The Directors of your Company have pleasure in presenting their 38th
 Annual Report on the affairs of the Company together with the Audited
 Accounts of the Company for the year ended, 31st March, 2011.
 
 1.  FINANCIAL RESULTS:
 
 The Financial Results for the year are as under :- (Rs. in Crore)
 
 PARTICULARS                         2010-2011        2009-2010
 
 Turnover                            3,636.96         2,767.22
 
 Profit before Depreciation, Interest 
 & Tax (PBDIT)                         944.69           594.63
 
 Interest and Financial expenses       109.81            86.73
 
 Profit before Depreciation and Tax 
 (PBDT)                                834.88           507.90
 
 Depreciation                          226.02           220.87
 
 Profit before Tax (PBT)               608.86           287.02
 
 Provision for Tax - Current           123.75            56.75
 
 - Deferred Tax                          4.65            16.51 
 (Net of Adjustment)
 
 Tax adjustment of previous years        0.66              -
 
 Tax effect (Premium on redemption 
 of FCCBs)                              10.09              -
 
 Profit after Tax (PAT)                469.71           213.76
 
 Corporate Dividend Tax written back     1.24             1.95
 
 Balance brought forward               131.35            60.85 
 
 Adjustment of preceding years tax
 effect in respect
 of premium paid on redemption of FCCB  25.12              -
 
 Balance available for appropriation   577.18           276.56
 
 Appropriations:
 
 Proposed dividend on:
 
 -Equity shares                         28.64            17.33
 
 -Corporate Dividend Tax                 4.65             2.88
 
                                        33.29            20.21
 
 Transfer to General Reserve           300.00           125.00
 
 Surplus carried to Balance Sheet      243.89           131.35
 
                                       577.18           276.56 
 
 Earnings per share (Rs.)
 
 - Basic                                78.06            37.00
 
 - Diluted                              78.06            31.83 
 
 Dividend per share (Rs.)                4.50             3.00
 
 2.  MANAGEMENT DISCUSSION AND ANALYSIS REPORT:
 
 A) BUSINESS REVIEW:
 
 The global economy kicked off a sputtering growth in FY 2010-11 with
 developed economies showing faint signs of revival. The main engine of
 global growth, the United States, moved into a recovery mode with
 employment coming off highs & retails sales growing month on month,
 albeit slightly, and consumer confidence improving. This growth was
 accompanied by a huge surge in world commodity prices, with the
 Continuous Commodity Index (CCI) surging more than 42% during the year.
 This rise was mainly attributed to the 0 billion of Quantitative
 Easing part Deux (QE2) by the Federal Bank of America which released
 unprecedented amounts of liquidity. This liquidity got channeled into
 commodities and prices soared.
 
 This also gave rise to supply side inflation and fast growing economies
 in Asia bore the brunt. Their economies had barely recovered from the
 financial crises of FY 2008-09 and raising rates at this juncture would
 have meant putting a spanner in the way of growth. Most Asian economies
 therefore held off raising interest rates till the second half of the
 year and then a series of quick rate hikes followed, more particularly
 in China & India, who have clearly indicated that they dont mind
 sacrificing growth at the altar of inflation control. As a result, the
 earnings growth is expected to be hit in the current fiscal. Further,
 the QE2 will come to an end in June 2011 and the Fed has no plans of a
 QE3 as of now. In anticipation, the commodities have already come off
 their lifetime highs.
 
 Cotton & Yarn:
 
 Cotton prices were buoyed by strong global fundamentals, with US
 Department of Agriculture (USDA) reports forecasting a 6% y/y reduction
 in end season stocks to 41.5 million bales (of 480 lbs). This compares
 with 43.9 million bales (mb) in 2009-10 and 60.5mb in 2008-09.
 
 Although global cotton demand dipped by around 1.3% y/y in 2010-11,
 import demand from China rose by 37% y/y over the same period. Both
 developments were mainly due to supply constraints and global price
 rationing following a 8% decline in Chinas cotton output. China
 traditionally accounts for 30% of global cotton production. Extremely
 tight global end-season stocks underpinned prices; the stocks-to-use
 ratio at 35% will be the tightest since the 1993-94 season.
 
