Indo Rama Synthetics (India)

The year 2008-09 was a very challenging year for the entire world as
 well as for India. High volatility in Crude Oil prices and exchange
 rates, higher inflation and overall economic slowdown pushed Indias
 GDP growth rate down to 6.7% as compared to the previous years 9%.
 
 The financial firestorm led by the US sub-prime crisis swept well
 beyond advanced economies and engulfed the entire world economy.  The
 present downturn, infant, encompasses all geographies, all assets class
 and all sectors of the global economy. The USA, the entire Euro Zone
 and Japan have already gone into recession. The Indian economy too has
 been severely impacted and has been going through its own versions of
 the dilemmas caused by this unprecedented global economic meltdown.
 
 The Textile sector has been amongst the worst affected, with textiles
 and garment exports taking a big hit. The Polyester industry was no
 exception and was impacted adversely by the combined effect of global
 recession, high volatility in crude and forex and by anomaly in excise
 duty structure. The year 2008-09 witnessed a record rise in crude oil
 prices and subsequently a steep fall leading to concurrent rise and
 fall in critical raw material prices for the Polyester industry, namely
 PTA and MEG, both of which are crude oil derivatives. Your Company is a
 major supplier of PSF and POY to spinners and texturisers. Increase in
 prices of Finished Goods followed by sudden steep fall coupled with low
 off take has directly affected the Companys cost - margin structure
 during the year under review.
 
 For the year ended 31 March 2009, Polyester production of your Company
 has come down from the previous year. Net sale was lower at Rs.2444.48
 crore as against Rs. 2557.73 crore. Despite the lower production and
 sales your Company was able to achieve marginally higher operating
 profit of Rs. 264.39 crore (before foreign exchange loss) from last
 years operating profit of Rs. 257.32 crore. However, the higher
 interest cost and exceptional loss in the form of foreign exchange
 losses led the Company into net loss of Rs. 97.83 crore from the
 previous years profit of Rs. 3.02 crore.
 
 You can read the details of your Companys operations in the
 accompanying Management Discussion and Analysis.
 
 I would like to point out that this is not the first time we have faced
 difficult business conditions. Over the years, we have come across
 different equally challenging issues and have successfully maneuvered
 through those. The present day situation, I can say, is another such
 challenge. We have little control over the external environment but we
 can utilize this situation to better equip ourselves for today and
 tomorrow. I would like to highlight the issues that affected your
 Companys growth trajectory and the strategies we deployed to allow
 your Company to operate smarter. We had initiated cutting production in
 the face of high costs and liquidity crunch. We realized that we had to
 reduce our high cost inventory. By rationalizing production during the
 second and third quarter and adopting an aggressive marketing strategy,
 we not only wiped away our excess inventories but also restored normal
 production. Cost reduction was very high on our agenda and several
 austerity measures such as reducing overhead cost, energy savings,
 increasing operational efficiencies and optimizing working capital
 requirements have started showing results.
 
 These developments portend positive projections for the coming year.
 What adds to our confidence is the stimulus package announced by the
 Government to minimize the impact of global financial crisis on the
 Indian economy. As part of the stimulus package, the Government has
 introduced several policy changes including the reduction of excise
 duties from 8% to 4% and the extension of DEPB scheme. Such
 
 measures of reduction in excise duty on PSF and POY has led to a boost
 in the product demand. However, duties on some raw materials like MEG,
 consumables, furnace oil still remained higher than the duties on
 finished products resulting in Cenvat accumulation.
 
 To inject liquidity into the system, RBI has reduced its key ratios
 like CRR, SLR, Repo rates etc. which has helped improve liquidity from
 the crucial period of October, 2008 and banks are flushed with funds.
 However, such liquidity has not brought down the cost of funds. While
 interest rates have come down in piecemeal manner, there is no uniform
 impact because of imperfection in the system. The transmission of
 policy interest rate signal has been effective in the money and
 Government security market only. However, its transmission in the
 credit market has so far been subdued. To arrest the moderation of
 economic growth, it is critical that the banks expand the flow of
 credit to productive sectors of the economy and do so at viable rate.
 
 Globally, cotton output has been shrinking, mainly due to reduced
 acreage under crop. India, however, witnessed fair cotton crop during
 2008-09, but is lower than the last years. To provide support to the
 farmers the Government announced MSP for the cotton and bought large
 quantity of cotton from farmers. The prices and demand of Polyester
 Staple Fibre (PSF) were impacted positively by such government
 measures. Even without the increase in cotton prices, Polyester fibre
 is gaining a significant share as an input material for spinning and
 weaving. Polyester is now looked upon as a preferred alternative to
 other fibres.
 
 I am happy to report that your Company has come out of the past
 upheavals and the performance in the last quarter of 2008-09 as well as
 in the current period is encouraging. I am hopeful that the Company
 
 will achieve a satisfactory level of production, sales and profits
 during the current year.
 
 The Power Division of the Company has been doing well and is
 contributing to both revenues and profitability. We have recently
 upgraded our power evacuation capacity as a result of which our export
 capacity has doubled from 24 MW to 50 MW.
 
 The year 2008-09 should be regarded a watershed year and we are
 handling the pressure with firm commitment and tenacity knowing well
 that this storm too shall pass. I am confident that it is this
 foundation that will result in enhanced shareholder value over the
 coming years.
 
 In the end, I would like to express my sincere thanks to all our
 business partners, banks, financial institutions and customers for the
 continued confidence that they have reposed in us even in the face of
 adversity.  I look forward to your continued faith and support to Indo
 Rama in the coming years as well.
 
                                              Yours sincerely,
                                                  O. P. Lohia
 May 19, 2009                       Chairman &Managing Director