Rallis India

Dear Shareholders,
 
 I am sure you will be pleased to know that your Company has crossed Rs.
 100 Crores PBT (before exceptional items) for the first time in its
 history. After incurring a loss a few years ago, this achievement gives
 great satisfaction to all the employees. I am sure it gives confidence
 to investors as well for higher achievements in the coming years. Your
 Company, with the help of its very competent team of professionals,
 should continue on the path of growth in the coming years.
 
 It would be of interest if I mention the three key competencies that
 exist in Rallis-
 
 Branded Farm Solutions: The ability to sell branded farm-solutions to
 farmers is a great corporate asset.  Rallis has several decades of
 association with the Indian farmers. Rallis has pioneered a number of
 unique relationship-building initiatives like technical field
 agronomists for disseminating the latest practices for crop
 cultivation, using focused group discussions for understanding emerging
 requirements of farmers, and systematically chalked field campaigns.
 
 Market Reach: The ability of Rallis to deliver new farm-solutions
 efficiently into the market is regarded as a great strength within the
 Indian industry. Rallis has a strong distribution network and is
 present across the length and breadth of the country, covering all the
 crop geographies. Rallis channel partners reach out to roughly 40,000
 retailers across the country with presence in more than 80% of Indias
 districts.
 
 Technical Innovative Capabilities: Rallis has a deep understanding of
 organic chemistry, batch processing and special chemical reactions such
 as Isomerisation, Azolyl Methylation and Reductive Alkylation. Further,
 it has invested in developing low-cost manufacturing solutions for
 generic molecules.
 
 The general economic situation across the world is very tough. Long
 term investors will view the prospects of the Company within this
 general context and within the context of the Industry. I would like to
 address both before I speak about the Company -
 
 a.  Global Economic Situation
 
 The year 2008-09 was a volatile year for all economies, which
 experienced disequilibrium across the globe.  In the first half of the
 financial year, the trend of the previous years continued of surging
 consumer demand, production increase and rising raw material prices.
 
 However, during the second half of the year all these factors seemed to
 collapse. Economic recession coupled with liquidity problems emerged in
 many countries impacting all business sectors.
 
 Countries like US, UK, Japan and many others continue to be in
 recession. The recession is expected to continue through the end of
 2009 with only early signs of a turnaround by 2010.
 
 The Indian economy has also been impacted by the global crises.
 However, the negative impact of the crisis has been comparatively less
 harsh than many other countries.The GDP growth for Apr-Dec 08 stood at
 6.9% (9% for Apr-Dec 07).
 
 b.  Robust Prospects for Agriculture
 
 Globally, between 1974 and 2005, food prices declined by about 75% in
 real terms (Constant $). Since 2005, food prices rose rapidly, only to
 be interrupted in second half of 2008 due to the global economic
 downturn.  However the world is expected to be in for a firm to rising
 food prices situation in the coming years.
 
 If the average price forecast by OECD-FAO for 2008-2017 is compared
 with that of 1998-2007, prices for wheat, maize and skim milk powder
 could be higher by 40-60%; for raw and white sugar by 30%, for butter
 and oilseeds by more than 60% and for vegetable oils by over 80%.
 
 Increasing world population, growth in developing nations and
 increasing urbanization are spurring the demand for food. According to
 a report drafted for ministers of G8 nations, the world faces a
 permanent food crisis and global instability unless countries act now
 to feed a surging population by doubling agricultural output.
 
 On the supply side, there are many challenges posed due to the impacts
 of climate change on agriculture, land degradation, growing uncertainty
 about crop yields and the intensification of floods and droughts in
 tropical areas. This will lead to volatility in food prices. Food and
 Agricultural Policy Research Institute (FAPRI), International Food
 Policy Research Institute (IFPRI) and Organisation for Economic
 Co-operation and Development (OECD) & Food and Agriculture Organization
 (OECD-FAO) studies identify an increase in the volatility of food
 commodity prices for the next 10-15 years.
 
 In India, during the period 04-08, the agriculture growth at 4.2% per
 annum has been the highest since 1980. While the agri-input prices have
 been subsidized, the price realizations for crop output have increased
 in line with the global prices. The Government has helped to focus on
 helping the Indian farmer, placing greater emphasis on the economic
 well-being of farmers and rural development rather than merely on
 agricultural production. Improvement of rural infrastructure, expansion
 of irrigation area, improved water management, support for rural roads,
 housing, electrification, telecommunication and research have been
 given a high priority.
 
 c.  Crop Care Industry
 
 Although traditionally our industry has been referred to as Pesticides
 or Agrochemicals, I would like to believe that we are in the business
 of Crop Care.Therefore, I prefer to refer to our industry as the Crop
 Care industry.
 
 The Crop Care industry is a very big industry globally at USD 40
 Billion. Its size is impressive compared to consumer industries like
 Laundry Care (USD 65 Billion) and the Bath Care (USD 30 Billion). On
 this large base, the global Crop Care industry has grown at a CAGR of
 8% over the last five years.This reflects a good demand for Crop Care
 products, driven by a fairly positive agricultural outlook throughout
 the globe and a general price increase for most of the generic
 products.
 
