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Aditya Birla Fashion & Retail

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Directors Report Year End : Mar '17    Mar 16

Dear Members,

The Company''s Directors hereby present the Tenth Annual Report of the Company together with the Audited Financial Statements of the Company for the Financial Year ended March 31, 2017 (year under review/ FY 2016-17).

COMPOSITE SCHEME OF ARRANGEMENT

Allotment to Non-Resident Shareholders of Aditya Birla Nuvo Limited (“ABNL”) holding shares on Repatriation basis pursuant to the Effectiveness of the Composite Scheme of Arrangement amongst your Company, ABNL and Madura Garments Lifestyle Retail Company Limited (“MGLRCL”) and their respective Shareholders and Creditors, under Sections 391 to 394 of the Companies Act, 1956 (“Composite Scheme”)

In terms of Clause 21 of the Composite Scheme, the allotment of 37,82,178 Equity Shares ofRs,10/- each (said shares), pertaining to the Non-Resident Shareholders of ABNL holding shares on repatriation basis (NRE Shareholders) was kept pending until receipt of applicable regulatory approval(s).

In terms of applicable FEMA Regulations and extant FDI Policy of the Government of India (FDI Policy), your Company was required to obtain an approval from the Foreign Investor Promotion Board (FIPB) for allotment of Equity Shares to NRE Shareholders pursuant to the Composite Scheme. Accordingly, an application was made to the FIPB in that regard. However, the Department of Industrial Policy & Promotion of the Government of India conveyed that in view of the provisions of the extant FDI Policy, application of the Company could not be acceded to. Hence, the allotment of 37,82,178 Equity Shares, representing 0.49% of the total paid-up capital, to such NRE Shareholders was kept pending.

Thereafter, your Company evaluated various options for settling the lawful entitlements of such NRE Shareholders in terms of the provisions of the applicable laws and it was advised that the entitlements of NRE Shareholders can be credited to the accounts held by them on Non-repatriation basis in India (NRO Account), if any. Accordingly, out of the said shares, the Company has, till the date of this report, allotted 10,41,504 Equity Shares (including 4,768 equity shares post March 31, 2017) of Rs, 10/- each to 279 NRE Shareholders, who have provided their valid consent for allotment of their entitlements to their respective NRO account.

Further, in terms of the RBI Circular No. 6 dated October 20, 2016 [RBI/2016-17/88 A.P. (DIR Series)] and pursuant to a Legal Opinion obtained in that regard from M/s. Cyril Amarchand Mangaldas, Legal Counsel, on April 4, 2017, the Company allotted 9,90,911 Equity Shares of Rs, 10/- each to 1,078 NRE Shareholders holding shares in ABNL under the portfolio investment scheme, as on the record date fixed under the Composite Scheme.

The NRE Shareholders, who have not submitted the details of their respective NRO account vide a duly filled in Consent Form to the Company, have been informed that in absence of any communication from them and subject to any further communication from the Company in that regard, allotment to such NRE Shareholders will be kept pending till the time there is a favorable change in the applicable laws. The aforesaid Consent Form is available on the website of the Company i.e. www.abfrl.com.

Fractional Entitlements of NRE Shareholders

On April 4, 2017, your Company allotted 343 Equity Shares of Rs, 10/- each, in terms of Clause 19(iii) of the Composite Scheme, representing Fractional Entitlements arising out of aforesaid allotments to NRE Shareholders. The Company is in process of selling them in the Open Market in terms of the Clause 19 of the Composite Scheme, post which the proceeds of the sale will be distributed amongst the NRE Shareholders, as per their respective entitlements, through demand drafts and other prescribed electronic modes of payments along with necessary intimations of such payments to each of them.

ACQUISITION OF FOREVER 21, INDIA BUSINESS AND OTHER STRATEGIC ALLIANCES

With a view to create a strong foothold in the women swear business in the western wear segment, your Company acquired the exclusive online and offline rights of the global brand - Forever 21 for the Indian market and its existing store network in India (Forever 21) from its franchise i.e. Diana Retail Private Limited (Diana Retail) (said Acquisition) on a going concern basis, by means of a slump sale (as defined in Section 2 (42C) of the Income Tax Act, 1961), for a lump sum consideration. The Company also executed a Franchise Agreement with Forever 21, Inc., in terms of which the Company has acquired the exclusive franchise rights for the brand Forever 21 for the Indian market.

Pursuant to the said Acquisition, Forever 21 forms part of Madura Fashion & Lifestyle division of your Company w.e.f. July 1, 2016. Accordingly the Financial Statements for year under review, include nine months results of Forever 21 (included in the Madura Fashion & Lifestyle segment of the Company).

In addition to above, during the year, your Company signed exclusive deals with:

- UK''s most successful brand Ted Baker, world-renowned for its stylish and sophisticated menswear, women swear, accessories (and everything in between); and

- Simon Carter - London-based designer brand with a quirky English Touch, as part of the Company''s strategic intent to grow its international portfolio.

MANAGEMENT DISCUSSION AND ANALYSIS

To avoid repetition of information, the Management Discussion and Analysis, on performance of the Company, is presented below.

Overview

In 2016, the Global economy was subdued, as reflected in the IMF world economic growth numbers of 3.1% vs 3.4% in previous year. The slowdown was mainly on account of sluggish growth in advanced economies while the emerging markets and developing economies grew at a healthy 4.1%, despite both China and India experiencing a decelerated growth over previous year. Furthermore, financial markets witnessed a broad uptrend in 2016, notwithstanding events such as Brexit and the process of normalization of interest rates by the US Fed towards year-end.

