Emami Directors Report, Emami Reports by Directors

Directors Report	Year End : Mar '11

Dear Members, The Directors are pleased to present their report on the business and operations of the Company and audited accounts for the year ended March 31, 2011. The Management Discussion and Analysis has also been incorporated in this report. FMCG industry, 2010 The Rs. 130-bn FMCG sector, the fourth-largest in India, was affected by surging input costs in 2010-11. The sector grew 11% year-on-year over the last decade, tripling in from around Rs.47,000 crore in 2000-01 to Rs. 1,30,000 crore in 2010-11 (2.2% of GDP). The Indian FMCG sector grew 11.4% and 11% in the first and second quarters of 2010-11, compared with the overall 12% in 2009-10, owing to rising input costs (petroleum products and packaging materials) and food, among others. Performance highlights Your Company delivered another year of remarkable performance during a challenging economic period. While the economy grew attractively during the year, unprecedented volatility in input prices, driven by fluctuations in crude petroleum prices and agricultural crops, needed careful management. - Standalone revenue for 2010-11 was Rs.1,221 crore, a growth of 21.3 %, over Rs.1,007 crore in 2009-10 - Despite a sharp increase in input costs by 33.8%, there was an increase of 37.5% in profit after tax to Rs.227 crore (standalone) - Consolidated turnover for 2010-11 was Rs.1,278 crore, registering an increase of 23.1%, compared with Rs.1,038 crore in 2009-10 - Consolidated profit after tax for 2010-11 was Rs.229 crore as against Rs.170 crore in 2009-10, an increase of 34.8% This performance during an unfavourable industry situation was possible due to strong business accretive initiatives like aggressive marketing, innovative R&D, distinctive new launches, expansion of the distribution system, cost optimisation and financial management initiatives. The Company continues to focus on two objectives: Firstly, develop effective and innovative products based on the natural science of ayurveda using modern laboratory practices and marketing them aggressively; secondly, keep costs in control, which helped in the Company''s growing business profitably. A superior management team, aggressive branding strategies, strong R&D capabilities and striving for innovation are expected to reinforce the Company''s industry position graduating to the next level of growth Financial results (standalone) (Rs. in Lacs) Particulars 2010-11 2009-10 Operating Income 1,22,115 1,00,686 Profit before interest, depreciation & taxation 26,962 24,905 Interest (1,181) 2,095 Depreciation & Amortisation 11,603 11,749 Less: Transferred from general reserve 10,209 1,394 10,209 1,540 Profit Before Exceptional Items & Taxation 26,749 21,271 Exceptional Items:- - VRS compensation - 726 - Share Issue Expenses - 487 Profit Before Taxation 26,749 20,058 Less : Provision for taxation - Current tax (including FBT) 3,300 3,440 - Deferred Tax (net) 674 100 - Provision for taxation of earlier years 26 -22 Profit after taxation 22,749 16,540 Balance brought forward 1,383 2,463 Profit available for appropriation 24,132 19,003 Appropriation General reserve 15,209 12,309 Proposed dividend 5,296 4,539 Corporate dividend tax 880 772 Balance carried forward 2,747 1,383 24,132 19,003 Dividend The Board of Directors recommended a dividend of Rs. 3.50 per share (i.e. 350% on the share capital of the Company) for the financial year ended March 31, 2011 for its members, pending their approval. The dividend, if approved, will be paid to members whose names appear in the register of members as on August 8, 2011; with respect to the shares held in dematerialisation form, which will be paid to the members whose names are furnished by NSDL and CDSL as beneficial owners as on that date. The total dividend for the year amounts to Rs. 6,175 lacs, including the dividend distribution tax .The dividend payout ratio works out to 27.1% Economy, 2010 The Indian economy rebounded from the global financial crisis, chiefly owing to strong domestic demand with a growth in excess of 8% year-on-year in real terms. Merchandise exports (15% of GDP) returned to pre-financial crisis levels. Industrial expansion and high food prices, resulting from the combined effects of the weak 2009 monsoon and an inefficient food distribution system, drove inflation to a peak of 11% in the first half of the year, but gradually eased to single digit following a series of central bank interest rate hikes. Driven by a nominal annual growth rate of 13%, India''s economy is set to increase four-fold by 2020, with gross domestic product (GDP) surging to over USD4 trillion (about Rs. 205 lac crore) and per capita income rising to USD 3,213 from USD1,017. Annual incremental savings are also expected to increase four-fold to Rs. 72 lac crore [Source: Edelweiss Capital]. Concerns, 2011 Inflation: High inflation is likely to persist in 2011-12. Fiscal deficit: India''s public debt was placed at over 76% of GDP, exceeding expectations. Fiscal deficit was Rs. 3.69 trillion (.9 billion), equivalent to 4.7% of India''s GDP (Source: Reuters). The Union Budget emphasised the government''s commitment to fiscal consolidation by budgeting a lower fiscal deficit (4.6% of GDP in 2011-12 compared with 5.1% in 2010-11). The revenue deficit-to-GDP