Videocon Industries Ltd

This Management Discussion and Analysis Report is prepared in adherence to the spiritenunciated in the Code of Corporate Governance, approved by the Securities and ExchangeBoard of India and in compliance with the provisions of the Listing Agreement.

This Management Discussion and Analysis Report comprises of the following:

• Industry Overview

• Opportunities and Threats

• Segment wise performance

• Outlook

• Risks and Concerns

• Internal Control Systems and their Adequacy

• Material Developments in Human Resources

INDUSTRY OVERVIEW

The Company is among the emerging giants of the world in consumer electronics and homeappliances category. Videocon offers a full range of products including televisions,washing machines, air-conditioners, refrigerators, audio products etc. The ConsumerElectronics and Home Appliances division has achieved a 20% growth over the last year.

The Consumer Electronics Industry broadly comprises of the following:

Emphasis has been given by manufacturers on improving efficiencies, consumer research,brand building, retail refurbishments, strengthening after sales service and focusing onhigh end products to maintain the bottom line. Videocon is also strengthening itsdistribution network, with an organized distribution channel for each district. Further,advertising remains a focal point for your Company.

Technological Innovations continue to be a priority area for manufacturers andemphasizes on offering that go beyond fulfilling basic necessities of consumers.

Your Company being a leader in consumer electronic and home appliances industry inIndia, is now focusing on this segment by customizing the products which suits Indiantastes, as Indian market is now changing dramatically and moving towards digitalizedproducts like LCDs, satellite LCDs, LEDs, fully automatic washing machines and musicsystems which are high on sound bars.

At macro level, the Indian Consumer Electronics Industry is scaling new heights,undeterred by the global melt-down, and is expected to continue its growth trajectory tobecome a key market in the global Consumer Electronics industry.

The Videocon brand has been driven by the philosophy of delighting its customers withunique offerings, which not only allows them to experience technologically advanced,innovative products and services, but also provides them with value-for-money proposition.Moreover, by mobilizing service engineers, aligning service centers with adequate sparesand above all catering on-time and at the doorstep of the customer, Videocon intends tocreate an additional customer base which will generate additional volumes for the Company.

Videocon today enjoys a pre-eminent position in terms of Sales & CustomerSatisfaction in most of its consumer products like Color Televisions, Washing Machines,Air Conditioners, Refrigerators, Microwave Ovens and Small Home appliances, selling themthrough a Multi-Brand strategy.

2010 was a year of great innovations when the Company launched various products suchas:

• The world’s first satellite LCD Range in India

• India’s first tilt drum washing machine

• India’s firsttop load fully-automatic washing machine with a direct drivemotor

• India’s first touch-pad microwave

• India’s first five star and four star BEE rated washing machines

The Company intends to invest significantly into Research and Development activities,develop new products to meet the ever increasing demands of the customers.

The Company, in coming year, plans to focus on launching innovative products in washingmachine, LCD and LED Segments.

The Company’s vision for 2011 is that for every ten products sold in the IndianMarket for any category of consumer durables, at least four should be from the VideoconGroup.

Color Televisions:

Televisions continue to be the mainstay of the Consumer Electronics Industry in India,along with the transition occurring to new technologies such as LCD and LED. The demandfor LCD TVs has been growing at a rapid scale and is showing a consistent growth in saleswith increasing preference for Full High Definition TV with better image quality, audioclarity, and color resolution. The growing preference for LCD televisions in Indiareflects the global trend in the category at large. LED TVs are to be the next big forcein India. The Flat Panel Display (FPD) TV segment in India is poised for significantgrowing at a rate of over 60% Year on Year basis.

The Company plans to focus on launching of innovative products in LCD and LED segments.The Company is also looking at increasing television exports in the markets of the MiddleEast, Europe and China.

Growth drivers for the CTV business in India are:

• Growth in income levels resulting in more disposable incomes;

• Emergence of nuclear families;

• Growth of entertainment and media and the rising penetration of cinemas;

• Pride of ownership to own an FPD among the middle class;

• Decline in prices with economies of scale making technology more affordable;

• Availability of credit;

• Rising aspirational levels amongst Indian consumers to have a better and betterlife style; and

• Growth of retail industry thereby making products easily availa ble.