India continued to be the fastest-growing major economy in the world. As per the advance estimates released by the Central Statistical Organization (CSO), in FY 2016-17, India''s GDP grew at 7.1%, slowing down from 7.9% growth in the previous year. Macro-economic fundamentals of the economy remained healthy - with moderation of inflation, fiscal deficit and current account deficit.

In November 2016, the country witnessed demonetization of higher denomination currency notes that created a temporary impact on consumer demand. However, by the end of the financial year, the economy got back to normal, as suggested by the high-frequency economic indicators.

India has implemented Goods and Services Tax (GST) with effect from July 1, 2017. This will create a common market for goods and services, improved tax compliance and governance, thereby creating a favorable ecosystem for business growth.

Industry Structure and Developments

The apparel industry has evolved rapidly over the past few years driven by the entry of international brands, emergence of E-commerce players with deep pockets and rapid growth of value fashion category.

International players in the premium and mid-premium segments are pursuing a clear strategy of expansion and have even adjusted price points to suit the Indian market. Value Fashion players continue to expand aggressively, outpacing the industry growth.

E-commerce is witnessing rapid consolidation, creating unprecedented scale and gaining deep access to markets and consumers. This creates an opportunity for strong brands to partner with E-commerce players and enlarge the consumer base.

The industry continued to witness high discounting and promotions during the full price periods as players pursued growth in a soft environment.

Business Overview

Your Company, with a turnover of Rs, 6,633 Crore in FY 2016-17, has become India''s first billion-dollar pure play fashion powerhouse.

Lifestyle Brands

With over 9 million deeply engaged customers and the largest distribution network, our lifestyle brands -Louis Philippe, Van Heusen, Allen Solly and Peter England, continue to lead the market in their respective segment. Three out of the four brands have crossed the Rs, 1,000 Crore mark in consumer sales. The leadership position of our brands has been further strengthened with the roll-out of omni channel capabilities across 500 stores in the network, giving consumers unprecedented access to a wide variety and choice of our products. Our relentless focus on consumer experience, innovation and brand building has helped us build a strong equity with our consumers.

Pantaloons

Pantaloons, with a growth of 18.4%, is amongst the fastest growing retailers in the value fashion segment. During the year under review, Pantaloons opened 79 stores and ended the year with a total of 209 stores spanning over 3.2 million sq.ft. The share of exclusive brands in the portfolio grew from 62% to 67%. Pantaloons has moved from a two-season cycle to a four-season cycle, bringing freshness and constantly updated fashion to our stores.

Pantaloons has been awarded the IMAGES Most Admired Affordable Fashion Retailer of the year. Its customer relationship program with over 7 million deeply engaged customers is one of the key drivers of growth, contributing to almost 80% of sales.

Fast Fashion

Your Company has been first off the blocks in recognizing fashion segments of the future and has not only laid a strong foundation for it, but also taken definitive strides in responding to the opportunities. Youth fast fashion is one of the fastest growing segments and through its two Retail Brands - People and Forever 21 - the Company has made its foray into this segment. Forever 21 is an iconic global fast fashion brand that brings the latest global fashion to the Indian market, while People is a young and edgy brand that seeks to address the fashion aspirations of the youth of the country. These brands are poised for rapid scale up in the coming years.

Innerwear

Innerwear is an attractive growing market with few organized players. The Company entered this market with the launch of Van Heusen innerwear, loungewear and leisurewear for men. Initial results have been very encouraging and the company plans to steadily scale it up and build a large profitable business in the coming years.

International Brands

The Collective is India''s largest multi-brand retailer of international brands. In FY 2016-17, your Company signed up with international brands Simon Carter and Ted Baker for the Indian market. These brands will be launched in FY 2017-18. With the addition of these brands in its portfolio, your Company has a meaningful play in the emerging Super Premium and Bridge to Luxury Segment.

Demonetization

As with most other businesses in the country, your Company was also impacted by demonetization. While the retail channel recovered quickly, businesses like wholesale customers, suppliers, franchise operations took longer. Overall business returned to normalcy by end of financial year.

GST

Your Company has worked closely with its vendors and partners and is now fully prepared to ensure a smooth transition into the new GST regime.

Business Strategy

Your Company will continue to build on its leadership position through investments in key strategic themes. Building Strong Brands

In order to maintain its leadership position, your Company will continue to invest in brand building, product design and a refreshed store experience. It will sharpen the brand promise through differentiated merchandise and product innovation. Consumer experience is being upgraded through consumer centricity initiatives and digital transformation at stores. The consumer centricity framework is based on continuous consumer research, big data analytics, real-time consumer feedback from retail outlets and a constantly upgrading loyalty program.

Enhancing Portfolio

Your Company continuously identifies emerging segments in the market and seeks to enhance its play through a combination of brand extensions, new product launches and strategic acquisitions.

In the last few years, your Company expanded its presence in casual wear through brand extensions and gained a strong position in the fast growing value fashion segment through Pantaloons. In FY 2016-17 the portfolio has been further strengthened with the acquisition of rights of Forever 21 and launch of men''s innerwear under the brand Van Heusen.

As we move forward, your Company will continue to explore further growth opportunities in fast growing segments such as women swear, casual and super-premium categories.

Building agile Design and Supply Chain

Design and product development is at the core of the apparel business and your Company will continue to invest behind these functions. In FY 2016-17, your Company has shifted from a two-season cycle to a four-season cycle - Spring, Summer, Festive and Winter, thereby building an agile design and supply chain ecosystem. This is a significant internal transformation your Company has undertaken to offer greater freshness and latest fashion in line with changing consumer trends.

Expanding distribution footprint

Your Company has been growing rapidly through its multi-channel distribution strategy and is now present in more than 750 cities. It has identified markets in Tier II/ III cities for further expansion even while it increases its penetration in existing territories, thereby gaining strong position across these markets to meet the growing demand for high-quality ready-made branded apparel.

