Gulf Oil Corporation

The Directors have pleasure in presenting their Forty Seventh Annual
 Report and Audited Accounts for the year ended 31st March 2008.
 
 I.FINANCIAL RESULTS
 
                                                  2007-08      2006-07
                                              Rupees Lakhs  Rupees Lakhs
 
 Profit after providing for Depreciation 
 of Rs. 1602.27 lakhs ( Rs. 1002.14 lakhs)
 and before extraordinary items and taxation      3464.37      3645.69
 
 Extraordinary Items:
 
 Compensation under Voluntary Retirement Scheme    493.77       462.32
 
 Profit Before Taxation                           2970.60      3183.37
 
 Taxation:
 
 Current                                           350.00       354.00
 
 Tax provision of earlier years written back          -         (59.32)
 
 Deferred                                           (6.00)      468.00
 
 FBT                                               113.43       120.10
 
 Profit After Taxation                            2513.17      2300.59
 
 Balance brought forward from previous year       3853.72      3108.07
 
 Balance available for appropriation              6366.89      5408.66
 
 Appropriations:
 
 Proposed Dividend                                1115.38      1115.38
 
 Provision for additional tax on 
 proposed dividend                                 189.56       189.56
 
 Transfer to General Reserve                       260.00       250.00
 
 Balance carried to Balance Sheet                 4801.95      3853.72
 
 EPS                                                 3.42         3.32
 
 2.  DIVIDEND
 
 The Directors recommend the payment of Dividend of Rs. 1.50 per share 
 (Rs. 1.50 per share ) on the paid up capital of the Company. The
 dividend of Rs. 11.16 crores ( Rs. 11.16 crores ), if approved by the
 Shareholders at the Forty-seventh Annual General Meeting, will be paid
 out of the profits for the current year to all Shareholders of the
 Company whose names appear on the Register of Members as on date of
 Book Closure.
 
 3.  OPERATIONS
 
 The total revenue of the Company increased to Rs. 833.22 crores (Rs.
 668.66 crores). The profit before extraordinary items and taxation was
 Rs. 34.64 crores (Rs. 36.46 crores). The profit before tax was Rs.
 29.71 crores (Rs. 31.83 crores) after making a higher provision for VRS
 spend in the current year. The profit after provision for tax of Rs.
 3.50 crores, Fringe Benefit Tax of Rs. 1.13 crores and Deferred Tax of
 Rs. 0.06 crores, was Rs. 25.13 crores (Rs. 23.01 crores) resulting in
 an EPS of Rs. 3.42 for the year (Rs. 3.32).
 
 3.2 Industrial Explosives
 
 The Explosives Division manufactures a full range of commercial
 explosives and blasting accessories for mining, infrastructure, space,
 defence and special applications. The Explosives Division range covers
 small and large diameter cartridge slurry explosives, small diameter
 and pumpable emulsion explosives. Blasting accessories include
 electric, non-electric and electronic detonators of various delay
 timings, detonating fuse of core loads between 5 gms. and 80 gms.,
 initiating devices and pyrotechnic products for special applications by
 space, defence and other agencies. The Division is a major player in
 the Explobonded metal composites required for special applications in
 chemical industry, space, nuclear and hydrocarbon industry.
 
 The turnover of the Division for the year was Rs. 213.62 crores (Rs.
 168.31 crores) representing double-digit growth of 12% inspite of the
 severe shortage of ammonium nitrate, a key raw material. Sales to
 non-coal sectors improved as a result of high demand for iron-ore,
 other non-ferrous metals and limestone consuming organisations in the
 cement / building products industry.
 
 Explosives and accessories manufactured by the Division found better
 acceptance after the quality / safety CE Certification of all
 accessories made at the Hyderabad Factory was received. Exports
 increased by 44% to Rs. 26.72 crores (Rs. 18.44 crores).
 
 The Explosives Division along with its R&D has launched two versions of
 the electronic detonator e-DET and field trials of both have been
 successfully completed and introduced e-Det in the PSUs Singareni
 Collieries, Bharat Coking Coal Limited, besides several private sector
 organization involved in coal and in limestone mines attached to cement
 plants. The e-Dets have been highly appreciated in Rail Tunnel projects
 and for carrying out cautious blasting for a major infrastructure
 project in the heart of Bhopal city.
 
 Your Company is one of the few leading companies in the World offering
 clad products under the Explobonded (Companys registered trade mark)
 for over two decades to the industry and has been recording constant
 growth every year. The group posted a turnover of Rs.8.02 crores
 (Rs.7.07 crores) representing a growth of 13%.
 
