4th in the list of top ten Corporate recognized on Carbon DisclosureLeadership Index (CDLI) in India, in the Carbon Disclosure Project 2010 India 200 Report.

Community Engagement & Environment Management

Care for the community and sustainability concerns are an integral part of TataChemicals’ Value system. Over the years, TCL has embedded these values into itsoperations in a variety of ways, such as promoting and establishing the Tata ChemicalsSociety for Rural Development (TCSRD), undertaking and establishing programs and processesfor greening and conservation and promotion of volunteerism within the organization. Anintegrated approach is adopted towards development, wherein, creating social capitalwithin the communities that it serves is given prime importance.

The social arm of the company, TCSRD continues to add value in the lives of the people,whom it is serving through its community development initiatives. TCSRD helps thecommunity to augment their natural resources through natural resource managementinitiatives, which encompasses water conservation and water management program, land andagriculture development program, animal husbandry and pond management program. A multifoldapproach has been taken to address the problem of unavailability of sufficient water fordrinking as well as irrigation. Drinking water taps connections along with 1674 Rain RoofWater Harvesting Structures (RRWHS) of 7000-10,000 litres water capacity have beeninstalled in 8 villages. In all TCSRD has treated 9000 hectares of land through its waterconservation and management program in 12 villages at Mithapur, TCSRD. Sanitation andpersonnel hygiene was also given importance this year. 921 individual sanitation blocks inall were constructed in selected villages of Mithapur and Babrala. 441.5 acres of land hasbeen reclaimed in the span of one year under the land and agriculture development program.Animal husbandry at Babrala and pond management program at Haldia remains the importantprogram to enhance the family income of the villagers. So far, 115 ponds have beenprepared for fisheries.

TCSRD under its livelihood development programs has been forming self help groups andpromoting self employment through the Rural Entrepreneurship Development Program (REDP).These programs including vocational training program has helped the villagers to becomeself-reliant. 521 people have been trained under the REDP program and 682 have beentrained across five trades under the vocational training program during the year. Tilldate, 375 SHGs have been formed both in Mithapur and Babrala.

"Uday" – a Rural BPO, set up in partnership with Tata Business ServiceSolutions (TBSS) at Mithapur and Babrala to help bridge the digital divide between therural and urban population, continued to provide employment to 216 educated rural youth inall. "Okhai" a well-known brand for handicrafts and garments made by communitiesaround Mithapur and Babrala has more than 450 women associated with it. Going forward,Okhai will integrate all such initiatives that are linked to promotion of rural and localhandicraft under it with an aim to empower the artisans associated with it.

On the conservation front, the Company continues to support the "Dharti KoArpan" programs. These include efforts to save the Asiatic Lion by constructingparapet wall around 1002 open wells in the Gir Wildlife sanctuary in association with theGujarat Forest Department and Mangrove plantation in association with International Unionfor Conservation of Nature (IUCN) under Mangroves for future (MFF) initiative. Till now,mangrove plantation work on 40 acres of tidal mudflats at the Rukshmani creek site nearDwarka has been completed and around 50,000 seedlings of ‘Avicennia marina’ mangrovehave been planted. "Grow Trees", a Mumbai based organization hasshown interest in supporting the mangrove plantation program. TCL has also promotedeco-clubs in the rural schools and 29 such clubs promoting understanding and awarenessabout environment and ecology have been formed both in Mithapur and Haldia. Organising anEco fair was one of the important activities under the eco club this year. TCL hascontinued to provide support to "Save the Whale Shark Campaign" to ensure thelong term survival of the largest fish in the world which is in the critically endangeredlist. This year, TCL took the scientific study on the whale shark further; the whale sharkwas tagged using the satellite transmitters to track the migratory pattern. TCL alsocontinued with its work on conservation of coral reef. Electronic submarine data loggerhas been deployed to monitor the water parameters. Both these programs are being done incollaboration with Wildlife Trust of India. Work on conservation of local florabiodiversity continues. 30 acres exclusive plantation of Gugal (an endangered species) hasbeen done so far.

INTERNAL CONTROLS AND RISK MANAGEMENT

The Company believes that good internal control is an intrinsic part of the overallgovernance process and freedom of management should be exercised within a framework ofappropriate checks and balances. TCL remains committed to ensuring an effective internalcontrol environment that provides assurance on the efficacy of operations and security ofassets. The Company has robust systems for internal audit, risk assessment and mitigationand has an independent Internal Audit Department with well established internal controland risk management processes both at business and corporate level. The head of theInternal Audit Department reports directly to the Chairman of the Audit Committee of theBoard of Directors, thereby ensuring total independence.

The Corporate Audit function plays a key role in providing to both the operatingmanagement and the Audit Committee of the Board an objective view and reassurance of theoverall control systems and effectiveness of the risk management process across TCL andits subsidiaries. Corporate Audit also assesses opportunities for improvement in businessprocesses, systems and controls and provides recommendations designed to add value tooperations.

