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Dai-ichi Karkaria Ltd.

BSE: 526821 Sector: Industrials
NSE: DAICHIKARK ISIN Code: INE928C01010
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OPEN 402.15
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VOLUME 9261
52-Week high 585.00
52-Week low 365.50
P/E 19.50
Mkt Cap.(Rs cr) 304
Buy Price 0.00
Buy Qty 0.00
Sell Price 408.25
Sell Qty 1.00
OPEN 402.15
CLOSE 409.80
VOLUME 9261
52-Week high 585.00
52-Week low 365.50
P/E 19.50
Mkt Cap.(Rs cr) 304
Buy Price 0.00
Buy Qty 0.00
Sell Price 408.25
Sell Qty 1.00

Dai-ichi Karkaria Ltd. (DAICHIKARK) - Director Report

Company director report

Dear Members

Your Directors have pleasure in presenting the Fifty – Seventh Annual Reporttogether with the audited accounts for the year ended March 31 2017.

FINANCIAL RESULTS:

Operational Performance 2017 2016
(Rs. in millions) (Rs. in millions)
Gross Revenue from operations 1339.76 1249.41
Less: Excise duty 80.04 86.10
Net Revenue from operations 1259.72 1163.31
PBDIT 259.12 236.98
EPS (Rs.) 23.95 20.91
Book Value of Shares (Rs.) 157.37 133.42

DIVIDEND:

The Directors are pleased to recommend a dividend of Rs. 3.00 per equity share of Rs.10/- each for the year ended 31st March 2017. The dividend payout will aggregate to Rs.22.35 million and the tax on distributable profits payable by the Company would amount toRs. 4.55 million.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

INDUSTRY STRUCTURE & DEVELOPMENT: OPPORTUNITIES AND THREATS RISKS AND CONCERNS

Business Environment Global Economic Outlook

The Business of Chemistry is applying science to support and enhance the quality of ourlives. The chemical industry is continuously creating new processes and products to solveperformance safety and efficiency issues for diverse industry verticals.

The global specialty chemicals market is driven by a number of factors including thegrowing demand from many end-user industries e.g. for high performance and greenerCoatings or Specialities related to Shale gas production etc. Construction chemicalsspecialty polymers and Electronics chemicals hold the highest market segmentscollectively accounting for about 30% of market share due to the demand from their enduser industries.

Since the Specialty Chemical sector encompasses such a large number of marketsubsectors the global market is enormous valued at over $800 billion last year. As theglobal population grows from 7 billion to 9 billion in a few decades the chemical industrywill be indispensable for their survival and improved living standards. On the other handchallenges from low crude oil prices and ever stringent environmental regulationsgoverning specialty chemicals have dampened the growth of this market globally.

Domestic Economic Outlook

The Indian Specialty Chemical Market is expected to reach $70 billion by 2020. In 2015the Global Chemical Industry stood at $3.6 trillion while the Indian Chemical IndustryStood at $144 billion. The Global Chemical Industry is expected to reach $4.5 trillion byFY17 while Indian Chemical Industry is forecast to reach $224 billion in fiscal 2017.With projected annual growth of 7.5% in 2017-18 India will remain the fastest growing G20economy despite the impact of demonetisation Brexit and Trump. As the worlds keyeconomies face a slowdown India is recognised as the next driver of global economicgrowth in the coming decade positioned as the top five fastest growing economies in theworld.

As India emerges as a manufacturer and supplier of Specialty Chemicals there has been amajor impact on the Global Specialty Chemical Industry. The wide capability of theSpecialty Chemical Companies extends to all sectors and sub-sectors of the SpecialtyChemical Market. Driven by strong macro and micro factors in the past 5 years the IndianSpecialty Chemical Industry valued at $25 billion grew at CAGR of 13% (1.9x Indian GDPgrowth) outpacing global growth. Some of the key reasons for the growth of SpecialtyChemical Industry in India is the increased demand of domestic consumption; changingcustomer behaviour with increase in purchasing power; reduction in input costs due tosharp correction in crude oil prices and softening of Chinese exports (due to stringentenvironmental regulations).