ratio is estimated to remain unchanged at 3.4% in 2011-12. Current account deficit is expected to increase, supported by a depreciation of the Indian Rupee, owing to high inflation and interest rates. FMCG industry outlook India''s FMCG segment is expected to grow at least 12% annually to Rs. 4,00,000 crore by 2020 and could rise to as high as 17% should GDP growth accelerate, leading to an overall industry size of Rs. 6,20,000 crore by 2020. The skin care segment is expected to report a compounded annual growth rate of nearly 13% through 2012, reaching USD365 million [Source: Bloomberg]. Low penetration of major segments indicates long- term growth story Concerns, 2011 The year 2010 was mixed for the Indian FMCG sector. It witnessed steady growth despite raw material inflation, affecting profitability. Prices of commodities like palm oil and other agricultural commodities rose sharply. Even as realisations are expected to remain range-bound, raw material costs will remain a concern, potentially reducing margins. Year of building organisational capabilities Raw material management The previous year witnessed a significant increase in input costs, largely owing to ever-increasing crude oil prices, surging inflation, bad commodity markets and increase in minimum wages. Rise in price of key inputs At Emami, principal raw material comprises petroleum-based LLP. Its price increased owing to a price rise in crude oil from USD85 per barrel in April 2010 to USD105 per barrel in March 2011. Besides, there was a growing price pressure in commodity items like menthol, camphor and metals (gold and silver, among others). The cost of gold rose sharply from 16,390/10 gm to Rs. 20,700/10 gm and silver rose sharply from Rs. 27,600/kg to Rs. 51,600/kg in 2010-11. As a result, the cost of goods sold increased by 4.2% of sales. Cost management As opposed to an ad hoc and arbitrary response to raw material cost movements, the Company institutionalised its cost management. The result was a deep scrutiny of existing cost influences, leading to proactive alterations and adaptations in raw material sizes and specifications. This was reflected in the prudent use of input substitutes without affecting product yield or quality. For instance, the Company graduated to the use of alternative plastic grades used in packaging, which are easily available and reasonably priced. It switched from a single blow mould to multi-cavity moulding, resulting in improved productivity with higher bottle production changeover flexibility. Purchasing policy As a deliberate strategy, the Company procured its raw material from vendors in non-excisable areas � Guwahati (Assam), Baddi (Himachal Pradesh) � at cost-effective prices. It also imported inputs like micro crystalline wax, methyl salicylates, soap noodles, lumino peptide and ozokerite wax. Vendor relationships The Company adopted stringent policies for selecting vendors, based on plant proximity, appropriate quality certifications, financial stability and product quality, among others. Operations In a business marked by competitive margins, there was an increasing need to leverage operational efficiency and circumvent rising costs. Highlights, 2010-11 - Acquired infrastructure in Egypt to establish a manufacturing facility - Commenced operations for setting up a manufacturing facility in Bangladesh - Revamped the BT Road factory to comply with WHO GMP - Dedicated units at Dongri and BT Road for exports Initiatives, 2010-11 - Imported spout machines from Spain to design new packages for Boroplus Antiseptic Cream and Fair and Handsome - Rationalised GSM of laminates and boards to compensate for increased raw material costs - Introduced automation in Boroplus lotion, balm and Malai Kesar - Used multi-cavity moulds (IBM - Injection blow mould and EBM - Extrusion Blow Mould) which helps increase output and simultaneously reduce cost per unit - Started using the unique bi-colour cube technology, the first to do so in India; this technology enabled Emami to change Zandu Balm and Mentho Plus packaging to counter spurious products. Currently, both products are available in bi-colour packaging, reducing duplication to a great extent. - Trained the floor staff in WHO GMP, WCM (World Class Manufacturing) and TPM (Total Plant Management) practices - Started the trial project for contract manufacture of menthol, switching from buying the product directly from the market, consequently reducing costs - Initiated cost-effective purchases through the e-auction route. Ernst & Young (E&Y) thoroughly scrutinised and reviewed the portal''s purchase system. - Conducted various audits at every quarter - technical and SHE (Safety, Health & Environment), among others Road ahead - Expand the Pantnagar unit for the manufacture of Boroplus Antiseptic Cream, Himani Fast Relief, Navratan Oil and Mentho Plus Balm - Revamp the two Zandu units in Vapi and Masat in line with WHO GMP certification - Establish a new plant for manufacturing Boroplus cream at BT Road, Kolkata - Establish a new R&D facility and a packaging unit at BT Road, Kolkata - Change the packaging of Zandu products Logistics In a business where products are manufactured at different locations and consumers live all across the country, it is imperative to ensure the availability of the right product at the right place at the right