Financial Performance

Restatement of Financial Statements in terms of Indian Accounting Standards (Ind AS)

The Financial Statements of the Company for the previous years (including the ones with respect to year ended March 31, 2016) were prepared in accordance with the applicable Accounting Standards, notified under Companies (Accounting Standard) Rule, 2006 (as amended) and other relevant provisions (hereinafter referred to as ''Previous GAAP'').

The Company has adopted Ind AS notified by the Ministry of Corporate Affairs (MCA) w.e.f. April 1, 2016 - with a transition date of April 1, 2015, in view of the provisions of Section 133 of the Companies Act, 2013 (the Act, which term shall include the Rules made there under) read with the Companies (Indian Accounting Standards) Rules, 2015.

Accordingly, the Financial Statements for the year under review have been prepared in accordance with the Ind AS.

Also, as per the provisions of Ind AS 101 with respect to First-time Adoption of Indian Accounting Standards, all Ind AS and interpretations - that are applicable for the financial statements of the Company for the year under review, are applied retrospectively and consistently for all the financial years presented and accordingly, the comparative period figures has been restated to that extent and the impact of transition from Previous GAAP to Ind AS has been accounted for in opening reserves.

Statement of Profit and Loss

(Amount in Rs, Crore)

Particulars

As on March 31, 2017

As on March 31, 2016

Revenue

6,633

6,035

EBITDA*

476

405

Finance Cost

180

177

EBDT

296

228

Depreciation

242

338

Earnings Before Tax

54

(110)

Provision for Taxation

-

-

Net Profit / (Loss)*

54

(110)

Other Comprehensive Income

(9)

0

Total Comprehensive Income / (Loss)*

45

(110)

* Includes Other income of Rs, 22 Crore (Previous year: Rs, 5 Crore) and Finance income of Rs,16 Crore (Previous year: Rs, 21 Crore) Revenue

Your Company reported revenue of Rs, 6,633 Crore during the year under review, recording a growth of 9.9% over the previous year.

Segment: Madura Fashion & Lifestyle (MFL)

MFL reported a revenue of Rs, 4,114 Crore recording growth of 3.4% over the previous year.

Its retail channel, which comprises 1,878 Exclusive Brand Outlets (EBOs) and 174 value stores spanning 3 million square feet, accounts for Rs,45% of MFL''s revenue and reaches out to 10.4 million loyal consumers. Besides these EBOs, MFL is reaching customers through 7800 additional points of sales including Multi Brand Outlets (MBOs) and Shop-In-Shops (SISs) in Department Stores.

Segment: Pantaloons

Pantaloons reported a revenue of Rs, 2,552 Crore recording growth of 18.4% over the previous year. During the year, it added 79 stores taking the total number of stores to 209 spanning 3.2 million sq.ft. Pantaloons reaches out to large middle class Indian households with its diversified offerings for men, women and kids.

Operating Profit

Combined EBITDA of both the segments including other income and finance income is Rs, 476 Crore (7.2%), which grew by 17.5% over the previous year EBITDA of Rs, 405 Crore (6.7%).

Finance Cost

During the year under review, your Company reduced the average borrowing cost from Rs,9.3% in previous year to Rs,7.7% . Your Company explored various options for bringing down the cost of borrowings which included availing of short-term instruments like commercial paper and export packing credit and longterm instruments like Redeemable Non-Convertible Debentures. This was further aided by the reduction in the overall interest rates in the economy.

Depreciation

The depreciation cost was higher during the previous year as the Company had reassessed the useful life of leasehold improvements and immovable fixtures for its Pantaloons business, from the period of lease to six years, as the same better reflects the expected usage of such assets.

Balance Sheet

(Amount in Rs, Crore)

Particulars

As on March 31, 2017

As on March 31, 2016

Net Fixed Assets (Including Capital Advances and CWIP)

696

567

Goodwill*

1,860

1,795

Net Working Capital

509

424

Capital Employed

3,065

2,786

Net Worth

958

905

Code

2,107

1,881

Notes:

* Arising on account of transfer to the company of the following businesses -

- Pantaloons (Financial Year 2012-13) -Rs,1,168 Crore,

- Madura Fashion and Lifestyle (Financial Year 2015-16 -Rs,628 Crore

- Forever 21 (Financial Year 2016-17) -Rs,64 Crore A Includes interest accrued but not due on borrowings.

As on March 31, 2017, Goodwill (after testing for impairment in accordance with the Ind AS - 36 issued by the Institute of Chartered Accountants of India) stands atRs,1,860 Crore.

Net Working Capital as on March 31, 2017 includes Inventory ofRs,1,431 Crore, Trade Receivables ofRs,454 Crore, Cash and Bank Balance ofRs,44 Crore and Trade Payables ofRs,1,551 Crore.

Dividend

While the Company has made a profit for the year, in view of accumulated losses of previous years, no amount is proposed to be transferred to reserves and your Directors have not recommended payment of any dividend for the year under review.

Borrowings

In order to ensure greater financial flexibility and an optimal financing structure, your Company at the Ninth Annual General Meeting, obtained approval of the Members by way of a Special Resolution, to raise funds by issuance of Non-Convertible Debentures for an amount of uptoRs,1,250 Crore, on private placement basis, within the overall borrowing limits of the Company as approved by the Members from time to time. Pursuant to the said approval, during the year, your Company issued Non-Convertible Debentures ofRs,660 Crore.

SWOT Analysis

Strengths

Portfolio of strong brands

With its portfolio of established brands and large format fashion retail presence, your Company has a leading position in the Indian apparel market and caters to consumers across all segments, from Luxury to Value; including men, women and kids in the formal, casual and ethnic space.