Refrigerators:

Refrigerators for long have remained a high involvement purchase but once bought and inuse, their utility and indispensability takes an edge over any other parameter. Thus, theCompany now realizes that it is important to give customers that extra something in orderto sell and gain top-of-the-mind recall. Improved and Premium Exteriors (multi-colored PCMfinish,designer patterns, mirror finish, VCM finishes) with Innovative technology, wouldbe the prime focus for the Company in the coming year. The Refrigerator market isestimated to grow at a CAGR of 10% with the Frost-Free segment gaining mind space withurban consumers.

The Direct Cool category will continue to grow at a steady rate, but the demand forFrost Free refrigerators will grow at a faster rate with consumer lifestyles &preferences changing . Entry level & medium segment models would see more changes withregards to finish & energy efficiency features whereas premium segment (HEFF &SBS) would be driven by lifestyle features like mirror finish, aesthetically improveddesigner patterns with utility features in the interiors.

Air Conditioners:

The Air Conditioning industry in India, contrary to its global counterpart has apositive growth outlook. The domestic demand for Air Conditioners is rising because ofmajor growth in Infrastructure Sector. The current construction boom is enabling India toemerge as one of the World’s leading user of Green Building Technology, in the largerEco Living framework. Due to high temperatures all round the year and the risingdisposable incomes, this country offers the air conditioning sector unparalleled prospectsfor growth. The Air Conditioner market has been witnessing a phenomenal growth of around25%. This trend is expected to continue in this year and consequently make the mainplayers take a bullish stance with the new product & technology offers.

The unique growth drivers of the Air Conditioner industry are:

• Change in weather conditions with prolonged summers;

• Acceptance of Air conditioners as a utility product rather than luxury;

• Consumer trend shifting towards more energy efficient Air Condit ioners;

• Growth in real estate and infrastructure industry;

• Easy finance options; and

• Increase in disposable income.

Washing Machines:

The washing machine industry has shown a steady growth over the last decade and isexpected to grow at a rate of 20% over the next few years. Semi-automatic machines havebetter penetration in rural & semi-urban areas due to their easy operation-ability& low cost; whereas Fully Automatic machines have found their buyers in metros.

Various key drivers for growth in washing machine industry are:

• Rapid urbanisation leading to fast & busy lifestyles. Washing clothes hasalways been considered tedious & time-consuming;

• Growth of nuclear families;

• Growth in working women & youth populations;

• Easy credit availability;

• Rise in competition leading to price decline across segments; and

• Washing machine now considered a necessity rather than a luxur y.

Microwave Ovens:

The Indian Microwave market has registered a healthy growth of 29% in 2009-10,after a period of slow growth in 2008-09. As a result of economic revival and domesticspends going up, microwaves are slowly creeping up the shopper’s priority list ofappliances, for the home.

Predominantly, the Microwave market in India consists of Solo, Grill & Convectionsegments. Solo microwaves have seen a steady decline in popularity in urban &semi-urban areas but still finds buyers in smaller cities and rural areas, due to lowprices. Convections due to their wider applicability , growing consumer awareness, focusby manufacturer’s on building this sub category and price erosion due to competition,continues to register maximum growth.

Glass Shells:

Glass panels and funnels are the key components of Cathod Ray Tubes (CRTs). YourCompany is one of the largest companies to manufacture glass panels and funnels for colourTVs in India. The Company also sell panels and funnels internationally to Europe, SouthEast Asia and Russia. Your Company provides a broad range of glass panels and funnels withsizes ranging from 14" to 29". These products also include glass panels andfunnels for true flat and slim CRTs.