 Global Stock-to-use ratio lowest since 1993-94:
 
 In 2010-11, the cotton crop in China & Pakistan was damaged by bad
 weather and the global production fell. This led to an increase in
 cotton prices. The boom in prices was also fuelled by speculative
 trading in commodities which increased prices beyond fundamentals.
 
 India had exported 8.5 million bales of cotton in 2009-10. In September
 2010, the Government of India announced a cap of 5.5 million bales of
 cotton for exports, around 18% of the estimated production of 31.5
 million bales (of 375 lbs) in the current cotton season (CS) 2010-11.
 This lead to lesser availability of cotton for trade and with high
 import demand from China, international prices rose during the month.
 Prices in India also increased. The Cotlook A index rose by 133% from
  per pound in September, 2010 to about .33 per pound in March, 2011
 due to limited availability for exports on the back of restrictions by
 India coupled with robust demand from China and traditional importing
 countries. Indian Shankar 6 rose in tandem from Rs.37,000/ candy in
 Sept 2010 to Rs.60,000/ candy in March 2011.
 
 In line with cotton prices, cotton yarn prices also continued to remain
 high. This increase was in fact more than the increase in cotton prices
 due to pent up demand in the system where the pipeline of yarn stocks
 was at very low levels and also due to increased demand from a
 recovering global economy. Cotton yarn prices touched a high of
 .50/kg. To look at this in perspective, the average of the last 20
 years was around /kg, with .5/kg being the previous all time high
 in cotton yarn prices. These prices have since corrected and touched
 around .50-.00 in the middle of May 2011.
 
 In order to curtail the rise in cotton yarn prices, the Indian
 Government had imposed a limit of 720 mln kgs on cotton yarn to be
 exported in FY 2010-11.
 
 Outlook for Cotton Prices:
 
 These high prices are not expected to sustain, in part on expectations
 of increased acreage, particularly in US, China & Africa. Chinas
 import demand is also expected to slow down on a combination of high
 market prices, stronger output and competition from synthetic fibres.
 China has also planned a cotton purchase-and-reserve policy in 2011
 with a view to stabilising prices in the new season. Pakistan, where
 floods devastated cotton crops in the 2010-11 season, is another market
 which is likely to see a substantial increase in cotton output from
 previous year.
 
 Overall, the world market is expected to remain structurally tight
 (although better than FY 2010-11), but this will not be fully apparent
 until later in the season when the new crop stocks are drawn down.
 Global cotton production is expected to increase by about 13% from 24.5
 million tonnes in cotton season 2010-11 (Oct to Sept) to 27.5 million
 tonnes in cotton season 2011-12. The closing stock of 2011-12 is
 expected to be around 10.5 million tons which is higher than last 2
 years but still lower than normal closing stock levels in the past. The
 stock-to-use ratio is expected to improve to about 42% but will still
 be lower than the normal 48-52% in the past (excluding last 2 years).
 
 In anticipation of a bumper cotton crop this year, global cotton prices
 as of now have already come off their previous highs. The Dec New York
 future is significantly lower than the current New York future. Global
 yarn prices are decreasing in line with the cotton prices.  The
 anticipation in the market is that prices may come off further and
 therefore the demand for yarn has reduced as buyers are waiting for
 lower prices to buy.
 
 Overall, this year is likely to be turbulent and may have adverse
 impact on the operations of the Industry at large. However because of
 prudent cotton buying practices and conservative financial norms,
 Vardhman may not get as much affected as the rest of the spinning
 industry.
 
 Technology Upgradation Fund Scheme (TUFS):
 
 TUFS had been suspended temporarily by the government in June 2010. The
 Scheme has now been re-instated with a few changes; (i) Capital subsidy
 will now be available on looms for weaving as well. (ii) a 5% interest
 reimbursement may be given to the spinning units (against 4% earlier)
 if the unit is set up with matching downstream capacity in
 weaving/processing.  (iii) A cap of Rs.1,982 crores has been put on the
 total subsidy which will be given for the next one year. This has been
 allocated between various sectors.
 
 The sunset clause of the scheme remains unchanged at March 31, 2012.
 All loans sanctioned till that date will be eligible for subsidy for
 the life of the loan.
 
