MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMY:

There is an apprehension that the process of global economic recovery that began afterthe financial crisis of the 2008 is beginning to stall and the sovereign debt crisis inthe euro zone area may persist for a while. There is an effort to build firewalls aroundthese danger zones, but the world has little experience with this; so we need to beprepared for breaches in the walls. The US economy has shown some improvement but economicgrowth remains sluggish. The global economic environment, which was weak at best throughthe early part of 2011, turned adverse after Sept-Oct. 2011. The global recovery wasthreatened by developments happening in the euro area and fragilities elsewhere. Theglobal GDP grew 3.8% in 2011, significantly lower than the 5.2%growth in 2010.

Capital flows to developing countries in 2011 declined considerably as compared toinflows of the previous year. Growth in U.S. is hardly emerging and E.U. seemed to haveentered recession, while growth in several major developing countries like Brazil, India,and to some extent Russia, South Africa and Turkey has slowed, in reaction to domesticpolicy tightening. As a result the general economic growth and world trade slowed sharply.

Volatility in capital flows resulting from the spillover effects of monetary policychoices and other uncertainties in the advanced financial markets further impactedexchange rates and made the task of macroeconomic management difficult in many emergingeconomies. This has brought out a new dimension of globalization in the post financialcrisis world, where easy monetary policy in one set of countries may result in inflationelsewhere due to cross-border capital flows. Unemployment situation in advanced economiesin general, and the peripheral economies of the eurozone in particular, which haddeteriorated in the wake of global crisis has not improved.

INDIAN ECONOMY:

India has over the years become a more open economy. The total share of imports andexports accounts for close to 50 per cent of GDP while that of capital inflows andoutflows measures up to 54 per cent of GDP. Yet economic outcomes and their impact ongrowth and development arising from the interaction between the domestic and externaleconomies are contingent on a large number of factors. Though economic outcomes are tosome extent contingent on choosing policies appropriate to the conditions characterizingan economy, the relative position of an economy vis-a-vis other countries in a globalsetting could facilitate (or even constrain) policy choices. In 2011-12, India founditself in the heart of these conflicting demands namely balancing growth and pricestability without adequate innovative autonomy in policy making to sustain economicgrowth. As a result, Indian economic growth declined to 6.5% in 2011-12 from 8.4% in2010-11. Despite low growth, India remains one of the fastest-growing global economies, asall major countries including the fast-growing emerging economies witnessed a significantslowdown. The economic slowdown seems to be there due to two critical factors: euro zonearea crisis and near-recessionary conditions prevailing in Europe; sluggish growth in manyother industrialised countries, like the US; stagnation in Japan; tightening of monetarypolicy, inflationary pricing trends in food and non-food categories, slowed downinvestment and growth, particularly in the industrial sector

INDIAN READY MADE APPAREL MARKET AN OVERVIEW

After the turmoil of 2011, the biggest challenges facing the global apparel industry in2012 continue to include rising costs, political and economic uncertainty, increasedcompetition at retail, pressure to integrate supply chains and the shift towards fasterfashion cycles. Against such a background, the ability to quickly adapt to changingconditions and pressures will separate the winners from the losers.

As our industry is based on change and is global in nature, the rising costs of labour,raw materials, issues of sustainability, and the uncertainty around sourcing are allchallenging it and forcing it to evolve.

Given the global nature of the industry, an issue affecting one part of the world cangreatly affect the sentiments in another part of the world. The changing role of Asia,particularly in China and India, as the primary producer of apparel and footwear, is adriving force behind this change. With its growing middle class, these two countries arebeginning to shift from an export-based economy to a domestic consumption economy.Comparing to the international readymade garment market, the Indian readymade garmentmarket is still in a growing phase.

FDI IN RETAIL: A MUTUALLY BENEFICIAL ARRANGEMENT

Without foreign input or large-scale investment, India will remain a kirana kingdom. Inthis situation, the addition of foreign knowledge and productivity gains through economiesof scale are more difficult to achieve, but not completely impossible. Indian companiesare already employing foreign techniques and making significant investments in the retailspace. Global players, with constraints in their domestic markets, are looking atemerging economies like India for growth. The Indian domestic players are also gearing upto face competition. Indian players are enhancing and diversifying their product range,improving the look and feel of products, creating a larger distribution presence (forexample, outlets, shop in shops, etc.). Obviously, for all this, the Indian players needfunds. Where will this funding come from, considering that most of the Indian retailplayers are currently bleeding. Access to global funds, therefore, becomes an imperativechoice.

India's market fundamentals already support growth- market size of $US 350 Billion,organized retail penetration is being only 58 percent and yet the industry growing at15-20 percent CAGR. Strong demographic dividends (for example, 350 million strong middleclass, large young brand conscious population where 50 percent are under 25 years) furtheradd to the strong credentials of the country. Creating an enabling investment frameworkwill contribute manifold and have a multiplier effect on the development of retailindustry as a whole.

THE CHALLENGES

Brands and retailers are feeling increased pressures; they're being squeezed tightly byrising costs of goods and uncertain consumer demands. Raw material and component prices,production and labour costs, excise duty and much higher logistic costs have beenfluctuating as much as the economic outlook. Consumer confidence has impacted theirspending habits in this recession and they expect better "deals" every time theybuy.