Low priced crude has already re-rated Indian specialty chemicals since mid-2014 thoughIndia's disadvantages in feedstock position and lack of adequate infrastructure havehindered its progress into the big league inspite of the otherwise favourableenvironment. India's large population base and its low per capita consumption ofchemicals together with a relatively strong GDP growth outlook will sustain healthydomestic growth. Progress in key end-user industries domestically would support thisgrowth. Growing urbanization (with 30% of the population living in cities) coupled withthe growing aspirations of the youth will catapult the need for specialty chemicals incertain sectors. Positive lifestyle changes and growing disposable income throw upincremental opportunities and above average growth. Specialty chemicals enable Industryand Society in general to function at optimum levels. They affect almost all humanactivity and are an integral part of our day to day lives.

In India this sector is growing at 12-15%. The Government of India initiatives such asMake in India Swachh Bharat Affordable housing and Clean water unlock a huge potentialfor the chemical industry to participate. The significant increase in infrastructureinvestments to close to 4 lakhs crores will have a multiplier effect on the economy andindirectly to the performance of the company.

Specialty Chemicals are normally performance based and very often customised to theneeds and applications of the customer. They are very often proprietary formulations thatrequire a deep knowledge of the customer's industrial applications and product needs. Inaddition effective customer service is imperative as very often the products are soldnot only on specifications but also on performance parameters. Specialty chemicals areabout margins rather than volumes and the higher the value addition the greater thereturn. In order to be successful in this market it is imperative to have very closecontacts with the major customers specifically with their R&D and technicaldepartments.

It therefore stands to reason that innovation would be the key driver for thebusiness and sustainability of specialty chemicals in the long run. Innovation is takingan existing idea or product and improving it through stages of development leadingfinally to a commercially viable product. In addition finding new applications forexisting products is very much a part of the innovation spectrum. As competition bringspressures one can reduce costs only through innovation whilst managing knowledge and byrunning more cost efficient and cost optimal businesses. Technology and automation willreduce costs and boost profitability in sectorial performance.

Company Overview and Sustainable Growth Strategy

Dai-ichi Karkaria Limited is progressing towards being a global company servingcustomers across 3 continents with innovation and sustainability at the core of itsbusiness. The company markets innovative products with greater customer centricity andtechnology led differentiation. The company is focusing on requisite capacity building tomeet the critical success factors for long term value creation. Through its digitalinterventions the company is optimising its operations controlling critical processesand keeping costs at a minimum. The new CRM initiative puts the customer in focusensuring that their needs are serviced in a cost efficient and timely manner.

The company is a consistent performer in niche market segments and aims to capture newmarkets with our future expansion plans. Ability to execute: With the help ofmultipurpose manufacturing plants designed to allow high degrees of flexibility essentialto meet varied and stringent needs of customers along with an R&D centre equippedwith advanced technology the company has carved out a specific niche of expertise inmanufacturing performance based products and developed an ability to synthesize welldefined meaningful products using newer cost effective processes. To create a sustainableand profitable business model requires the right mix of innovative new products thatchallenge the R&D department every year.

Financial Performance

The total Sales revenue for the company stood at Rs. 1340 million. An increase ofapproximate 7% from the previous year. PBT rose to Rs. 24 crores against Rs. 21 crores inthe last year an increase of approximately 14%.

Sector wise Performance:

The last quarter of the year ended on a positive note with the effects ofdemonetisation waning. The resumption of Industrial growth signalled that the worst wasover.

Though certain sector like Paints Adhesives showed an upward trend the company showedlack luster performance in the Textile segment.

The overall business grew well in certain sectors like Paints Coatings and Neatsurfactants (ethoxylates) used in Metal cleaning and the Dyestuff Industries which showedgrowth of 15%-17%.

The company doubled its sales in the Lube oil sector and showed continuous growth inits exports of oil field chemicals to its Joint Venture partner. The major downturn hascome from the Textile sector where the company lost some business with a Key Rayoncustomer but is poised to regain this business with new value added offerings this year.In addition in Spin finishes the company has taken time to recover from the competitionfrom Japan and is now faced with competition from smaller players. We plan to strengthenthe application development and technical service divisions to capture more players inthis segment instead of limiting our scope only to the big units.