Deep expertise in Design, Product Development and Sourcing

Your Company has invested deeply in building strong design and product development capabilities. This coupled with global sourcing capabilities and robust supply chain systems has helped in continuously bringing to the market innovative products in line with rapidly changing fashion trends.

Largest Distribution Network

Your Company has a wide distribution network spread across 750 cities through 2,261 stores, 3,300 SISs and 4,500 MBOs; making it the largest distribution network of any apparel business in the country.

Strong People Processes

Your Company attracts the best people in the apparel Industry and has strong systems of nurturing the talent backed by robust people development processes, mentoring, career development programs and employee engagement initiatives.

Weaknesses

Inadequate presence in fast growing segments

While the company has a strong presence and brands in menswear segment and has recently entered fast fashion and innerwear categories, it has a relatively lower presence in western women swear, casual wear, denims and kidswear segments. As part of its strategy, your Company is keenly focusing to quickly build capabilities in these segments as well.

Opportunities Large Growing Market

Rising incomes, increasing disposition towards fashion, greater access and awareness about brands is creating a large shift towards branded fashion across the country.

While consumers in larger cities still have access to brands and organized retailers, the overall market continues to remain under-penetrated. This offers growth opportunities in Tier II/III cities. Duly recognizing the opportunity, your Company has built its growth strategy around these key markets.

The company is also looking to tap the opportunity in the super-premium segment as more affluent consumers seek international brands and global experiences.

As consumers are shifting to online purchase, your Company sees an opportunity in building a substantial online business.

Threats and Risks

Scarcity of quality retail space

Retail space in India is limited to key markets and a few successful malls, leading to a scarcity of suitable retail spaces at the right rentals.

Emergence of E-commerce players with deep pockets

The share of online business is growing rapidly and will continue to disrupt the value proposition to customers through deep discounting and promotions.

Talent Retention

The company faces constant threat to its talent pool from competition; primarily from the new international players and E-commerce companies in the industry.

Outlook - Way Forward

With the government focused towards improving the investment environment and the consumer inflation well under check, the economy is poised for continued robust growth. This improving economic scenario should translate into increased consumer spend over time.

Your Company is well-positioned to exploit the potential in this growing market with its diverse product offerings across varied categories and price points for changing consumer needs.

Risk Management and Internal Controls

Effective governance and risk management form the bedrock of a company''s sustained performance and revolve around rigorous implementation of standardized policies and processes and development of strong internal control systems.

Your Board has constituted a Risk Management Committee (RMC) for identification, evaluation and mitigation of operational, strategic and external risks. RMC has a defined role and overall responsibility for monitoring and reviewing the Risk Management Plan and associated practices of the Company. Details of the composition of the RMC have been disclosed as part of the Corporate Governance Report.

Your Company also has an Internal Committee to support and assist the RMC in identifying, evaluating and mitigating operational, strategic and external risks.

This internal committee is headed by the Chief Financial Officer of your Company who is also the Chief Risk Officer of the Company and it is supported by individual Risk Officers covering legal, supply chain, manufacturing, human resources, finance, business development, IT, sales and marketing functions. This internal committee assists the RMC in defining the framework for risk management and compliance and undertakes assessment of risks, adopts the risk mitigation plans and regularly monitors them in a structured, controlled environment. It also reviews developments in the socio-economic environment and identifies internal threats and opportunities, updates the framework and refines processes and systems for mitigation.

Further, your Company has set up internal controls and policies related to financial reporting of transactions and efficient business operations in compliance with relevant laws and regulations. Internal reporting systems are in place for effective measurement of various business parameters related to revenue, expenses and reporting, in line with the provisions of the Act. Internal Audit Reports are tabled and reviewed by the Audit Committee and corrective measures are taken up promptly to improve the systems and processes.

Details with respect to the Risk Management Policy adopted by the Board have been disclosed separately herein below.

Human Resources

Powered by a team of 19,397 employees, we believe that our employees provide us with a competitive edge.

Your Company believes in harnessing its leadership and people capabilities through sharp focus and initiatives on talent development. We have instituted an active talent review process to take stock of succession planning for key roles in the businesses. We review our talent based on their performance and potential to assess their readiness for future roles of higher scale and complexity. We also invest in hiring bright entry level talent through our Management Trainee Programs to create the future leadership pipeline.

We believe in developing our employees through multiple experiences requiring them to handle scale and complexity. We have instituted this through varied job rotation and project roles. We have also put in place knowledge integration through Function based Councils. This helps to share experience, best practices and collective learning across our brands, formats and regions. We have also started investing in digital capabilities and have created an omni-channel organization to drive our agenda forward. Plans are afoot to strengthen our capability in this area.

The Aditya Birla Centre for Retail Excellence (ABCRE) continues to focus on capability building in our customer facing roles across our wide network of Stores through a learning calendar and learning delivery teams. Working with the business teams, it curates learning needs, creates contents for program and delivers training through its trainers and retail operations teams for our store staff.

We have put in place various recognition initiatives for our employees to reward them on their noteworthy performance and contribution. This is accorded at various platforms such as CEO Town Hall, annual meets of employees and Store Manager Meets. Various events such as Retail Olympics infuse bonding and team work among our employees through competitive sports events.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the provisions of Sections 134(3)(c) and 134(5) of the Act, the Directors, to the best of their knowledge and ability, confirm that:-

a) in the preparation of the annual accounts, the applicable accounting standards had been followed alongwith 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 and loss of the company for that period;

c) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act 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;

e) they have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and

f) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

OTHER DISCLOSURES UNDER THE ACT AND OTHER APPLICABLE LAWS, REGULATIONS ETC.