time at an optimal cost. Hence, efficient planning and cost play an effective role in the execution of finished goods and logistics planning, leading to a potent business strategy. The year 2010-11 was challenging as the Company encountered a severe pricing pressure. Between March and July 2010, fuel rates spiralled 14%. During the year, we also noticed increase in the cost of consumables like lubricants, spares and tyres by about 20%. Toll taxes also increased. The Company, however, managed it efficiently. Highlights, 2010-11 - Improved risk management initiatives in logistics, leading to a substantial reduction in transit losses - Commissioned two warehouses (Bhagalpur in East Bihar and Hubli in North Karnataka) - Reduced the number of transportation vendors to leverage economies of scale - Integrated S&OP process for Zandu products with the existing Emami distribution channel - Sustained S&OP meets, which improved forecasting and stock availability as per demand - The Company moved about 90% of its products by road - The Company possessed 33 pan- India warehouses with a cumulative space of 3 lac sq. ft The Company turned its inventory 12 times during the year under review - The Company leveraged the use of centralised IT in planning. Initiatives - To mitigate transit losses, the Company strengthened its contractual terms and conditions with transportation service providers, quarterly review mechanism introduced to monitor transporter SLA - By using the right vehicle for the right product - voluminous products in large containers and dense/heavy products in open trucks - the Company reduced logistics cost. - By mapping lead times precisely from our diverse manufacturing points to various depots, we ensured timely delivery. - We encouraged vendors to participate in reverse auctions, leading to superior value for all. Road ahead - Establish own warehouses in Indore (25,000 sq. ft), Kolkata (35,000 sq. ft), Ambala (1,00,000 sq. ft), Hyderabad (30,000 sq. ft) and Patna (20,000 sq. ft) for the following benefits: Rental saving, use of warehouses customised as per needs, smooth product movement, energy savings through the green warehousing concept (low energy turbo- ventilators instead of energy- guzzling exhaust fans, maximising sky lighting and water harvesting) - Widen the hub-and-spoke distribution (in addition to one in South India) to West, North (with one warehouse each in Ambala and Delhi) and East India with the following benefits: Quicker response to demand upturns in the hinterland. - Implement Optisuite (an add-on to SAP) to track statutory documentation utilised in transportation - Automate supply chain planning process Sales and distribution In the FMCG industry, it is imperative to reach products to locations enjoying consumer presence and demand, enhancing sale prospects. Highlights, 2010-11 Witnessed an increase in consolidated revenue to Rs.1,278 crores from RS. 1,038 crores in 2009-10 - Registered a 20.2% growth in the domestic sector and an overall growth of 23.1% Rs. Added 100 super stockists, catering to 3,000 sub-stockists in remote locations with populations below 50,000 Increased direct retail outlets by 25,000 to 4,50,000 - Initiated two new depots (Bhagalpur and Hubli) to cater to emerging needs in Bihar and North Karnataka Initiatives Integrated the distribution network of Zandu balm in North, East and West India with Emami - Segregated sales in two leading states - UP and Andhra Pradesh - across the urban and rural population, leveraging their brand and enhancing accountability and transparency - Identified 84 districts across eight states, covering 3,000 villages for direct network in rural India - Embarked on a project called ''Swadesh'', where Emami through its field staff covered rural markets directly through a dedicated organisation structure for rural operation - Implemented standard distributor billing software, covering 235 key distributors (constituting 50-55% of the entire sales) to track, measure and maintain transparency in secondary sales Road ahead - Focus on the rural business and cover eight more states for direct networking - Increase manpower for modern trade and rural business at the direct and indirect sales levels - Cover 84 districts under ''Project Swadesh'' by November, 2011 - Reorganise the sales team, decentralise the organisational structure towards regional heads, accelerate decision-making and add organisational value - Add 100,000-odd outlets into direct coverage in urban and rural India Information technology Emami''s business runs on SAP ECC 5.0, which manages and connects various organisational arms like material handling, production planning, sales / distribution, finance and quality checks, among others. Highlights, 2010-11 - Commenced two key projects - SAP Human Capital Management (SAP HCM) and Form Tracking module -SAP Human Capital Management (SAP HCM): This four-module software (personnel administration, organisation management, employee information system and leave, travel and payroll management) will Clean, organised and safe manufacturing facility rationalise structures, decentralise payroll, eliminate paperwork, enhance transparency and strengthen workflow efficiency. The same portal will serve as an intranet for information sharing. The Company expects to integrate leave application with the time-punching