Vardhman Polytex Ltd

(a) INDUSTRY STRUCTURE, DEVELOPMENT & FUTURE OUTLOOK

The Indian Economy, after exhibiting strong growth during the second quarter of2008-09, has experienced moderation in the wake of the global economic slowdown. Despitethe Global financial crisis, 6.7 per cent growth in the year under review makes India thesecond fastest growing economy in the World. Due to the global slowdown, every industry inIndia has been adversely affected. Textile Sector is not an exception to this. Thefinancial crisis has swallowed the 55.7% market capitalization in the Textile Industry.Despite the strengthening of the Dollar against Rupee, the textile exporters could notencase the opportunity due to softening of prices in the International Market. Further,for the readymade garments, USA is considered to be the biggest market and is known forthe consumerism. With the collapse of US economy, the oveta demand to the teady madegarments saw a southward trend resulting in decrease in the demand of the yarn vis a visfabrics.

Although, the Government has taken steps for the improvement of textile sector with theallocation of Rs. 1090 crore for TUFS for the year 2008-09 but such nominal increase inthe TUFS allocation would not service the existing TUFS loans. The textile industrycontinues to suffer from lack of demand, and high costs of not only inputs, but alsohigher fixed costs, in view of the huge capacity created in the last few years, and sharpfall in utilization thereof, plus the finance cost due to high interest rates. Theindustry's immediate concern has not been addressed in terms of providing cotton at theinternational rates, refund of accumulated cenvat credit or alternatively provideinterest-free loan.

(b) INTERNAL CONTROL SYSTEMS & ADEQUACY:

The Company has adequate system of internal control. There is system of continuousInternal Audit, which aims at ensuring effectiveness and efficiency of systems andoperations. Independent internal auditors conduct the internal audit and the Audit subcommittee of the Board consisting of independent Directors reviews their report. Further,the Company has also taken steps to develop a mechanism to assess and minimize the risksby having a Risk Management Committee. During the year under review, the Company hassuccessfully implemented SAP through which all the Units, Offices and Branches have beenconnected.

(c) HUMAN RESOURCE MANAGEMENT :

We at Oswal Group, give utmost importance to human Resource. We consider "HumanResource as Human Capital". We believe in development of Human Resource. HumanResource department is flexible & believes in customization. Career planning&growth is on the top of our agenda hence we customize career paths and retentionplans according to the unique needs of the organization & individuals. We stronglybelieve on Performance Management System & always explore and Tap high potential atGroup level to meet the new challenges & Competition. Our main tool is Training&Development of talent at various levels.

(d) MANAGEMENT PERCEPTION OF RISKS & CONCERNS:

Indian Textile Industry, being one of the major industry, is facing major challenges interms of economic crisis and bottlenecks in the availability of its major raw materialviz. cotton at competitive prices. Indian Cotton economy continues to face certainweakness such excessive dependence on weather and absence of healthy credit mechanism forcotton growers. In "fact, the production of Cotton in the year under review has alsocome down to 29 million bales from 31.50 million bales in the year 2007-08 registering anegative growth of 7.94%. Further, the export competitiveness of the industry is alreadyreeling under the pressures of high cost of cotton on account of unrealistic rise of over40%> of MSP of cotton. Due to such high prices of cotton, the industry was holding onto the purchase of cotton. As a result, the industry has bought the cotton on unexpectedhigh prices which has impacted the profitability to a great extent.

On the other hand, textile exports have also been adversely hit by a wave ofprotectionist & trade defense measures adopted by certain countries across the globeto protect their domestic production. Further, as per International Monetary Fund (IMF),the global crisis is expected to last for several more quarters. In the light of currenteconomic scenario, the Government should provide relief measures for Textile Industry forits survival and growth.

a) Fixed Assets:

The gross fixed assets as at 31st March, 2009 were Rs. 44283.41 lac as against Rs.40630.43 lac in the previous year. The Capital work-in-progress as on 31st March, 2009 wasRs. 375.87 lac.

b) Working Capital:

The net current assets as on 31st March, 2009 were Rs. 23617.10 lac as compared to Rs.25796.49 lac in the previous year. Inventory level was Rs. 8184.89 lac. as against Rs.13736.98 lac in the previous year. Debtors outstanding for more than six months were Rs.886.92 lac as compared to Rs. 847.95 lac. in the previous year.

LIQUIDITY & CAPITAL RESOURCES