Details of Directors and Key Managerial Personnel who were appointed or have resigned during the year

A. Directors

During the year under review, Mr. Sanjeeb Chaudhuri was appointed as an Additional Independent Director of your Company for a period of 5 (five) consecutive years w.e.f. January 9, 2017, subject to the approval of the Members. Business with respect to his appointment is one of the agenda of the ensuing Tenth Annual General Meeting of the Company.

B. Key Managerial Personnel (KMP)

During the year under review, pursuant to the Talent Development Policy of the Aditya Birla Group (Group) and also in line with the provisions of the Nomination Policy of your Company:

a) Mr. Ashish Dikshit was re-designated as the Business Head of the Company (to continue to be one of the KMP of the Company) w.e.f. November 1, 2016, reporting to Mr. Pranab Barua -Managing Director of the Company; and

b) Mr. Vishak Kumar, Chief Executive Officer of Aditya Birla Retail Limited, a fellow ABG Company, was appointed as Chief Executive Officer - Madura Fashion & Lifestyle and one of the KMP of the Company w.e.f. November 1, 2016.

None of the KMP of your Company resigned from their respective positions in the Company.

The aforesaid appointments were based on the recommendation of the Nomination and Remuneration Committee of the Board (NRC).

Further, in accordance with the provisions of the Act and the Articles of Association of the Company, Mr. Sushil Agarwal - Non-Executive Director of your Company, is due to retire by rotation at the ensuing Tenth Annual General Meeting and being eligible, he has offered himself for re-appointment. Business with respect to his re-appointment is one of the agenda of the ensuing Tenth Annual General Meeting of the Company.

The list and profiles of the present Directors and KMP are disclosed as part of Corporate Information.

Company’s policy on appointment and remuneration of Directors and KMP including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178 of the Act

Board has, on recommendation of the NRC, adopted a Policy, which inter alia enumerates your Company''s policy on appointment of Directors and KMP.

Further the Board has, on recommendation of the NRC, also adopted a policy entailing Executive Remuneration Philosophy, which covers the Directors, KMP and employees included in Senior Management of your Company.

Both the aforesaid policies are annexed as Annexure I and Annexure II to this report.

Familiarization Programme

Your Company has framed a Familiarization Programme for Independent Directors of the Company, which aims to provide significant insight into the business of the Company and to enable the Independent Directors to understand their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates and business of the Company. Strategic reviews are also carried out from time to time to update Independent Directors.

On appointment, a formal letter of appointment is given to the Independent Director being appointed, which inter alia explains the role, function, duties and responsibilities expected of him/ her as an Independent Director of your Company. By way of an introduction to your Company, the new Director is presented with an Induction Kit, essentially a set of documents which may enable him/ her to have an adequate idea of the Group and the Company, such as Snapshot of the Company along with its major activities in last three years, Corporate presentations along with other documents that can give him/ her broad idea of the Management of the Company, various Codes of Conduct and Policies applicable to the Company etc. The Director is also explained, in detail, the compliances required from him/ her under the applicable laws. Also, once appointed, the Directors are periodically updated on the new projects, activities or processes of the Company, industry scenario, changes in regulatory framework and the impact thereof on the working of the Company. Details of said Familiarization Programmes are also available on the website of the Company i.e. www.abfrl.com.

Number of Meetings of the Board

During the year under review, the Board met four times, on following occasions:

Sr. No.

Date of Meeting

Place

1

May 25, 2016

Bengaluru

2

August 31, 2016

Mumbai

3

November 24, 2016

Mumbai

4

February 3, 2017

Mumbai

Details of meetings of the Board and its Committees along with the attendance of the Directors therein have been disclosed as part of the Corporate Governance Report.

The intervening gap between the meetings was as prescribed under the Act and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations).

Manner of formal annual evaluation by the Board of its own performance and that of its Committees and Individual Directors

Pursuant to the provisions of the Act and the SEBI Listing Regulations, the Board has to evaluate its own performance and that of its Committees and Individual Directors (Evaluation).

To enable such evaluation, an evaluation framework has been adopted by all the companies of the Group, which is devised with a view to provide a more structured approach for the evaluation and which lays down overall guidelines and processes to be adopted for the evaluation of performance. NRC and the Board have, vide their respective Resolutions dated May 8, 2015 and May 13, 2015, approved the Evaluation Framework.

The evaluation framework for assessing the performance of Directors of your Company comprises criteria’s such as contribution of the Director at the meetings, strategic perspective or inputs regarding the growth and performance of the Company, among others.

Pursuant to the provisions of the Act and the SEBI Listing Regulations, the Directors have carried out the annual performance evaluation of the Board, Independent Directors, Non-Executive Directors, Executive Directors and the Committees of the Board. The Directors were satisfied with the evaluation results, which reflected the overall engagement of the Individual Directors, the Board as a whole and its Committees with the Company. Performance evaluation criteria for Independent Directors is disclosed as a part of the Corporate Governance Report.

Statement on declaration of Independence

All the Independent Directors of the Company have given their respective declarations stating that they meet the criteria of Independence as provided in Section 149(6) of the Act and Regulation 16(1)(b) of the SEBI Listing Regulations.