 The Special Products Group, serving the space and defence sectors,
 executed several prestigious orders with six-sigma specifications.
 The Group has posted a turnover of Rs. 1.22 crores while several orders
 from Defence remained in the final stages of processing by the Ministry
 of Defence and, therefore, could not be executed during the year.
 
 3.3 Mining & Infrastructure (IDLconsult)
 
 The Divisions efforts in aggressively focusing on large mining tenders
 resulted in the service income of the Division leap frogging 119% to
 Rs. 141 crores (Rs. 64 crores) The high growth is mainly due to two new
 3 year large coal mining contracts being started during the year for
 Northern Coalfields Limited (NCL), a subsidiary of Coal India Limited.
 
 New projects started during the year include the Nigahi Project under
 NCL and an iron ore mine of National Mineral Development Corporation
 (NMDC) in February / March this year.
 
 The Division has successfully continued its mining services at the 6
 iron ore mines in the Barbil (Orissa) region and one mine in Karnataka
 (NMDC). The existing contract with Singareni Collieries Company Limited
 for Manuguru also progressed as per plan.
 
 With the high volumes achieved by the Division, it has grown to become
 the largest Mining Service Provider in the Country in a short span of 6
 years. This achievement has been possible due to the excellent mine
 planning, control and quality systems instituted by the Division over
 the last 4 years.
 
 Besides total mining services, the Division has taken up a few
 assignments in the fast growing infrastructure sector. The Division is
 building on the strengths based on the successful execution of
 contracts in the Delhi Metro Rail Project, Structural Works at Jamnagar
 under Reliance and at Outer Ring Road in Hyderabad. The Division has
 been awarded a large infrastructure! contract from the Aditya Birla
 Group for their new Alumina Project in Orissa.
 
 3.4 Lubricants
 
 The growth of the automotive industry during the year was below
 expectation. Key segments like commercial vehicles registered a minimal
 growth of 4 % as compared to 33 % last year. The two wheeler segment
 saw a negative growth of 8 % vis-a-vis 11 % in 2006-07. Tractor sales
 for 2007-08 were also lower than last year. The lubricant industry
 demand was impacted due to the overall slowdown in the automotive
 industry.
 
 The Lubricants Division, inspite of a minimal growth in the automotive
 market, increased its turnover by 5% to Rs. 419.83 crores (Rs. 402.06
 crores). However, the Division achieved a significant growth in profits
 due to increase in volumes, improvements in product mix and efficient
 sourcing of base oils.
 
 The Lubricants Division continued its focus on growing the top-end
 Diesel Engine Oils and creating a stronghold in the Motorcycle Oil
 segments to realize higher volumes and achieve significant growth in
 these segments. The acceptance of the range of Ashok Leyland - Gulf
 Oil co-branded oils was further consolidated as demand grew for usage
 of the Gulf Super Fleet LE Max - Indias First Long Drain Engine Oil
 with a drain interval of 36,000 km. The product portfolio targeted at
 the commercial vehicle segment was enhanced with the introduction of
 more grades & packs.
 
 The Division successfully introduced various innovative below-the-line
 and above-the-line initiatives to achieve excellent growth in the
 distribution and sales in the Motorcycle segment across India. A new
 product extension, Gulf Pride 4T Plus - 10W 30 was launched in Q4,
 backed by a TV campaign. The TV campaign is aimed at creating brand
 awareness for the new product & communicating the Pentatec feature
 advantage to the target audience.
 
 Gulf Filters product line recorded excellent growth as the products
 gained better customer acceptance with the increased distribution
 network.
 
 Gulf Car Care Product (CCP) product line was placed in the new retail
 channels across the country as the Division entered into agreements
 with the Aditya Birla retail group and Metro Cash & Carry.
 
 3.5 Speciality Chemicals
 
 The operations of the Speciality Chemicals Division which started
 operations in June 2006 stabilised. The 3 cephalosporins were
 introduced into the market and were well accepted. The turnover for the
 year was Rs. 57.51 crores (Rs. 33.57 crores). However, the market
 prices turned unfavourable for the main product Cefixime Trihydrate and
 as a result the gross margins were severely affected during a major
 portion of the year. The market situation is however correcting and
 expected to normalise.
 
 Enalapril Maleate a cardiovascular drug has received the Certificate of
 Suitability (COS), from EDQM, France.  This would allow the product to
 be marketed in Europe. The Diviison is now awaiting the COS for its
 main product Cefixime Trihydrate. The COS is expected within the next
 few months.
 
 Test marketing for several new molecules have also been done and the
 results have been encouraging. Exports to China, Europe, Gulf countries
 have been done during the year. Total export sales were Rs. 5.24 crores
 for the year.
 