 Women Empowerment at Vardhman:
 
 Vardhman Group has a long tradition of non- discriminatory gender
 neutral Human Resource (HR) policy based on mutual trust, robust value
 system and transparent procedures. The top managements commitment to
 the cause has seen growing female participation at all levels of work
 spanning from high profile corporate assignments to shop floor
 operations.
 
 The company has seen entry of female in top management right up to
 executive director position.  This is followed by positions occupied by
 females of all age groups at different corporate positions including
 several high profile departments.
 
 Inspite of the fact that textile is a hard core manufacturing industry,
 the organization has witnessed growing numbers of female working at
 shop floor. The use of technology and rigorous training imparted at
 various training centers coupled with stringent safety measures, which
 includes setting up of various female hostels, has led to a situation
 where women consist of almost one-fourth of the total workforce. This
 has led to social empowerment of females belonging to semi skilled
 category especially from rural background. On the other hand, the
 organization has benefited handsomely in terms of higher commitment and
 increased discipline at shop floor leading to improved productivity and
 better working environment.
 
 B) FINANCIAL ANALYSIS AND REVIEW OF OPERATIONS:
 
 - Production & Sales Review:
 
 During the year under review, your company has registered a turnover of
 Rs. 3,636.96 crore as compared to Rs. 2,767.22 crore showing an
 increase of 31.43% over the previous year turnover. The export of the
 Company increased from Rs. 704.00 crore to Rs.1,218.26 crore, showing
 an increase of 73.05% over the previous year mainly due to price rise
 and better product/market penetration. The business wise performance is
 as under:- a).  Yarn:
 
 The production of Yarn increased from 126,146 MT to 130,861 MT during
 2010-2011.The sales revenue of yarn increased from Rs. 1,476.99 crore
 to Rs. 2,041.06 crore during the year under review.
 
 b).  Steel:
 
 The steel business of the Company stand vested in Vardhman Special
 Steels Limited w.e.f 1.1.2011 pursuant to the scheme of Arrangement and
 Demerge as sanctioned by Honble Punjab & Haryana High Court. However
 for the nine months ending 31st, December 2010, the production of steel
 ingots/billets has been 64,581 MT and that of Rolled products has been
 57,060 MT.
 
 c).  Fabric:
 
 During the year, the production of processed fabric increased from
 60.78 million meter to 75.44 million meter, showing an increase of
 24.12% over the previous year. The sales revenue of the processed
 fabric also increased from Rs. 556.52 crore to Rs. 828.20 crore showing
 an increase of 48.81% over the previous year.
 
 - Profitability:
 
 The Company earned profit before depreciation, interest and tax of Rs.
 944.69 crore as against Rs. 594.63 crore in the previous year. After
 providing for depreciation of Rs. 226.02 crore (Previous year Rs.
 220.87 crore), interest of Rs. 109.81 (Previous Year
 
 86.73 Crore), provision for current tax Rs. 134.50 crore (Previous year
 Rs. 56.75 crore), provision for deferred tax (net of adjustments), Rs.
 4.65 crore (Previous year Rs. 16.51 crore), the net profit from
 operations worked out to Rs. 469.71 crore as compared to Rs. 213.76
 crore in the previous year.
 
 - Resources Utilisation:
 
 a).  Fixed Assets:
 
 The gross fixed assets (including work-in-progress) as at 31st March,
 2011 were Rs. 3,822.83 crore as compared to Rs. 3,611.65 crore in the
 previous year.
 
 b).  Current Assets:
 
 Debtors outstanding for more than six months were Rs. 11.37 crore as
 compared to Rs. 13.00 crore in the previous year. The net current
 assets as on 31st March, 2011 were Rs. 2,328.12 crore as against Rs.
 1,769.52 crore in the previous year. Inventory level was at Rs.
 1,598.39 crore as compared to the previous year level of Rs. 1,107.46
 crore.
 