FUTURE OUTLOOK

In India, apparel industry seems to have not come out of its worst but stillexpectations hereon are showing some signs of growth. It is noticed that foreign buyersare keen on dealing with Indian garment exporters/ traders/retailers for various businessoptions. In the face of such demand, Indian garment manufacturers and exporters constantlyhave to maintain high quality in finished products and continuously provide innovations instyle & design to attract the attention of prospective buyers.

The growth in the Indian Garment Industry has come due to the rise in the earninglevels, changing consumption patterns, higher consumption level of the consumer in urbanand semi urban cities. There is a strong base for the production of raw materials andthere is a huge labour base in the market - both skilled and unskilled, which are stillavailable at cheaper price than other markets. This helps in the growth of the industry

With the recent developments in the Indian Retail Sector supported by governmentalaids, the Management of the Company is positive on the performance of the Company in thefinancial year 2012-13. Although the Company has suffered a loss during the financialyear, the management is very optimistic on the outlook of the Company in the years toCome. The management is working on the strategy to increase the sales/exports of theCompany and to reduce its financing costs, so as to recover from its losses.

FDI: IN INDIA

India's young population, higher disposal income, and up gradation in living standards,coupled with growing consumer demand, have made the country an emerging consumption storyand an attractive destination for FDI. Due to inaction on the part of Government to bringdown the reforms and clearance of pending bills with it, the confidence of Indianbusinessmen and investors is low at the moment, the liberalization of the FDI policy willact as a life-saving drug that will provide a big boost to the retail industry. FDI inretail has the potential to bring into India foreign capital, technology, and managerialexpertise of big international retailers. It can develop an efficient linkage between theback-end supply chain and the front-end via capital investment and technological inputs.

OPPORTUNITIES ANDTHREATS.

Opportunities:

Once the business climate improves, the Company proposes to have its retail outlets inthe Tier II Cities so that it can increase its presence across India, and reinstatingthose outlets which were shut down in the previous financial year.

Enhancing the role of value addition and innovation in apparel designing Looking at thenew avenues of collaboration with foreign brands.

Lower competition due to the elimination of all other players in the market underdiscount format. E-commerce

Threats:

Fluctuation in Rupee value

The steep fall & volatile fluctuation in rupee value posses a big threat to generalbusiness environment.

State of Recession in the economy

The apparel industry has got severely hit during recession because of less liquidity inthe market.

Competition from global players

The major brands from all over the world are giving tough competition to India.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The internal control system is supplemented by extensive internal audits, regularreviews by the management and well-documented policies and guidelines to ensurereliability of financial and all other records and to prepare financial statements andother data. Moreover, the Company continuously upgrades these systems in line with thebest accounting practices. The Company has independent audit systems to monitor the entireoperations and the Audit Committee of the Board reviews the findings and recommendationsof the internal auditors. The Company is continuously upgrading its internal controlsystems by measuring state of controls at various locations.

REVIEW PERFORMANCE

Your Company remains extremely buoyant and optimistic about the future of apparelretail in India. The company's mission is to provide not only a good clothing but also acomplete fashion guide which suggests what to wear, when to wear and where to wear. YourCompany is aimed at the middle class customer and everyone who wants premium clothing atbest prices, our brand is the good choice.

Financial Performance:

During the current financial year, the Company's sales in the domestic market havedeclined steeply due to recession in the Indian economy. The initial model followed byKoutons was of franchisee whom stock was given on consignments but at present it is beingconverted to cash & carry model. The loss during the current financial year is mainlyattributable to the decline in the domestic sales, declined production capacityutilization and selling of slow moving inventory below the cost price. However the Companyis confident that it will improve it's performance in the financial year 2012-13. As areason the Company considered the Preferential issue of equity shares to Promoters andothers by way of Preferential Allotment/Private Placement/QIP/ADR/GDR/FCCB issues or byany other means for a value upto USD 200 Million.

Discussion of Financial Performance with respect to Operational Performance

The financial statements have been prepared in accordance with the requirements of theCompanies Act, 1956 and applicable accounting standards issued by the Institute ofChartered Accountants of India. The details of the financial performance of the Companyare appearing in the Balance Sheet, Profit & Loss Accounts and other financialstatements forming part of this Annual Report. For financial highlights please referheading 'FINANCIAL RESULTS' of the Directors' Report.

Material Developments in Human Resources:

The Company regards its human resources as amongst its most valuable assets andproactively reviews policies and processes by creating a work environment that encouragesinitiative, provides challenges and opportunities and recognizes the performance andpotential of its employees attracting and retaining the best manpower available byproviding high degree of motivation, training and structured compensation was the mainthrust of the Human Resources Department this year.

The total number of employees of the Company as on March 31,2012 stood at 375.

Cautionary Statement:

This report may contain forward-looking statements based on certain assumptions andexpectations of future events. Actual performance, results or achievements may differ fromthose expressed or implied in any such forward-looking statements. The Company assumes noresponsibility to publicly amend, modify or revise any forward looking statements, on thebasis of any subsequent developments, information or event.