system and SAP payroll. Deloitte partnered the Company in this project implementation. * Form tracking module: This software facilitates the management and tracking of various taxation forms issued by authorities for purchase/receipt of materials as well as transportation permits. The Company implemented a non-SAP (but SAP-certified) software, helping locate all forms across all units, eliminating the risk of misplacement. - Installed a pilot project - desktop virtulisation solution - in the training room, saving costs by a fourth and will be progressively implemented - Implemented SAP material requirement planning across all factories, improving raw material and packaging material procurement Road ahead * Implement business intelligence and analytic applications - Undertake IT projects in Bangladesh, Dubai and Egypt subsidiaries * Implement Phase-II of HCM (performance management, training and development) * Implement Information security at the physical, network and application levels - WAN link migration - complete change of existing VPN connectivity at all Emami locations by phasing out VSATs, implement advanced technology communication products (VSAT to MPLS), ensuring improved services, uptime and efficiency. Research and development The Company competes in an industry characterised by rapid technological advances. Hence, the Company''s ability to compete successfully is heavily dependent upon its ability to ensure a continual and timely flow of competitive products and technologies to the market place. The Company continues to develop new products and technologies and enhance existing products that expand the range of its product offerings and intellectual property through licensing and third- party business and technology acquisitions. Mission - healthcare With a mission of contributing to healthy and beautiful skin, hair and lifestyles, extensive research and groundbreaking innovation is one of the keys to Emami''s success in the health and personal care industry. In the Consumer Products Division, we are committed to meet the unmet needs of consumers and develop forward- looking products that are tailored to meet consumer need gaps and offer excellent quality. Research and innovation centre Emami''s Research & Innovation centre is a science-driven, consumer-centric and business aligned power house, comprising structurally-sound, intellectually-strong and with a wealth of creative talent, all supporting Emami''s leadership in personal care, health & wellness and ayurveda. Our products are the result of understanding consumers'' unmet needs, through a pathbreaking technology. We combine generations of practical experience with a continuous flow of new knowledge. For decades, we worked in partnership with universities, startups and suppliers. These relationships are now richer and more productive than ever. The constant innovation stream we deliver is founded in our past and created in the present to strengthen Emami''s future. The Centre was reorganised to align itself with Emami''s dynamic business strategy. The Group now encompasses a Competitive Intelligence cell, which monitors the effectiveness of current operations, competitors'' perceptions, competitor capabilities, and medium to long-term market prospects. The same is done under the strategic, tactical and counter intelligence sub-sections. The Centre is also keenly focused on strengthening its presence in global markets and hence is taking active part in tapping the consumer habits, attitudes and newer insights for product development. With regulations getting tougher all over the world for products which offer cosmetic and functional benefit, Emami Research & Innovation Centre is reinforcing the teams responsible for defending the scientific validity of our brands with both international and local authorities. The Regulatory team supports the innovation process, helping brands get access to markets for which they are responsible, while guaranteeing that they will conform with operating regulations. Infrastructure A state-of-the-art, high-end multi- storey Research & Innovation Centre, spanning more than 30,000 sq. ft, was created in Kolkata. The Centre encompasses product innovation development, product processing science, competitive intelligence cell, analytical development, perfumery science, quality assurance and packaging and development. Future technology directions The Research & Innovation team comprises more than 55 scientists, with multi-dimensional backgrounds and industry experience. These are geared towards the development of high-end, targeted products that deliver higher performance, tapping the latest technologies around the world while appealing to the global consumer. The strong in-house innovation team also formed collaborative projects with modern technology centres, enabling co-development of novel products in the home and personal care category. Emami Research & Innovation Group strengthened its capability through innovation partnerships at each stage of the product development process � from early stage collaborations with start up and biotech companies to late stage partnerships with its key suppliers. Above all, Emami brings to consumers, products that are of the highest quality and safety and is non-negotiable. R&D is also critical in ensuring regulatory compliance of all