 3.6 Other Business Groups
 
 The 4 Wind Mills (1 MW) located at Ramagiri in Andhra Pradesh generated
 2,93,100 units (8,82,700 units). The decrease in the generation was on
 account of 3 out of the 4 wind mills undergoing a major overhaul during
 the year.  The Hyderabad factory received the benefit of the generation
 through the APTRANSCO grid.
 
 3.7 Exports
 
 The Explosives Division exported explosives and accessories to several
 countries in South East Asia, Gulf and the Middle East totaling Rs.
 26.72 crores (Rs. 16.25 crores) representing a record growth of 44% and
 Explobonded plates to Mexico of Rs. 0.71 crores.
 
 API exports to unregulated markets were Rs. 5.24 crores (Rs. 4.54
 crores).
 
 The Lubricants Division exported value added products of Rs. 15.45
 crores (Rs. 18.12 crores) to UAE, Philippines, Sierra Leone, Middle
 East and Africa.
 
 3.8 Property Development
 
 The Development of the 2 major properties at Kukatpally, Hyderabad and
 Yelahanka, Bangalore have progressed satisfactorily.
 
 The Yelahanka project covering approximately 40 acres has been approved
 by the KIADB for mixed use. Plan for development of IT Park, Office
 Apartments, Service Apartments as well as Shopping Courts and
 Commercial areas have been finalized. An eco sensitive design with
 landscaping as integrated element and parking space for over 8000 cars
 have been completed by a renowned architects firm. The Company will now
 be awarding the Development Rights for execution of the projects.
 
 The Hyderabad project has been made possible with the rearrangement of
 the factory layout thereby releasing approximately 100 acres for
 immediate development. Suitable applications have been made with the
 authorities for necessary approvals after meeting all the regulatory
 requirements. The project would create a large Knowledge City with
 adequate space for recreation, residential and commercial activities
 linked to the requirements of the workforce of the Knowledge City. The
 Company is in the process of selecting architects firm for the planning
 of the large township along with the Office / Work areas.
 
 4.  INTERNAL CONTROL SYSTEMS
 
 The Company remains committed to ensuring an effective internal control
 environment that provides assurance on the efficiency of operations and
 security of assets and has adequate internal control systems
 commensurate with its size and nature of the business. The audit
 programme is planned in a manner that over the year all units / offices
 of the Company are covered by Internal Audit. The Companys
 organizational structure with established authority limits, corporate
 and operational policies, SAP ERP system and reporting mechanisms
 supports maintenance of robust internal control systems.
 
 The Company has an independent Internal Audft Department and internal
 controls are evaluated on an ongoing basis by the audit department and
 the Audit Committee based on reviews at the Audit Committee meetings.
 The Audit Committee reviews the scope of internal audit activity and
 the annual audit plans developed to cover all areas of potential risk
 including information technology and systems security. The Audit
 Department also reports on the implementation of recommendations which
 cover all manufacturing, project sites and office locations.
 
 The Audit Committee consisting of all Independent Directors regularly
 reviews and provides guidance wherever necessary on matters relating to
 business and operations, financial and corporate compliance including
 adequacy of internal controls.
 
 5.  FIXED DEPOSITS
 
 Fixed Deposits from the public and the shareholders as on 31st March
 2008 amounted to Rs. 312.67 lakhs (Rs. 470.79 lakhs). At the end of
 31st March 2008, 72 deposits amounting to Rs. 83.85 lakhs (Rs. 96.55
 lakhs), which had matured, remained unclaimed. The Company has given
 intimation to the deposit holders concerned about the maturity of their
 deposits.
 
 6.  TAXATION
 
 Orissa Sales Tax
 
 The SLP filed earlier by the Company in the Supreme Court was dismissed
 and the Company had filed Review Petition before the Supreme Court of
 India. Pending the Review Petition, the Orissa Sales Tax authorities
 had issued notices demanding an amount of Rs.4.01 crores as arrears of
 tax and Rs. 10.72 crores as interest thereon.  The Company had filed
 Writ Petition in the High Court of Orissa against the demand notices.
 The Supreme Court has since dismissed the Review Petition. Based on
 legal advice, the Company had withdrawn the Writ Petitions from the
 Orissa High Court and the said High Court, in the month of April 2008,
 disposed the Writ Petition as withdrawn. The Company has been advised
 to file suitable petition in the Supreme Court as the matter involved
 composite issues/sales tax laws of more than one State. Accordingly,
 the Company has initiated action in this direction.
 
 Deferred Tax Asset
 
 The auditors in their report have mentioned that they were unable to
 take a view in the absence of sufficient taxable profit, the
 appropriateness of carrying deferred tax asset of Rs. 837 lakhs.
 Management is confident that the Company will make sufficient profits
 to absorb the deferred tax asset over the next few years.
 