Composition of the Committees of the Board of Directors

Name of the Committee

Composition of Committee

Audit Committee

- Mr. Arun Thiagarajan, Independent Director (Chairperson)

- Mr. Bharat Patel, Independent Director

- Ms. Sukanya Kripalu, Independent Director

- Mr. Sanjeeb Chaudhuri, Additional Independent Director

- Mr. Sushil Agarwal, Non-Executive Director

- Permanent Invitee - Mr. Pranab Barua, Managing Director

Stakeholders Relationship Committee

- Mr. Bharat Patel, Independent Director (Chairperson)

- Ms. Sukanya Kripalu, Independent Director

- Mr. Sushil Agarwal, Non-Executive Director

Nomination and Remuneration Committee

- Mr. Bharat Patel, Independent Director (Chairperson)

- Ms. Sukanya Kripalu, Independent Director

- Mr. Arun Thiagarajan, Independent Director

- Mr. Sushil Agarwal, Non-Executive Director

Corporate Social Responsibility Committee

- Mr. Bharat Patel, Independent Director

- Mr. Sushil Agarwal, Non-Executive Director

- Mr. Pranab Barua, Managing Director

- Mrs. Rajashree Birla, Chairperson, Aditya Birla Centre for Community Initiatives and Rural Development

- Dr. Pragnya Ram, Group Executive President, Corporate Communication & CSR, Aditya Birla Group - Permanent Invitee

Risk Management Committee

- Mr. Bharat Patel, Independent Director (Chairperson)

- Mr. Arun Thiagarajan, Independent Director

- Mr. Sushil Agarwal, Non-Executive Director

- Mr. Pranab Barua, Managing Director

Corporate Governance

Your Company is committed to follow the best practices of Corporate Governance, including the requirements under the SEBI Listing Regulations and the Board is responsible to ensure the same, from time to time. Your Company has duly complied with the Corporate Governance requirements as set out under Chapter IV of the SEBI Listing Regulations, from time to time and the Statutory Auditors of the Company viz. M/s. S R B C & CO LLP, Chartered Accountants (ICAI Registration No. 324982E/E30003), have vide their certificate dated May 12, 2017, confirmed that the Company is and has been compliant with the conditions stipulated in the Chapter IV of the SEBI Listing Regulations (said certificate). The said certificate is annexed as Annexure III to this report.

Further, a separate report on Corporate Governance forms part of this Annual Report.

Extract of Annual Return

Pursuant to the provisions of Sections 92(3) and 134(3)(a) of the Act and Companies (Management and Administration) Rules, 2014, an Extract of the Annual Return in Form No. MGT-9 is annexed as Annexure IV to this report.

Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made - (i) by the auditor in his report and (ii) by the company secretary in practice in his secretarial audit report

Statutory Auditor

M/s. S R B C & CO LLP, Chartered Accountants (ICAI Registration No. 324982E/E30003), were appointed as Statutory Auditors of your Company at the Ninth Annual General Meeting of the Company held on September 7, 2016, to hold office for a period of 5 (five) consecutive years i.e. from the conclusion of the Ninth Annual General Meeting until the conclusion of the Fourteenth Annual General Meeting of the Company, subject to the ratification of their appointment by Members at every Annual General Meeting.

Report given by the Statutory Auditors on the Financial Statements of the Company is disclosed as part of the Financial Statements.

There has been no qualification, reservation, adverse remark or disclaimer given by the Statutory Auditors in their Report for the year under review. In terms of the guidelines issued by the Institute of Chartered Accountants (ICAI), the Statutory Auditors have emphasized on the matter that the acquisition of the Madura Undertaking of ABNL and MGL Retail Undertaking of MGLRCL (demerged undertakings) has not been restated in accordance with the provisions of Ind AS 103, since the same has been accounted in accordance with the terms of the Composite Scheme of Arrangement as approved by the Hon''ble High Court of Gujarat and Bombay vide their respective orders.

The Notes to the Financial Statements are self-explanatory and do not call for any further comments. Secretarial Auditor

M/s. Dilip Bharadiya & Associates, Practicing Company Secretaries, were appointed as Secretarial Auditor of your Company, to conduct Secretarial Audit for the year under review, pursuant to the provisions of Section 204 of the Act.

There has been no qualification, reservation, adverse remark or disclaimer given by the Secretarial Auditor in his Report for the year under review. The Secretarial Audit Report given by the Secretarial Auditor of the Company is annexed as Annexure V to this report.

Particulars of loans, guarantees or investments under Section 186 of the Act

Particulars of the loans, guarantees and investments as required under Section 186 of the Act have been disclosed as part of the Financial Statements.

Particulars of contracts or arrangements with related parties referred to in sub-section (1) of Section 188 of the Act in the prescribed form

All contracts/ arrangements/ transactions entered into by your Company with its related parties, during the year under review, were:

- in ordinary course of business of the Company;

- on an arm''s length basis; and

- not material,

as per the provisions of Section 188(1) of the Act read with Companies (Meetings of Board and its Powers) Rules, 2014 and Regulation 23 of the SEBI Listing Regulations.

Accordingly, Form AOC-2 prescribed under the provisions of Section 134(3)(h) of the Act and Rule 8 of the Companies (Accounts) Rules, 2014, for disclosure of details of Related Party Transactions, which are not at arm''s length basis and also which are material and at arm''s length basis, is not provided as an annexure of this Report.

However, all Related Party Transactions entered into during the year under review were approved by the Audit Committee and Board, from time to time and the same are disclosed as part of the Financial Statements of your Company for the year under review, as per the applicable provisions of the Act and the SEBI Listing Regulations.

Further, pursuant to the provisions of the Act and the SEBI Listing Regulations, Board has, on recommendation of its Audit Committee, adopted a Policy on Related Party Transactions and the said policy is available on the website of the Company i.e. www.abfrl.com.

Details relating to deposits

During the year under review, your Company has not accepted any fixed deposits from the public falling under Section 73 of the Act read with the Companies (Acceptance of Deposits) Rules, 2014. Thus, as on March 31, 2017, there were no deposits which were unpaid or unclaimed and due for repayment.

Names of companies which have become or ceased to be its Subsidiaries, Joint Ventures or Associate companies during the year

During the year, no Company became/ ceased to be a Subsidiary/ Associate of your Company. Also the Company did not become a part of any Joint Venture during the year.