Emami International products. This enables Emami to launch new products quickly and efficiently, in countries all over the world, by integrating regulatory affairs in its R&D activities, from start to finish. The Research & Innovation team also developed in-house strengths in focusing on basic science areas including ayurvedic science. Road ahead We believe Emami''s future will be exceptional, fashioned on our ability to deliver innovative growth in our businesses and value to all stakeholders. The shared values we generate will reach beyond our consumers and shareholders, benefitting our partners, clients, suppliers and raw material manufacturers. We are constantly at the cutting-edge of science and technology; deploying this in our products, packages and services. Hence, we undertake an ever-increasing number of clinical trials, proving scientifically that our innovations fulfil promises. Quality management In a business where personal care and healthcare is imperative, Emami invests extensively to meet international quality standards. The following are the points comprising quality policy: - SOPs are defined. - Measurement procedures are defined. - All critical quality parameters are aligned in a unified system and documented for reference. - Quality is defined at different levels like before-process, in- process and after-process quality checks. - After a product is launched, a stability study is conducted on control samples continuously across the product''s lifespan. - The smallest quality complaints are taken seriously and addressed immediately. Recognitions - Majority of the units are cGMP and ISO 9000-certified. Units abide by highest safety and environmental protection standards. Overseas business The global FMCG industry entered into a consolidation mode during 2010-11. Companies either increased their focus on certain market segments or consolidated their business portfolios. As a result, there were a number of mergers and acquisitions in the industry. Developing nations, especially Africa, emerged as regions with potential. Consequently, the Company doubled sales in Africa and the SAARC region. Emami exports cosmetics, toiletries and ayurvedic products to over 65 countries across the globe, with a large presence in Africa, SAARC, the Middle East and the CIS. Highlights Exports constituted about 13.6% of the Company''s total revenue, up from 13.1% during 2009-10 - Exports grew 27.6% from X 137 crore in 2009-10 to X 174 crore in 2010-11 - Africa and SAARC were the key growth markets for international business - Completed the acquisition of Pharmaderm in Egypt in December, 2010, through a step-down subsidiary in Dubai - Commenced the construction of a manufacturing facility in Bangladesh in March, 2011. Challenges Along with the opportunities in the industry, there were also challenges. The major challenges were competition from larger FMCG companies, the threat of spurious products in some of the international markets and a political upheaval in North Africa. Despite these challenges, Emami retained or increased its market share in most countries through aggressive advertising and branding activities. The Company''s initiatives against spurious products continued through legal recourse, innovative packaging and consumer awareness, among others. Owing to the political unrest in North Africa, the Company decided to tread cautiously and wait until matters improved. Modernisation/expansion/ new projects Emami Bangladesh Ltd, a wholly-owned subsidiary company, took initiatives for setting up manufacturing facilities at Dhaka, Bangladesh. Emami Overseas FZE, a step-down, wholly-owned subsidiary of Emami International FZE, was incorporated in 2010-11. Emami Overseas FZE acquired 90.6% equity share capital of Pharma Derm SAE Co, Egypt. Consequently, the said company is now a subsidiary of the Company. Pharma Derm SAE Co has manufacturing infrastructure in Borg Al Arab, which is proposed to be utilised for setting up a manufacturing unit. Outlook With increasing disposable incomes in developing countries, there is greater awareness and demand for grooming and wellness products, helping the industry grow at a good pace. To capitalise on this opportunity and fuel the Company''s ambitious plans, it intends to acquire companies and brands which will increase its product portfolio, as well as its market presence. Besides, the Company plans to launch a new range of products, as well as strengthen the sales force and brand team to promote the Company, the brand and the products effectively. Human resources In a business where it is imperative to introduce products with differentiated features and position them differently to attain market leadership, there is an ongoing need to attract and retain competent human resources and develop their capabilities, thereby enabling them to meet business challenges for sustained growth Highlights and initiatives 2010-11 - The Company focused on training across all management and worker levels. - The Company organised employee engagement events like family picnics, sit and draw competition for employee wards, sports and cultural activities, among others. - The Company established processes to strengthen HR delivery and services for the benefit of internal customers. - The Company strengthened the HR team by restructuring (number and