The scope and authority of the Corporate Audit Department is derived from the AuditCharter approved by the Audit Committee. Internal Audits at TCL are performed by anin-house team of multi-disciplinary professionals comprising Chartered Accountants,Engineers and Management graduates. Reviews are conducted on an ongoing basis, based on acomprehensive risk-based audit plan, which is approved by the Audit Committee at thebeginning of the year. The internal audit department which operates on a decentralizedbasis, continuously monitors the adequacy and effectiveness of the internal controlenvironment across the Company and the status of compliance with operating systems,internal policies and regulatory requirement. Besides, validation of IT security andBusiness Continuity Plans receives focused attention from the internal audit team. TheAudit Committee meets on a quarterly basis to review and discuss the reports submitted bythe Head Audit and also review closure of all agreed actions. The Audit Committee alsomeets the Statutory Auditors separately to ascertain their views on the adequacy andefficacy of internal control systems. A peer review of the Internal Audit function is doneonce in four years to assess quality effectiveness of internal audits with reference tostandards and best practices. In keeping with this, a peer review was done in the firstquarter of 2011 by a leading firm and the conclusions /recommendations shared with theAudit Committee. While the overall ratings were excellent, the Company will work towardsfurther raising the bar.

At TCL, we believe that every employee has a role to play in fostering an environmentin which controls, assurance, accountability & ethical behavior are given highimportance. To supplement the reviews carried out by the internal audit teams, we followan elaborate system of Control Self Assurance (CSA) (self audit) which is carried outthrough the year. The CSA coverage includes all critical departments in the organizationand also important third party operations like CFA’s & Salt Packing Centres. TheIT enabled CSA process provides a good bottom-up approach and build up for the CEO/CFOcertification as required by clause 49 of the listing agreement, besides helping inawareness creation of controls across a wide segment of TCL employees.

Risk Management and Internal audit functions complement each other at TCL. Over theyears, the Enterprise Risk Management (ERM) process at TCL, has evolved into a robustexercise entailing a balanced bottom up and top down approach, covering all units,functions and departments of TCL and its subsidiaries. The basic framework followed is theinternational standard AS/NZS 4360:1999.

TCL’s risk identification and assessment process is dynamic and hence the Companyhas been able to identify, monitor and mitigate the most relevant strategic andoperational risks both during periods of accelerated growth and recessionary pressures.

Integration with Strategy and Business Planning: Identified risks are used as an inputwhilst developing the strategy and business plans. The Company strives to identifyopportunities that enhance organizational values while managing or mitigating risks thatcan adversely impact its future performance.

The Risk management framework at TCL encompasses the following activities:

- Risk Identification: A periodic assessment across the Company and the subsidiariestogether with a trigger based assessment is undertaken to identify and thereafterprioritize significant risks. This assessment is based on an online risk perceptionsurvey, environment scanning and inputs from key stakeholders.

- Risk Measurement and control: Owners are identified for all identified risks andthey go on to develop and deploy mitigation strategies. Measurement indices are used toevaluate effectiveness of the mitigation plans.

- Risk Reporting and Review: Besides detailed review by the Executive Committee,Enterprise Risks are reviewed quarterly by the Audit Committee of the Board. Risk ownerspresent status updates on their mitigation plans.

Some of the major risks and concerns identified are:

1. Financial Risks: TCLs breadth in international operations, our foreign currencyborrowings and our dependency on imports for the phosphatic fertilisers, continue tosubject us to risks from changes in the relative value of currencies. Our elaborateTreasury policy ensures that foreign exchange exposures are within prescribed limits andthe use of foreign exchange forward contracts is resorted to judiciously. We have aseparate Risk Management Committee which monitors & helps mitigate our currency andinterest rate risks.

2. Government Subsidy on sale of fertilisers: Effective April 1, 2010, the Governmenthas introduced a Nutrient Based Subsidy for Phosphatic & Potash based fertilisers.This change could result in margin pressures over the short/medium term. Uncertaintyregarding the timing of receipts of government subsidy in our fertiliser business is amajor factor affecting cash flows and hence working capital requirements. Here again, ourtreasury policy anticipates this risk and adequate precautions have been built in toaddress the issue.

3. Input costs and securitization of raw materials: The prices of raw materials forphosphatic fertilisers are subject to economic conditions and global demand-supplybalances. With the change in policy to Nutrient Based Subsidy, it’s imperative thatthe imports are competitive. While TCL has entered into long term supply contracts for itskey raw materials, the pricing of these are normally formula based. TCL actively monitorsthe environment for opportunities and maintains good supplier relationships to ensureminimal impact from commodity price fluctuations. Recent acquisition of British Salt byTata Chemicals Europe was a key step in securitizing brine supply for future.

4. People and Talent: Attracting and retaining talented employees is core to oursuccess. TCL has over the years embarked on several "people initiatives" toenhance the environment and help employees achieve their personal and professional goals.Work life balance is consciously pursued. TCLs performance – appraisal systems arewell integrated to our business objectives and help bring out the best in individuals.Investments in employees through training are constantly made to ensure TCL equips itsemployees for challenges in their roles.

5. Safety and Environment related risks: TCL is conscious of its strong corporatereputation and the positive role it can play by focusing on social and environmentalissues. Towards this, the Company has set very exacting standards in safety, ethics andenvironmental management. The Company continues to recognize the importance of safety andenvironmental issues in its operations and have established comprehensive indicators totrack performance in these areas. TCL values the safety of its employees and constantlyraises the bar in ensuring a safe work place.

Statements in this Management Discussion and Analysis describing the Company’sobjectives, projections, estimates and expectations may be ‘forward lookingstatements’ within the meaning of applicable laws and regulations. Actual resultsmight differ substantially or materially from those expressed or implied. Importantdevelopments that could affect the Company’s operations include a downtrend in theagriculture, fabric wash and glass industry- global or domestic or both, significantchanges in political and economic environment in India or key markets abroad, tax laws,litigation, labour relations, exchange rate fluctuations, interest and other costs.