 7.  RESEARCH & DEVELOPMENT
 
 The R&D of the Explosives Division has launched an economical version
 of the electronic detonators e-DET ft and field trials of both have
 been successfully completed. The Division has successfully completed
 trials of electronic detonator in Coal India Limited, the single
 largest customer of the Division. Commercial production of e-DET has
 been started and the product was successfully tested in mining &
 quarrying applications.
 
 The Explosives Division has commercialized small diameter emulsion
 explosives, developed explosive systems for metal hardening
 applications and successfully evaluated new explosive systems for
 achieving high-pull in underground coal mining.
 
 The Speciality Chemicals Division is consolidating its position in the
 cephalosporins segment. Processes for two cephalosporins have been
 developed and commercialization is expected in the current year. This
 will take the number of cephalosporins molecules to six, making the
 Division a leading player in the cephalosporins antibiotics segment.
 Work has been initiated on two other molecules. Two more molecules have
 been short listed for exploration.
 
 The R&D Centre at Silvassa has developed Gulf Pride 4T Plus, premium
 4-stroke motorcycle engine oil offering fuel economy benefits meeting
 JASO (Japanese Automobile Standards Organisation) specifications to
 meet the requirements of new generation motorcycles, which has enabled
 the Division to carve a niche in the lubricants market and is expected
 to take early bird advantage in the current year. The Centre has also
 developed alternate formulations for various automotive and industrial
 lubricants. The Centre has specifically developed Gear XP Max, SAE
 85W-140, superior performance gear box oil offering extended gear box
 life for tipper applications in Ashok Leyland vehicles and completed
 validation of gear / axle oils based on alternate technology. It has
 developed synthetic gear oils for reputed truck manufacturers and is in
 the process of developing lubricants for construction equipment.
 
 8.  SUBSIDIARIES
 
 IDL Agro Chemicals Limited incurred a loss of Rs,9.21 lakhs (loss of
 Rs. 13.58 lakhs).
 
 IDL Buildware Limited, formerly known as IDL Finance Limited incurred a
 loss of Rs. 34.45 lakhs. ( loss of Rs. 82.09 lakhs)
 
 Gulf Carassorie Limited incurred a loss of Rs. 0.62 lakhs (Rs.1.12
 lakhs)
 
 Gulf Oil Bangladesh Limited incurred a loss of Rs. 0.77 lakhs (loss of
 Rs.13.39 lakhs).
 
 PT. Gulf Oil Lubricants Indonesia reported a profit of Rs. 1.90 lakhs
 (loss of Rs. 120.33 lakhs)
 
 Gulf Oil (Yantai) Co. Ltd. incurred a loss of Rs. 194.09 ( Subsidiary
 from 18.10.2007).
 
 9.  HUMAN RESOURCES / INDUSTRIAL RELATIONS
 
 During the year under review, as a part of competency development,
 various internal and external training programmes were conducted for
 management personnel. The programmes covered technical areas in each of
 the Divisions and management development programmes conducted by
 external consultants. Some of the external programmes included outbound
 activity to develop team work and bring the daring spirit to the
 participants to help them deal with difficult situations through better
 team work. Internal programmes included EBIDTA improvement and
 leadership development issues besides, innovated thinking.
 
 A major focus for the year was the training of all management staff in
 understanding the SAP Enterprise System.  As a result of this internal
 training over a period of 4 months, the Company was able to change over
 from legacy ERP Systems to SAP Enterprise System in a period of 6
 months. All the 8 modules of SAP have been implemented in 3 Divisions
 covering 25 locations in a record time of six months thereby linking 3
 Divisions effectively in all business processes areas on one
 standardised platform.
 
 During the year, 17 persons availed VRS from Hyderabad and Rourkela
 factories. However, production capacity was unaffected through
 streamlining of manpower, process and also outsourcing of the
 activities. A tripartite Wage Settlement for 3 years was signed with
 two unions at Rourkela Works in the presence of the Labour
 Commissioner, Bhubaneswar, with effect from April 1, 2008.
 
 10.  OUTLOOK FOR THE CURRENT YEAR, OPPORTUNITIES AND THREATS
 
 The year under review, was a challenging one. At the beginning of the
 year the outlook for the Indian Economy was very robust. However,
 towards the second half of the year, the financial markets have
 undergone turbulence, inflation and hike in interest rates. Price of
 crude oil was buoyant and industrial raw materials were on an upward
 trend. Yet, the Indian Economy grew at more than 8% and is expected to
 continue its high growth path for the next 3 years. The drivers of the
 growth continue to be services and manufacturing which are expected
 to grow at more than 9% and 8% respectively. With the positive policy
 announcements and initiatives of the Union and many State Governments,
 the agricultural sector is expected to receive a big boost.
 