capability) and capability development. - The Company formed a training committee comprising external members and senior management. - The Company created a training calendar with a focus on functional and behavioural training. - The Company conducted training in the areas dealing with time management, personal effectiveness, managerial effectiveness, effective execution and problem-solving workshops to name a few. - The Company dovetailed recruitment with a nine-month comprehensive and customised management programme for graduates, leading to on-the-job absorption on successful completion of their training. - The Company identified high-potential employees with the objective of accelerating their development and creating the next rung of leaders. Road ahead - The Company intends to add SAP HR modules to strengthen the HR processes across recruitment, training, performance management, among others. - The Company intends to focus on training around cost- effectiveness, leadership and business growth, among others to carry forward the momentum gained. - The Company intends to strengthen the performance management process further, which will create a high performance orientation. Corporate social responsibility Your Company is a responsible corporate citizen, supporting activities related to the welfare of its employees and society. The Emami Group is involved in corporate social responsibility through Emami Foundation and other charitable organisations. The Company''s CSR approach comprises medical services, education, community development, women empowerment and poverty alleviation, among others. An organising committee evolved CSR guidelines, evaluated and monitored activities and planned macro-level CSR initiatives. Under this Organising Committee, sub-committees were created for enhanced attention to medical services, education and disaster relief, among others. At Emami, CSR extends beyond statutory obligations to sustainable socio-economic development. Ethical corporate behaviour forms the basis of our CSR initiative. Hunger, diseases and ignorance are still the burning issues of modern times, despite growth in science; government budgetary resources are inadequate to mitigate suffering. The corporate world cannot afford to remain a mere onlooker when people are afflicted with hunger and malnutrition, diseases and physical infirmity, illiteracy and ignorance. Emami has a long tradition in conducting philanthropic activities, supported by a professional outlook. An exercise is underway to integrate all such activities of Emami Limited Group companies and Emami Foundation across the healthcare, education, community development, women empowerment, livelihood creation and environment management segments. Education Recognising the vital role that education plays in ushering socio-economic change, Emami''s CSR activities comprise innovative programmes. Apart from providing financial support to various educational and academic institutions, Emami Foundation supports poor meritorious students through scholarships, exercise books and computers, among others. Stipends are provided to poor and physically- challenged students; coaching is offered to students at the primary education level. Emami Foundation and units also provide funds for school renovation and maintenance. Health Financially supported by Emami, Magan Shankar Foundation conducts eye camps, ayurvedic and homeopathic clinics, allopathic and dental camps at various locations (Aradhanadham at Haripal and in Kolkata). Magan Shankar Foundation organises eye, ear and hernia operations and medical treatment camps. Emami Foundation conducts free/subsidised camps for the reversal of heart disease under the supervision of the renowned heart specialist Dr. Bimal Chajjer. Donations are made to various healthcare organisations. Blood donation camps are organised by various Emami production units. Women empowerment Emami Limited partnered with an NGO to sponsor 40 underprivileged girls from various parts of rural West Bengal. The fellowship programme enables them to rise to their potential through higher education and personalised guidance. For the past many years, a fund has been set for rendering financial assistance for the marriage of the underprivileged section of the society. During the year under review, the Company supported marriages of 22 underprivileged girls. Besides, the Company helped in initial set up of their homes and provided funds for meeting household expenses for the first month. Environment Emami uses environment-friendly technologies and processes. Recycling, re-use of by-products are stressed; emissions are controlled. Research and development into cow dung and cow urine as well as the maintenance of goshalas were adopted. Listing The equity shares of your Company are listed on the National Stock Exchange, the Bombay Stock Exchange and the Calcutta Stock Exchange. The listing fees for the financial year 2011-12 were paid. Share capital Consequent to the approval of shareholders on 13th July 2010, face value of equity shares of the Company was changed from Rs. 2 per share to Rs. 1 per share and new shares were credited/issued accordingly. Subsidiary companies As on March 31, 2011, the Company includes following subsidiary companies. 