The company's businesses did face a slowdown in the third quarter due to the trailingimpact of demonetisation that affected the end user customers. However the fourth quarterhas shown a sharp rebound and considerable interest from customers for the company'snewer generation APEO free products that are mandatory for export markets. There has beensome impact on the company's business with its Joint Venture partner Nalco Champion dueto the continuously low crude oil prices. Lower crude oil prices which had marginallyimpacted expansions in the oil sector last year are now of some concern. Whereas it wasfelt that due to organic growth and the growing energy requirements of certain Asiancountries the prices of crude oil would not impact future expansions there seems to be adefinite slowdown and deepening caution. As a result the large volume increases thecompany was expecting in this area have failed to materialize. However there has not beenany major decrease in this business for the company and we expect to maintain orexperience slightly higher growth for the business in the coming year.

The Polyacrylamide business at the Kurkumbh plant has shown some growth now that themining sector is operational again. The company has shown a volume growth of over 20%which is an encouraging sign after two years of negative growth. The reopening of themines and improvement in the steel and iron ore markets auger well for the coming year.In addition new applications in sand making and the trend for sludge dewatering willincrease the demand for flocculants in the market. With strategic focus on defined productapplications and innovative pricing models the company will strengthen its presence inthis market.

The company's construction chemical business is progressing well. Recently there havebeen some major break throughs in this area which should result in enhanced productportfolio in the coming year.

Dahej Project:

The Dahej project is underway and in execution phase with civil and mechanicalactivities in full swing. Production activity is likely to begin in November 2017 and fullcapacity would be achieved by April 2018. The total investment for the project isestimated at Rs. 168 crores. The Company has gone ahead with the best in class swisstechnology augmenting its capability to manufacture a wider range of products with betteryields quality productivity and conversion costs. Also the plant is advantageouslylocated in a chemical zone (Petroleum chemicals and petrochemical investment region -PCPIR) which will help in reducing transportation and handling costs.

Working Capital Management:

The significant ratios of the Company such as Ratio of Inventory to Sales is 12.92%Receivable to Sales is 16.28% and Net Working Capital to Sales is 21.82%. The workingcapital was rotated 4 times in the year showing effective working capital management.Funds surplus to the operational requirements have been invested in safe and relativelyrisk free instruments to earn a reasonable return.

JOINT VENTURE / ASSOCIATE/ SUBSIDIARY COMPANIES:

Joint Venture Company – Nalco Champion Dai-ichi India Private Limited (formerlyknown as Champion Dai-ichi Technologies India Ltd.) The Company has a Joint venture withCTI Chemicals Asia Pacific Pte. Ltd. in the ratio of 50:50.

Key Performance Indicators for the year under review of the Joint Venture Company areas under:

Particulars (Rs. in millions)
Turnover 1087.71
Profit Before Tax 127.50
Net Profit 80.08
Earnings per share (Rs.) 35.59

ANNUAL REPORT OF SUBSIDIARY COMPANY:

As on March 31 2017 the Company has only one subsidiary Dai-ichi Gosei Chemicals(India) Limited. The Company continues to be a dormant company. The Annual accounts of thesubsidiary company are placed on the website of the Company and will be provided to themembers on request. As per the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 Companies Act 2013 and applicable Accounting Standards theConsolidated Financial Statements of the Company with its Joint Venture Company NalcoChampion Dai – ichi India Pvt. Ltd and Subsidiary Company Dai-ichi Gosei Chemicals(India) Limited. duly audited by the Statutory Auditors are attached to the financials.Statement containing salient features of the financial statement of subsidiary/ associatecompany/ joint venture are attached to the financials.