 The domestic Crop Care industry (USD 1 Billion or Rs.5000 Crores)
 witnessed a growth of around 10% during the year. This was largely
 driven by price increases, especially for the generic products. Steep
 cost escalation in the prices of raw materials led to such increases in
 the prices of the finished goods. However, prices were fairly stable
 for the specialty products and the industry witnessed a growing
 preference for such products by the farmers.
 
 While first half of the year was relatively favorable for the domestic
 industry, the environment turned challenging during the second half of
 the year. Industry grappled with issues like declining product prices,
 high cost inventory carried over from first half, adverse impact of
 volatility in foreign exchange and liquidity crisis along with poor
 credit availability.
 
 Performance of Southwest monsoon remains one of the critical drivers
 for the domestic Crop Care industry.  While overall monsoon during the
 Kharif season remained normal, it was marked by temporal variations
 with many areas not receiving rains for long periods during the months
 of July and August. This resulted in changes in cropping patterns and
 farmers had to go for re-sowing in many areas especially in west and
 central India. Average yields in Kharif crops like Cotton, Soybean and
 Pulses were also adversely impacted because of this. The Rabi season
 witnessed low pest and disease occurrence in some key crops, whereas
 cyclonic rains in November impacted standing rice in Tamil Nadu.
 
 For the first time after 35 years, the global demand for food will
 outstrip supply. This comes at a time when land is not easily
 available. Productivity can be improved by focusing on -
 
 i.  Better Inputs
 
 ii.  Better Agronomic Practices
 
 iii.  Post Harvest efficiencies
 
 Your Company is involved in areas under (i) and (ii).
 
 The above analysis points to a positive period ahead. Future writers
 may well perceive the coming period as the return of a golden period
 for agriculture, last seen during the green revolution half a century
 ago.
 
 Company Performance and Plans
 
 With continued focus on its key strategic drivers, your Company made
 significant progress during the year, inspite of the global economic
 slowdown.
 
 Some of the key features of your Companys performance during the year
 were:
 
 1.  Focus on innovation and introduction of new products continues to
 be one of the key strategic pillars for the Company. While products
 launched in the previous years like Applaud and Takumi got strengthened
 further with good response from growers of key crops, the Company also
 launched a new blasticide in Paddy segment under the brand name of
 Mantis. Two more new products, Ergon and Balwan are ready for launch in
 the coming year. Revenue from new products introduced in the last four
 years, termed as innovation turnover remained around 30% for the year.
 
 2.  The International Business achieved record sales of Rs.288 Crores
 in 2008-09, a growth of about 79% over last years sales. This, inspite
 of the downturn in international markets. The Companys focus on supply
 contracts and registration based sales has helped in increasing
 revenues across geographies.
 
 3.  Your Company continued its drive towards cost reduction and
 productivity. An enterprise wide value creation programme has been
 instrumental in improving the profitability of operations. In addition
 to manufacturing, procurement, sales and marketing areas, the programme
 has also been extended to reducing fixed costs and overheads across the
 Company during the year.
 
 4.  The Companys plans to set up additional manufacturing facilities
 are on track, with work progressing satisfactorily at the new site at
 Dahej in Gujarat, to which I had referred in my last years statement
 to the shareholders. The Rs. 150 Crores of investment in Phase 1 will
 go towards creating a state-of-the-art facility.  The capacity of the
 plant will be 5000 MT/KL per year with a Rs. 500 Crores revenue
 potential over a three year period. Commercial production is expected
 to start by June 2010.
 
 5.  Your Companys focus on health and safety measures also continued
 to be recognized. Your Company received several recognitions at the
 National and State levels for excellence in Health and Safety
 performance at all its Units.
 
 6.  Your Company continued to enhance customer relationships through
 various initiatives, which include its unique Rallis Kisan Kutumba
 (RKK) initiative. Focus Group Discussions, 4S campaigns and farmer
 helplines.  RKK initiative got further strengthened during the year
 with its farmer base expanding to 1,30,000 farmers across the country.
 
 7.  The Company continued to progress well on its journey in Business
 Excellence with its thrust on process orientation. During the year,
 your Company was awarded the CII-EXIM Award for Significant Achievement
 in Performance Excellence in its first year of application. The Company
 was also conferred the Growth Strategy Excellence Award in the Indian
 Crop Protection Chemicals Market by Frost & Sullivan, a consulting
 organization. Your Company is the first recipient of this award in the
 Indian Crop Protection industry.
 
 The above initiatives have resulted in strengthening the Companys core
 capabilities during the year.
 
 Board of Directors
 
 During the year, your Company has inducted Dr. K. P. Prabhakaran Nair
 as an Independent Director on the Board.  Dr. Nair is a renowned
 agronomist with over three decades of significant contributions in
 research, teaching and developmental areas. I am sure the shareholders
 will join me in welcoming Dr. Nair on the Board.
 
 Acknowledgement
 
 I would like to end by expressing my sincere appreciation for the
 continued support of the Tata Group, shareholders, suppliers,
 commercial partners and employees during the year.
 
                                                     Chairman
 
 Mumbai
 April 22nd, 2009