As at the end of the year under review i.e. on March 31, 2017 and also as on the date of this report, your Company does not have any Subsidiary and/ or Associate Company and your Company is also not a part of any Joint Venture.

Details with respect to development and implementation of a Risk Management Policy

Considering the susceptibility of your Company to the inherent business risks, Board, on recommendation of RMC, has adopted a Risk Management Policy, to:

- develop and implement Risk Management procedure/ plan including identification therein of elements of risk, if any, which may threaten the existence of the Company;

- enable the Company to proactively manage the uncertainty, changes in the internal and external environment to limit negative impacts;

- capitalize on opportunities along with minimization of identifiable risks; and

- in compliance with the provisions of the Act and Regulations 4(2)(f) & 17(9)(b) of the SEBI Listing Regulations which require the Company to lay down procedure for risk assessment and procedure for risk minimization.

The policy is reviewed periodically by the RMC, along with the key risks and related mitigation plans. More details on risks and threats have been disclosed hereinabove, as part of the Management Discussion and Analysis.

Further, in view of the ever increasing size and complexity of the business operations, your Company is exposed to the various risks emanating from frauds. Accordingly, the Board has, on recommendation of the Audit Committee, adopted an Anti-Fraud Policy and a Whistle Blower Policy, to put in place, a system for detecting and/ or preventing and/ or deterring and/ or controlling the occurrence of frauds.

Details of establishment of Vigil Mechanism

Board has, on recommendation of the Audit Committee, adopted a Policy thereby enumerating the Vigil/ Whistle Blower Mechanism, for Directors and employees of your Company, to report concerns about unethical behavior, actual or suspected fraud or violation of the Code of Conduct of the Company and to voice genuine concerns or grievances about unprofessional conduct without fear of reprisal. Adequate safeguards are provided against victimization to those who avail of the mechanism and direct access to the Chairperson of the Audit Committee is provided to them. The Vigil Mechanism is also available on the website of the Company i.e. www.abfrl.com.

Details about the policy developed and implemented by the Company on Corporate Social Responsibility (“CSR”) and the CSR initiatives taken during the year

In terms of the provisions of Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board has constituted a CSR Committee. Details of the composition of the CSR Committee are disclosed hereinabove and have also been disclosed as part of the Corporate Governance Report.

Further, the Board has, with a vision to actively contribute to the social and economic development of the communities in which your Company operates and in doing so build a better, sustainable way of life for the weaker sections of society and raise the country''s human development index, adopted a CSR Policy and the same is available on the website of the Company i.e. www.abfrl.com.

CSR Policy of the Company, enumerates the Vision of the Group and your Company, as a responsible corporate citizen. It also mentions the process to be implemented with respect to identification of projects and philosophy of the Company, along with key endeavors and goals viz.

- In Education - to spark the desire for learning and knowledge;

- In Health care - to render quality health care facilities to people living in the villages and elsewhere through our Hospitals;

- In Sustainable Livelihood - to provide livelihood in a locally appropriate and environmentally sustainable manner;

- In Infrastructure Development - to set up essential services that form the foundation of sustainable development; and

- to bring about Social Change, we advocate and support.

In line with the same, the CSR activities of the Company are mainly focused towards,

- Girl Child Education and Skilling; and

- Health and Sanitation.

In view of the losses during the three immediately preceding financial years (i.e. Financial Years 2015-16, 2014-15 and 2013-14), the Company was not required to spend any amount towards the CSR activities, as per the applicable provisions of Section 135 of the Act. However, a report on CSR Activities of your Company during the year under review is annexed as Annexure VI to this Report.

Conservation of energy, technology absorption, foreign exchange earnings and outgo

Your Company consciously makes all efforts to conserve energy across all its operations. Information on conservation of energy, technology absorption and foreign exchange earnings and outgo, required to be disclosed pursuant to Section 134(3)(m) of the Act read with the Companies (Accounts) Rules, 2014 is given in Annexure VII to this Report.

Sustainability and Business Responsibility Report

Your Company''s sustainability initiatives are aligned with the Group''s sustainability vision, which mainly comprises Responsible Stewardship, Stakeholder Engagement and Future-proofing.

Accordingly, under the aegis of the Group''s sustainability vision, your Company is strengthening its ''ReEarth'' program, to design a roadmap which will align with the group level sustainability policies and international frameworks.

Through this mission, we hope to create a future ready organization, which addresses the needs of all Stakeholders thereby securing a sustainable future for tomorrow.

In accordance with our sustainability vision and in terms of Regulation 34(2)(f) of the SEBI Listing Regulations, a Sustainability and Business Responsibility Report forms a part of this Annual Report.

Dividend Distribution Policy

Your Company has, in compliance with SEBI Listing Regulations, formulated a Dividend Distribution Policy. Objective of this policy is to provide the dividend distribution framework to the Stakeholders of the Company and it sets out various internal and external factors which shall be considered by the Board in determining the dividend payout.

The policy is annexed as Annexure VIII to this report and is also available on the website of the Company

i.e. www.abfrl.com.

Details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future

No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status operations of your Company in future.

Employee Stock Option Scheme and Share Based Employee Benefits

Grant of share based benefits to employees is a mechanism to align the interest of employees with those of the Company, to provide them with an opportunity to share the growth of the Company and also to foster the long-term commitment.

Grant of share based benefits to the employees of the Company, such as Employee Stock Options (Options), Restricted Stock Units (RSUs), Stock Appreciation Rights (SARs) etc. is governed by the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (Regulations).

NRC inter alia administers, implements and monitors the Schemes and plans thereby governing the grant of Share Based Employee Benefits to the employees of the Company. Accordingly, administration and implementation of the Employee Stock Option Scheme - 2013 (Scheme) and Stock Appreciation Rights Plan - 2013 (Plan), comes under the scope of NRC.