1. Emami UK Ltd 2. Emami Bangladesh Ltd 3. Emami International FZE 4. Emami Overseas FZE 5. Pharma Derm S A E Co, Egypt A statement pursuant to Section 212 of the Companies Act 1956, relating to subsidiary companies, is attached to the accounts. In terms of general exemption granted by Ministry of Corporate Affairs, the Balance Sheet, Profit & Loss Account of the subsidiary companies are not attached with the Balance Sheet of the Company. The following information in aggregate for each subsidiary is also being enclosed (a) Capital (b) Reserves (c) Total assets (d) Total liabilities (e) Details of Investment (except in the case of investment in subsidiaries) (f) Turnover (g) Profit before taxation (h) Provision for taxation (i) Profit after taxation and (j) Proposed dividend. In compliance with the Accounting Standard 21 of the consolidated financial statements, notified in Companies (Accounting Standards) Rules 2006, your Company has prepared its consolidated financial statements, which forms part of this Annual report. The accounts of the subsidiary companies will be available to any member seeking such information at any point of time. These accounts will be available at the website of the Company viz. www.emamiltd.in and kept open for inspection at the registered office of the Company. Directors Shri R.S. Goenka, Shri K.N. Memani, Shri A.V. Agarwal and Shri H.V. Agarwal, Directors of the Company, retire by rotation and being eligible, offer themselves for reappointment. During the year the Board of Directors have reappointed Shri S.K. Goenka, Managing Director, Shri Mohan Goenka, Shri A.V. Agarwal, Shri H.V. Agarwal, Executive Directors of the Company, for a period of five years after completion of their present term subject to the approval of members of the Company. A brief resume of the Directors proposed to be appointed/reappointed as required under Clause 49 of the Listing Agreement, is provided in the Notice of the Annual General Meeting forming part of the Annual Report. Internal control systems and their adequacy The Company has in place adequate systems of internal controls commensurate with its size, requirements and the nature of operations. These systems were designed, keeping in view the nature of activities carried out at each location and the various business operations. The Company''s in-house internal audit department carries out internal audit at all manufacturing locations, head offices and sales depots situated across the country through its internal team and reputed internal audit firms. Their objective is to assess the existence and operation of financial and operating controls set up by the Company and also to ensure compliance of applicable statutes and corporate policies. A summary of all audit reports containing significant findings by the audit departments along with the follow-up actions thereafter, is placed before the Audit Committee for review. The Audit Committee reviews the comprehensiveness and effectiveness of the report and provides valuable suggestions and keeps the Board of Directors informed of its major observations from time to time. The Company appointed Ernst & Young, an eminent consultancy firm for capacity building of the Company''s Internal Audit Department. Risk management The following is an analysis of the Company''s key business risks and mitigation plans: Industry risk An industry slowdown could affect business sustainability. Mitigation - The FMCG industry is expected to grow at least 12% annually to X 400,000 crore by 2020. - India''s per capita income is projected to grow significantly from USD1,017 to USD3,213 in 2020. - Rural consumers spend about USD9 billion per annum on FMCG and product categories; they account for more than half the sales in some large FMCG categories. - The rural FMCG market growth at 18% exceeded that of urban markets at 12%. While the rural market comprise only 34% of the total FMCG market, given the current growth, its share is expected to increase to 45-50% by 2020. Raw material risk Soaring raw material costs could result in product inflation; raw material non-availability could affect operations Mitigation - The Company procures raw materials (menthol, micro crystal wax, hard paraffin, stearic acid and methyl salicylate) through imports and forward contracts, booking them in advance proactively and ensuring timely availability. - The Company procured raw materials from local vendors and vendors in non-excisable areas - Guwahati (Assam), Baddi (Himachal Pradesh)- at cost-effective prices. - The Company implemented value engineering projects for cost control Climatic risk Inadequate monsoons could affect rural incomes. Mitigation - India''s south-west monsoon is likely to be normal in 2011 as per meteorological forecasts. - India''s per capita rural income increased significantly from the 2001 levels to reach X 16,327 in 2009-10 and is poised to rise in the coming years owing to various income- generating initiatives undertaken by the government. Launch failure risk Any delay in launching new products could affect earnings Mitigation - The Company invests heavily in R&D, introduces new products in a timely way and markets products aggressively, leading to a strong marketplace presence. - The Company conceives and tests products with the plan of a prospective launch. Quality risk Declining product quality could affect Emami''s brand and profitability Mitigation - The