INDIAN OIL & GAS INDUSTRY

Currently, of the six core industries identified in India, the oil and gas sector haspropelled the growth of Indian economy most and the Government is looking for moreinvestors in the sector. India has been growing at a decent rate annually and is committedto accelerate the growth momentum in the years to come. The Indian oil and gas sector isof strategic importance and plays a predominantly pivotal role in influencing decisions inall other spheres of the economy. The growth has been commendable and will accelerate infuture consequently encouraging all round growth and development. India is currentlyworld’s fifth biggest energy consumer and the need is continuously growing.

Total production of crude oil stood at 33.7 Million Metric Tonnes (MMT) in 2009 10, 0.6per cent higher than the production in 2008-09 (33.5 MMT). In 2009 10, total domestic oilconsumption stood at 160 MMT, a decrease of 0.5 per cent over the previous year. In 200910, offshore gas production accounted for 81.7 per cent of total annual gas production inIndia. The remaining share was contributed by onshore production.

The Government realised the need to explore more areas and introduced New ExplorationLicensing Policy (NELP) to encourage the private sector to invest in exploration of oil.In 2010, the Indian Ministry of Petroleum and Natural Gas launched ninth round on 15October 2010.

Oil & Gas Segment of Videocon:

Your Company along with subsidiaries/joint venture, have participating interest in thefollowing oil and gas fields.

* The oil blocks in Brazil are held by IBV Brasil Petroleo Limitada, which is 50:50joint venture between the Company and Bharat Petro Resources Limited. The participatinginterests provided in the aforesaid table is reflective of our effective interest only.

Opportunities related to Consumer Electronics Business:

1. Majority of consumer durable products are becoming a necessity rather than luxuryproduct for an average household.

2. The penetration/ ownership level is still low for major segments like refrigerators,air conditioners & washing machines. The divide between Upper, Upper Middle, Middle,Lower Middle and Lower class has been diminishing. Hence, ownership aspiration at ahousehold level has been increasing at a fast rate.

3. Increased awareness levels among youth, higher disposable incomes class, access totechnology and readily available information are contributing to growing demand.

4. Adoption and exposure to Western Lifestyle concepts like preserved food, conditionedair, ready to eat meals etc. in major urban and semi-urban centers.

5. Increased "Consumerism" in rural India attributed to mass advertising onTelevision and Print.

6. Prolonged summers, erratic weather conditions with varying humidity levels acrossthe country has led to a growth in demand for affordable cooling solutions hence rise indemand for Refrigerators, Air conditioners, Air Coolers.

7. Easy credit available in market/ easy financing from various lending institutions.

8. Rising competition among foreign players among themselves & with domesticcompanies have led to sharp decline in prices.

9. Improved infrastructure and connectivity has propelled the demand for betterlifestyle thereby increase in demand for consumer durables.

10. Growth in exports due to friendly export policies.

11. Increase in demand of energy efficient appliances.

12. Upgradation of standard of living.

Opportunities relating to Oil and Gas Business:

1. Geographical diversity in our assets enables us to maximize the potential forrevenue generating oil and gas assets.

2. Increase in demand for energy in Indian Market in line with Indian economic andindustrial development.

3. Exploration of additional hydrocarbon deposits within Ravva exploration block.

4. Exploration of oil and gas business through mergers and acquisi tions.

Threats relating to Consumer Electronics business:

1. Big marketing spends are required.

2. Pressure on margins because of increasing input costs. Price of major raw materialslike copper, iron & steel, crude oil, aluminum etc. have increased drastically overlast 5-6 years & continue to increase even now.

3. Brand image led sales is resulting into low profit business.

4. Production cost advantage likely to be eroded.

5. Rising interest rates.

6. Increase of foreign players in the Indian market leading to reduced product lifecycle. Companies thus have to innovate & improve on the existing products veryfrequently.

Threat relating to Oil and Gas business:

1. Increased competition could adversely affect the expansion plans by limiting thenumber of new exploration blocks that will be available to the Company in future.

2. Exposed to Government of India in respect of sales of oil and g as.

3. The oil and gas industry is extremely competitive and the Company may not besuccessful when tendering for further exploration blocks.