DIRECTORS:

Mr. A. H. Jehangir retires from the Board of Directors by rotation in pursuance of theprovisions of the Companies Act 2013 and Articles of Association of the Company. Beingeligible for reappointment he has offered himself for re – appointment. The Board ofDirectors recommends his re-appointment. The information required to be furnished underSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 & SecretarialStandards are given in the Notice of the 57th Annual General Meeting. The Members of theCompany had appointed Dr. Anil Naik Mr. Kavas Patel and Mr. Keki Elavia as IndependentDirectors under the Companies Act 2013 for a period of 5 years for a term upto 31stMarch 2019. All Independent Directors have given declarations that they continue to meetthe criteria of independence as laid down under Section 149(6) of the Companies Act 2013and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

DIRECTORS' RESPONSIBILITY STATEMENT:

To the best of their knowledge and belief and according to the information andexplanations obtained by them your Directors make the following statements in terms ofSection 134(5) of the Companies Act 2013: (a) In the preparation of the annual accountsfor the financial year ended March 31 2017 the applicable accounting standards had beenfollowed along with proper explanation relating to material departures; (b) The Directorshad selected such accounting policies and applied them consistently and made judgments andestimates that are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company at the end of the financial year March 31 2017 and of theprofit and loss of the company for that period; (c) Proper and sufficient care has beentaken for the maintenance of adequate accounting records in accordance with the provisionsof the Companies Act 2013 for safeguarding the assets of the Company and for preventingand detecting fraud and other irregularities; (d) The annual accounts have been preparedon a ‘going concern' basis; (e) Proper internal financial controls laid down by theDirectors were followed by the Company and that such internal financial controls areadequate and operating effectively; (f) Proper systems to ensure compliance with theprovisions of all applicable laws were in place and that such systems are adequate andoperating effectively.

DETAILS OF INTERNAL FINANCIAL CONTROLS:

The Board of Director have laid down Internal Financial Controls within the meaning ofthe explanation to Section 134(5)(e) ("IFC") of the Companies Act 2013. TheBoard is of the opinion that the Company has sound IFC commensurate with the nature andsize of its business. Business is however dynamic. The Board is seized of the fact thatIFC are not static and are in fact a fluid set of tools which evolve over time as thebusiness technology and fraud environment changes in response to competition industrypractices legislation regulation and current economic conditions. There will thereforebe gaps in the IFC as Business evolves. The Company has a process in place to continuouslyidentify such gaps and implement newer and or improved controls wherever the effect ofsuch gaps would have a material effect on the Company's operations.

BOARD EVALUATION:

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 the Board has carried out an annualperformance evaluation of its own performance individual directors and its committees.The manner in which the evaluation has been carried out has been explained in theCorporate Governance Report.

NUMBER OF MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD:

Details regarding Board / Committees its composition number of meetings held termsof reference policies adopted are provided under the Corporate Governance Report formingpart of the Annual Report.

CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES:

During the year under review the Company has undertaken CSR activities throughdifferent Implementing Agencies in the areas of Health Care including Palliative HealthCare Education Sanitation and Conservation of Environment.

Aid is provided to needy patients suffering from chronic diseases such as Renalfailure Cancer Heart diseases Lung diseases etc. Scholarships / Fees sponsorships areprovided to the needy and deserving students. Detailed report on CSR is annexed to thereport as ‘Annexure A'.

MATERIAL DEVELOPMENTS ON HUMAN RESOURCES INCLUDING NUMBER OF PEOPLE EMPLOYED:

Human Resource plays an instrumental role in securing the future success ofOrganization. Human Resource Development is guided by long-term vision of creating anenvironment where employees can thrive for and are enabled to deliver sustainableorganizational performance.

We retain develop and continue to attract people with the requisite skills to helpshape a better organization and foster employees' engagement and motivation throughout theimplementation process.

The Company pursues multiple developmental initiatives and ongoing training programs toreinforce a high-performance work ethic. Performance-based recognition drives company'sculture of achievement and excellence. Following areas are given special attention toenhance performance of the employees;

Succession plan based training programs to fill the Knowledge gap. Employee engagementactivity.

Career growth plan through annual assessment.

Supporting employment related legislative compliance.

Promoting excellence in human resource management.

The promotion of an atmosphere of mutual respect fairness and concern.

Company has extended its facility for AAP Scheme needy and economical weak youths forpursuing special industrial training.