 - Financial Conditions & Liquidity:
 
 The Company presently enjoys a rating of AA with stable outlook and
 P1+ from Credit Rating Information Services of India (CRISIL) for
 long term and short term borrowings respectively. Management believes
 that the Companys liquidity and capital resources should be sufficient
 to meet its expected working capital needs and other anticipated cash
 requirements. The position of liquidity and capital resources of the
 Company is given below:- (Rs. in crore)
 
                                          2010-2011     2009-2010 
 
 Cash and Cash equivalents:
 
 Beginning of the year                      222.07        357.21
 
 End of the year                             48.77        222.07
 
 Net cash provided (used) by:
 
 Operating Activities                       (24.10)       (79.72)
 
 Investing Activities                      (327.45)       (97.06)
 
 Financial Activities                       182.63         41.64
 
 Transfer to VSSL on Demerger                (4.38)         -
 
 C) INTERNAL CONTROL SYSTEM:
 
 The Company has well defined internal control system. The Company takes
 abundant care to design, review and monitor the working of internal
 control system. Internal Audit in the organization is an independent
 appraisal activity and it measures the efficiency, adequacy and
 effectiveness of other controls in the organization. All significant
 issues are brought to the attention of the Audit Committee of the
 Board.
 
 D) MANAGEMENT PERCEPTION OF RISK AND CONCERN:
 
 One of the key challenge to the textile industry is related to raw
 material prices mainly cotton prices which has seen very steep hike in
 2010-11 and the same is still volatile creating uncertainties for
 textile manufacturers.
 
 The second important challenge is rising energy prices which could
 adversely impact the profitability of textile mills. The third main
 issue for the textile industry is the non -availability of skilled
 manpower coupled with high labour cost prevailing in the country.
 
 Uncertainty in the government export policy is other major challenge
 for the textile industry under which the government banned cotton yarn
 exports last year which lead to high inventory cost and losses to the
 indian textiles manufacturers and there is a fear of withdrawal of duty
 draw back benefits etc. to the exporters.
 
 We are making all efforts to cope up with the challenges through
 continuous cost reduction, process improvements, imparting training to
 the workforce on the continued basis, process improvements and improved
 customer services to mitigate the growing cost pressure
 
 E) HUMAN RESOURCES/INDUSTRIAL RELATIONS:
 
 The Company continues to lay emphasis on building and sustaining an
 excellent organization climate based on human performance. Performance
 management is the key word for the company. During the year the Company
 employed over 24000 employees.
 
 Pursuit of proactive policies for industrial relations has resulted in
 a peaceful and harmonious situation on the shop floors of the various
 plants.
 
 3.  SUBSIDIARIES:
 
 The Company has following subsidiary companies the details of
 profitability of which are given below:- VMT Spinning Company Limited
 (VMT)
 
 Business of this subsidiary of the Company which is a Joint Venture
 with Marubeni Corporation and Toho Rayon Company Limited of Japan
 remained good. The sales revenue of the Company has increased to Rs.
 128.34 crore from Rs. 101.65 crore in the last year and the net profits
 of the Company increased from Rs. 10.13 crore to Rs. 14.67 crore. Out
 of the total present paid-up capital of Rs. 20.70 crore, your Company
 holds 73.33 %. The Board of Directors of VMT has recommended a dividend
 of 12% for the year 2010-2011.
 
 VTL Investments Limited (VTL)
 
 This 100% subsidiary of your Company is engaged in the business of
 investments in the shares etc. The earnings of the company mainly comes
 from the dividend/interest earned on its investments and profits made
 on sale of investments. During the year the company has earned a net
 profit of Rs.1.06 crores.
 
 Vardhman Acrylics Limited (VAL)
 
 Vardhman Acrylics Limited (VAL) is another subsidiary of the Company
 which is engaged in the business of manufacturing of Acrylic Fibre.
 Presently the company holds 58.74% shares in this subsidiary. During
 the Financial Year 2010-2011, VAL recorded a sales volume of Rs. 430.33
 crore as against Rs. 286.74 crore, an increase of 50.08% over the
 previous year, however the net profit for the year has decreased to Rs.
 37.64 crore from Rs. 43.44 crore in the previous year.
 
 Vardhman Yarns & Threads Limited (VYTL)
 
 This subsidiary of the Company, a Joint Venture with American & Effird
 Inc. (A&E), is engaged in the business of Threads Manufacturing and
 Distribution. The Company has a joint venture partnership of 51:49 with
 A&E, which is the second largest global player in Threads Manufacturing
 and Distribution, in VYTL. During the year under review, the gross
 sales of this Company were Rs. 426.10 crore and the
 
 Profit after tax was Rs. 49.31 crore. The Board of Directors of this
 Company has recommended a dividend @ 23% for the year 2010-11.
 