During the year under review, 2,79,544 (Two Lakh Seventy Nine Thousand Five Hundred Forty Four) RSUs were granted pursuant to the provisions of the Scheme and no Options and/ or SARs were granted.

Pursuant to the provisions of the Scheme and Plan, 1,78,910 (One Lakh Seventy Eight Thousand Nine Hundred Ten) Options, 51,974 (Fifty One Thousand Nine Hundred Seventy Four) SARs and 4,93,484 (Four Lakh Ninety Three Thousand Four Hundred Eighty Four) RSUs, respectively, were vested unto the eligible grantees. Also, your Company creditedRs,68,984.80 (Rupees Sixty Eighty Thousand Nine Hundred Eighty Four and Eighty Paise only) to one of the eligible grantee upon exercise of SARs.

Further, the Stakeholders Relationship Committee of the Board, allotted 2,62,925 (Two Lakh Sixty Two Thousand Nine Hundred Twenty Five) Equity Shares ofRs,10/- (Rupees Ten only) each credited as fully paid-up, upon exercise of Options by the eligible grantees and 3,84,767 (Three Lakh Eighty Four Thousand Seven Hundred Sixty Seven) Equity Shares ofRs,10/- (Rupees Ten only) each credited as fully paid-up, upon exercise of RSUs by the eligible grantees.

In terms of the provisions of the Regulations, the details of the Options and/ or RSUs and/or SARs already granted under the abovementioned Scheme and/or Plan are available on the website of the Company i.e. www.abfrl.com. Further, the same have been disclosed as part of the Financial Statements.

A certificate from the Statutory Auditor confirming that the Scheme has been implemented in accordance with the Guidelines and the Regulations will be placed at the ensuing Tenth Annual General Meeting for inspection by the Members.

Particulars of Employees as per Section 197(12) of the Act and Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Disclosures with respect to the remuneration of Directors and Employees as required under Section 197 (12) of the Act and Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed as Annexure IX to this Report.

In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (said rules) a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules forms part of the Annual Report. However, in line with the provisions of the first proviso to Section 136(1) of the Act, the reports and accounts as set out therein, are being sent to all Members of the Company, excluding the aforesaid information. The same is open for inspection at the Registered Office of your Company during working hours. Any member interested in obtaining such information may write to the Company Secretary at the Registered Office of the Company.

Disclosures as per the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Company is committed towards providing a work environment that is professional and mature, free from animosity and one that reinforces our value of integrity that includes respect for the individual. Pursuant to the same, the Company has a Policy on Prevention of Sexual Harassment at Workplace, which is applicable to all employees of your Company, as per the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

During the year under review, no cases were filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and 26 complaints were received, out of which all the complaints have been investigated and resolved after taking an appropriate action and none of the complaints remain pending as on March 31, 2017.

AWARDS AND RECOGNITIONS

Your Company has been proud recipient of the following Awards and Recognitions during the year under review:

- The Company won the ''Best Customer Experience Award'' for Best Use of Insights to Enhance Customer Experience at the Customer Engagement Summit 2017 by Terragni Consulting, India;

- Madura Fashion & Lifestyle has been named as one of the ''Top 100 Best Companies for Women'' in India by Working Mother Media (US based leading firm for women) and AVTAR Group (Pioneer firm in India for providing career opportunities to women);

- Peter England won the ''Best Performing Brand in Men''s Formal / Casual Wear'' at The Flipkart Fashion Conclave 2017;

- Peter England won the ''Best Customer Relationship Management Program'' Award at the Customer Loyalty Summit 2017 by Kamikaze B2B Media (a leading marketing service organization in the B2B space);

- Forever 21 won the ''Most Popular Women''s Brand'' on e-commerce platform, Myntra in 2016;

- Pantaloons won the ''Most Admired Affordable Fashion Retailer of the Year'' at the IMAGES Fashion Awards 2017; and

- Pantaloons bagged 3 Awards in the categories of Best Customer Centric Company, Best Loyalty Program in Retail Sector - Large / Multi - Brand Format and Best Use of Customer & Data Analytics in Loyalty Program at the Customer Loyalty Summit 2017 by Kamikaze B2B Media.

SAFETY

Safety has always been one of the key focus areas of your Company and our goal is to achieve ''zero severity level 5 incidents at workplace'' by year 2020. In order to ensure this, we have instituted various mechanisms to assess, manage and improve safety practices.

During the year, there were 5 lost time injuries with no fatalities in operations under our control.

OTHER DISCLOSURES

- There was no revision in the Financial Statements for the Financial Year, other than as necessitated in terms of the provisions of the Act.

- Your Company has not issued any shares with differential voting rights.

- During the year, there was no change in the nature of business of your Company.

- No Material changes and commitments have occurred between the end of the Financial Year of the Company to which the Financial Statements relate and the date of the report affecting the financial position of the Company.

- Your Company has not issued any Sweat Equity Shares.

- Details pertaining to Unclaimed Shares Demat Suspense Account of your Company, are disclosed as part of the General Shareholder Information.

- Your Company does not have any Subsidiary as on the date of this report and accordingly, it does not have any policy for determining the Material Subsidiary.

- Your Company does not engage in Commodity hedging activities.

ACKNOWLEDGEMENT

We place on record our sincere appreciation for the continued support which the Company has received from its customers, vendors, suppliers, business associates, bankers, financial institutions, investors, Central and State Governments, Promoters, Group Companies and above all, employees of the Company.

For and on behalf of the Board of Directors

Place: Mumbai Pranab Barua Bharat Patel

Date : May 12, 2017 Managing Director Independent Director

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