As on 31st March 2017 the total number of employees on the payrolls of the company atall the locations was 215. MANAGERIAL REMUNERATION & PARTICULARS OF EMPLOYEES:

The information required pursuant to Section 197(12) read with Rule 5 of The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 forms part of thisreport. In terms of Section 136 of the Act the Report and Accounts are being sent to theMembers and others entitled thereto excluding the information on employees' particularswhich is available for inspection by the Members at the Registered Office of the Companyduring business hours on working days of the Company up to the date of the ensuing AnnualGeneral Meeting. If any Member is interested in obtaining a copy thereof such Member maywrite to the Company Secretary in this regard.

AUDITORS:

STATUTORY AUDITORS:

M/s. Deloitte Haskins & Sells LLP Chartered Accountants (Firm Registration No.117366W/W-100018) were appointed as Statutory Auditors of the Company from the conclusionof 54th Annual General Meeting upto the conclusion of 57th Annual General Meeting of theCompany. In view of completion of the prescribed term of M/s. Deloitte Haskins & SellsLLP on the recommendation of Audit Committee and Board of Directors it is proposed toappoint M/s. BSR & Co. LLP Chartered Accountants (Firm Registration No.101248W/W-100022) as the Statutory Auditors of the Company for a period of fiveconsecutive years from conclusion of the 57th AGM till the conclusion of 62nd AGM of theCompany subject to ratification by Members at every AGM. M/s. BSR & Co. LLP haveprovided their consent to the said appointment and confirmed that their appointment ifmade will be within the terms and limits specified under the provisions of Companies Act2013.

INTERNAL AUDITORS:

M/s. B.K. Khare & Co. Chartered Accountants are the Internal Auditors of theCompany. The Management regularly reviews the findings of the Internal Auditors andeffective steps to implement any suggestions/observations of the Internal Auditors aretaken and monitored regularly. In addition the Audit Committee of the Board regularlyaddresses significant issues raised by the Internal Auditors.

SECRETARIAL AUDITORS:

Pursuant to the provisions of Section 204 of the Companies Act 2013 and The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed M/s. Kaushik M. Jhaveri & Co. Practicing Company Secretaries (COP 2592) toundertake the Secretarial Audit of the Company. The Secretarial Audit Report for the F.Y.2016 – 17 is annexed herewith as ‘Annexure B'. There are noqualifications or adverse remarks in their Report.

COST AUDITORS:

Pursuant to Section 148 of the Companies Act 2013 read with the Companies (CostRecords and Audit) Rules 2014 as amended from time to time the Company has appointed Mr.S.G. Jog Cost Accountant (Membership no. 5599) Pune as Cost Auditors of the Company forthe financial year 2016-17.

DETAILS OF LOANS GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF THE COMPANIES ACT2013:

The Company has not provided any loan or given any guarantee / security to any person.

Details of investment made by the Company are provided in the financial statementsunder Investment Schedule. These investments are made by the Company in ordinary course ofbusiness out of the surplus funds presently available with the Company in view ofgetting an effective return.

PARTICULARS OF CONTRACTS AND ARRANGEMENT COVERED UNDER SECTION 188 OF THE COMPANIESACT 2013:

All Related Party Transactions that were entered into during the financial year were onan arm's length basis in the ordinary course of business and were in compliance with theapplicable provisions of the Act and the Listing Regulations. There were no materiallysignificant Related Party Transactions made by the Company during the year that would haverequired Shareholder approval under the Listing Regulations. All Related PartyTransactions are placed before the Audit Committee for approval. Prior omnibus approval ofthe Audit Committee is obtained for the transactions which are repetitive in nature. Astatement of all Related Party Transactions is placed before the Audit Committee for itsreview on a quarterly basis specifying the nature value and terms and conditions of thetransactions. Details of Related Party Transaction Policy are provided in CorporateGovernance Report.

EXTRACT OF ANNUAL RETURN:

The details forming part of the extract of Annual Return in Form MGT 9 is annexedherewith as ‘Annexure C'.

CORPORATE GOVERNANCE:

As per Regulation 15 of SEBI Listing Regulations applicability with respect toprovisions of Corporate Governance is not mandatory to the Company. The Company has beencomplying with the provisions on voluntary basis. A separate report on CorporateGovernance is attached as a part of the Annual Report along with the certificate fromPracticing Company Secretaries on its compliance.