 Vardhman Nisshinbo Garments Company Limited (VNGL)
 
 This subsidiary of the Company which is a Joint Venture partnership of
 51:49 with Nisshinbo Textiles Inc., Japan for manufacturing world class
 shirts started production in the fag end of the year and it incurred a
 loss of Rs. 1.99 crore as its operations are stabilizing.
 
 Vardhman Special Steels Limited (VSSL)
 
 During the year Vardhman Special Steels Limited was got incorporated as
 the 100% subsidiary of the Company.  Pursuant to the Scheme of
 Arrangement & Demerger between Vardhman Textiles Limited and Vardhman
 Special Steels Limited and their respective shareholders & creditors,
 the Steel Business Undertaking of Vardhman Textiles Limited stand
 vested in Vardhman Special Steels Limited w.e.f.  01.01.2011 and the
 shareholders holding shares in Vardhman Textiles Limited were to be
 allotted one share for every five shares held in Vardhman Textiles
 Limited as on the relevant record date fixed for the purpose i.e.
 30.03.2011. The said allottment of shares was made on 08.04.2011 and
 Vardhman Special Steels Limited ceased to be a subsidiary of the
 Company w.e.f. 08.04.2011.
 
 4.  QUALIFIED INSTITUTIONAL PLACEMENT :
 
 During the year under review, the Company has made a Qualified
 Institutional Placement (QIP) to Qualified Institutional Buyers of
 58,82,352 Equity Shares of Rs. 10/- each at a premium of Rs. 330/-
 aggregating to approx. Rs.  200 Crores. Consequently, the paid-up
 capital of the Company has increased to Rs. 63.65 crores.
 
 5.  STEEL BUSINESS RE-STRUCTURING :
 
 During the year under review, pursuant to the Scheme of Arrangement &
 Demerger between Vardhman Textiles Limited and Vardhman Special Steels
 Limited and their respective shareholders & creditors as approved by
 the Board of Directors and Shareholders of respective Companies and
 sanctioned by the Honble High Court of Punjab & Haryana at Chandigarh
 under Section 391-394 vide its Order dated 12th January, 2011, the
 Steel Business Undertaking of the Company has been demerged into a
 separate Company, Vardhman Special Steels Limited w.e.f 1st January,
 2011.
 
 6.  DIVIDEND:
 
 The Board of Directors of your Company has recommended dividend of Rs.
 4.50 per share on the Fully Paid-up Equity Shares of the Company.
 
 7.  DIRECTORS:
 
 The nomination of Ms. Amita Narain, the nominee of IDBI Ltd. on the
 Board of the Company, was withdrawn by IDBI Ltd. w.e.f. 21.06.2010 and
 Mr. S. Padmanabhan was nominated in her place.
 
 Mr. Sachit Jain, Mr. Prafull Anubhai and Mr. A. K. Kundra, Directors of
 the Company, retire by rotation at the conclusion of the forthcoming
 Annual General Meeting, pursuant to the provisions of Article 108 of
 the Articles of Association of the Company and being eligible, offer
 themselves for re-appointment. The Board recommended their
 re-appointment for the consideration of the members of the Company at
 the ensuing Annual General Meeting.
 
 Mr. S.P. Oswal was re-appointed as the Chairman and Managing Director
 of the Company for a further period of 5 years w.e.f. 01.06.2010.
 
 8.  CORPORATE GOVERNANCE:
 
 The Company has in place a system of Corporate Governance. A separate
 report on Corporate Governance forming part of the Annual Report of the
 Company is annexed hereto. A certificate from the Auditors of the
 Company regarding compliance of conditions of Corporate Governance as
 stipulated under Corporate Governance Clause of the Listing Agreement
 is annexed to the report on Corporate Governance.
 
 9.  AUDITORS:
 
 M/s. S.C. Vasudeva & Company, Chartered Accountants, New Delhi,
 Auditors of the Company, retire at the conclusion of the forthcoming
 Annual General Meeting and being eligible, offer themselves for
 re-appointment.
 