 The high growth of the economy will bring with it, higher demand for
 basic industries such as automobiles, cement, steel and other metals,
 mining, power generation, transportation and other infrastructural
 facilities. Major divisions of the Company are connected with a
 majority of these activities.
 
 In this background, the outlook of the activities of our 4 Divisions is
 expected to be as follows :
 
 10.1 Explosives
 
 The growth of explosives industry is dependant mainly on mining and
 infrastructure sectors. Over 55% of Indias energy requirement is met
 by coal. With growing demand for power, steel and cement in the coming
 years, the volume of commercial explosives and blasting accessories is
 expected to increase significantly.
 
 The 11th Five Year Plan envisages an increase in coal production from
 432 million tons to 670 million tons by 2011 - 2012. Requirement of
 coal for power generation alone will increase by 180 million tons, from
 existing 320 million tons to 500 million tons. The demand for coal in
 2011-12 throws a formidable challenge to the coal mining industry,
 which in turn would have to depend heavily on the explosives industry.
 The Planning Commission feels that special focus on the domestic mining
 is necessary as requirement of coal may touch 1.7 to 2.0 billion tons
 in the coming years.
 
 Investment in Infrastructure viz Road, Rail, Air and Water Transport,
 Power Generation, Transmission, Distribution, Tele-communication,
 Irrigation and Water Supply is expected to be between 8 to 8.5% of GDP
 during the 11th Plan Period (2007-2012). This would envisage 50% of
 total investment in infrastructure alone.
 
 Your Company sees this as a great opportunity for growth and expansion
 of its business in the coming years. The Company intends to stay
 focused in its business in order to cover the growing markets in coal
 mining, non-coal mining and infrastructure sectors.
 
 The Company aims to increase the turnover of its Explosives Division
 through appropriate automation of processes to increase sale of
 value-added products such as Electronic Detonators, Non-electric
 Detonators, boosters based on new generation Emulsion explosive
 technology, Special products for space and defence application and
 Metal Cladding operations. Our bulk explosives business has been
 further expanded in the iron ore segment by entering more areas in the
 Barbil sector in the state of Orissa. In the manufacturing operations
 at Hyderabad and Rourkela works, capacity enhancements through
 de-bottlenecking and rationalization of operations have been
 undertaken.
 
 10.2 Mining & Infrastructure (IDLconsult)
 
 The Division has Rs 450 crores of orders booked as of April 2008 to be
 executed in the next two to three years period comprising of Rs.300
 crores of coal mining, Rs.100 crores of iron ore mining and Rs.50
 crores of construction business.
 
 The Division is targeting large projects in the coal and iron ore
 sector in the current year. The Division is closely looking for
 projects relating to irrigation, power generation, mine roads and other
 infrastructure contracts. The Divisions expertise gained over the last
 six years would be a major strength in increasing the business in these
 areas.
 
 The Division foresees good opportunities in the coal sector for mining
 contracts, as the coal majors like Singareni Collieries and Coal India
 are planning more offloading of their mining operations, in view of the
 economics. Many private coal mines are being started over the next two
 to three years. All these new mine owners are expected to go for
 contract mining and keep their focus on their main business of power
 generation or metal processing. The Division looks forward to becoming
 a major Mine Developer cum Operator.
 
 10.3 Lubricants
 
 Considering the slowdown in the automotive industry last year as
 compared to 2006-07 and the increased use of long drain lubricants,
 growth prospects in the Lubes sector is likely to be limited. It is
 estimated that the volume growth for lubricants will be 2-3 % in
 2008-09 led by higher demand in the car, motorcycle and construction
 equipment segments.
 
 The Divisions strategy is to consolidate its focus on the heavy duty
 diesel engine oils and 4-stroke motorcycle oils with initiatives aimed
 at increasing market share. The Division plans to introduce new
 products, increase penetration of Ashok Leyland-Gulf co-brand oils and
 continue to work with other OEMs. In the Motorcycle segment, the TV
 campaign as launched will enhance the brand image; increase the reach
 and acceptance of the products. The Division also plans to introduce
 new products to consolidate the portfolio for the car segment.  The
 Division will continue its brand building initiatives through multi
 media advertising, participation in motor sports, leveraging
 international tie-ups and local promotional activities.
 
 10.4 Speciality Chemicals
 
 India is becoming a leading player in the global pharma industry,
 alongwith China. A study conducted by the ASSOCHAM indicates that the
 domestic Pharma industry is poised to accelerate at 13-14 % between
 2006 and 2010 against a current CAGR of 9.5 %. The pharma industry has
 more than 20,000 formulation facilities operating as job workers for
 domestic and overseas manufacturers. These formulators form a major
 customer base in India.
 