Company implemented Total Production Maintenance (TPM) across all its production units. - The Company''s units received ISO 9001, ISO 14001 and WHO GMP certifications. - The Company established protocols to standardise herb quality and procurement. - Emami''s R&D team, Himani Ayurvedic Science Foundation and Zandu Foundation for healthcare work to deliver innovative and effective products. Brand risk Growing competition could affect market share. Mitigation - The Company enjoys a pan-India presence and brand recall owing to effective and innovative products, ayurvedic positioning and a value-for-money proposition. - The Company invested extensively in advertisements and celebrity product endorsements to enhance brand recall - The Company created contemporary commercials and innovative packaging to attract consumer attention. - The Company''s units are located in tax-exempted zones (accounting for over 80% per cent of turnover). Counterfeit risk Product imitation could dent profitability. Mitigation - The Company switched from a single blow mould to multi- cavity moulding, improving product quality. - The Company invested extensively in imported moulding technology (dual colour moulding) from an Italian company to counter duplication; it extended this technology to Zandu Balm and Mentho Plus Balm. Shareholder returns The Company continues to work toward two objectives: Firstly, to develop effective and innovative products, based on the natural science of ayurveda using modern laboratory practices and market them aggressively; secondly, to grow the business aggressively while keeping costs under control. Directors'' responsibilities Pursuant to the requirement under section 217(2AA) of the Companies Act 1956 with respect to Directors'' responsibility statement, the Directors confirm that: i) In the preparation of the annual accounts for the year ended March 31, 2011, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2011 and of the profit of the Company for that year ended on that date; iii) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv) The annual accounts were prepared on a ''going concern'' basis. Further, there has been no change in the accounting policy in the preparation of annual accounts for the year under review. Audit & accounts The Company''s Auditors M/s. S. K. Agrawal & Co, Chartered Accountants, who retire at the ensuing Annual General Meeting are eligible for reappointment. They have confirmed their eligibility under Sec. 224 of the Companies Act, 1956 for reappointment as auditors of the Company. M/S V.K. Jain & Co, Cost Accountants have been appointed as Cost Auditors for the financial year 2011-12 subject to approval of Central Government. Auditors'' report The observations made in the Auditors'' report are self- explanatory and no qualification is reported by them, hence do not call for any further comments. Corporate governance As per Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section on Corporate Governance practices followed by the Company, together with a certificate from the Company''s Auditors confirming compliance, is set out in the Annexure forming part of this report. Consolidated financial statements The Consolidated Financial Statements prepared in accordance with Accounting Standard AS21 � Consolidated Financial Statements of the Group form part of this report. The net worth of the Group as on March 31st, 2011 is Rs. 690 crore as against Rs. 625 crore, as at the end of the previous year. Energy, technology & foreign exchange The particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo in accordance with the provisions of Sec 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is annexed and forms a part of this annual report. Personnel Information in accordance with the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules 1975 as amended, names and other particulars of the employees are set out in the Annexure to the Directors Report. Although in accordance with the provisions of Section 219(1)(b)(iv) of the Companies Act,1956, such information has been excluded from the Report and Accounts sent to the Members, any member desirous of obtaining this information may write to the Company Secretary at the Registered Office of the Company. Group for inter se transfer of shares Pursuant to intimation from the Promoters, the names of the persons and entities comprising �group� is annexed to the Directors'' Report for the purpose of SEBI (substantial acquisition of shares and takeovers) Regulations 1997. Acknowledgement Your Directors would like to acknowledge and place on record their sincere appreciation of all stakeholders � shareholders, banks, dealers, vendors and other business partners for the excellent support received from them during the year. Your Directors recognise and appreciate the efforts and hard work of all the employees of the Company and their continued contribution to its progress. Cautionary statement Statements in the Directors'' Report and the Management Discussion and Analysis describing the Company''s objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company''s operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations For and on behalf of the Board Kolkata R.S. AGARWAL 19th May, 2011 Chairman

Source : Dion Global Solutions Limited

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