SEGMENT WISE PERFORMANCE

The Consolidated Financial Statements have been prepared in terms of AccountingStandard 21 on Consolidated Financial Statements, Accounting Standard 27 on FinancialReporting of Interests in Joint Venture, Accounting Standard 23 on Accounting forInvestments in Associates in Consolidated Financial Statements and accordingly, thesegment information as per Accounting Standard 17 on Segment Reporting has been presentedin consolidated financial statements.

The segment-wise turnover on consolidated basis is as under:

( Rs. Millions)

OUTLOOK

Your Company is looking to expand its product portfolio. This will be executed throughR & D as well as innovations. The Company has adopted the best and suitable technologyto suit Indian needs. The Company aims to focus on getting more production done in-houseand expand its manufacturing base in India. The Company plans to step up raw-materialsourcing and focus on R&D activities to control costs.

The Company plans to identify further oil and gas blocks that are suitable forexploration and have potential for production.

Risks associated with Consumer Electronics and Home Appliances:

• The Consumer Electronic and Home Appliances business is highly competitivethereby making it difficult for companies to increase the bottom line;

• There is a risk of assuming product liability, warranty and recall costs whichmay adversely affect results of operations and financial condition;

• Acceptance of technological innovation among Indian consumers;

• Too much dependability on any one distribution network might affect sales; and

• Brand loyalty among consumers adversely affects the acceptance of newtechnologies.

Risks associated with Oil & Gas Business:

• Risk of variation in the prices of oil and gas depending upon various factorsbeyond Company’s control.

• There is a risk of exploration blocks not yielding the expected results.

• Exploration and production of oil and gas and other natural resources whichinvolves a high degree of risk and no guarantee can be made on success of the discovery.

• Difficultyin managing the increased scale of our operations as a result of theCompany’s diversification into new business sector.

• Exposed to fluctuations in the foreign exchange market.

• The Company does not have any control on exploration and production JointVentures.

• Rapid increase in drilling costs and reduction in the availability of drillingequipment.

• Subject to various environment risks and regulations that cause the Company toincur significant capital and operating costs.

INTERNAL CONTROL FRAMEWORK - ADEQUACY; AND OPERATING EFFECTIVENESS

Your Company has established an Internal Control Framework that is considered adequatefor safeguarding its assets against any loss and unauthorized use. The internal controlsystem ensures the optimal utilization of resources and accurate reporting of financialtransactions and strict compliance with applicable laws and regulations. The Company hasin place well documented procedures covering all financial and operating functions. It isensured that the internal control mechanism is operating effectively at all times.

Your Company has a well defined organization structure with state of the art ERPsystems to connect its different business locations, dealers and vendors for real timeinformation exchange and which provide for:

• Ensuring compliance with all applicable statutes, policies, procedures, listingrequirements, management guidelines and circulars;

• Adherence to applicable accounting standards and policies;

• Accurate and prompt recording of transactions and its cross ver ification;

• Safeguarding of assets/resources and ensuring its optimum utili zation; and

• Information Technology system which include controls for facilitating the above.

Recognizing the important role of internal scrutiny, we have an internal audit functionwhich is empowered to examine the adequacy and the compliance with plans, procedures,policies and statutory requirements. The top management and the Audit Committee of theBoard review the findings and recommendations of the internal audit panel ensuring thatcorrective measures are initiated as appropriate.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Comparative performance of the Company on Stand-alone basis is set out hereunder:

Fixed Assets

The gross block of the Company as on 31st December, 2010, was Rs. 108,071.76 million.The net block as on that date was Rs. 60,031.06 million. During the period, there wereadditions in gross block of fixed Rs. 8,052.80 million.

Sales

During the period under review, the Company achieved gross sales of Rs. 146,759.27million as against Rs. 93,812.69 million during the previous year ended on 30th September,2009. Gross sales comprised of sales from Consumer Electronics and Home Appliances Segmentto the extent of Rs. 133,555.94 million as against Rs. 83,187.20 million for the previousyear, Oil and Gas Segment to the extent of Rs. 13,203.33 million as against Rs. 10,625.49million for the previous year ended on 30th September, 2009. During the period ended 31stDecember, 2010, the Oil prices were higher as compared to previous year. Further, theproduction of Oil and Gas during the period was lower compared to previous year.