 The manufacturing facility of the Division has been audited by a few of
 the large overseas customers and representatives of customers and large
 traders.
 
 The Division plans to be a major player in the cephalosporins
 antibiotic segment, which has a high growth potential.  The advanced
 cephalosporins are attractive molecules. Work is on hand to develop
 processes for some of these advanced molecules. The Company has plans
 to introduce newer cardiovascular and lipid lowering drugs in the near
 future. The Division has made its presence in the semi regulated and
 less regulated markets like Mexico, Turkey, China, Singapore, Hongkong,
 Pakistan and a few other countries in the Gulf and South East Asia.
 
 The Division has started marketing formulations in the east / north
 east and in the south of India. The reception to the products has been
 encouraging. More formulations would be added in the near future. The
 Division also plans to introduce injectable cephalosporins in the next
 phase and enter the institutional segment.
 
 11.  RISKS AND CONCERNS
 
 11.1 Environmental Risks
 
 Safety and environment is integral to the business performance of your
 Company and receives continuous attention throughout the year. Safety
 audits are carried out by internal safety audit teams and at regular
 intervals by external teams. General Safety Directions ( GSDs ) are
 strictly enforced in all factories and plants within the factories to
 ensure minimisation of risk. During the year, a special safety audit
 has been carried out by consultants specialising in Explosives units at
 the Hyderabad Factory. All recommendations have been implemented and
 confirmed by the Consultants.
 
 In addition, strict compliance of the requirements of the Explosives
 Act and Rules are ensured to protect the exposure of adjacent
 neighbourhoods of the explosives and accessories factory from undue
 risk. There were zero reportable accidents in the Explosives,
 Lubricants and Speciality Chemicals factories during the year.
 Operations are carried out to ensure fulfillment of emission, waste
 water and waste disposal norms of the local authorities of the
 respective factories.
 
 The Explosives and API facilities have obtained Hazardous Waste
 authorization from the State Pollution Control Board. The API factory
 has arrangements with a common effluent treatment plant to discharge
 pretreated effluent and has also arrangements with an authorized agent
 for disposal by incineration and land fill. At all factories the
 emissions from boiler and generator stacks are monitored regularly to
 comply with the limits set by the State Pollution Control Board.
 
 11.2 Operational Risk
 
 Raw Materials
 
 Due to the volatility of crude and gas prices in the global markets,
 the availability of two key raw materials namely Base Oils and Ammonium
 Nitrate was affected. Sourcing was difficult at prices necessary for
 competitive pricing of the finished products. The situation is expected
 to continue in future. The Company has therefore, planned to carry
 adequate safety stocks to maintain continuous plant operations. The
 Company seeks to mitigate the risk by entering into long-term
 relationships with global raw material suppliers, with suitable
 escalation clauses to ensure regular supplies.
 
 11.3 Market Risks:
 
 Markets
 
 All the Divisions of the Company operate in highly competitive markets
 where competition from all India players as well as regional players is
 high. Of which, two major divisions, namely Industrial Explosives and
 IDLconsult Divisions operate in tender-driven markets, sometimes with
 onerous and unreasonable performance clauses. Therefore, there is a
 risk of cost increases, especially of petrp product inputs, not
 possible to be passed on to ultimate consumers.  Any further slowdown
 in the automobile industry and deceleration in manufacturing industry
 is likely to have an adverse impact on the lube industry. In order to
 minimise adverse impact the Lubes Division is taking several marketing
 initiatives.
 
 During the last quarter of previous year base oil prices have seen
 significant increases on account of growing demand and lower
 availability. Given this trend of increasing base oils prices, if the
 cost increases cannot be passed on fully or recovered from the
 consumer, we may see an erosion of margins across the industry. Also
 increased competition levels from the market leader to retain volumes
 and new entrants may lead to aggressive pricing and discounts.
 
 The IDLconsult Division which currently undertakes mining services in
 coal, iron ore and limestone sectors, is exposed to business risks on
 account of non-availability of environmental clearances in time and
 lack of adequate infrastructure for dispatch of ores from the mine,
 especially during the rainy seasons. In view of this, detailed review
 of approvals and quality of infrastructure is carried out before
 undertaking mining service contracts.
 
 The API business may be indirectly affected by Government policy on
 price control of certain types of drugs from time to time. Suitable
 action in this regard is generally undertaken through the drug
 manufacturers associations and similar bodies.
 
 Both the Explosives and Contract Divisions are operating in the mining
 and infrastructure sectors, dominated by the PSUs, where the tendering
 system is in vogue, with the attendant risks. Missing L1 status in
 these tenders might result in loss of business opportunities.
 