 10.  AUDITORS REPORT:
 
 The Statutory Auditors of the Company have submitted Auditors Report
 on the accounts of the Company for the accounting year ended March 31,
 2011. In their report, they have made an observation that loss, if any,
 on valuation of open derivative options could not be determined by the
 Company due to certain reasons as specified in Note 13 of the Notes to
 Accounts. The ultimate outcome of these transactions and their effect
 on these accounts cannot be ascertained at this stage.
 
 As you are aware that a part of revenue of your Company comes from
 export sales and the company is also having exposure towards imports
 and as such Company has foreign currency fluctuation exposure. The
 Company also hedges its foreign currency fluctuation exposure by way of
 foreign currency derivative options. The Company has taken various
 USD/INR options from banks. As at March 31, 2011, there are 15 options
 (Previous Year 7) against exports and 5 options (Previous Year Nil)
 against Imports having a maturity period up to January 2016 (Previous
 Year June 2013). These derivative options are proprietary products of
 banks which do not have a ready market and are not tradeable in the
 open market. These options are marked to a model, which is bank
 specific instead of being marked to market. In view of the significant
 uncertainty associated with the above derivative options, the ultimate
 outcome of which depends on future events which are not under the
 direct control of the company, the resultant gain/loss if any, on such
 open derivative options cannot be determined at this stage and has
 accordingly not been accounted for in the books of accounts. The other
 points of Auditors Report are self - explanatory and needs no
 comments.
 
 11.  COST AUDITORS:
 
 The Board of Directors has re-appointed M/s. Ramanath Iyer & Company,
 Cost Accountants, New Delhi as the Cost Auditors of the Company under
 Section 233B of the Companies Act, 1956, for the year 2011-12. The Cost
 Auditors Report for the financial year 2011-2012 will be forwarded to
 the Central Government as required under law.
 
 12.  STATEMENT OF PARTICULARS OF EMPLOYEES:
 
 A Statement of Particulars of Employees pursuant to the provisions of
 Section 217(2A) of the Companies Act, 1956 is enclosed and forms part
 of this report.
 
 13.  GROUP:
 
 The Company, inter-alia with the following entities, constitutes a
 ‘Group as defined under the Monopolies and Restrictive Trade Practices
 Act, 1969: -
 
 a) Vardhman Holdings Limited
 
 b) Vardhman Special Steels Limited
 
 c) VTL Investments Limited
 
 d) Adinath Investment and Trading Company
 
 e) Devakar Investment and Trading Company Private Limited.
 
 14.  CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
 EARNINGS AND OUTGO:
 
 Energy conservation continues to be an area of major emphasis in your
 Company. Efforts are made to optimize the energy cost while carrying
 out the manufacturing operations. Particulars with respect to
 conservation of energy and other areas as per Section 217(e) of the
 Companies Act, 1956, read with the Companies (Disclosure of Particulars
 in the Report of Board of Directors) Rules, 1988, are annexed hereto
 and form part of this report.
 
 15.  DIRECTORS RESPONSIBILITY STATEMENT:
 
 Pursuant to Section-217 (2AA) of the Companies Act, 1956, the Directors
 confirm that in the preparation of the annual accounts, the applicable
 accounting standards have been followed;
 
 a.  appropriate accounting policies have been selected and applied
 consistently, and have 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 as at 31st March, 2011 and of the profit of the Company
 for the year ended on 31st March, 2011;
 
 b.  proper and sufficient care has been taken for the maintenance of
 adequate accounting records in accordance with the provisions of the
 Companies Act, 1956, for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities; and
 
 c.  the annual accounts have been prepared on a going concern basis.
 
 16.  ACKNOWLEDGMENT:
 
 Your Directors are pleased to place on record their sincere gratitude
 to the Government, Financial Institutions, Bankers and Business
 Constituents for their continued and valuable co-operation and support
 to the Company. They also take this opportunity to express their deep
 appreciation for the devoted and sincere services rendered by the
 employees at all levels of the operations of the Company during the
 year.
 
                                FOR AND ON BEHALF OF THE BOARD
 
                                                  (S.P. OSWAL)
 PLACE    : NEW DELHI                              CHAIRMAN &
 
 DATED    : 9th May, 2011                   MANAGING DIRECTOR