Other Income

Other income for the period amounted to Rs. 429.86 million as against Rs. 340.15million for the previous year ended on 30th September, 2009. Other income comprises ofincome from investments and securities division, insurance claim received, interest andmiscellaneous income.

Cost of Goods Consumed/Sold

Cost of Goods Consumed stood at Rs. 91,123.17 million as against Rs. 56,143.96 millionfor the previous year ended on 30th September, 2009.

Production and Exploration Expenses for Oil and Gas

During the period under review, the production and exploration expenses for oil and gaswere Rs. 8,298.07 million as against Rs. 7,206.86 million for the previous year ended on30th September, 2009.

Salaries, Wages and Employees’ Benefits

During the period under review, the salaries, wages and employees’ benefits stoodat Rs. 2,280.07 million as against Rs. 1,264.23 million for the previous year ended on30th September, 2009.

Manufacturing and Other Expenses

During the period under review, the manufacturing and other expenses were Rs. 16,259.86million as against Rs. 9,436.94 million for the previous year ended on 30th September,2009.

Interest and Finance Charges

For the period ended 31st December, 2010, Interest and Finance charges amounted to Rs.8,931.56 million as against Rs. 6,363.61million for the previous year ended on 30thSeptember, 2009. The increase is mainly on account of increase in total borrowings.

Depreciation, Amortisation and Impairment

Depreciation, Amortisation and Impairment amounted to Rs. 7,129.62 million as againstRs. 5,771.52 million for the previous year ended on 30th September, 2009.

Profit Before Tax

As a result of the foregoing, the before tax was profit Rs. 10,504.42 million for theperiod ended 31st December, 2010, as against Rs. 5,783.44 million for the previous yearended on 30th September, 2009.

Provision for Taxation

Provision for Taxation includes Provision for Current Tax, Deferred Tax and FringeBenefit Tax. During the period under review, the Company has provided Rs. 1,811.25 millionfor Current Tax, Rs. 1,246.23 million for Deferred Tax and Rs. Nil for Fringe Benefit Taxas againstRs. 881.20 million for Current Tax, Rs. 879.09 million for Deferred Tax and Rs.16.53 million for Fringe Benefit Tax for the previous year ended on 30th September, 2009.

Net Profit

Net Profit of the Company for the period ended (15 months) on 31st December, assets tothe extent of 2010 was Rs. 7,446.94 million from Rs. 4,006.62 million for the previousyear ended 30th September, 2009.

MATERIAL DEVELOPMENTS ON HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT (INCLUDING NUMBEROF PEOPLE EMPLOYED)

"The Company depends extensively on its human assets and considers this as one ofthe most precious asset and not affordable to lose." The Company firmly believes thatits people are one of the biggest strengths and have been one of the major driving forcesbehind the rapid and successful growth of the Company. Your Company has been able tofine-tune talent with modern technologies and an ever-changing corporate environment. YourCompany aims at attracting, developing and retaining talent in the organization.

With this belief, the Company is continuously taking steps/measures to create aworkplace where every person is encouraged to optimize his/her full potential by availingof opportunities that exist across multiple functions, disciplines as well as geographies.

Various initiatives have been taken by the Company to create a sense of belongingnessamongst employees which acts as a catalyst in boosting their morale and motivating themleading to increased contribution per employee.

The Company is poised to take on the challenges with its work force of around 4,500employees and march towards achieving growth and success.

Industrial Relations remained cordial during the period under review.

Statements in this report describe the Company’s objectives, projections,estimates, expectations and predictions, may be ‘forward looking statements’within the meaning of applicable securities, laws and regulations. Actual results coulddiffer materially from those expressed or implied. The Company assumes no responsibilityto publicly amend, modify or revise any forward looking statements, on the basis of anysubsequent development, information or events or otherwise.