LISTING:

The Equity Shares of your company are presently listed on BSE Ltd. and the Company haspaid the annual listing fees for the financial year 2017-2018.

HEALTH SAFETY & ENVIRONMENT:

Health Safety & Protection of the Environment are the priority areas for theCompany. The Company continues to put special emphasis in this area at every stage fromconception and design of new products optimization of process to commercialmanufacturing and delivery of goods to the customers. Recently company has successfullycompleted DNV-GL Periodic Audit of ISO 14001:2015 & OHSAS 18001:2007 and CertificationAudit of ISO 9001:2008.

(a) Health:

A special committee ensures good sanitation and hygienic condition in the plant andcanteen. Medical examination of all the employees is carried out annually. Six monthlymedical examinations are conducted for the employees who are working in Hazardous Areas.Health awareness trainings and programs are being conducted regularly.

(b) Safety:

Internal and External Safety Audit regular inspections pertaining to risks and hazardsfor Ethoxylation/ Propoxylation process are carried out as per the provisions of FactoriesAct.

New PLC system has been installed for Ethoxylation/ Propoxylation process to ensureenhanced safety features and automation to nullify human errors. HAZOP Study and HazardIdentifications and Risk Analysis studies have been carried out for all processes. Everyyear Safety week is celebrated from 4th March to 11th March during which competitionslectures and training sessions are organized to inculcate and enforce the need for a safeworking environment and Emergency Planning.

(c) Environment:

Regular environment monitoring carried out to ensure pollution levels for air and waterare below the limits specified by the State Pollution Control Board. Strict adherence toenvironment rules is ensured by conducting inspections and environment audit. Environmentprograms and trainings are conducted to inculcate a sense of conservation of environment.

Effluent Treatment Plant is upgraded and maintained and treated effluent is used invarious processes thus increasing water conservation.

Sulphonation plant is also upgraded which has brought emission levels of SulphurTrioxide (SO3) & Sulphur Dioxide (SO2) to a bare minimum.

INDUSTRIAL RELATIONS:

The wage agreement with the workers of the Company expired on 30th November 2008. AsConciliation proceedings before the Labour Commissioner Pune for arriving at a settlementwere not conclusive the matter was referred to the Industrial Court Pune foradjudication. The said reference was rejected by the Hon'ble Industrial Court for want ofprosecution by the recognized union. The decision of the Industrial Court was challengedbefore the Mumbai High Court the Court has upheld the decision of the Industrial Court.The matter is further challenged and is now pending before the Hon'ble Supreme Court.Considering the prolonged judicial process and financial hardships that workers face theCompany together with some of the workers has taken initiative to come to an amicablesolution and have signed individual wage rise settlements for the period from December2013 to November 2017. 70% workers have willingly accepted the same and have received thebenefits of the wage settlement.

Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo:

The particulars as prescribed under Section 134(3)(m) of the Companies Act 2013 areannexed to this report as ‘Annexure D'.

Disclosure under the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013:

As per the requirements of The Sexual Harassment of Women at the Workplace (PreventionProhibition & Redressal) Act 2013 Internal Complaints Committee (ICC) has been setup to redress complaints received regarding sexual harassment. All employees (permanentcontractual temporary trainees) are covered under this policy. The following is asummary of sexual harassment complaints received and disposed off during the year 2016-17;

- No of complaints received: Nil

- No of complaints disposed off: Nil

ACKNOWLEDGEMENT:

Your Directors wish to place on record their appreciation of the contribution made bythe employees of the Company. The Directors wish to convey their appreciation to theBanks dealers and other business associates and the shareholders for their continuoustrust and support.

CAUTIONARY NOTE:

Certain statements in the Directors' Report and Management & Discussion Analysissection may be forward looking and are stated as required by applicable laws andregulations. Many factors may affect the actual results which could be different fromwhat the Directors envisage in terms of future performance and outlook.

For and on behalf of the Board
Mrs. S.F. Vakil
Chairperson & Managing Director
Place: Mumbai
Date: May 5 2017