 11.4 Financial Risks:
 
 Currency Value and Interest Rate Fluctuations
 
 Policies for overall foreign exchange loss risks and liquidity are
 regularly reviewed based on emerging trends.  Interests risks arising
 out of financial debt, are normally done at fixed rates or linked to
 LIBOR and appropriate Bank lending rates. Action on all exposures are
 taken based on policies approved by the Board.
 
 Credit Risk
 
 The Company sells its products through the customary trade channels,
 with the attendant risk of payment delays and defaults. To mitigate the
 risk, Division wise credit risk policies ensure that sale of products
 are made to customers after evaluation of their ability to meet
 financial commitments through allotment of specific credit limits to
 respective customers.
 
 Liquidity Risk
 
 Liquidity conditions in the money market and the hardening of interest
 rates may impact the capability of distribution channel of the Lubes
 Division to support growth in business. Steps are being taken up for
 tie -up with financing partners to support distributors.
 
 All the four Divisions operate in working capital intensive industries.
 The Company realizes that its ability to meet its obligations to its
 suppliers and others is linked to timely collection of receivables and
 maintaining a healthy credit rating. Review of working capital
 constituents like inventory of raw materials, finished goods and
 receivables are done regularly by the respective Divisions and
 Corporate Finance.
 
 11.5 Legal and Statutory Risks:
 
 All major contracts are reviewed / vetted by the in-house legal
 department before the same are executed. In addition, the Company
 engages the services of reputed independent legal counsels, on need
 basis.
 
 The Company is required to institute and defend several legal cases
 connected with and incidental to its businesses.  These include civil
 cases, sales tax cases, labour cases, etc. Outcome of these cases could
 affect the profits.  The Company is conducting these cases with
 professional legal advice and believes that these submissions are
 sound.
 
 However, in matters of tax law and other statutory obligations the
 outcome of litigation cannot always be predicted.  Hence, appropriate
 financial provisions, insurance policies and credit lines are taken to
 limit the risk for the Company.
 
 11.6 IT Risks
 
 The Company is operating in several intra-office and inter-office
 networks for several business softwares. During the year all servers
 handling distributor processing were centralized at the Corporate
 Office and SAP Enterprise Software was introduced into 3 of the
 Divisions based at Hyderabad. In view of the large networks of the
 Company across various locations in India, the centralized servers were
 fully backed by standbys and continuous clear power ensured to the
 Central Servers. These actions have ensured the liability of the
 networks and SAP modules being operated from various locations and
 consequential loss of business minimised. Regular backup systems have
 also been instituted for all computers and laptops operating at various
 locations in the Company, besides, set up of suitable firewalls and
 virus protection systems.
 
 11.7 Other Risks
 
 Various assets of the Company including plant and machinery, stocks,
 buildings, furniture, office equipment and computer systems could
 suffer damages / loss owing to occurrences like fire, accidental
 mishaps, etc. The Company has taken insurance covers to protect these
 assets from possible damage / loss.
 
 12.  DIRECTORS
 
 Mr.P.N.Ghatalia, Mr.V.Ramesh Rao, Ms.Vinoo S Hinduja and
 Mr.M.S.Ramachandran in accordance with the provisions of the Companies
 Act, 1956, and the Articles of Association of the Company, retire by
 rotation at the 47th Annual General Meeting of the Company and are
 eligible for reappointment.
 
 Profile of members of the Board of Directors being appointed /
 reappointed :
 
 P.N.Ghatalia
 
 P.N.Ghatalia retired as a Senior Partner in Price Waterhouse with vast
 experience in the professional field. He was also an active member in
 Board of Societe Generate, Member of the Board of Advisory Committee of
 Priyadarshni Academy Award, Member of Board of various District
 Committees and a Member of the Accounting Standards Committee of the
 Securities and Exchange Board of India (SEBI).
 
 V.Ramesh Rao
 
 Mr.V.Ramesh Rao is a postgraduate in Mechanical Engineering with
 specialization in Industrial Tribologyfrom IIT, Madras and is a
 Presidents Gold Medalist. He has been working in the lubricants
 industry since 1984 in various companies such as Lubrizol India
 Limited, Gulf Lubricants Systems and in Gulf Oil International
 companies in China, Korea, Taiwan and Philippines. He is a member of
 the Gulf Oil Core Technical Team and assisted Gulf Oils international
 operations and handles the operations in the Asia Pacific Region.
 
 Vinoo S. Hinduja
 
 Vinoo S Hinduja is a degreeholder in Business Administration from UK
 and a Diploma holder in Health Policy Management from USA. She has
 completed her internship and training in Finance and Banking at the
 Credit Suissee Bank, Geneva and Chase Manhattan Bank, London and in
 Hospital administration and management from Cromwell Hospital, London.
 She is also a member of the National Health and Education Society,
 Hinduja National Hospital in Mumbai.
 
 M.S.Ramachandran
 
 M.S.Ramachandran is a Bachelor in Mechanical Engineering. He has vast
 knowledge and experience of Oil and Gas industry. He was Chairman of
 Indian Oil Corporation Limited, Chennai Petroleum Corporation Limited,
 IBP Co. Ltd., Bongaigaon Refineries & Petrochemicals Ltd., Indian Oil
 Tanking Ltd., Indian Oil Petronas and Director, ONGC Ltd., Petronet LNG
 Ltd. He has received several awards including Chemtech Pharma Bio Hall
 of Fame Award in 2005 and National Institute of Industrial Engineers
 Lakshya Business Visionary Award in 2004.
 
 Names of companies in which the Directors, seeking
 appointed/reappointed at the ensuing AGM, hold positions of
 directorship and the membership/chairmanship of committees of the
 Board, are as per the Annexure to the Report on Corporate Governance.
 
 13.  STATUTORY INFORMATION
 
 Information on Conservation of Energy, Technology Absorption, Foreign
 Exchange Earnings and Outgo under Section 217 (1) (e) of the Companies
 Act, 1956 read with the Companies (Disclosure of Particulars in the
 Report of Board of Directors) Rules, 1988 and the Statement under
 Section 217(2A) of the Companies Act, 1956 read with Companies
 (Particulars of Employees) Rules, 1975 as amended, are annexed to this
 full Report. However, as per the provisions of Sec.219 (1) (b) (iv) of
 the Companies Act, 1956, the Report and Accounts are being sent to all
 the shareholders of the Company excluding the aforesaid information.
 Any shareholder interested in obtaining such particulars may write to
 the Company.
 
 14.  INFORMATION ON STOCK EXCHANGES
 
 The Equity shares of the Company are listed on Bombay Stock Exchange
 Limited and got listed during the year on the National Stock Exchange
 of India Limited. The Company has applied for Delisting from the
 Hyderabad Stock Exchange Ltd (HSE)., and the said HSE has since been
 derecognised by the Securities and Exchange Board of India (SEBI).
 
 15.  CORPORATE GOVERNANCE
 
 A detailed report on the subject forms part of this report. The
 Statutory Auditors of the Company have examined the Companys
 compliance and have certified the same as required under the SEBI
 Guidelines. Such certificate is reproduced in this report.
 
 16.  DIRECTORS RESPONSIBILITY STATEMENT
 
 The Directors, on the basis of informative documents made available to
 them, confirm that:
 
 a.  In the preparation of the annual accounts, the applicable
 accounting standards had been followed along with proper explanation
 relating to material departures.
 
 b.  They have selected such accounting policies and applied them
 consistently and made judgments and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Company at the end of the financial year and of the profit or loss
 of the Company for that period.
 
 c.  They have taken proper and sufficient care for the maintenance of
 the 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.
 
 d.  They have prepared the annual accounts on a going concern basis.
 
 17.  SUBSIDIARY COMPANIES
 
 The Report and Accounts of the Subsidiary Companies are annexed to this
 Report along with the statement pursuant to Section 212 of the
 Companies Act, 1956. However, in the context of mandatory requirement
 to present consolidated position of the Company including subsidiaries,
 at the first instance, members are being provided with the Report and
 Accounts of the Company treating these as abridged accounts as
 contemplated by Section 219 of the Companies Act, 1956. Members
 desirous of receiving the full Report and Accounts of the subsidiaries
 will be provided the same on receipt of a written request from them.
 
 18.  AUDITORS
 
 M/s Deloitte Haskins & Sells and M/s Shah & Co., Chartered Accountants
 retire at the ensuing Annual General Meeting and are eligible for
 re-appointment. The Company has received confirmation that their
 appointment will be within the limits prescribed under Section 224(1 B)
 of the Companies Act, 1956.
 
 ACKNOWLEDGEMENTS
 
 Your Directors take this opportunity to thank the customers, vendors,
 business partners, shareholders, bankers and other stakeholders for
 their faith reposed in the Company and thank the Government of India,
 State Governments and regulatory authorities and agencies for their
 support and look forward to their continued encouragement. Your
 Directors place on record their sincere appreciation of the
 contribution of .all employees which has enabled the growth of the
 Companys business in very competitive market conditions and for taking
 advantage of emerging opportunities.
 
 
                          For and on behalf of the Board of Directors
 
 Place: Mumbai            S.G.HINDUJA
 Date : May 24, 2008      Chairman